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~~June 3130, 2016



¨	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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” 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~~August 1612, 2016, 100 shares of Common Stock, $.01 par value, of the registrant were outstanding.

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TABLE OF CONTENTS

Item	Description	Page
	PART I—FINANCIAL INFORMATION
1.	Financial Statements (Unaudited)	1
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2122
3.	Quantitative and Qualitative Disclosures About Market Risk	4748
4.	Controls and Procedures	4748
	PART II—OTHER INFORMATION
1.	Legal Proceedings	4849
1A.	Risk Factors	4849
2.	Unregistered Sales of Equity Securities and Use of Proceeds	4849
3.	Defaults Upon Senior Securities	4849
4.	Mine Safety Disclosures	4849
5.	Other Information	4849
6.	Exhibits	4950
	Signatures	5051

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^®, Avaya Scopia^® and other trademarks or service marks of Avaya which 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 (Unaudited).

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,
	2016			2015			2016			2015
REVENUE
Products	$	~~424~~398		$	~~487~~494		$	~~888~~1,286		$	1,~~036~~530
Services	~~480~~484			~~508~~505			~~974~~1,458			1,~~038~~543
	904			995			1,862			2,074
	882			999			2,744			3,073
COSTS
Products:
Costs (exclusive of amortization of acquired technologyintangible assets)	~~156~~141			~~182~~186			~~320~~461			~~385~~571
Amortization of acquired technology intangible assets	7			710			1522			1626
Services	~~200~~192			~~214~~219			~~407~~599			~~443~~662
	363			403			742			844
	340			415			1,082			1,259
GROSS PROFIT	~~541~~542			~~592~~584			1,~~120~~662			1,~~230~~814
OPERATING EXPENSES
Selling, general and administrative	~~377~~317			356			~~710~~1,027			~~730~~1,086
Research and development	7066			8682			~~145~~211			~~174~~256
Amortization of acquired intangible assets	5657			5755			~~113~~170			~~114~~169
Restructuring charges, net	2144			107			4488			2532
	524			509			1,012			1,043
	484			500			1,496			1,543
OPERATING INCOME	1758			8384			~~108~~166			~~187~~271
Interest expense	(117		)	(~~110~~113		)	(~~235~~352		)	(~~222~~335		)
Other income (expense), net	2			(1		)	6			13
Loss on extinguishment of debt	—			(6		)	—			(6		)
LOSS BEFORE INCOME TAXES	(98		)	(28		)	(121		)	(22		)
Other income (expense), net	1			(11		)	7			2
(Provision for) benefit from income taxes	(5		)	6			(9		)	3
LOSS BEFORE INCOME TAXES	(58		)	(46		)	(179		)	(68		)
NET LOSS	$	(103	)	$	(22	)	$	(130	)	$	(19	)
Provision for income taxes	(57		)	(3		)	(66		)	—
NET LOSS	$	(115	)	$	(49	)	$	(245	)	$	(68	)

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

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Avaya Inc.

Consolidated Statements of Comprehensive (Loss) Income (Unaudited)

(In millions)

	Three months ended March 31,						Six months ended March 31,
	Three months ended June 30,						Nine months ended June 30,
	2016			2015			2016			2015
Net loss	$	(~~103~~115	)	$	(2249	)	$	(~~130~~245	)	$	(1968	)
Other comprehensive (loss) income:
Pension, postretirement and postemployment benefit-related items, net of income taxes of $11 and $11 for the three and six months ended March 31, 2016 and $10 and $11 for the three and six months ended March 31, 2015, respectively	3			7			18			24
Pension, postretirement and postemployment benefit-related items, net of income taxes of $(10) and $1 for the three and nine months ended June 30, 2016 and $7 and $18 for the three and nine months ended June 30, 2015, respectively	(79		)	10			(61		)	34
Cumulative translation adjustment, net of income taxes of $6 and $6 for the three and six months ended March 31, 2016 and $0 and $0 for the three and six months ended March 31, 2015, respectively	(29		)	66			(20		)	76
Cumulative translation adjustment, net of income taxes of $(6) and $0 for the three and nine months ended June 30, 2016 and $0 and $0 for the three and nine months ended June 30, 2015, respectively	10			(25		)	(10		)	51
Other comprehensive (loss) income	(2669		)	73(15		)	(271		)	~~100~~85
Comprehensive (loss) income	$	(~~129~~184	)	$	51(64	)	$	(~~132~~316	)	$	8117

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, 2016			September 30, 2015
	June 30, 2016			September 30, 2015
ASSETS
Current assets:
Cash and cash equivalents	$	~~312~~269		$	323
Accounts receivable, net	~~626~~532			678
Inventory	~~166~~162			174
Deferred income taxes, net	27—			26
Other current assets	~~200~~196			171
TOTAL CURRENT ASSETS	1,~~331~~159			1,372
Property, plant and equipment, net	~~272~~268			282
Deferred income taxes, net	3443			34
Acquired intangible assets, net	~~846~~782			970
Goodwill	4,~~074~~072			4,074
Other assets	~~129~~138			130
TOTAL ASSETS	$	6,~~686~~462		$	6,862
LIABILITIES
Current liabilities:
Debt maturing within one year	$	724		$	7
Accounts payable	~~351~~330			379
Payroll and benefit obligations	~~176~~165			229
Deferred revenue	~~747~~710			665
Business restructuring reserve, current portion	8587			90
Other current liabilities	~~310~~268			282
TOTAL CURRENT LIABILITIES	1,~~676~~584			1,652
Long-term debt	5,~~967~~975			5,960
Pension obligations	1,~~615~~666			1,690
Other postretirement obligations	~~183~~189			194
Deferred income taxes, net	~~272~~266			262
Business restructuring reserve, non-current portion	5963			67
Other liabilities	~~416~~401			415
TOTAL NON-CURRENT LIABILITIES	8,~~512~~560			8,588
Commitments and contingencies
STOCKHOLDER'S DEFICIENCY
Common stock, par value $.01 per share; 100 shares authorized, issued and outstanding	—			—
Additional paid-in capital	2,~~989~~993			2,981
Accumulated deficit	(5,~~105~~220		)	(4,975		)
Accumulated other comprehensive loss	(1,~~386~~455		)	(1,384		)
TOTAL STOCKHOLDER'S DEFICIENCY	(3,~~502~~682		)	(3,378		)
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIENCY	$	6,~~686~~462		$	6,862

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,
	2016			2015
OPERATING ACTIVITIES:
Net loss	$	(~~130~~245	)	$	(1968	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	~~184~~277			~~186~~279
Share-based compensation	812			1115
Amortization of debt issuance costs	69			710
Accretion of debt discount	46			35
Provision for uncollectible receivables	1			1
Non-cash charge for debt issuance costs upon redemption of debt	—			3
Deferred income taxes, net	(12		)	(19		)
Third-party fees expensed in connection with the debt modification	—			8
Unrealized gain on foreign currency exchange	(10		)	(5		)
Payment of paid-in-kind interest	—			(1		)
Provision for uncollectible receivables	2			—
Deferred income taxes, net	4			—
Gain on sale of investments and long-lived assets, net	—			(1		)
Unrealized (gain) loss on foreign currency exchange	(14		)	6
Changes in operating assets and liabilities:
Accounts receivable	56147			55103
Inventory	912			112
Accounts payable	(2848		)	(2233		)
Payroll and benefit obligations	(~~111~~144		)	(5472		)
Business restructuring reserve	(143		)	(1734		)
Deferred revenue	7835			7017
Other assets and liabilities	12(20		)	(5364		)
NET CASH PROVIDED BY OPERATING ACTIVITIES	5330			~~145~~185
INVESTING ACTIVITIES:
Capital expenditures	(4974		)	(6792		)
Capitalized software development costs	(12		)	—
Acquisition of businesses, net of cash acquired	(1320		)	(618		)
Proceeds from sale of long-lived assets	2			—
Proceeds from sale-leaseback transactions	14			15
Purchase of investment	(1		)	—
Proceeds from sale of investments	—			1
Other investing activities, net	(2		)	(2		)
Purchase of investment	(1		)	(1		)
NET CASH USED FOR INVESTING ACTIVITIES	(50		)	(60		)
Other investing activities, net	1			(2		)
NET CASH USED FOR INVESTING ACTIVITIES	(80		)	(97		)
FINANCING ACTIVITIES:
Proceeds from Foreign ABL	45			—
Proceeds of term B-7 loans	—			2,100
Repayment of Foreign ABL	(10		)	—
Repayment of term B-3 loans	—			(1,473		)
Proceeds from Domestic ABL	118			—
Repayment of term B-6 loans	—			(581		)
Repayment of Domestic ABL	(125		)	—
Proceeds from Foreign ABL	48			20
Proceeds from borrowings on revolving loans under the Senior Secured Credit Agreement	—			50
Repayment of Foreign ABL	(15		)	—
Repayments of borrowings on revolving loans under the Senior Secured Credit Agreement	(18		)	(70		)
Proceeds from Domestic ABL	203			—
Repayment of long-term debt	(13		)	(19		)
Repayment of Domestic ABL	(198		)	—
Payments related to sale-leaseback transactions	(9		)	(5		)
Proceeds from borrowings on revolving loans under the Senior Secured Credit Agreement	17			50
Other financing activities, net	(2		)	(2		)
Repayments of borrowings on revolving loans under the Senior Secured Credit Agreement	(18		)	(122		)
NET CASH USED FOR FINANCING ACTIVITIES	(14		)	(46		)
Debt issuance and third-party debt modification costs	—			(14		)
Effect of exchange rate changes on cash and cash equivalents	—			(29		)
Repayment of long-term debt	(19		)	(25		)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(11		)	10
Payments related to sale-leaseback transactions	(12		)	(8		)
Other financing activities, net	(3		)	(3		)
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES	3			(56		)
Effect of exchange rate changes on cash and cash equivalents	(7		)	(26		)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(54		)	6
Cash and cash equivalents at beginning of period	323			322
Cash and cash equivalents at end of period	$	~~312~~269		$	~~332~~328

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~~professional ~~technology~~and support services and ~~professional~~cloud 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 including distributors, service providers, dealers, value-added resellers, system integrators and business partners that provide sales and service support.

Merger

On June 4, 2007, Avaya entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Avaya Holdings Corp. (formerly Sierra Holdings Corp.), a Delaware corporation (“Parent”), and Sierra Merger Corp., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which Merger Sub was merged with and into the Company, with the Company continuing as the surviving corporation and a wholly owned subsidiary of Parent (the “Merger”). Parent was formed by affiliates of two private equity firms, Silver Lake Partners (“Silver Lake”) and TPG Capital (“TPG”) (collectively, the “Sponsors”), solely for the purpose of entering into the Merger Agreement and consummating 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.

Basis of Presentation

The accompanying unaudited interim Consolidated Financial Statements as of ~~March~~June 3130, 2016 and for the three and ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015 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, 2015, which were included in the Company’s Annual Report on Form 10-K filed with the SEC on November 23, 2015. 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.


2.	Recent Accounting Pronouncements

New Accounting Guidance Recently Adopted

In the first quarter of fiscal 2016, the Company adopted Accounting Standards Update ("ASU") No. 2015-01 "Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items." The standard eliminated the concept of extraordinary items. The adoption of this standard did not have a material effect on the Company's Consolidated Financial Statements.

~~Recent~~In ~~Accounting~~the ~~Guidance~~third ~~Not~~quarter ~~Yet~~of ~~Effective~~fiscal 2016, the Company adopted ASU No. 2015-17 "Income Taxes: Balance Sheet Classification of Deferred Taxes." The standard simplified the balance sheet presentation of deferred income tax assets and liabilities requiring them to be classified as noncurrent. The new guidance has been adopted on a prospective basis by the Company, thus resulting

In November 2015, the Financial Accounting Standards Board ("FASB") issued ASU No. 2015-17 "Income Taxes: Balance Sheet Classification of Deferred Taxes." The standard simplifies the balance sheet presentation of deferred income tax assets

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~~and~~in ~~liabilities~~the ~~requiring~~reclassification ~~them~~of $27 tomillion of becurrent ~~classified~~deferred astax ~~noncurrent.~~assets ~~This~~and ~~accounting~~$3 ~~guidance~~million ~~is effective for the Company in the first quarter~~ of ~~fiscal~~current ~~2018~~deferred ~~with~~tax ~~early~~liabilities ~~adoption~~to ~~permitted~~noncurrent ~~and~~on ~~may~~the beaccompanying ~~applied~~Consolidated ~~retrospectively~~Balance toSheets. The ~~each~~prior reporting period ~~presented~~was ornot ~~prospectively~~retrospectively inadjusted. The ~~the~~adoption ~~year~~ of ~~adoption.~~this ~~This~~guidance ~~standard~~had isno ~~not expected to have a material~~ effect on the Company's Consolidated ~~Financial~~Statements of Operations or Consolidated Statements of Comprehensive Income.

Recent Accounting Guidance Not Yet Effective

In January 2016, the FASB issued ASU No. 2016-01 "Recognition and Measurement of Financial Assets and Financial Liabilities." The standard requires that all equity securities with readily determinable fair values, except for those accounted for under the equity method, be measured at fair value with changes reported in net income. This standard is effective for the Company by means of a cumulative adjustment to the balance sheet in the first quarter of fiscal 2019 and is not expected to have a material effect on its Consolidated Financial Statements.

In February 2016, the FASB issued ASU No. 2016-02 “Leases.” The standard requires the recognition of assets and liabilities for all leases with lease terms of more than 12 months. This standard is effective for the Company in the first quarter of fiscal 2020 by means of a modified retrospective approach with early adoption permitted. The Company is currently evaluating the method of adoption and the ~~impact~~effect that the adoption of this standard may have on its Consolidated Financial Statements.

In March 2016, the FASB issued ASU No. 2016-06 “Contingent Put and Call Options in Debt Instruments.” The standard clarified the assessment of whether an embedded contingent put or call option requires separate accounting from its debt host. This standard is effective for the Company in the first quarter of fiscal 2018 by means of a modified retrospective approach with early adoption permitted. The Company is currently evaluating the method of adoption and the ~~impact~~effect that the adoption of this standard may have on its Consolidated Financial Statements.

In March 2016, the FASB issued ASU No. 2016-07 “Simplifying the Transition to the Equity Method of Accounting.” The standard eliminates the requirement to apply the equity method of accounting retrospectively when significant influence over a previously held investment is obtained. This standard is effective for the Company in the first quarter of fiscal 2018 on a prospective basis with early adoption permitted. The Company is currently evaluating the method of adoption and the ~~impact~~effect that the adoption of this standard may have on its Consolidated Financial Statements.

In March 2016, the FASB issued ASU No. 2016-0809 “~~Principal~~Improvements ~~versus~~to ~~Agent~~Employee ~~Considerations~~Share-Based ~~(Reporting~~Payment ~~Revenue Gross versus Net)~~Accounting.” This standard ~~clarified~~simplifies ~~certain~~the ~~aspects~~accounting offor ~~the~~share-based ~~principal~~payments ~~versus~~and ~~agent~~their ~~determination~~presentation in the ~~new~~statement ~~revenue~~of ~~recognition~~cash ~~standard~~flows. ~~The~~This ~~amendments in this~~ standard ~~are~~is effective for the Company ~~upon~~in ~~adoption~~the first quarter of ~~ASU~~fiscal ~~2014-09~~2018 ~~“Revenue~~and ~~from~~must ~~Contracts~~be ~~with~~applied ~~Customers,”~~retrospectively ~~which~~to iseach ~~effective~~accounting ~~for~~period presented. The guidance pertaining to the ~~Company~~statement ~~beginning~~of cash flow may be applied retrospectively or prospectively in the ~~first~~year ~~quarter~~ of ~~fiscal 2019~~adoption. The Company is currently evaluating the method of adoption and the ~~impact~~effect that the adoption of this standard may have on its Consolidated Financial Statements.

InDuring ~~March~~ 2016, the FASB issued ~~ASU~~several ~~No.~~standards ~~2016~~that clarify certain aspects of ASU 2014-09 “~~Improvements~~Revenue tofrom ~~Employee~~Contracts ~~Share-Based~~with ~~Payment Accounting.~~Customers” ~~This~~but ~~standard~~do ~~simplifies~~not change the ~~accounting~~original ~~for~~standard, ~~share~~and which include ASU No. 2016-~~based~~08 ~~payments~~“Principal ~~and~~versus ~~their~~Agent ~~presentation~~Considerations in(Reporting ~~the~~Revenue ~~statement~~Gross ofversus ~~cash~~Net)” ~~flows.~~issued ~~This~~in ~~standard~~March is2016, ~~effective~~ASU ~~for~~No. ~~the~~2016-10 ~~Company~~"Identifying inPerformance ~~the~~Obligations ~~first~~and ~~quarter~~Licensing" ofissued ~~fiscal~~in ~~2018~~April 2016 and ~~must~~ASU beNo. ~~applied~~2016-12 ~~retrospectively~~"Narrow-Scope toImprovements ~~each~~and ~~accounting~~Practical ~~period~~Expedients" ~~presented~~issued in May 2016. ~~The~~These ~~guidance~~amendments ~~pertaining~~are toeffective for the ~~statement~~Company upon adoption of ~~cash~~ASU ~~flow~~2014-09, ~~may~~which beis ~~applied~~effective ~~retrospectively~~for orthe ~~prospectively~~Company beginning in the ~~year~~first quarter of ~~adoption.~~fiscal 2019. The Company is currently evaluating the method of adoption and the ~~impact~~effect that the adoption of ~~this~~these ~~standard~~standards may have on its Consolidated Financial Statements.


3.	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~~as of July 1st or more frequently if events occur or circumstances change indicating that the fair value of a reporting unit may be below its carrying amount.

March 31, 2016

During the three months ended March 31, 2016, the Company experienced a decline in revenue which led the Company to revise its annual forecast. As a result, the Company determined that an interim impairment test of its long-lived assets and goodwill should be performed as of March 1, 2016.

The impairment test for goodwill is a two-step process. Step one consists of a comparison of the fair value of a reporting unit with its carrying amount, including the goodwill allocated to that reporting unit. The Company estimated the fair value of each reporting unit using an income approach which values the unit based on the future cash flows expected from that reporting unit. Future cash flows are based on forward-looking information regarding market share and costs for each reporting unit and are discounted using an appropriate discount rate. Future discounted cash flows can be affected by changes in industry or market conditions or the rate and extent to which anticipated synergies or cost savings are realized with newly acquired entities.

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an appropriate discount rate. Future discounted cash flows can be affected by changes in industry or market conditions or the rate and extent to which anticipated synergies or cost savings are realized with newly acquired entities.

The discounted cash flow model used in the Company’s income approach relies on assumptions regarding revenue growth rates, gross profit, projected working capital needs, selling, general and administrative expenses, research and development expenses, business restructuring costs, capital expenditures, income tax rates, discount rates and terminal growth rates. To estimate fair value, the Company discounts the expected cash flows of each reporting unit. The discount rate Avaya uses represents the estimated weighted average cost of capital, which reflects the overall level of inherent risk involved in its reporting unit operations and the rate of return an outside investor would expect to earn. To estimate cash flows beyond the final year of its model, Avaya uses a terminal value approach. Under this approach, Avaya applies an in perpetuity growth assumption and discount factor to determine the terminal value. Avaya incorporates the present value of the resulting terminal value into its estimate of fair value.

The Company forecasted cash flows for each of its reporting units and took into consideration economic conditions and trends, estimated future operating results, Avaya’s view of growth rates and anticipated future economic conditions. Revenue growth rates inherent in this forecast were based on input from internal and external market research that compare factors such as growth in global economies, recent industry trends and product evolution. Macroeconomic factors such as changes in economies, technology and product evolutions, industry consolidations and other changes beyond Avaya’s control could have a positive or negative impact on achieving its targets.

Using the revised forecast at March 1, 2016 and the valuation approach described above, the results of step one of the goodwill impairment test indicated that the respective book values of each reporting unit did not exceed their estimated fair values and therefore no impairment existed. In order to evaluate the sensitivity of the fair value calculations on the goodwill impairment test the Company applied a hypothetical 10% decrease to the fair value of each reporting unit. This hypothetical 10% decrease in the fair value of each reporting unit at March 1, 2016 would not result in an impairment of goodwill for any reporting unit. The Company determined that no events occurred or circumstances changed during the period of March 1, 2016 through March 31, 2016 that would indicate that the fair value of a reporting unit may be below its carrying amount. However, if market conditions deteriorate, or if the Company is unable to execute its strategies, it may be necessary to record impairment charges in the future.

~~March~~June 3130, 2016 and 2015

~~The~~Aside from the matter above, the Company determined that no events occurred or circumstances changed during the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015 that would indicate that the fair value of a reporting unit may be below its carrying amount. However, if market conditions deteriorate, or if the Company is unable to execute its strategies, it may be necessary to record impairment charges in the future.

Intangible Assets

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

Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events occur or circumstances change which indicate that the carrying amount of such assets may not be recoverable. Intangible assets determined to have indefinite useful lives are not amortized but are tested for impairment annually or more frequently if events occur or circumstances change which indicate the asset may be impaired.

The Company’s trademarks and trade names are expected to generate cash flows indefinitely. Consequently, these assets were classified as indefinite-lived intangibles and accordingly are not amortized but reviewed for impairment annually, or sooner under certain circumstances.

March 31, 2016

Prior to the goodwill testing discussed above, the Company tested its intangible assets with indefinite lives and other long-lived assets as of March 1, 2016. The Company performed step one of the impairment test of long-lived assets. The revised undiscounted cash flows for each asset group were in excess of their respective net book values and therefore no impairment was identified. GAAP requires that the fair value of intangible assets with indefinite lives be compared to the carrying value of those assets. In situations where the carrying value exceeds the fair value of the intangible asset, an impairment loss equal to the difference is recognized. The Company estimates the fair value of its indefinite-lived intangible assets using an income approach based on discounted cash flows. The respective book values of the Company’s tradenames and trademarks did not exceed their estimated fair values and therefore no impairment existed. The Company determined that no events occurred or circumstances changed during the period of March 1, 2016 through March 31, 2016 that would indicate that its intangible assets with indefinite lives and other long-lived assets may be impaired. However, if market conditions deteriorate, or if the Company is unable to execute its strategies, it may be necessary to record impairment charges in the future.

March 31, 2015

The Company determined that no events occurred or circumstances changed during the six months ended March 31, 2015 that would indicate that its intangible assets with indefinite lives and other long-lived assets may be impaired.

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other long-lived assets may be impaired. However, if market conditions deteriorate, or if the Company is unable to execute its strategies, it may be necessary to record impairment charges in the future.

June 30, 2016 and 2015

Aside from the matter above, the Company determined that no events occurred or circumstances changed during the nine months ended June 30, 2016 and 2015 that would indicate that its intangible assets with indefinite lives and other long-lived assets may be impaired. However, if market conditions deteriorate, or if the Company is unable to execute its strategies, it may be necessary to record impairment charges in the future.


4.	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	2016			2015			2016			2015
OTHER INCOME (EXPENSE), NET
Interest income	$	—1		$	1—		$	—1		$	1
Foreign currency gains (losses), net	31			(13		)	910			52
Third party fees incurred in connection with debt modifications	—			(8		)	—			(8		)
Change in certain tax indemnifications	—			—			—			9
Other, net	(1		)	(1—		)	(34		)	(2		)
Total other income (expense), net	$	21		$	(111	)	$	67		$	132

Supplemental Cash Flow Information

	Six months ended March 31,
	Nine months ended June 30,
In millions	2016		2015
NON-CASH INVESTING ACTIVITY
Acquisition of equipment under capital lease	$	3	$	—


5.	Business Restructuring Reserve and Programs

Fiscal 2016 Restructuring Program

During fiscal 2016, 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~~June 3130, 2016, the Company recognized restructuring charges of $4488 million, net of adjustments to the restructuring programs of prior fiscal years. These charges are primarily for employee separation costs associated with fiscal 2016 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 2023, as well as a voluntary headcount reduction plan initiated in the U.S. as the Company continues its transformation to a software and service-led organization. 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 take additional restructuring actions in the future and the costs of those actions could be material.

The following table summarizes the components of the fiscal 2016 restructuring program during the ~~six~~nine months ended ~~March~~June 3130, 2016:

In millions	EmployeeSeparationCosts			LeaseObligations		Total
Fiscal 2016 restructuring program charges	$	4383		$	—	$	4383
Cash payments	(1027		)	—		(1027		)
Impact of foreign currency fluctuations	1			—		1
Balance as of June 30, 2016	$	56		$	—	$	56
Balance as of March 31, 2016	$	34		$	—	$	34

Fiscal 2015 Restructuring Program

During fiscal 2015, the Company identified opportunities to streamline operations and generate costs savings which included eliminating employee positions. Restructuring charges recorded during fiscal 2015 associated with these initiatives, net of adjustments to previous periods, were $62 million. These charges included employee separation costs of $52 million primarily associated with employee severance actions in the U.S. and 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.

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~~The~~Fiscal ~~following table summarizes the components of the fiscal~~ 2015 ~~restructuring~~Restructuring ~~program during the six months ended March 31, 2016:~~Program

In millions	EmployeeSeparationCosts			LeaseObligations		Total
Balance as of October 1, 2015	$	31		$	2	$	33
Cash payments	(13		)	—		(13		)
Adjustments (1)	(2		)	—		(2		)
Balance as of March 31, 2016	$	16		$	2	$	18

~~(1)~~The ~~Included~~following intable ~~adjustments~~summarizes ~~are~~the ~~changes~~components inof ~~estimates, whereby all increases and decreases in costs related to~~ the fiscal 2015 restructuring program ~~were~~during ~~recorded to~~ the ~~restructuring~~nine ~~charges~~months ~~line~~ended ~~item~~June in30, ~~operating expenses in the period of the adjustment.~~2016:



In millions	Employee Separation Costs			Lease Obligations		Total
Balance as of October 1, 2015	$	31		$	2	$	33
Cash payments	(17		)	—		(17		)
Balance as of June 30, 2016	$	14		$	2	$	16

Fiscal 2008 through 2014 Restructuring Programs

During fiscal years 2008 through 2014, the Company identified opportunities to streamline operations and generate cost savings which included exiting facilities and eliminating employee positions. The remaining obligation for employee separation costs are primarily associated with EMEA plans approved in the third and fourth quarters of fiscal 2014 for which the related payments are expected to be completed in fiscal 2019. The EMEA plans include, but are not limited to, social pension fund payments and healthcare and unemployment insurance costs to be paid to or on behalf of the affected employees.

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 2022. These remaining obligations are primarily associated with the Frankfurt, Germany facility vacated during fiscal 2014, and facilities vacated in the United Kingdom and the U.S.

The following table aggregates the remaining components of the fiscal 2008 through 2014 restructuring programs during the ~~six~~nine months ended ~~March~~June 3130, 2016:

In millions	EmployeeSeparationCosts			LeaseObligations			Total
Balance as of October 1, 2015	$	64		$	60		$	124
Cash payments	(2430		)	(1015		)	(3445		)
Adjustments (1)	—1			32			3
Impact of foreign currency fluctuations	—(1		)	(13		)	(14		)
Balance as of March 31, 2016	$	40		$	52		$	92
Balance as of June 30, 2016	$	34		$	44		$	78

⁽¹⁾

Included in adjustments are changes in estimates, whereby all increases and decreases in costs related to the fiscal 2009 through 2014 restructuring programs were recorded to the restructuring charges line item in operating expenses in the period of the adjustments. Included in adjustments were 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 were recorded as adjustments to goodwill.


6.	Financing Arrangements

In connection with the Merger, on October 26, 2007, the Company entered into financing arrangements consisting of (a) a senior secured credit facility (the "Senior Secured Credit Agreement"), (b) a senior unsecured credit facility, which later became senior unsecured notes, and (c) a senior secured asset-based revolving credit facility (the "Domestic ABL"). The Senior Secured Credit Agreement consists of senior secured term loans and a senior secured multi-currency revolver. The financing arrangements were subsequently amended through a series of refinancing transactions and in connection with the acquisition of NES discussed in Note 1, "Background, Merger and Basis of Presentation". During fiscal 2015, the Company entered into several refinancing transactions which extended the maturity dates of certain existing debt and provided for a new senior secured foreign asset-based revolving credit facility.

On May 29, 2015, Avaya Inc. entered into Amendment No. 9 to the Senior Secured Credit Agreement pursuant to which the Company refinanced a portion of the senior secured term B-3 loans ("term B-3 loans"), senior secured term B-4 loans ("term B-4 loans") and senior secured term B-6 loans ("term B-6 loans") in exchange for and with the proceeds from the issuance of $2,125 million in principal amount of senior secured term B-7 loans ("term B-7 loans") maturing May 29, 2020.

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On June 4, 2015, Avaya Inc. entered into 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, Avaya Inc. and certain foreign subsidiaries of the Company (the "Foreign Borrowers") 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.

At ~~March~~June 3130, 2016 and September 30, 2015, the Company had aggregate outstanding borrowings of $4860 million and $55 million, in addition to $~~122~~116 million and $119 million of issued and outstanding letters of credit with aggregate remaining revolver availability of $5937 million and $83 million, respectively, under the Domestic ABL.

At ~~March~~June 3130, 2016 and September 30, 2015, the Company had aggregate outstanding borrowings of $5553 million and $20 million, in addition to $2324 million and $22 million of issued and outstanding letters of credit with aggregate remaining revolver availability of $3315 million and $101 million, respectively, under the Foreign ABL.

On June 5, 2015, the Company permanently reduced the senior secured multi-currency revolver from $200 million to $18 million and all letters of credit under the Senior Secured Credit Agreement were transferred to the Domestic ABL. At ~~March~~June 3130, 2016 and September 30, 2015, the Company had aggregate outstanding borrowings of $017 million and $18 million, respectively, under the senior secured multi-currency revolver.

For the ~~six~~nine months ended ~~March~~June 3130, 2016, the Company paid $1319 million in aggregate quarterly principal payments on the senior secured term loans under the Senior Secured Credit Agreement. In addition, the Company is required to prepay outstanding term loans based on its annual excess cash flow, as defined in the Senior Secured Credit Agreement. No such excess cash payments were required in the current fiscal year, based on the Company's cash flows.

The weighted average contractual interest rate of the Company’s outstanding debt as of ~~March~~June 3130, 2016 and September 30, 2015 was 7.3% and 7.3%, respectively. The effective interest rate of each obligation is not materially different than its contractual interest rate.

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

	March 31, 2016					September 30, 2015
	June 30, 2016					September 30, 2015
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	$	—17	$	—17		$	18	$	18
Variable rate revolving loans under the Domestic ABL due June 4, 2020	4860		4860			55		55
Variable rate revolving loans under the Foreign ABL due June 4, 2020	5553		5553			20		20
Variable rate term B-3 loans due October 26, 2017	616		~~613~~612			616		611
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		~~533~~534			537		532
Variable rate term B-7 loans due May 29, 2020	2,~~100~~094		2,~~068~~064			2,112		2,077
7% senior secured notes due April 1, 2019	1,009		1,~~000~~001			1,009		999
9% senior secured notes due April 1, 2019	290		287			290		286
10.50% senior secured notes due March 1, 2021	1,384		1,~~369~~370			1,384		1,368
Total debt	$	6,~~040~~061	5,~~974~~999			$	6,042	5,967
Debt maturing within one year			(724		)			(7		)
Non-current portion of long-term debt			$	5,~~967~~975				$	5,960

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Annual maturities of the principal amounts of ~~our~~the Company's long-term debt for the next five years ending September 30 and thereafter consist of:

In millions
Remainder of fiscal 2016	$	136
2017	2542
2018	1,179
2019	1,324
2020	2,~~115~~125
2021 and thereafter	1,~~384~~385
Total	$	6,~~040~~061

The Company has $617 million of variable rate term B-3 loans and term B-4 loans due October 26, 2017. While the Company has been successful accessing the capital markets on terms and in amounts adequate to meet its objectives in the past, there can be no certainty that such funding will be available in needed quantities or on terms favorable to the Company due to market conditions or other occurrences. If the Company is unable to raise the funds required to pay or refinance its term B-3 loans and term B-4 loans prior to the filing due date of its annual Form 10-K for the year ending September 30, 2016, the Company may not be able to assert that it will continue as a going concern in such filing. The Company’s credit facilities, the indentures governing the 2019 senior secured notes and the indenture governing the 2021 senior secured notes contain various covenants that among other matters, requires the Company to deliver timely audited financial statements, which shall not be subject to any “going concern” or like qualification or exception or any qualification or exception as to the scope of such audit. A breach of this or any other covenant could result in a default under one or all of the Company’s credit facilities and/or the indentures governing the notes. In the event of any default the applicable lenders could elect to terminate borrowing commitments and declare all borrowings outstanding, together with accrued and unpaid interest and any fees and other obligations, to be due and payable.

Capital Lease Obligations

Included in other liabilities is $6763 million and $61 million of capital lease obligations, net of imputed interest as of ~~March~~June 3130, 2016 and September 30, 2015, 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. The ~~Under~~agreement ~~the~~also ~~terms~~provided ~~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~~June 3130, 2016 and 2015, the Company received proceeds of $14 million and $15 million, respectively, in connection with the sale of equipment used in the performance of services under this agreement. As of ~~March~~June 3130, 2016 and September 30, 2015, capital lease obligations associated with this agreement were $5349 million and $48 million, respectively.


7.	Foreign Currency Forward Contracts

The Company, from time to time, utilizes foreign currency forward contracts primarily to hedge fluctuations associated with certain monetary assets and liabilities, including accounts receivable, accounts payable, and certain intercompany obligations. These foreign currency forward contracts are not designated for hedge accounting treatment. Changes in fair value of these contracts are recorded as a component of other income, net to offset the change in the value of the underlying foreign currency denominated assets and liabilities.

The gains and (losses) of the foreign currency forward contracts included in other income (expense), net were $~~(2)~~0 million and $3(4) million for the three months ended ~~March~~June 3130, 2016 and 2015, respectively, and $1 million and $(15) million for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015, respectively.


8.	Fair Value Measures

Pursuant to the accounting guidance for fair value measurements, fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants 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:~~

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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.

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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~~June 3130, 2016 and September 30, 2015 were as follows:

	March 31, 2016								September 30, 2015
	June 30, 2016								September 30, 2015
	Fair Value Measurements Using								Fair Value Measurements Using
In millions	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Cash and Cash Equivalents:
Money market funds and bank time deposits	$	~~159~~98	$	~~159~~98	$	—	$	—	$	20	$	20	$	—	$	—
Other Non-Current Assets:
Investments	$	1	$	1	$	—	$	—	$	1	$	1	$	—	$	—
Other Current Liabilities:
Foreign currency forward contracts	$	—	$	—	$	—	$	—	$	1	$	—	$	1	$	—

Money Market Funds and Investments

Money market funds and investments classified as Level 1 assets are priced using quoted market prices for identical assets in active markets that are observable.

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.

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.

The estimated fair values of the amounts borrowed under the Company's revolving credit facilities were estimated based on Level 2 inputs 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~~June 3130, 2016 and September 30, 2015 were estimated based on Level 2 inputs 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 Company’s debt at June 30, 2016 and September 30, 2015 were as follows:

	March 31, 2016				September 30, 2015
	June 30, 2016				September 30, 2015
In millions	PrincipalAmount		FairValue		PrincipalAmount		FairValue
Variable rate revolving loans under the Senior Secured Credit Agreement due October 26, 2016	$	—17	$	—16	$	18	$	17
Variable rate revolving loans under the Domestic ABL due June 4, 2020	4860		4143		55		42
Variable rate revolving loans under the Foreign ABL due June 4, 2020	5553		4637		20		15
Variable rate term B-3 loans due October 26, 2017	616		~~503~~475		616		532
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		~~396~~398		537		461
Variable rate term B-7 loans due May 29, 2020	2,~~100~~094		1,~~411~~486		2,112		1,666
7% senior secured notes due April 1, 2019	1,009		~~691~~726		1,009		800
9% senior secured notes due April 1, 2019	290		~~198~~214		290		242
10.50% senior secured notes due March 1, 2021	1,384		~~429~~325		1,384		644
Total	$	6,~~040~~061	$	3,~~716~~721	$	6,042	$	4,420


9.	Income Taxes

The provision for income taxes for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015 was $966 million asand ~~compared to the benefit from income taxes for the six months ended March 31, 2015 of~~ $30 million, respectively.

The effective income tax rate for the six months ended March 31, 2016 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

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The effective income tax rate for the nine months ended June 30, 2016 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) tax positions taken during the current period offset by reductions for unrecognized tax benefits resulting from the lapse of statute of limitations, and (4) ~~the recognition of~~ a $177 million income tax ~~benefit~~provision ~~as a result of net gains in other comprehensive income, and (5) a $9 million charge~~ related to the change in the indefinite reinvestment assertion.

AsAt of September 30, 2015, the Company’s ~~had~~book abasis ~~book~~exceeded ~~over~~the tax basis ~~associated~~it ~~with~~had in its foreign subsidiaries, ~~(i.e.~~creating an outside basis difference). Included ofin ~~$290~~this ~~million~~outside ~~with~~basis adifference ~~deferred~~were ~~tax~~amounts ~~liability~~attributable ofto ~~$46~~earnings ~~million~~and ~~with~~profits ~~respect~~for towhich ~~earnings and~~the ~~profits~~Company ofprovided ~~$106~~a ~~million~~deferred tax liability. ~~The~~Deferred ~~Company~~taxes ~~was~~were ~~indefinitely~~not ~~reinvested~~provided on the remaining ~~basis~~portion ~~difference~~of ~~which~~the ~~related~~outside tobasis ~~the~~difference ~~stock~~as ofthese ~~foreign~~amounts ~~subsidiaries~~related ~~attributed~~ to items other than the earnings and profits of the foreign subsidiaries and were essentially permanent in duration. During the three months ended March 31, 2016, the Company ~~determined~~could no longer assert that it ~~will~~had nothe ~~longer~~intent to indefinitely reinvest these amounts and the ~~remaining~~Company ~~basis~~was ~~difference.~~required Asto aadjust ~~result~~its deferred tax liability for the effects of this change, ~~the~~in ~~Company~~assertion. ~~increased~~These adjustments resulted in an increase to the income tax ~~expense~~provision byof $9 million~~. Additionally,~~ ~~this~~for ~~change~~the ~~increased~~three ~~deferred~~months ~~tax~~ended ~~liabilities~~March 31, 2016 and ~~decreased~~a decrease to the ~~valuation~~income ~~allowance~~tax byprovision of $712 million for the three months ended June 30, 2016.

The effective income tax rate for the ~~six~~nine months ended ~~March~~June 3130, 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) ~~tax~~net ~~positions taken during the current period offset by~~ reductions for unrecognized tax benefits resulting from the lapse of statute of limitations, (4) the recognition of an $1118 million income tax benefit as a result of net gains in other comprehensive income, and (5) the recognition of a $6 million income tax benefit related to the correction of prior period valuation allowances on deferred tax assets.

During the three months ended December 31, 2014, the Company recorded a correction to the prior period valuation allowances on deferred tax assets which decreased the provision for income taxes by $6 million. Prior to this adjustment the Company's provision for income taxes was $36 million for the ~~six~~nine months ended ~~March~~June 3130, 2015. The Company evaluated the correction in relation to the ~~six~~nine months ended ~~March~~June 3130, 2015, the full year results for fiscal 2015, 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, 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.


10.	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 subsequently amended the postretirement benefit plan for its U.S. management employees as follows: 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; effective January 1, 2015, to reduce the Company’s maximum contribution toward the cost of providing benefits under the plan; and effective January 1, 2016, to replace coverage through the Company’s group plan with coverage through the private insurance marketplace. The latest amendment will allow retirees to choose insurance from the marketplace while still receiving financial support from the Company toward the cost of coverage through a Health Reimbursement Arrangement.

Effective February 12, 2016, the Company and the Communications Workers of America (“CWA”) agreed to extend the 2009 Collective Bargaining Agreement (“CBA”), previously extended to June 13, 2016, until June 14, 2018. Effective April 26, 2016, the Company and the International Brotherhood of Electrical Workers (“IBEW”), agreed to extend the CBA, previously extended to June 13, 2016, until June 14, 2018. The contract extensions do not affect the Company’s obligations for pension and postretirement benefits available to U.S. employees of the Company who are represented by the CWA or IBEW (“represented employees”).

Effective October 1, 2015, the Company changed its estimate of the service and interest cost components of net periodic benefit cost for its U.S. pension and other postretirement benefit plans. Previously, the Company estimated the service and interest cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation. The new estimate utilizes a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to their underlying projected cash flows. The new estimate provides a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows and their corresponding spot rates. The change does not affect the measurement of the Company’s U.S. pension and postretirement benefit obligations and it was accounted for as a change in accounting estimate, which is being

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new estimate provides a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows and their corresponding spot rates. The change does not affect the measurement of the Company’s U.S. pension and postretirement benefit obligations and it was accounted for as a change in accounting estimate, which is being applied prospectively. For fiscal 2016, the change in estimate is expected to reduce U.S. pension and postretirement net periodic benefit plan cost by $30 million to $35 million when compared to the prior estimate.

The components of the pension and postretirement net periodic benefit cost (credit) for the three and ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015 are provided in the table below:

	Pension Benefits -U.S.						Pension Benefits -Non-U.S.					PostretirementBenefits - U.S.
	Three months ended March 31,						Three months ended March 31,					Three months ended March 31,
	Three months ended June 30,						Three months ended June 30,					Three months ended June 30,
In millions	2016			2015			2016			2015		2016			2015
Components of net periodic benefit cost (credit)
Service cost	$	12		$	1		$	21		$	12	$	1		$	1—
Interest cost	27			34			43			43		3			5
Expected return on plan assets	(4546		)	(45		)	(1—		)	—		(32		)	(32		)
Amortization of unrecognized prior service cost	1—			—1			—			—		(5		)	(34		)
Amortization of previously unrecognized net actuarial loss	2123			2524			12			21		1			12
Net periodic benefit cost (credit)	$	5		$	15		$	6		$	7	$	(3	)	$	1
Curtailment, settlement	3			—			—			—		(2		)	—
Net periodic benefit cost (credit)	$	9		$	15		$	6		$	6	$	(4	)	$	1

	Pension Benefits -U.S.						Pension Benefits -Non-U.S.						PostretirementBenefits - U.S.
	Six months ended March 31,						Six months ended March 31,						Six months ended March 31,
	Nine months ended June 30,						Nine months ended June 30,						Nine months ended June 30,
In millions	2016			2015			2016			2015			2016			2015
Components of net periodic benefit cost (credit)
Service cost	$	24		$	23		$	34		$	35		$	12		$	1
Interest cost	5582			68102			710			811			69			1015
Expected return on plan assets	(91137		)	(89134		)	(1		)	(1		)	(57		)	(57		)
Amortization of unrecognized prior service cost	1			—1			—			—			(1015		)	(610		)
Amortization of previously unrecognized net actuarial loss	4366			4973			35			45			23			24
Net periodic benefit cost (credit)	$	10		$	30		$	12		$	14		$	(6	)	$	2
Curtailment, settlement	3			—			—			—			(2		)	—
Net periodic benefit cost (credit)	$	19		$	45		$	18		$	20		$	(10	)	$	3

~~The~~As ~~Company's~~a ~~general~~result ~~funding~~of ~~policy~~a ~~with~~voluntary ~~respect~~headcount toreduction ~~its~~plan during fiscal year 2016, certain U.S. ~~qualified~~ pension and postretirement plans isexperienced toa ~~contribute~~curtailment ~~amounts~~during atthe ~~least~~quarter ~~sufficient~~ended toJune ~~satisfy~~30, ~~the~~2016. ~~minimum~~The ~~amount~~curtailment ~~required~~of bythe ~~applicable~~U.S. ~~law~~pension ~~and~~plan ~~regulations.~~resulted ~~For~~in ~~the~~a ~~six~~curtailment ~~month~~loss ~~period~~of ~~ended~~$3 ~~March 31~~million, ~~2016,~~which ~~the~~was ~~Company~~recognized ~~made~~immediately. ~~contributions~~The curtailment of ~~$36~~the ~~million~~U.S. topostretirement ~~satisfy~~plan ~~minimum~~resulted ~~statutory~~in ~~funding~~an ~~requirements.~~estimated ~~Estimated~~curtailment ~~payments~~gain toof ~~satisfy~~$6 ~~minimum~~million, ~~statutory~~$2 ~~funding~~million ~~requirements~~of ~~for~~which was associated with the ~~remainder~~terminations that occurred as of ~~fiscal~~June 30, 2016 ~~are~~and ~~$52~~was ~~million~~recognized in the current period. The remaining curtailment gain will be recognized when the remaining terminations occur.

The Company's ~~provides~~general ~~certain~~funding ~~pension~~policy ~~benefits~~with ~~for~~respect to its U.S. ~~employees,~~qualified ~~which are not pre-funded, and certain~~ pension ~~benefits~~plans ~~for~~is ~~non-U.S.~~to ~~employees,~~contribute ~~the~~amounts ~~majority~~at ofleast ~~which~~sufficient ~~are~~to ~~not~~satisfy ~~pre-funded. Consequently,~~ the ~~Company~~minimum ~~makes~~amount ~~payments~~required asby ~~these~~applicable ~~benefits~~law ~~are~~and ~~disbursed or premiums are paid~~regulations. For the ~~six~~nine month period ended ~~March~~June 3130, 2016, the Company made ~~payments~~contributions ~~for~~of ~~these U.S. and non-U.S. pension benefits totaling~~ $357 million ~~and~~to ~~$17~~satisfy ~~million,~~minimum ~~respectively~~statutory funding requirements. Estimated payments ~~for~~to ~~these~~satisfy ~~U.S.~~minimum ~~and~~statutory ~~non-U.S.~~funding ~~pension~~requirements ~~benefits~~ for the remainder of fiscal 2016 are $432 million ~~and $7 million, respectively~~.

~~During~~The ~~the~~Company ~~six~~provides ~~months~~certain ~~ended~~pension ~~March~~benefits ~~31,~~for ~~2016~~U.S. employees, ~~the~~which ~~Company~~are ~~contributed~~not ~~$16~~pre-funded, ~~million~~and tocertain ~~the~~pension ~~represented~~benefits ~~employees’~~for ~~post~~non-~~retirement~~U.S. ~~health~~employees, ~~trust~~the tomajority ~~fund~~of ~~current~~which ~~benefit~~are ~~claims~~not ~~and~~pre-funded. ~~costs~~Consequently, ofthe ~~administration~~Company inmakes ~~compliance~~payments ~~with~~as ~~the~~these ~~terms~~benefits ofare ~~the~~disbursed ~~2009~~or ~~agreements~~premiums ~~between~~are paid. For the ~~Company~~nine ~~and~~month ~~the~~period ~~CWA~~ended ~~and~~June 30, ~~IBEW~~2016, asthe ~~extended~~Company ~~through~~made ~~June~~payments ~~14,~~for ~~2018~~these U.S. ~~Estimated~~and ~~contributions~~non-U.S. ~~under~~pension ~~the~~benefits ~~terms~~totaling of$5 ~~the~~million ~~2009~~and ~~agreements~~$20 million, asrespectively. ~~extended~~Estimated ~~through~~payments ~~June~~for ~~14,~~these ~~2018,~~U.S. ~~are~~and ~~$18~~non-U.S. ~~million~~pension benefits for the remainder of fiscal 2016 are $2 million and $5 million, respectively.

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 months ended March 31, 2016, the Company made payments totaling $3 million for these retiree medical benefits. Estimated payments for these retiree medical benefits for the remainder of fiscal 2016 are $1 million.

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During the nine months ended June 30, 2016, the Company contributed $26 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 2009 agreements between the Company and the CWA and IBEW, as extended through June 14, 2018. Estimated contributions under the terms of the 2009 agreements, as extended through June 14, 2018, are $10 million for the remainder of fiscal 2016.

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 nine months ended June 30, 2016, the Company made payments totaling $3 million for these retiree medical benefits. Estimated payments for these retiree medical benefits for the remainder of fiscal 2016 are $1 million.


11.	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 develops, markets, and sells unified communications and contact center software and hardware products by integrating multiple forms of communications, including telephony, e-mail, instant messaging and video. The Networking segment’s portfolio of software and hardware products offers integrated networking products which are scalable across customer enterprises. The AGS segment develops, markets and sells comprehensive end-to-end cloud and managed 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.

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,
In millions	2016			2015			2016			2015
REVENUE
Global Communications Solutions	$	379		$	440		$	793		$	921
Avaya Networking	45			47			95			115
Enterprise Collaboration Solutions	424			487			888			1,036
Avaya Global Services	480			508			974			1,038
	$	904		$	995		$	1,862		$	2,074
GROSS PROFIT
Global Communications Solutions	$	253		$	289		$	536		$	603
Avaya Networking	16			16			32			48
Enterprise Collaboration Solutions	269			305			568			651
Avaya Global Services	278			294			566			596
Unallocated Amounts (1)	(6		)	(7		)	(14		)	(17		)
	541			592			1,120			1,230
OPERATING EXPENSES
Selling, general and administrative	377			356			710			730
Research and development	70			86			145			174
Amortization of intangible assets	56			57			113			114
Restructuring charges, net	21			10			44			25
	524			509			1,012			1,043
OPERATING INCOME	17			83			108			187
INTEREST EXPENSE AND OTHER INCOME (EXPENSE), NET	(115		)	(111		)	(229		)	(209		)
LOSS BEFORE INCOME TAXES	$	(98	)	$	(28	)	$	(121	)	$	(22	)

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



	Three months ended June 30,						Nine months ended June 30,
In millions	2016			2015			2016			2015
REVENUE
Global Communications Solutions	$	351		$	435		$	1,144		$	1,356
Avaya Networking	47			59			142			174
Enterprise Collaboration Solutions	398			494			1,286			1,530
Avaya Global Services	484			505			1,458			1,543
	$	882		$	999		$	2,744		$	3,073
GROSS PROFIT
Global Communications Solutions	$	240		$	287		$	776		$	890
Avaya Networking	17			21			49			69
Enterprise Collaboration Solutions	257			308			825			959
Avaya Global Services	293			286			859			882
Unallocated Amounts⁽¹⁾	(8		)	(10		)	(22		)	(27		)
	542			584			1,662			1,814
OPERATING EXPENSES
Selling, general and administrative	317			356			1,027			1,086
Research and development	66			82			211			256
Amortization of intangible assets	57			55			170			169
Restructuring charges, net	44			7			88			32
	484			500			1,496			1,543
OPERATING INCOME	58			84			166			271
INTEREST EXPENSE AND OTHER INCOME (EXPENSE), NET	(116		)	(130		)	(345		)	(339		)
LOSS BEFORE INCOME TAXES	$	(58	)	$	(46	)	$	(179	)	$	(68	)


⁽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.


12.	Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss as of ~~March~~June 3130, 2016 and 2015 are summarized as follows:

In millions	Change in unamortized pension, postretirement and postemployment benefit-related items			Foreign Currency Translation			Other			Accumulated Other Comprehensive Loss
Balance as of October 1, 2015	$	(1,368	)	$	(15	)	$	(1	)	$	(1,384	)
Other comprehensive income before reclassifications	—(99		)	(1410		)	—			(14109		)
Amounts reclassified to earnings	2939			—			—			2939
Provision for income taxes	(111		)	(6—		)	—			(171		)
Balance as of March 31, 2016	$	(1,350	)	$	(35	)	$	(1	)	$	(1,386	)
Balance as of June 30, 2016	$	(1,429	)	$	(25	)	$	(1	)	$	(1,455	)

In millions	Change in unamortized pension, postretirement and postemployment benefit-related items			Foreign Currency Translation			Other			Accumulated Other Comprehensive Loss
Balance as of October 1, 2014	$	(1,150	)	$	(49	)	$	(1	)	$	(1,200	)
Other comprehensive income before reclassifications	—			7651			—			7651
Amounts reclassified to earnings	3552			—			—			3552
Provision for income taxes	(1118		)	—			—			(1118		)
Balance as of March 31, 2015	$	(1,126	)	$	27		$	(1	)	$	(1,100	)
Balance as of June 30, 2015	$	(1,116	)	$	2		$	(1	)	$	(1,115	)

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 locations, during the three and six months ended March 31, 2016 and 2015 were as follows:16

	Three months ended March 31,				Six months ended March 31,
In millions	2016		2015		2016		2015		Line item in Statements of Operations
Change in unamortized pension, postretirement and postemployment benefit-related items	$	3	$	4	$	7	$	9	Costs - Products
	3		4		7		9		Costs - Services
	7		7		13		14		Selling, general and administrative
	1		2		2		3		Research and development
Total amounts reclassified to operations	$	14	$	17	$	29	$	35

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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 locations, during the three and nine months ended June 30, 2016 and 2015 were as follows:



	Three months ended June 30,				Nine months ended June 30,
In millions	2016		2015		2016		2015		Line item in Statements of Operations
Change in unamortized pension, postretirement and postemployment benefit-related items	$	3	$	4	$	10	$	13	Costs - Products
	3		4		10		13		Costs - Services
	4		8		17		22		Selling, general and administrative
	—		1		2		4		Research and development
Total amounts reclassified to operations	$	10	$	17	$	39	$	52


13.	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 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.

During the ~~three~~nine months ended ~~March~~June 3130, 2016, the Company recognized $5153 million of settlement costs and legal fees in connection with the resolution of certain legal matters. All settlement amounts associated with these legal matters have been paid as of June 30, 2016.

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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.

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.

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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 initial 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 $71 million and represents activity through February 28, 2015. The Company expects that TLI/Continuant will make a supplemental application for activity beyond February 28, 2015 at some point in the future. ~~Once~~If 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~~If required to do so, 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. As an interim matter, on February 22, 2016, the Company posted a bond in the amount of $8 million in connection with the pending attorneys' fees application.

The Company continues to believe that TLI/Continuant's claims are without merit and unsupported by the facts and law, and the Company continues to defend this matter, including through its appeal to the United States Court of Appeals for the Third Circuit. The Company filed its initial appellate brief with the Third Circuit on June 12, 2015 and oral argument took place before the Third Circuit on January 19, 2016. The Company is now awaiting a decision. 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 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.

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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. 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. 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.

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; these two cases are now stayed following motions filed by Avaya.

On May 4, 2016, the parties entered into a settlement agreement resolving these lawsuits.

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. In light of the Louisiana Supreme Court’s holding in another hearing loss case (“Graphic Packaging”), in which the Court held that noise induced hearing loss qualifies as an occupational injury or disease subject to Workers’ Compensation claims, in October 2015, Avaya filed dispositive motions seeking dismissal of this matter. In January 2016, the Court granted the Company’s motion to dismiss except as to one unrepresented plaintiff whose claim was dismissed on May 9, 2016. All claims are now dismissed.

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October 2015, Avaya filed dispositive motions seeking dismissal of this matter. In January 2016, the Court granted the Company’s motion to dismiss except as to one unrepresented plaintiff whose claim was dismissed on May 9, 2016. All claims are now dismissed.

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, 2015	$	9
Reductions for payments and costs to satisfy claims	(58		)
Accruals for warranties issued during the period	46
Balance as of March 31, 2016	$	8
Balance as of June 30, 2016	$	7

Guarantees of Indebtedness and Other Off-Balance Sheet Arrangements

Letters of Credit

As of ~~March~~June 3130, 2016, the Company had $~~145~~140 million of outstanding letters of credit which ensure the Company's performance or payment to third parties. Included in this amount is $~~122~~116 million and $2324 million of letters of credit issued under the Domestic ABL and Foreign ABL, respectively.

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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 $7876 million of the Company's letters of credit and include the $70 million of supersedeas bonds 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 all of these surety bonds was $8584 million as of ~~March~~June 3130, 2016.

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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requirements or specifications and product designs furnished by the Company, and is subject to rigorous quality control standards.

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 $2120 million inof multiple-of-money based long-term incentive cash awards ("MoM Awards") were outstanding as of ~~March~~June 3130, 2016. 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~~June 3130, 2016, no compensation expense associated with the LTIP has been recognized. See Note 14, “Share-based Compensation” for further details.

Credit Facility Indemnification

In connection with its obligations under the credit facilities described in Note 6, “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~~June 3130, 2016, no amounts have been accrued pursuant to this indemnity.

Transactions with Nokia

Pursuant to the Contribution and Distribution Agreement effective October 1, 2000, Lucent Technologies, Inc. (now Nokia) 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 Nokia for all liabilities including certain pre-distribution tax obligations of Nokia 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 Nokia 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 determine the maximum potential amount of other future payments, if any, that it could be required to make under this agreement.

In addition, in connection with the distribution, the Company and Lucent entered into a Tax Sharing Agreement that governs Nokia’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 Nokia.

1914. Share-based Compensation

~~Table~~Avaya Holdings Corp.’s Amended and Restated 2007 Equity Incentive Plan (as amended, “2007 Plan”) governs the issuance of ~~Contents~~equity awards, including restricted stock units (“RSUs”), to eligible plan participants. Key employees, directors, and consultants of the Company may be eligible to receive awards under the 2007 Plan. Each RSU, when vested, entitles the holder to receive one share of Parent’s common stock, subject to certain restrictions on their transfer and sale as defined in the 2007 Plan and related award agreements.

~~pursuant~~On May 13, 2016, the Compensation Committee of the Board of Directors of Avaya Holdings Corp. approved changes to the ~~Tax~~Company’s ~~Sharing~~executive ~~Agreement~~compensation ~~related~~program, which included revisions to ~~future~~the ~~settlements~~Avaya ofHoldings ~~audits~~Corp. byExecutive ~~state~~Committee Discretionary Annual Incentive Plan (the “EC DAIP”) and ~~local~~the long-term incentive awards granted to Company executives on November 17, 2015. The EC DAIP provides executive officers with a semi-annual discretionary incentive opportunity intended to reward both Company and ~~foreign~~individual ~~taxing~~performance. ~~authorities~~The ~~for~~long-term ~~the~~incentive ~~periods~~awards ~~prior~~granted to Company executives on November 17, 2015 consisted of RSUs and stock options granted under the ~~Company’s~~2007 ~~separation~~Plan ~~from~~and ~~Nokia~~cash awards (collectively, the "November 2015 Awards").

The EC DAIP and the November 2015 Awards were replace by the Avaya Inc. 2016 Key Employee Incentive Plan (the “KEIP”), which is a single market-based performance incentive program tied to the Company’s key operating metric. Executives' participation in the KEIP was conditioned upon the cancellation of their November 2015 Awards and the forfeiture of their right to receive EC DAIP awards for the second half of fiscal 2016. In aggregate, $12 million cash awards, 3,807,500

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RSUs and 3,546,154 stock options awarded in November 2015 to participating executives were cancelled as a condition of their participation in the KEIP. Executives earn compensation under the KEIP beginning in the fourth quarter of fiscal 2016 and continuing through the third quarter of fiscal 2017.

Additionally, on May 19, 2016, the Board of Directors of Avaya Holdings Corp. approved an exchange program through which individuals holding unvested RSUs, outstanding vested and unvested deferred RSUs and outstanding unvested MoM Awards could exchange such awards for time-based long-term incentive cash awards ("Replacement Cash Awards"). This exchange program was made available to certain active employees beginning on June 13, 2016 and closed on July 26, 2016. The Replacement Cash Awards are subject to employee’s continued employment with the Company as of each applicable vesting date.

The exchange program offered Replacement Cash Awards for RSUs at an exchange rate of $0.40 per RSU grant. These awards vest over a two-year period: 34% at the end of the first year and 33% every six months thereafter. In connection with the exchange program, 3,963,158 unvested RSUs were exchanged for Replacement Cash Awards.

The exchange program offered Replacement Cash Awards for outstanding vested and unvested deferred RSUs at an exchange rate of $0.40 per deferred RSU grant. These awards will vest and be paid according to the existing schedule in effect for the corresponding deferred RSU. In connection with the exchange program, 5,677,588 deferred RSUs were exchanged for Replacement Cash Awards.

The exchange program offered Replacement Cash Awards for MoM Awards at an exchange rate equal to 25% of the original value of each MoM Award. These awards vest over a three-year period: 33% at the end of the first year and 16.75% every six months thereafter. In connection with the exchange program, MoM Awards with a grant value of $12 million were exchanged for Replacement Cash Awards.

The shares of the Company’s common stock underlying the RSUs and the deferred RSUs exchanged in the exchange program were returned to the status of authorized shares available for future grants under the 2007 Plan.

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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~~June 3130, 2016 and for the ~~six~~three and nine months ended ~~March~~June 3130, 2016 and 2015 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 (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, 2015, which were included in our Annual Report on Form 10-K filed with the SEC on November 23, 2015. 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, midmarket, and small businesses increase workforce productivity, customer engagement, net promoter score, 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 ("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 and video conferencing and collaboration systems; mobile video software, software that runs contact center operations such as multimedia contact routing; software that enables mobile access to the company network for employees; and hardware such as phones, gateways, and servers. We enable these unified communication and real-time collaboration tools to also be embedded inside the applications businesses use every day to keep employees and customers connected, productive and effective. This reporting segment also includes a software development platform, which allows our customers and third parties to adapt our technology by creating custom applications, automated workflows, and engagement 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 all of our contact center and unified communications products via the ~~Cloud~~cloud.

•Avaya Networking ("Networking") includes our advanced fabric networking technology which offers a unique end-to-end virtualized architecture designed to be simple to deploy, agile and resilient. This reporting segment also includes software and hardware products such as Ethernet switches, wireless networking, access control, and unified management and orchestration solutions, which provides network and device management.

•Avaya Global Services ("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~~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

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”).

On December 22, 2015, Parent filed with the SEC an amended registration statement on Form S-1 (the “registration statement”) relating to a proposed initial public offering of its common stock. AsThe ~~contemplated in the~~ registration statement, ~~Parent~~remains ~~intends~~under toreview ~~use~~by the ~~net~~SEC ~~proceeds~~and ~~received~~shares inof ~~connection~~common ~~with~~stock ~~this~~registered ~~offering~~thereunder tomay ~~pay~~not ~~certain~~be ~~amounts~~sold innor ~~connection~~may ~~with~~offers ~~the~~to ~~termination~~buy ofbe ~~our~~accepted ~~management~~prior ~~services~~to ~~agreement~~the ~~with~~time ~~affiliates~~the ofregistration ~~our~~statement ~~Sponsors~~becomes effective. ~~Parent~~This ~~intends~~Form to10-Q ~~use~~and the ~~remainder~~pending ofregistration ~~the~~statement shall not constitute an

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net proceeds for working capital and other general corporate purposes, including repayment of a portion of Avaya Inc.'s long-term indebtedness, the potential redemption of some or all of Parent's Series A Preferred Stock and supporting the strategic growth opportunities of Avaya Inc. 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.

See discussion in Note 1, "Background, Merger and Basis of Presentation" to our unaudited interim Consolidated Financial Statements.

Our Products and Services

The majority of Avaya’s product portfolio is represented by software products that reside on either a client or on a server and can be deployed as an on-premise solution or as a cloud and managed service solution. 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.

As businesses increasingly seek to improve customer experience through the quality and efficiency of contact center and unified communications, they are confronted with several industry trends presenting emerging and varied challenges. We believe the most forceful among these trends are:


•	the increasing mobility of the workforce;


•	shifting priorities of C-level business decision makers, including an increased preference for software-defined networking ("SDN", or "network virtualization"), cloud delivery of applications, and management of multiple and varied devices, all of which must be handled with the security the business demands;


•	increasing demand for IT purchases under operating expense models over capital expense models; and


•	the rise of omni-channel customer service involving multiple modes of communications.

We aim to be the leader in our industry by 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 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 and mobile enabled. 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. We design and build these solutions for engagement of the customers and employees of our customers.

We define “engagement” as the set of tangible outcomes that a business experiences through improved team and customer communications and collaboration. These tangible benefits include higher employee productivity; higher customer satisfaction; higher customer lifetime value; and, ultimately, higher profitability.

Customer Engagement Solutions

Our Customer Engagement Solutions are designed to facilitate long-lasting and successful relationships between companies and their customers. Our solutions enable our customers to deliver a consistent experience to their customers across multiple physical and digital channels. 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 software and hardware products and services, and supported by our networking technology and development environment. Some of the benefits of Avaya Customer Engagement Solutions include:

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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 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, open, mobile, and scalable 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 software and hardware 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 ("TCO") for the entire collaboration environment and allow businesses 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 TCO 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 ("SBC") 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 Communicator: A single unified communications client portfolio for mobile and desktop users. Avaya Communicator extends rich messaging, audio, web and video capabilities to the mobile enterprise. Support for all types of devices and user profiles lets companies build a virtual culture among dispersed employees, partners and customers.

23Avaya 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

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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 ("MCUs"). These are 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, the infrastructure includes gateways for Microsoft Skype for Business and Session Initiation Protocol ("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 IP Multimedia Subsystem ("IMS"), an industry standard defined by the 3rd Generation Partnership Project ("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 ("SIP-ISC"), 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 through the largest enterprise customers in the world.

Avaya Breeze: Avaya Breeze is a software platform that simplifies embedding robust communications and collaboration capabilities into business applications, such as Customer Relationship Management ("CRM") or Enterprise Resources Planning ("ERP"). This platform delivers proven Avaya communications capabilities in an easy-to-use development environment which can automate workflows of nearly any business process. Avaya Breeze 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 ("SMS") and email.

Avaya Aura Contact Center: Avaya Aura Contact Center lets customers connect with a company in ways beyond phone calls, including via text, instant messenger, and email. 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.

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 Oceana: This is our newest customer engagement software solution built on the Avaya Breeze platform. It delivers multi-touch engagement across voice, chat, email, SMS, co-browsing, and social media channels. Customers can be matched to agents based on key attributes and agents are provided with full visibility of the context of previous customer interactions. Oceana also provides visual workflow automation for customer journey mapping while giving companies the freedom and flexibility to create, innovate, and optimize customer journey-driven experiences that generate customer loyalty, retention, share of wallet, and repeat business. It extends channels, workspaces, analytics, and workflows to provide unprecedented flexibility and enables organizations to customize the solution for their exact use cases.

Avaya Oceanalytics: This is a modular, flexible, and extensible analytics and reporting platform which provides a single, comprehensive view of customer interactions across all sources, including Avaya and non-Avaya systems. It enables additions of other data sources as needed to allow processing and analysis of data across real-time and historical systems for visualization of data and support for feeding data into many existing modern visualization tools.

Avaya Experience Portal: Experience Portal serves as the orchestration point to manage all automated services on a single platform including inbound and outbound speech, video, email, or SMS self-service applications. This employs dynamic, real-time service treatments and automates outbound services with Intelligent Customer Routing and Proactive Outreach Manager. It also provides callback during periods of peak call volume when estimated wait time is at its highest with the Callback Assist application.

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 (9.1) 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 3,000 users.

IP Office Contact Center: 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.

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Avaya Contact Center Select: 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, infrastructure and management. Available extensions include HD (high-definition) video-conference rooms, and mobile applications for video conferencing, control, and management on mobile devices.

Avaya Endpoints: 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.

Avaya Breeze: Avaya Breeze is a software platform that simplifies embedding robust communications and collaboration capabilities into business applications, such as CRM or Enterprise Resources Planning ("ERP"). This platform delivers proven Avaya communications capabilities in an easy-to-use development environment which can automate workflows of nearly any business process. Avaya Breeze 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 ("SMS") and email.

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Zang: Zang is a wholly owned subsidiary of Avaya which provides a 100 percent cloud-based, all-in-one, communication and applications-as-a-service platform. It integrates technology developed by Avaya and technology acquired from third parties for rapid app development, which allows quick and easy creation of multi-level and rich communication experiences.

Networking Solutions

Avaya Networking delivers solutions that enable organizations to reap the benefits of simplicity and high availability, and maximizes their investments in virtualization. These solutions support the deployment of software-defined applications in a controlled manner, where and when business cases drive demand. The Avaya SDN Fx™ Architecture demonstrates Avaya’s continued focus on open source end standards, delivering extensible solutions that enable businesses to achieve more. Avaya can help organizations automate and integrate multiple technologies, thereby delivering a more agile and responsive networking environment.

Our network virtualization solution - Fabric Connect - has been developed from standardized technologies, is built with open interfaces, and seamlessly integrates with open source customization tools. In ~~addition,~~It it is crucial that networking functions are automated using a single network-wide protocol that forms a single virtual control layer. Avaya also makes its networking operating system software available in a disaggregated format to run on industry standard hardware for specialized system integrator and service provider solutions.

The Avaya Networking portfolio includes a comprehensive range of software and hardware products that are specifically designed to address the real-world requirements of mainstream organizations:

•

Software-Defined Networking: helps companies create the agile networks required by today’s dynamic applications, and deliver the benefits of network simplicity, reliability, and virtualization. The Avaya SDN Fx Architecture delivers “connect anything, anywhere” simplicity, shaving weeks off time-to-service, enabling allowing devices and users at the network edge to be easily connected and configured;


•	Ethernet Switches: offers a broad range of products that can be deployed individually or in combinations to deliver a Fabric foundation, ranging from entry-level Branch Office, to high-performance Wiring Closet and Data Center aggregation, through to network Core applications;

•

Wireless Access: a broad range of indoor and outdoor access points that deliver wired-like performance and predictability - essential for a high quality experience - but also support application-level visibility and control to ensure business critical applications come first, and seamlessly extends access to the Fabric, featuring automatic attachment and configuration that simplifies implementation and maintenance;


•	Access Control: enforces role- and policy-based access control to the Fabric network;


•	Unified Management and Orchestration: provides integrated tools for network-wide management and orchestration of both Fabric and conventional network topologies; and

•

Pod Fx: The Avaya Pod Fx is a full stack solution - with everything needed to run virtualized communications in the Data Center (including compute, storage, networking, applications, etc.) - all delivered in a pre-integrated, Avaya qualified solution. Pod Fx combines best in breed technology from Avaya, VMware, EMC and HP to deliver a turnkey, fully virtualized deployment option for Avaya’s team and customer engagement applications.

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 TCO, 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.

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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 customers' 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.

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•

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 TCO, 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 prevent problems, rapidly resolve issues and continuously improve solutions and uptime. Support offers and capabilities include:


•	24x7 remote support


•	proactive remote monitoring


•	sophisticated diagnostic tools


•	parts replacement


•	onsite response

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^SM, which notifies Avaya within 90 seconds of receiving an alarm generated from an Avaya platform and begins immediate problem diagnosis and resolution to improve system reliability and uptime.

• 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~~cloud options, Service Level Agreements ("SLAs"), billing and reporting.

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~~cloud provider, and are often included in the managed services pricing/revenue.

APCS can take one of two forms offered by Avaya:


•	Avaya Private Cloud Service, a private cloud model for individual customers; or

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•	Avaya Powered Cloud Solutions, a model that supports public and private cloud solutions offered by service providers and system integrators.

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 Avaya Aura, IP Office, contact center, ethernet/fabric switching, Video, Wireless LAN, SBC, Zang, Avaya ~~professional~~Breeze, ~~services~~Avaya Oceana, Avaya ~~Cloud~~Professional Services, and Avaya ~~managed~~Private Cloud and Managed services.


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


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

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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 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.

To adapt to our customers’ needs in light of the industry trends, we have shifted our design philosophy over the past few years, 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 ~~Cloud~~cloud and 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 devices per system.

Unique End User Experiences

Avaya Communicator software leverages the Avaya Aura technology and allows 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 Skype for Business users (i.e., Microsoft Communicator clients).

Avaya Breeze 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 leverage Avaya Breeze to initiate a 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.

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.

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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 2,500 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.

•

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.

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•	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 ("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.

Refinancing of Debt

During fiscal 2015, the Company entered into several refinancing transactions which extended the maturity dates of certain debt and provided for a new senior secured foreign asset-based revolving credit facility.

On May 29, 2015, the Company completed Amendment No. 9 to the Senior Secured Credit Agreement pursuant to which the Company refinanced $2,058 million in 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 senior secured term B-6 loans (“term B-6 loans”) and repaid $32 million of revolving loans outstanding under its senior secured credit facility dated October 27, 2007 ("Senior Secured Credit Agreement") in exchange for and with the proceeds from the issuance of $2,125 million in principal amount of senior secured term B-7 loans ("term B-7 loans") maturing May 29, 2020.

On June 4, 2015, the Company completed Amendment No. 4 to the senior secured asset-based revolving credit facility (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, certain foreign subsidiaries of the Company (the "Foreign Borrowers") 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 6, “Financing Arrangements” to our unaudited interim Consolidated Financial Statements and “Management's Discussion and Analysis - Liquidity and Capital Resources: Credit Facilities” for further details.29

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~~Principal~~See ~~amounts~~Note of6, ~~long~~“Financing ~~term~~Arrangements” ~~debt~~to ~~and~~our ~~long~~unaudited ~~term~~interim ~~debt~~Consolidated ~~net~~Financial ofStatements ~~discounts~~and “Management's Discussion and ~~issuance~~Analysis ~~costs~~- asLiquidity ofand ~~March 31,~~Capital ~~2016~~Resources: ~~consisted~~Credit ofFacilities” ~~the~~for ~~following:~~further details.

In millions	Principal Amount		Net of Discounts and Issuance Costs
Variable rate revolving loans under the Senior Secured Credit Agreement due October 26, 2016	$	—	$	—
Variable rate revolving loans under the Domestic ABL due June 4, 2020	48		48
Variable rate revolving loans under the Foreign ABL due June 4, 2020	55		55
Variable rate term B-3 loans due October 26, 2017	616		613
Variable rate term B-4 loans due October 26, 2017	1		1
Variable rate term B-6 loans due March 31, 2018	537		533
Variable rate term B-7 loans due May 29, 2020	2,100		2,068
7% senior secured notes due April 1, 2019	1,009		1,000
9% senior secured notes due April 1, 2019	290		287
10.50% senior secured notes due March 1, 2021	1,384		1,369
Total debt	$	6,040	5,974
Debt maturing within one year			(7		)
Non-current portion of long-term debt			$	5,967

Principal amounts of long term debt and long term debt net of discounts and issuance costs as of June 30, 2016 consisted of the following:

The weighted average contractual interest rate of the Company's outstanding debt as of March 31, 2016 and September 30, 2015 was 7.3% and 7.3%, respectively.



In millions	Principal Amount		Net of Discounts and Issuance Costs
Variable rate revolving loans under the Senior Secured Credit Agreement due October 26, 2016	$	17	$	17
Variable rate revolving loans under the Domestic ABL due June 4, 2020	60		60
Variable rate revolving loans under the Foreign ABL due June 4, 2020	53		53
Variable rate term B-3 loans due October 26, 2017	616		612
Variable rate term B-4 loans due October 26, 2017	1		1
Variable rate term B-6 loans due March 31, 2018	537		534
Variable rate term B-7 loans due May 29, 2020	2,094		2,064
7% senior secured notes due April 1, 2019	1,009		1,001
9% senior secured notes due April 1, 2019	290		287
10.50% senior secured notes due March 1, 2021	1,384		1,370
Total debt	$	6,061	5,999
Debt maturing within one year			(24		)
Non-current portion of long-term debt			$	5,975

The ~~table~~weighted ~~below~~average ~~sets~~contractual ~~forth~~interest ~~the~~rate ~~annual maturities~~ of the ~~principal~~Company's ~~amounts~~outstanding ~~of our long term~~ debt as of ~~March~~June 3130, 2016 ~~for~~and ~~the~~September 30, ~~next~~2015 ~~five~~was ~~years~~7.3% ~~ending September 30th~~ and ~~thereafter:~~7.3%, respectively.

In millions
Remainder of fiscal 2016	$	13
2017	25
2018	1,179
2019	1,324
2020	2,115
2021 and thereafter	1,384
Total	$	6,040

The table below sets forth the annual maturities of the principal amounts of our long term debt as of June 30, 2016 for the next five years ending September 30th and thereafter:



In millions
Remainder of fiscal 2016	$	6
2017	42
2018	1,179
2019	1,324
2020	2,125
2021 and thereafter	1,385
Total	$	6,061

Financial Results Summary

Our revenue for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015 was $12,~~862~~744 million and $23,~~074~~073 million, respectively, a decrease of $~~212~~329 million or 1011%. Revenues were affected by declines in sales of our core and legacy product lines particularly ~~gateways~~endpoints, ~~servers~~gateways, ~~endpoints, and~~ the Nortel and Tenovis lines, servers, the unfavorable impact of foreign currencies, and decreases in flagship product lines such as ethernet switches and our IP office and Aura products. The declines in our product sales contributed to declines in associated maintenance services and professional services revenues. These declines were partially offset by revenue growth in our ~~contact~~APCS ~~center~~ and ~~APCS~~contact center offerings. We believe macroeconomic factors and uncertainties ~~impacted~~had an impact and will continue to impact our customers’ buying decisions in the foreseeable future as we saw ongoing procurement slowdowns and extended procurement cycles.

We ~~continue~~continued to ~~transform~~drive Avaya's ~~into~~transformation to a software and service-led organization and ~~focus~~focused our go-to-market efforts toon ~~drive~~growing ~~growth~~newer ~~in our flagship~~ products and related services such as Aura, APCS, networking, contact center and IP Office.

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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 proposals based on OpEx models. This trend has driven an increase in the proportion of total company revenues attributable to software and services. As the trend towards the OpEx procurement model continues, we have focused our go-to-market strategy on our APCS and 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. As of ~~March~~June 3130, 2016, we anticipate the total future revenues for APCS contracts to be ~~approximately~~in excess of $~~900~~850 million. The values for these contracts are usually larger than contracts under a CapEx model, but the associated revenues are recognized over a longer period of time, typically three to seven years.

The Company has maintained its focus on profitability levels and investing in future results. As ~~and~~the ~~has~~Company ~~continued~~continues its transformation to ~~implement~~a ~~cost~~software ~~savings~~and service-led organization, it has implemented programs designed to streamline its operations, generate cost savings, and eliminate overlapping processes and ~~expenses associated with various acquisitions~~resources. 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 2015, the Company incurred restructuring charges of $62 million, the full benefits of which we have 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~~June 3130, 2016 and 2015 was $~~108~~166 million and $~~187~~271 million, respectively, a decrease of $79105 million. The decrease in operating income reflects the decrease in revenues as discussed above and was offset by the continued benefit from our cost savings initiatives. In addition, our operating results for the ~~six~~nine months ended ~~March~~June 3130, 2016 as compared to the ~~six~~nine months ended ~~March~~June 3130, 2015 reflect, among other things:

• improvement in gross margin to 60.26% for the ~~six~~nine months ended ~~March~~June 3130, 2016 as compared to 59.30% for the ~~six~~nine months ended ~~March~~June 3130, 2015;

• lower pension and postretirement ~~expense~~expenses as a result of the Company changing its estimates of the service and interest components of net periodic benefit costs associated with its U.S. pension and postretirement plans effective October 1, 2015;

• increase in restructuring charges as the Company initiated greater cost cutting actions during the ~~six~~nine months ended ~~March~~June 3130, 2016, particularly in Europe as well as a voluntary headcount reduction plan initiated in the U.S. as the Company continued its transformation to a software and service-led organization;

• during the ~~three~~nine months ended ~~March~~June 3130, 2016, the Company recognized $5153 million of settlement costs and legal fees in connection with the resolution of certain legal matters; ~~and~~


•	during the nine months ended June 30, 2016 the Company recognized advisory fees incurred to assist in the assessment of strategic and financial alternatives to improve the Company’s capital structure, and third-party sales transformation costs; and


•	a favorable impact of foreign currency on our operating expenses.

Operating income includes non-cash depreciation and amortization of $~~184~~277 million and $~~186~~279 million and share-based compensation of $812 million and $1115 million for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015, respectively.

Net loss for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015 was $~~130~~245 million and $1968 million, respectively. The ~~decrease~~increase in our net loss was primarily attributable to the decrease in our operating income as described above, ~~and~~ greater interest expense as a result of the fiscal 2015 refinancing transactions. and an increase in our provision for income taxes as a result of earnings from foreign jurisdictions.

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Results From Operations

Three Months Ended ~~March~~June 3130, 2016 Compared with Three Months Ended ~~March~~June 3130, 2015

Revenue

Our revenue for the three months ended ~~March~~June 3130, 2016 and 2015 was $~~904~~882 million and $~~995~~999 million, respectively, a decrease of $91117 million or 912%. The following table sets forth a comparison of revenue by portfolio:

	Three months ended March 31,
	Three months ended June 30,
	2016		2015		Percentage of Total Revenue				Yr. to Yr.PercentageChange		Yr. to Yr. PercentageChange, net of ForeignCurrency Impact
In millions					2016		2015
GCS	$	~~379~~351	$	~~440~~435	4240	%	44	%	(1419	)%	(1319	)%
Networking	4547		4759		5	%	56	%	(420	)%	0(19	)%
Total ECS product revenue	~~424~~398		~~487~~494		4745	%	4950	%	(1319	)%	(1119	)%
AGS	~~480~~484		~~508~~505		5355	%	5150	%	(64	)%	(43	)%
Total revenue	$	~~904~~882	$	~~995~~999	100	%	100	%	(912	)%	(811	)%

GCS revenue for the three months ended ~~March~~June 3130, 2016 and 2015 was $~~379~~351 million and $~~440~~435 million, respectively, a decrease of $6184 million or 1419%. The decrease in GCS revenue was primarily attributable to lower demand for endpoints, ~~the~~gateways, Nortel and Tenovis ~~legacy~~ products, ~~gateways,~~SME ~~servers,~~Telephony ~~our Aura and IP Office~~ products and ~~the unfavorable impact of foreign currency~~servers. ~~The~~ ~~decrease in GCS revenue was partially offset by higher revenue from our contact center products.~~

Networking revenue for the three months ended ~~March~~June 3130, 2016 and 2015 was $4547 million and $4759 million, respectively, a decrease of $212 million or 420%. The decrease ~~in Networking revenue~~ was primarily attributable to lower demand for ethernet switches and the unfavorable impact of foreign currency.

AGS revenue for the three months ended ~~March~~June 3130, 2016 and 2015 was $~~480~~484 million and $~~508~~505 million, respectively, a decrease of $2821 million or 64%. The decrease in AGS revenue was primarily due to lower maintenance services revenues as a result of the lower product sales discussed above, lower professional services revenue, and the unfavorable impact of foreign currency~~, and lower professional services revenue~~. These decreases in AGS revenue were partially offset by higher revenue from APCS. As previously discussed, revenues associated with APCS contracts are recognized over a longer period of time, typically three to seven years.

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

	Three months ended March 31,
	Three months ended June 30,
	2016		2015		Percentage ofTotal Revenue				Yr. to Yr.PercentageChange		Yr. to Yr. PercentageChange, net of ForeignCurrency Impact
In millions					2016		2015
U.S.	$	~~505~~487	$	~~531~~538	5655	%	5354	%	(59	)%	(59	)%
International:
EMEA	~~218~~206		~~266~~263		2423	%	2726	%	(1822	)%	(1721	)%
APAC - Asia Pacific	~~104~~102		~~104~~107		1112	%	11	%	—(5	)%	1(4	)%
Americas International - Canada and Latin America	7787		9491		910	%	9	%	(184	)%	(81	)%
Total International	~~399~~395		~~464~~461		4445	%	4746	%	(14	)%	(1113	)%
Total revenue	$	~~904~~882	$	~~995~~999	100	%	100	%	(912	)%	(811	)%

Revenue in the U.S. for the three months ended ~~March~~June 3130, 2016 and 2015 was $~~505~~487 million and $~~531~~538 million, respectively, a decrease of $2651 million or 59%. The decrease in U.S. revenue was primarily attributable to lower sales of endpoints, gateways, ~~and~~networking ~~the~~products, servers, and Nortel and Tenovis legacy products and associated maintenance services and lower professional services revenues. The decrease in U.S. revenue was partially offset by higher ~~sales of contact center and networking products and higher~~ revenues associated with APCS. Revenue in EMEA for the three months ended ~~March~~June 3130, 2016 and 2015 was $~~218~~206 million and $~~266~~263 million, respectively, a decrease of $4857 million or 1822%. The decrease in EMEA revenue was primarily attributable to lower ~~products~~ sales of endpoints and other products and associated maintenance services, lower professional services revenues, and the unfavorable impact of foreign currency. Revenue in APAC for the three months ended ~~March~~June 3130, 2016 and 2015 was $~~104~~102 million and $~~104~~107 million, respectively, a decrease of $5 million or 5%. The decrease in APAC revenue was primarily attributable to lower sales of

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~~respectively.~~networking ~~APAC~~products, ~~revenue was affected by higher revenue from APCS partially offset by~~ lower ~~sales~~professional ofservices ~~networking products~~ and the unfavorable impact of foreign currency. Revenue in Americas International was $7787 million and $9491 million for the three months ended ~~March~~June 3130, 2016 and 2015, respectively, a decrease of $174 million or 184%. The decrease in Americas International revenue was primarily attributable to lower sales of endpoints and the unfavorable impact of foreign currency, ~~and~~partially ~~lower~~offset by higher sales from contact center products, higher revenues from professional services, higher sales of ~~endpoints~~networking products and higher revenues associated with APCS.

We sell our products both directly 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,
	2016		2015		Percentage of TotalECS Product Revenue				Yr. to Yr.PercentageChange		Yr. to Yr. PercentageChange, net of ForeignCurrency Impact
In millions					2016		2015
Direct	$	~~120~~104	$	~~130~~120	2826	%	2724	%	(813	)%	(613	)%
Indirect	~~304~~294		~~357~~374		7274	%	7376	%	(1521	)%	(1421	)%
Total ECS product revenue	$	~~424~~398	$	~~487~~494	100	%	100	%	(1319	)%	(1119	)%

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
In millions	2016			2015			2016		2015		Amount			Pct.
GCS	$	~~253~~240		$	~~289~~287		6668.84	%	6566.70	%	$	(3647	)	(1216	)%
Networking	1617			1621			3536.62	%	3435.06	%	—(4		)	—(19	)%
ECS	~~269~~257			~~305~~308			6364.46	%	62.63	%	(3651		)	(1217	)%
AGS	~~278~~293			~~294~~286			5760.95	%	5756.96	%	~~(16~~7		)	(52	)%
Unallocated amounts	(68		)	(710		)	(1)		(1)		12			(1)
Total	$	~~541~~542		$	~~592~~584		5961.85	%	5958.5	%	$	(5142	)	(97	)%


⁽¹⁾	Not meaningful

Gross profit for the three months ended ~~March~~June 3130, 2016 and 2015 was $~~541~~542 million and $~~592~~584 million, respectively, a decrease of $5142 million or 97%. The decrease was primarily attributable to the decrease in sales volume, ~~unfavorable pricing, particularly in Europe,~~ and the unfavorable impact of foreign currency. ~~These~~The decreases in gross profit were partially offset by the success of our gross margin improvement initiatives, favorable pricing, and lower pension and postretirement ~~expense~~expenses. 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. Effective October 1, 2015 the Company changed its estimates of the service and interest components of net periodic benefit costs associated with our U.S. pension and postretirement plans which lowered pension and postretirement ~~expense~~expenses. See Note 10, “Benefit Obligations” to our unaudited interim Consolidated Financial Statements for further details. Gross margin increased to 5961.85% for the three months ended ~~March~~June 3130, 2016 from 5958.5% for the three months ended ~~March~~June 3130, 2015 primarily as a result of our gross margin improvement initiatives, favorable ~~lower pension and postretirement expense~~pricing, ~~and~~ higher software sales as a percentage of revenues, which have higher margins and lower pension and postretirement expenses.

GCS gross profit for the three months ended ~~March~~June 3130, 2016 and 2015 was $~~253~~240 million and $~~289~~287 million, respectively, a decrease of $3647 million or 1216%. The decrease in GCS gross profit was primarily attributable to lower sales volume, and the unfavorable impact of foreign currency~~, and unfavorable pricing, particularly in Europe~~. ~~These~~The decreases were partially offset by the success of our gross margin improvement initiatives, favorable pricing, and lower pension and postretirement ~~expense~~expenses as discussed above. GCS gross margin increased to 6668.84% for the three months ended ~~March~~June 3130, 2016 from 6566.70% for the three months ended ~~March~~June 3130, 2015 primarily as a result of our gross margin improvement initiatives, favorable pricing, higher software sales as a percentage of revenues, which have higher margins, and lower pension and postretirement ~~expense,~~ expenses.

Networking gross profit for the three months ended ~~March~~June 3130, 2016 and 2015 was $1617 million and $1621 million, respectively. Networking gross margin increased to 3536.62% for the three months ended ~~March~~June 3130, 2016 from 3435.06% for the three months ended ~~March~~June 3130, 2015. Networking gross margin increased primarily as a result of our gross margin improvement initiatives.

AGS gross profit for the three months ended March 31, 2016 and 2015 was $278 million and $294 million, respectively, a decrease of $16 million or 5%. The decrease in AGS gross profit was primarily due to lower revenue and the unfavorable 33

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~~impact~~AGS gross profit for the three months ended June 30, 2016 and 2015 was $293 million and $286 million, respectively, an increase of ~~foreign~~$7 ~~currency.~~million ~~These~~or ~~decreases~~2%. The increase in AGS gross profit ~~were~~was ~~partially~~primarily ~~offset~~due byto the continued benefit from our gross margin improvement initiatives and lower pension and postretirement ~~expense~~expenses as discussed above. The increases in AGS gross profit were partially offset by lower revenue and the unfavorable impact of foreign currency. Our gross margin improvement initiatives have enabled us to reduce the workforce and relocate positions to lower-cost geographies. AGS gross margin was 5760.95% for the three months ended ~~March~~June 3130, 2016 compared to 5756.96% for the three months ended ~~March~~June 3130, 2015.

Unallocated amounts for the three months ended ~~March~~June 3130, 2016 and 2015 included 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.

Operating Expenses

The following table sets forth a comparison of operating expenses:

	Three months ended March 31,
	Three months ended June 30,
	2016		2015		Percentage of Revenue				Change
In millions					2016		2015		Amount			Pct.
Selling, general and administrative	$	~~377~~317	$	356	4135.79	%	35.86	%	$	21(39	)	6(11	)%
Research and development	7066		8682		7.75	%	8.62	%	(16		)	(1920	)%
Amortization of intangible assets	5657		5755		6.25	%	5.75	%	(12		)	(24	)%
Restructuring charges, net	2144		107		25.30	%	1.0.7	%	1137			~~110~~529	%
Total operating expenses	$	~~524~~484	$	~~509~~500	5754.9	%	5150.10	%	$	15(16	)	(3	)%

Selling, general and administrative expenses for the three months ended ~~March~~June 3130, 2016 and 2015 were $~~377~~317 million and $356 million, respectively, ana ~~increase~~decrease of $2139 million. The ~~increase~~decrease was primarily attributable to the resolution of certain legal matters as discussed above, advisory fees incurred to assist in the assessment of strategic and financial alternatives to improve the Company’s capital structure, and third-party sales transformation costs incurred during the current period. The increase was partially offset by the favorable impact of foreign currency, lower selling expenses, lower payroll and payroll related expenses realized from the success of cost savings initiatives executed in prior periods, and lower pension and postretirement expenses as discussed above. Our cost savings initiatives ~~include~~included reductions to the workforce, exiting and consolidating facilities, and relocating positions to lower-cost geographies. The decrease was partially offset by advisory fees incurred to assist in the assessment of strategic and financial alternatives to improve the Company’s capital structure.

Research and development expenses for the three months ended ~~March~~June 3130, 2016 and 2015 were $7066 million and $8682 million, respectively, a decrease of $16 million. The decrease was primarily due to lower payroll and payroll related expenses realized from the success of cost savings initiatives executed in prior periods and the favorable impact of foreign currency.

Amortization of acquired intangible assets for the three months ended ~~March~~June 3130, 2016 and 2015 was $5657 million and $5755 million, respectively.

Restructuring charges, net, for the three months ended ~~March~~June 3130, 2016 and 2015 were $2144 million and $107 million, respectively, an increase of $1137 million. ~~The~~As ~~Company~~Avaya continued its transformation to ~~identify~~a ~~opportunities~~software and service-led organization, it has implemented programs designed to streamline its operations, ~~and~~ generate cost savings, and eliminate overlapping processes and resources. Restructuring charges recorded during the three months ended ~~March~~June 3130, 2016 included employee separation costs of $1944 million primarily associated with ~~employee~~a ~~severance~~voluntary ~~actions~~headcount inreduction ~~EMEA,~~plan initiated in the U.S. and ~~Canada,~~employee ~~and~~severance ~~lease~~actions ~~obligations~~in ~~of $2 million~~EMEA. Restructuring charges recorded during the three months ended ~~March~~June 3130, 2015 included employee separation costs of $76 million primarily associated with employee severance actions in EMEA and the U.S. and lease obligations of $31 million. Employee separation charges included, but were not limited to, severance payments, 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~~June 3130, 2016 and 2015 was $1758 million and $8384 million, respectively.

Operating income for the three months ended ~~March~~June 3130, 2016 and 2015 included non-cash expenses for depreciation and amortization of $9193 million and $9293 million and share-based compensation of $4 million and $4 million, respectively.

Interest Expense

Interest expense for the three months ended ~~March~~June 3130, 2016 and 2015 was $117 million and $~~110~~113 million, respectively. Interest expense included non-cash interest expense of $5 million and $65 million, respectively. Non-cash interest expense for each period included amortization of debt issuance costs and accretion of debt discount. Cash interest expense for the three months ended ~~March 31, 2016 and 2015, was $112 million and $104 million, respectively, an increase of $8 million. The increase in cash~~

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June 30, 2016 and 2015, was $112 million and $108 million, respectively, an increase of $4 million. The increase in cash interest expense was the result of certain debt refinancing transactions that occurred during fiscal 2015. See Note 6, “Financing Arrangements” to our unaudited interim Consolidated Financial Statements for further details.

Other Income (Expense), Net

Other income (expense), net for the three months ended ~~March~~June 3130, 2016 and 2015 was $21 million and $(111) million, respectively. Other ~~income~~expense, net, for the three months ended ~~March~~June 3130, ~~2016~~2015 included $38 million of ~~net~~third ~~foreign~~party ~~currency~~fees ~~gains.~~incurred ~~Other~~in ~~expense,~~connection ~~net,~~with ~~for~~debt ~~the three months ended March 31, 2015 included net foreign currency losses of $1 million~~modification.

(Provision for) ~~Benefit from~~ Income Taxes

The provision for income taxes for the three months ended ~~March~~June 3130, 2016 and 2015 was $557 million asand ~~compared to the benefit from income taxes for the three months ended March 31, 2015 of~~ $63 million, respectively.

The Company's effective income tax rate for the three months ended ~~March~~June 3130, 2016 differed 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) tax positions taken during the current period offset by reductions for unrecognized tax benefits resulting from the lapse of statute of limitations, (4) the recognition of a $1716 million income tax ~~benefit~~provision as a result of net ~~gains~~losses in other comprehensive income, and (5) a $92 million ~~charge~~income tax benefit related to the change in the indefinite reinvestment assertion.

AsAt of September 30, 2015, the Company’s ~~had~~book abasis ~~book~~exceeded ~~over~~the tax basis ~~associated~~it ~~with~~had in its foreign subsidiaries, ~~(i.e.~~creating an outside basis difference). Included ofin ~~$290~~this ~~million~~outside ~~with~~basis adifference ~~deferred~~were ~~tax~~amounts ~~liability~~attributable ofto ~~$46~~earnings ~~million~~and ~~with~~profits ~~respect~~for towhich ~~earnings and~~the ~~profits~~Company ofprovided ~~$106~~a ~~million~~deferred tax liability. ~~The~~Deferred ~~Company~~taxes ~~was~~were ~~indefinitely~~not ~~reinvested~~provided on the remaining ~~basis~~portion ~~difference~~of ~~which~~the ~~related~~outside tobasis ~~the~~difference ~~stock~~as ofthese ~~foreign~~amounts ~~subsidiaries~~related ~~attributed~~ to items other than the earnings and profits of the foreign subsidiaries and were essentially permanent in duration. During the three months ended March 31, 2016, the Company ~~determined~~could no longer assert that it ~~will~~had nothe ~~longer~~intent to indefinitely reinvest ~~this~~these ~~remaining~~amounts ~~basis~~and ~~difference.~~the AsCompany awas ~~result~~required to adjust its deferred tax liability for the effects of this change, ~~the~~in ~~Company~~assertion. ~~increased~~These adjustments resulted in an increase to the income tax ~~expense~~provision byof $9 million. ~~Additionally,~~for ~~this~~the ~~change~~three ~~increased~~months ~~deferred~~ended ~~tax~~March ~~liabilities~~31, 2016 and ~~decreased~~a decrease to the ~~valuation~~income ~~allowance~~tax byprovision of $712 million for the three months ended June 30, 2016.

The Company's effective rate for the three months ended ~~March~~June 3130, 2015 differed 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, and (3) the recognition of a $107 million income tax benefit as a result of net gains in other comprehensive income.

~~Six~~During ~~Months~~the ~~Ended~~three ~~March~~months 31ended June 30, 2016 ~~Compared~~and ~~with~~2015, ~~Six~~the ~~Months~~Company ~~Ended~~recorded ~~March~~a 31tax (benefit) charge of $(16) million and $7 million respectively, ~~2015~~related to net losses and gains included in other comprehensive income. As a result of the tax (benefits) charges to other comprehensive income for this tax effect, the Company recognized an income tax provision and benefit in continuing operations as a change in the current period valuation allowance was required against the Company's deferred tax assets in each period.

Nine Months Ended June 30, 2016 Compared with Nine Months Ended June 30, 2015

Revenue

	Six months ended March 31,
	Nine months ended June 30,
	2016		2015		Percentage of Total Revenue				Yr. to Yr.PercentageChange		Yr. to Yr. PercentageChange, net of ForeignCurrency Impact
In millions					2016		2015
GCS	$	~~793~~1,144	$	~~921~~1,356	4342	%	44	%	(1416	)%	(1215	)%
Networking	95142		~~115~~174		5	%	6	%	(1718	)%	(1517	)%
Total ECS product revenue	~~888~~1,286		1,~~036~~530		4847	%	50	%	(1416	)%	(1315	)%
AGS	~~974~~1,458		1,~~038~~543		5253	%	50	%	(6	)%	(4	)%
Total revenue	$	12,~~862~~744	$	23,~~074~~073	100	%	100	%	(1011	)%	(89	)%

GCS revenue for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015 was $~~793~~1,144 million and $~~921~~1,356 million, respectively, a decrease of $~~128~~212 million or 1416%. The decrease in GCS revenue was primarily attributable to lower demand for ~~the~~endpoints, gateways, Nortel and Tenovis ~~legacy~~ products, ~~gateways, endpoints,~~ servers, ~~our~~SME IPTelephony ~~Office and Aura~~ products, and the unfavorable impact of foreign currency. The decrease in GCS revenue was partially offset by higher revenues associated with our contact center products.

Networking revenue for the six months ended March 31, 2016 and 2015 was $95 million and $115 million, respectively, a decrease of $20 million or 17%. The decrease in Networking revenue was primarily attributable to lower sales of ethernet switches, higher revenues in fiscal 2015 associated with new product releases, and the unfavorable impact of foreign currency.35

AGS revenue for the six months ended March 31, 2016 and 2015 was $974 million and $1,038 million, respectively, a decrease of $64 million or 6%. The decrease in AGS revenue was primarily due to lower maintenance services revenues as a result of the

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~~lower~~Networking ~~product~~revenue ~~sales~~for ~~discussed~~the ~~above~~nine months ended June 30, ~~the~~2016 ~~unfavorable~~and ~~impact~~2015 ofwas ~~foreign~~$142 ~~currency,~~million and ~~lower~~$174 ~~professional~~million, ~~services~~respectively, ~~revenue.~~a ~~These~~decrease ~~decreases~~of in$32 ~~AGS~~million ~~revenue~~or ~~were~~18%. ~~partially~~The ~~offset~~decrease byin ~~higher~~Networking revenue ~~from~~was ~~APCS. As~~primarily ~~previously~~attributable ~~discussed,~~to ~~revenues~~lower ~~associated~~sales ~~with~~of ~~APCS~~ethernet ~~contracts~~switches, ~~are~~higher ~~recognized~~revenues ~~over~~in afiscal ~~longer~~2015 ~~period~~associated ofwith ~~time~~new product releases, ~~typically~~and ~~three~~the tounfavorable ~~seven~~impact ~~years~~of foreign currency.

AGS revenue for the nine months ended June 30, 2016 and 2015 was $1,458 million and $1,543 million, respectively, a decrease of $85 million or 6%. The decrease in AGS revenue was primarily due to lower maintenance services revenues as a result of the lower product sales discussed above, lower professional services revenue, and the unfavorable impact of foreign currency. These decreases in AGS revenue were partially offset by higher revenue from APCS. As previously discussed, revenues associated with APCS contracts are recognized over a longer period of time, typically three to seven years.

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

	Six months ended March 31,
	Nine months ended June 30,
	2016		2015		Percentage ofTotal Revenue				Yr. to Yr.PercentageChange		Yr. to Yr. PercentageChange, net of ForeignCurrency Impact
In millions					2016		2015
U.S.	$	1,~~033~~520	$	1,~~103~~641	55	%	53	%	(67	)%	(67	)%
International:
EMEA	~~457~~663		~~567~~830		2524	%	27	%	(1920	)%	(1618	)%
APAC - Asia Pacific	~~210~~312		~~205~~312		1112	%	10	%	2—	%	52	%
Americas International - Canada and Latin America	~~162~~249		~~199~~290		9	%	10	%	(1914	)%	(87	)%
Total International	~~829~~1,224		~~971~~1,432		45	%	47	%	(15	)%	(1011	)%
Total revenue	$	12,~~862~~744	$	23,~~074~~073	100	%	100	%	(1011	)%	(89	)%

Revenue in the U.S. for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015 was $1,~~033~~520 million and $1,~~103~~641 million, respectively, a decrease of $70121 million or 67%. The decrease in U.S. revenue was primarily attributable to lower ~~sales of~~ maintenance services revenue, lower sales of endpoints, ~~Aura products~~gateways, Nortel and Tenovis ~~legacy~~ products, and professional services ~~revenues~~revenue. The decrease in U.S. revenue was partially offset by higher sales of our contact center and ~~networking~~higher ~~products~~revenue attributable to APCS. Revenue in EMEA for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015 was $~~457~~663 million and $~~567~~830 million, respectively, a decrease of $~~110~~167 million or 1920%. The decrease in EMEA revenue was primarily attributable to lower demand and unfavorable pricing for our products and associated maintenance services, lower professional services revenue and the unfavorable impact of foreign currency. Revenue in APAC for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015 was $~~210~~312 million and $~~205~~312 million, respectively~~, an increase of $5 million or 2%~~. ~~The increase in~~ APAC revenue was ~~primarily~~affected ~~attributable~~by to higher APCS revenue ~~from~~and ~~APCS.~~higher ~~The~~sales ~~increase~~of inAura ~~APAC~~products, ~~revenues~~contact ~~was~~center products, and endpoints, partially offset by the unfavorable impact of foreign currency and lower sales of networking products. Revenue in Americas International was $~~162~~249 million and $~~199~~290 million for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015, respectively, a decrease of $3741 million or 1914%. The decrease in Americas International revenue was primarily attributable to the unfavorable impact of foreign currency and lower sales of endpoints. The decreases in Americas International revenue was partially offset by higher sales of contact center and networking products.

We sell our products both directly 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,
	2016		2015		Percentage of TotalECS Product Revenue				Yr. to Yr.PercentageChange		Yr. to Yr. PercentageChange, net of ForeignCurrency Impact
In millions					2016		2015
Direct	$	~~238~~342	$	~~263~~383	27	%	25	%	(1011	)%	(79	)%
Indirect	~~650~~944		~~773~~1,147		73	%	75	%	(1618	)%	(1517	)%
Total ECS product revenue	$	~~888~~1,286	$	1,~~036~~530	100	%	100	%	(1416	)%	(1315	)%

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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
In millions	2016			2015			2016		2015		Amount			Pct.
GCS	$	~~536~~776		$	~~603~~890		67.68	%	65.56	%	$	(67114	)	(1113	)%
Networking	3249			4869			3334.75	%	4139.7	%	(1620		)	(3329	)%
ECS	~~568~~825			~~651~~959			64.02	%	62.87	%	(83134		)	(1314	)%
AGS	~~566~~859			~~596~~882			58.19	%	57.42	%	(3023		)	(53	)%
Unallocated amounts	(1422		)	(1727		)	(1)		(1)		35			(1)
Total	$	1,~~120~~662		$	1,~~230~~814		60.26	%	59.30	%	$	(~~110~~152	)	(98	)%


⁽¹⁾	Not meaningful

Gross profit for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015 was $1,~~120~~662 million and $1,~~230~~814 million, respectively, a decrease of $~~110~~152 million or 98%. The decrease was primarily attributable to the decrease in sales volume, unfavorable pricing, particularly in Europe, and the unfavorable impact of foreign currency. ~~These~~The ~~decreases~~decrease in gross profit ~~were~~was partially offset by the success of our gross margin improvement initiatives and lower pension and postretirement ~~expense~~expenses. 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. Effective October 1, 2015 the Company changed its estimates of the service and interest components of net periodic benefit costs associated with our U.S. pension and postretirement plans which lowered pension and postretirement ~~expense~~expenses recognized. See Note 10, “Benefit Obligations” to our unaudited interim Consolidated Financial Statements for further details. Gross Asmargin increased to 60.6% for the nine months ended June 30, 2016 from 59.0% for the nine months ended June 30, 2015 primarily as a result of our gross margin improvement initiatives, lower pension and postretirement ~~expense~~expenses, and higher software sales as a percentage of revenues, which have higher margins, ~~gross margin increased to 60.2% for the six months ended March 31, 2016 from 59.3% for the six months ended March 31, 2015.~~

GCS gross profit for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015 was $~~536~~776 million and $~~603~~890 million, respectively, a decrease of $67114 million or 1113%. The decrease in GCS gross profit was primarily attributable to lower sales volume, the unfavorable impact of foreign currency, and unfavorable pricing, particularly in Europe. ~~These~~The ~~decreases~~decrease ~~were~~was partially offset by the success of our gross margin improvement initiatives and lower pension and postretirement ~~expense as discussed above~~expenses. ~~As a result of our gross margin improvement initiatives and lower pension and postretirement expense,~~ GCS gross margin increased to 67.68% for the ~~six~~nine months ended ~~March~~June 3130, 2016 from 65.56% for the ~~six~~nine months ended ~~March~~June 3130, 2015. primarily as a result of our gross margin improvement initiatives, lower pension and postretirement expenses and higher software sales as a percentage of revenues, which have higher margins,

Networking gross profit for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015 was $3249 million and $4869 million, a decrease of $1620 million or 3329%. Networking gross margin for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015 was 3334.75% and 4139.7%, respectively. The decreases in Networking gross profit and gross margin were primarily attributable to lower sales volume, partially offset by our gross margin improvement initiatives.

AGS gross profit for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015 was $~~566~~859 million and $~~596~~882 million, respectively, a decrease of $3023 million or 53%. The decrease in AGS gross profit was primarily due to lower services revenue and the unfavorable impact of foreign currency. ~~These~~The ~~decreases~~decrease in AGS gross profit ~~were~~was partially offset by the continued benefit from our gross margin improvement initiatives and lower pension and postretirement ~~expense as discussed above~~expenses. Our gross margin improvement initiatives have enabled us to reduce the workforce and relocate positions to lower-cost geographies. ~~As a result of our gross margin improvement initiatives,~~ AGS gross margin increased to 58.19% for the ~~six~~nine months ended ~~March~~June 3130, 2016 compared to 57.42% for the ~~six~~nine months ended ~~March~~June 3130, 2015 as a result of our gross margin improvement initiatives.

Unallocated amounts for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015 included 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 was primarily attributable to lower amortization associated with technology intangible assets acquired in prior periods.

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Operating Expenses

The following table sets forth a comparison of operating expenses:

	Six months ended March 31,
	Nine months ended June 30,
	2016		2015		Percentage of Revenue				Change
In millions					2016		2015		Amount			Pct.
Selling, general and administrative	$	~~710~~1,027	$	~~730~~1,086	3837.14	%	35.23	%	$	(2059	)	(35	)%
Research and development	~~145~~211		~~174~~256		7.87	%	8.43	%	(2945		)	(1718	)%
Amortization of intangible assets	~~113~~170		~~114~~169		6.12	%	5.5	%	(1		)	(1	)%
Restructuring charges, net	4488		2532		23.42	%	1.20	%	1956			76175	%
Total operating expenses	$	1,~~012~~496	$	1,~~043~~543	54.45	%	50.31	%	$	(3147	)	(3	)%

Selling, general and administrative expenses for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015 were $~~710~~1,027 million and $~~730~~1,086 million, respectively, a decrease of $2059 million. The decrease was primarily attributable to the favorable impact of foreign currency, lower selling expenses, lower payroll and payroll related expenses realized from the success of cost savings initiatives executed in prior periods, and lower pension and postretirement expenses as discussed above. Our cost savings initiatives ~~include~~included reductions to the workforce, exiting and consolidating facilities, and relocating positions to lower-cost geographies. These decreases were partially offset by the resolution of certain legal matters ~~as discussed above~~, advisory fees incurred to assist in the assessment of strategic and financial alternatives to improve the Company’s capital structure, and third-party sales transformation costs ~~incurred during the current period~~.

Research and development expenses for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015 were $~~145~~211 million and $~~174~~256 million, respectively, a decrease of $2945 million. The decrease was primarily due to lower payroll and payroll related expenses realized from the success of cost savings initiatives executed in prior periods and the favorable impact of foreign currency.

Amortization of acquired intangible assets for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015 was $~~113~~170 million and $~~114~~169 million, respectively.

Restructuring charges, net, for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015 were $4488 million and $2532 million, respectively, an increase of $1956 million. ~~The~~As the Company continued its transformation to ~~identify~~a ~~opportunities~~software and service-led organization, it has implemented programs designed to streamline its operations, ~~and~~ generate cost savings, and eliminate overlapping processes and resources. Restructuring charges recorded during the ~~six~~nine months ended ~~March~~June 3130, 2016 included employee separation costs of $4184 million primarily associated with employee severance actions in EMEA, and Canada, and a voluntary plan initiated in the U.S., ~~and~~as well as lease obligations of $34 million. Restructuring charges recorded during the ~~six~~nine months ended ~~March~~June 3130, 2015 included employee separation costs of $1925 million primarily associated with employee severance actions in EMEA and the U.S. and lease obligations of $67 million primarily related to facilities in the U.S. Employee separation charges included, but were 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~~June 3130, 2016 and 2015 was $~~108~~166 million and $~~187~~271 million, respectively.

Operating income for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015 included non-cash expenses for depreciation and amortization of $~~184~~277 million and $~~186~~279 million and share-based compensation of $812 million and $1115 million, respectively.

Interest Expense

Interest expense for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015 was $~~235~~352 million and $~~222~~335 million, respectively. Interest expense included non-cash interest expense of $1015 million and $1015 million, respectively. Non-cash interest expense for each period included amortization of debt issuance costs and accretion of debt discount. Cash interest expense for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015, was $~~225~~337 million and $~~212~~320 million, respectively, an increase of $1317 million. The increase in cash interest expense was the result of certain debt refinancing transactions that occurred during fiscal 2015. See Note 6, “Financing Arrangements” to our unaudited interim Consolidated Financial Statements for further details.

Other Income, Net

Other income, net for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015 was $67 million and $132 million, respectively. Other income, net, for the ~~six~~nine months ended ~~March~~June 3130, 2016 included $910 million of net foreign currency gains. Other income, net, for the ~~six~~nine months ended ~~March~~June 3130, 2015 included $~~5 million of net foreign currency gains and $~~9 million from the release of a reserve related to a tax indemnification liability and $2 million of net foreign currency gains, partially offset by $8 million of third party fees incurred in connection with debt modification.

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(Provision for) ~~Benefit from~~ Income Taxes

The Company's effective income tax rate for the ~~six~~nine months ended ~~March~~June 3130, 2016 differed 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) tax positions taken during the current period offset by reductions for unrecognized tax benefits resulting from the lapse of statute of limitations, and (4) ~~the~~a ~~recognition of an~~ $177 million income tax ~~benefit~~provision ~~as a result of net gains in other comprehensive income, and (5) a $9 million charge~~ related to the change in the indefinite reinvestment assertion.

AsAt of September 30, 2015, the Company’s ~~had~~book abasis ~~book~~exceeded ~~over~~the tax basis ~~associated~~it ~~with~~had in its foreign subsidiaries, ~~(i.e.~~creating an outside basis difference). Included ofin ~~$290~~this ~~million~~outside ~~with~~basis adifference ~~deferred~~were ~~tax~~amounts ~~liability~~attributable ofto ~~$46~~earnings ~~million~~and ~~with~~profits ~~respect~~for towhich ~~earnings and~~the ~~profits~~Company ofprovided ~~$106~~a ~~million~~deferred tax liability. ~~The~~Deferred ~~Company~~taxes ~~was~~were ~~indefinitely~~not ~~reinvested~~provided on the remaining ~~basis~~portion ~~difference~~of ~~which~~the ~~related~~outside tobasis ~~the~~difference ~~stock~~as ofthese ~~foreign~~amounts ~~subsidiaries~~related ~~attributed~~ to items other than the earnings and profits of the foreign subsidiaries and were essentially permanent in duration. During the three months ended March 31, 2016, the Company ~~determined~~could no longer assert that it ~~will~~had nothe ~~longer~~intent to indefinitely reinvest ~~this~~these ~~remaining~~amounts ~~basis~~and ~~difference.~~the AsCompany awas ~~result~~required to adjust its deferred tax liability for the effects of this change, ~~the~~in ~~Company~~assertion. ~~increased~~These adjustments resulted in an increase to the income tax ~~expense~~provision byof $9 million. ~~Additionally,~~for ~~this~~the ~~change~~three ~~increased~~months ~~deferred~~ended ~~tax~~March ~~liabilities~~31, 2016 and ~~decreased~~a decrease to the ~~valuation~~income ~~allowance~~tax byprovision of $712 million for the three months ended June 30, 2016.

The Company's effective income tax rate for the ~~six~~nine months ended ~~March~~June 3130, 2015 differed 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) tax positions ~~take~~taken during the current period offset by reductions for unrecognized tax benefits resulting from the lapse of statute of limitations, (4) the recognition of a $1118 million income tax benefit as a result of net gains in other comprehensive income, and (5) the recognition of a $6 million income tax benefit related to the correction of prior period valuation allowances on deferred tax assets.

During the nine months ended June 30, 2016 and 2015, the Company recorded tax charges of $1 million and $18 million respectively, related to net gains included in other comprehensive income. As a result of the tax charges to other comprehensive income for this tax 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.

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, and we believe these sources will be sufficient 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 over the next twelve months. This ~~and~~analysis ~~have~~includes, ~~not~~among ~~had~~other athings, ~~significant~~scheduled ~~impact~~principal and interest payments on our ~~liquidity~~debt asand payments of ~~March 31~~restructuring charges. The analysis also assumes that we will not receive an adverse decision from the United States Court of Appeals for the Third Circuit regarding the Company’s litigation with Telecom Labs, ~~2016~~Inc., TeamTLI.com Corp. and Continuant Technologies, Inc. (“TLI/Continuant”), nor would we have to post an additional bond in connection with an application for attorneys’ fees, expenses and costs in relation to that litigation matter. See Note 13, "Commitments and Contingencies - Antitrust Litigation" to our unaudited interim Consolidated Financial Statements for additional details regarding this litigation matter. However, there can be no assurance that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our credit facilities to enable us to repay our debt, or to fund other liquidity needs including, without limitation adverse legal outcomes.

The Company has $617 million of variable rate term B-3 loans and term B-4 loans due October 26, 2017 inand ~~the amount of~~ $~~616~~537 million ~~and~~of variable rate term B-6 loans due March 31, 2018 ~~in the amount of $537 million~~. While we have been successful inaccessing the ~~past to access the~~ capital markets on terms and in amounts adequate to meet our objectives in the past, there can be no certainty that such funding will be available in needed quantities or on terms favorable to us due to market conditions or other occurrences.

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Sources and Uses of Cash

The following table provides the condensed statements of cash flows for the periods indicated:

	Six months ended March 31,
	Nine months ended June 30,
In millions	2016			2015
Net cash (used for) provided by:
Net loss	$	(~~130~~245	)	$	(1968	)
Adjustments to net loss for non-cash items	~~181~~296			~~184~~324
Changes in operating assets and liabilities	2(21		)	(2071		)
Operating activities	5330			~~145~~185
Investing activities	(5080		)	(6097		)
Financing activities	~~(14~~3		)	(4656		)
Effect of exchange rate changes on cash and cash equivalents	—(7		)	(2926		)
Net (decrease) increase in cash and cash equivalents	(1154		)	106
Cash and cash equivalents at beginning of period	323			322
Cash and cash equivalents at end of period	$	~~312~~269		$	~~332~~328

Operating Activities

Cash provided by operating activities was $5330 million and $~~145~~185 million for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015, respectively.

Adjustments to reconcile net loss to net cash provided by operations for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015 were $~~181~~296 million and $~~184~~324 million, and primarily consisted of depreciation and amortization of $~~184~~277 million and $~~186~~279 million, deferred income taxes of $~~(12)~~4 million and $~~(19)~~0 million, unrealized (gain) loss on foreign currency exchange of $(1014) million and $~~(5)~~6 million, non-cash interest expense of $1015 million and $1015 million, and share -based compensation of $812 million and $1115 million, respectively.

During the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015, changes in our operating assets and liabilities resulted in a net ~~increase~~decrease in cash and cash equivalents of $221 million~~. The~~ ~~net~~and ~~increase~~$71 ~~was driven by increases in deferred revenues~~million, ~~collection of accounts receivable and lower inventory~~respectively. ~~These~~ The ~~increases~~net decreases were ~~partially~~driven ~~offset~~ by payments associated with our employee incentive programs, the timing of payments to our vendors, and payments associated with business restructuring reserves. ~~established~~These decreases were partially offset by collection of accounts receivable, increases in ~~previous~~accrued ~~periods~~interest, increases in deferred revenues and lower inventory.

During the six months ended March 31, 2015, changes in our operating assets and liabilities resulted in a net decrease in cash and cash equivalents of $20 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.

Investing Activities

Cash used for investing activities was $5080 million and $6097 million for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015, and included capital expenditures of $4974 million and $6792 million and scheduled payments for businesses acquired in the current and prior periods to enhance our technology portfolio of $1320 million and $618 million, respectively. During the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015, cash used for investing activities was partially offset by $14 million and $15 million in proceeds received in connection with financing the use of equipment for the performance of services under our agreement with HP Enterprise Services, LLC ("HP"), respectively. During the ~~six~~nine months ended ~~March~~June 3130, 2016, cash used for investing activities was also partially offset by $2 million in proceeds from the sale of real estate.

Financing Activities

Cash ~~used~~provided ~~for~~by financing activities was $143 million ~~and $46 million~~ for the ~~six~~nine months ended ~~March~~June 3130, 2016 ~~and~~as ~~2015,~~compared ~~respectively. Cash~~to cash used for financing activities ~~during the six months ended March 31, 2016 is net~~ of $1056 million ~~of borrowings in excess of repayments under our revolving credit facilities. Cash used~~ for ~~financing activities during~~ the ~~six~~nine months ended ~~March~~June 3130, 2015 ~~included $20 million of repayments in excess of borrowings under our revolving credit facilities~~. During the six months ended March 31, 2016 and 2015, scheduled debt repayments were $13 million and $19 million, and scheduled repayments in connection with financing the use of equipment for the performance of services under our agreement with HP were $9 million and $5 million, respectively.

39Cash provided by financing activities during the nine months ended June 30, 2016 includes $37 million of borrowings in excess of repayments under our revolving credit facilities. During the nine months ended June 30, 2016 and 2015, scheduled debt repayments were $19 million and $25 million, and scheduled repayments in connection with financing the use of equipment for the performance of services under our agreement with HP were $12 million and $8 million, respectively.

Cash flows from financing activities for the nine months ended June 30, 2015 includes cash proceeds of $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 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 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 loans through the date of the refinancing transaction. The redemption price of the Term

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B-3 Loans and Term 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. Cash paid for debt issuance and debt modification costs were $14 million for 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 and borrowed $20 million under our Foreign ABL during the nine months ended June 30, 2015.

Credit Facilities

We have entered into borrowing arrangements with several financial institutions in connection with the Merger on October 26, 2007 and the acquisition of NES in December 2009. The Company has refinanced and amended these arrangements in order to enhance the Company's capital structure, including several refinancing transactions during fiscal 2015 which extended the maturity dates of certain existing debt and provided for the Foreign ABL.

On May 29, 2015, the Company entered into Amendment No. 9 to the Senior Secured Credit Agreement pursuant to which the Company issued $2,125 million of term B-7 loans maturing May 29, 2020, the 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 refinancing transaction, and (d) pay $1 million for interest accrued on the refinanced term and revolving credit loans through the date of the 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. The base rate is determined by reference to the higher of (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 Senior Secured Credit Agreement.

On June 4, 2015, the Company 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 Company 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 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%.

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.

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.

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, N.A., (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, 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) 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. As of December 31, 2015 the applicable margin with respect to LIBOR, CDOR or EURIBOR borrowings changed to 1.50%. 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.

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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.

The Company continues to address the near-term maturities of debt and has retained advisers to assist with the assessment of opportunities to improve the Company’s capital structure. 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.

As of ~~March~~June 3130, 2016, the Company was not in default under any of its debt agreements.

See Note 6, “Financing Arrangements” to our unaudited interim Consolidated Financial Statements for further details.

Future Cash Requirements

A substantial portion of our future cash requirements are for the payment of principal and interest on our ~~indebtedness~~debt which historically has been in excess of 70% of our operating cash flows ~~from~~as ~~operations~~adjusted to add back interest payments on our debt. Our other future cash requirements relate to working capital, capital expenditures, restructuring payments, and benefit obligations. In addition, we may use cash in the future to make strategic acquisitions.

In addition to our working capital requirements, we expect our primary cash requirements for the remainder of fiscal 2016 to be as follows:

• Debt service—We expect to make payments of $~~235~~130 million during the remainder of fiscal 2016 in principal and interest associated with long-term debt and interest associated with our three revolving credit facilities, although we may elect to make additional principal payments under certain circumstances. The expected payments are exclusive of repayments 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 $6530 million ~~to $75 million~~ during the remainder of fiscal 2016 for employee separation costs and lease termination obligations associated with restructuring actions we have taken through ~~March~~June 3130, 2016 and additional actions we may take in fiscal 2016 as the Company continues to evaluate opportunities to streamline its operations and identify additional cost savings globally.

• Capital expenditures—We expect to spend $5023 million to $6027 million for capital expenditures during the remainder of fiscal 2016.

• Benefit obligations—We expect to make payments under our pension and postretirement obligations of $8250 million during the remainder of fiscal 2016. These payments include: $52 million to satisfy the minimum statutory funding requirements of our U.S. qualified plans, $4 million of payments under our U.S. benefit plans that are not pre-funded, $7 million under our non-U.S. benefit plans that are predominately not pre-funded, $18 million under our U.S. retiree medical benefit plan that is not pre-funded and $1 million under the agreements for represented retirees to post-retirement health trusts. See discussion in Note 10, “Benefit Obligations” to our unaudited interim Consolidated Financial Statements for further details of our benefit obligations.

•On ~~Legal~~October ~~Matters—We~~23, ~~expect~~2014, toin ~~make~~connection ~~payments~~with ofthe ~~approximately~~TLI/Continuant matter, the Company filed a supersedeas bond with the Court in the amount of $5063 million ~~during~~to stay execution of a judgment against it while the ~~three~~matter ~~months~~is ~~ending~~on ~~June~~appeal. ~~30,~~The ~~2016~~Company insecured posting of the bond through the issuance of a letter of credit under its credit facilities. In connection with ~~the~~this ~~resolution~~proceeding, an application was also filed seeking attorneys' fees, expenses and ~~settlement~~costs, ofwhich ~~certain~~the ~~legal~~Company ~~matters~~is contesting. ~~See~~The ~~discussion~~current inapplication ~~Note~~for 13attorneys’ fees, ~~“Commitments~~expenses and ~~Contingencies"~~costs tois ~~our~~approximately ~~unaudited~~$71 ~~interim~~million ~~Consolidated~~and ~~Financial~~represents ~~Statements~~activity through February 28, 2015.

OnThe ~~October~~Company 23expects that a supplemental application will be filed for activity beyond February 28, ~~2014~~2015 at some point in the future. If required, and in ~~connection~~order ~~with~~to astay ~~litigation~~the ~~matter~~enforcement of any award for attorney’s fees, ~~the~~expenses ~~Company~~and ~~filed~~costs, aon ~~supersedeas~~appeal ~~bond~~or ~~with~~otherwise, the ~~Court~~Company will post a bond in the amount of ~~$63~~the ~~million~~award tofor ~~stay~~attorneys' ~~execution~~fees, ofexpenses aand ~~judgment~~costs, ~~against~~plus itinterest. Although ~~while~~this potential posting of the ~~matter~~bond is onnot ~~appeal.~~in ~~The~~our forecast, if required to do so, the Company ~~secured~~expects to secure posting of the bond through existing resources and may use any or a combination of the issuance of aone ~~letter~~or more letters of credit under its existing credit facilities and cash on hand. InAs ~~connection~~an ~~with~~interim ~~this~~matter, ~~proceeding~~on February 22, an2016, ~~application~~the ~~was~~Company ~~also~~posted ~~filed~~a ~~seeking~~bond in the amount of $8 million in connection with the pending attorneys' fees application. See Note 13, ~~expenses~~"Commitments and ~~costs,~~Contingencies ~~which~~- ~~the~~Antitrust ~~Company~~Litigation" isto ~~contesting.~~our ~~The~~unaudited ~~current~~interim ~~application~~Consolidated Financial Statements for ~~attorneys’~~additional ~~fees,~~details ~~expenses~~regarding this litigation matter. These and ~~costs~~other islegal ~~approximately~~matters ~~$71~~could ~~million~~have a material adverse effect on the manner in which the Company does business and ~~represents~~the ~~activity~~Company's ~~through~~financial ~~February~~position, 28results of operations, ~~2015~~cash flows and liquidity.

The Company expects that a supplemental application will be filed for activity beyond February 28, 2015 at some point in the future. 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 attorneys' 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. As an interim matter, on February 22, 2016, the Company posted a bond in the amount of $8 million in connection with the pending attorneys' fees application. See Note 13, "Commitments and Contingencies - Antitrust Litigation" to our unaudited interim Consolidated Financial Statements for additional details regarding this litigation matter. 42

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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 (including publicly issued 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. In addition, the Company is required to prepay outstanding term loans based on its annual excess cash flow, as defined in the Senior Secured Credit Agreement. No such excess cash payments were required based on the Company's fiscal 2015, 2014 and 2013 cash flows. 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.

The Company currently has three revolving credit facilities providing for borrowings of up to an aggregate of $503 million subject to certain contractual limitations. As discussed above, on June 4, 2015 the Company completed an amendment to the Domestic ABL and entered into a new Foreign ABL. The Domestic ABL and Foreign ABL expire June 4, 2020 (subject to certain conditions specified in the Domestic ABL and Foreign ABL) and provides credit availability up to $335 million and $150 million (subject to availability under the calculated borrowing bases as defined for each facility), respectively, to the Company in the form of loans and letters of credit. On June 5, 2015, the Company permanently reduced the senior secured multi-currency revolver under its Senior Secured Credit Agreement due October 26, 2016 from $200 million to $18 million and all letters of credit outstanding under the Senior Secured Credit Agreement were transferred to the Domestic ABL.

As of ~~March~~June 3130, 2016, the Company had $4860 million, $5553 million and $017 million of outstanding borrowings, ~~issued and outstanding letters of credit of~~ $~~122~~116 million, $2324 million and $0 million of issued and outstanding letters of credit, and remaining revolver availability of $5937 million, $3315 million and $181 million under the Domestic ABL, Foreign ABL and Senior Secured Credit Agreement, respectively. Our revolving credit facilities include customary conditions that, if not complied with, could restrict our availability to borrow. See Note 6, “Financing Arrangements” to our unaudited interim Consolidated Financial Statements.

OnAs ~~August~~of 20June 30, ~~2014,~~2016 weand ~~signed~~September an30, ~~agreement~~2015, ~~with~~our HPcash ~~pursuant~~and tocash ~~which~~equivalents ~~the~~held ~~Company~~outside ~~has outsourced to HP certain delivery services associated with~~ the ~~APCS business~~U. ~~In connection with that agreement, HP acquired specified assets owned by the Company~~S. HPwere ~~also~~$93 ~~agreed~~million ~~to make available one or more additional financings to Avaya~~ and ~~its subsidiaries of up to~~ $24109 million, ~~per~~respectively. ~~year~~As ~~for the sole purpose~~ of ~~financing~~June 30, ~~the~~2016, ~~use~~balances of ~~equipment~~cash ~~for the performance of services under the agreement, provided that no material adverse change with respect to the Company has occurred~~ and iscash ~~continuing~~equivalents asheld ofoutside the ~~date any such financing is requested~~U.S. ~~During~~in ~~the~~excess ~~six months ended March 31, 2016 and 2015 we received proceeds~~ of ~~$14~~in-country ~~million~~needs and ~~$15~~which ~~million,~~could ~~respectively,~~not inbe ~~connection~~distributed ~~with~~to the ~~financing~~U.S. ofwithout ~~equipment~~restriction ~~for~~were ~~the~~not ~~performance of services under our agreement with HP~~material.

OnIf ~~December~~we ~~22,~~do ~~2015,~~not ~~Parent~~generate ~~filed~~sufficient ~~with~~cash ~~the~~from ~~SEC~~operations, anface ~~amended~~unanticipated ~~registration~~cash ~~statement~~needs onsuch ~~Form~~as ~~S-1 (~~the ~~“registration~~need ~~statement”) relating~~ to fund a ~~proposed~~significant ~~initial~~strategic ~~public~~acquisition ~~offering~~or ofan ~~its~~adverse ~~common~~legal ~~stock. As~~outcome ~~contemplated~~or indo ~~the~~not ~~registration~~otherwise ~~statement,~~have ~~the~~sufficient ~~net~~cash ~~proceeds~~and ofcash ~~the proposed offering are expected to be used~~equivalents, ~~among~~we ~~other~~may ~~things,~~need to ~~repay~~incur aadditional ~~portion~~debt ofor ~~our~~issue ~~long-term~~additional ~~indebtedness~~equity. ~~The~~ ~~registration~~In ~~statement~~order ~~remains~~to ~~under~~meet ~~review~~our bycash ~~the~~needs ~~SEC~~we ~~and~~may, ~~shares~~from oftime ~~common~~to ~~stock~~time, ~~registered~~borrow ~~thereunder~~under ~~may~~our ~~not~~credit befacilities ~~sold~~or ~~nor~~issue ~~may~~long-term ~~offers~~or toshort-term ~~buy~~debt beor ~~accepted~~equity, ~~prior~~if to the ~~time~~market ~~the~~and ~~registration~~our ~~statement~~credit ~~becomes~~facilities ~~effective. This document~~ and the ~~pending~~indentures ~~registration~~governing ~~statement~~our ~~shall~~notes ~~not~~permit ~~constitute~~us ~~an offer~~ to ~~sell~~do orso. ~~the~~Furthermore, ~~solicitation~~if ofwe ~~any~~acquire ~~offer~~a tobusiness ~~buy nor shall there be any sale of those securities~~ in ~~any~~the ~~State~~future orthat ~~other~~has ~~jurisdiction~~existing ~~in which such offer~~debt, ~~solicitation~~our ordebt ~~sale~~service ~~would~~requirements bemay ~~unlawful~~increase. ~~prior~~We toregularly ~~registration~~evaluate ormarket ~~qualification~~conditions, ~~under~~our ~~the~~liquidity ~~securities~~profile, ~~laws~~and ofvarious ~~any~~financing ~~such~~alternatives ~~State~~for oropportunities ~~other jurisdiction. Further, there is no way~~ to ~~predict~~enhance ~~whether~~our orcapital ~~not~~structure. ~~Parent~~If ~~will~~market beconditions ~~successful~~are ~~in completing the offering as contemplated and if it is successful~~favorable, we ~~cannot~~may berefinance ~~certain~~our ~~if,~~existing debt or ~~how~~issue ~~much~~additional ~~of, the net proceeds will be used for the purposes identified above~~securities.

AsThe Company has $617 million of ~~March 31,~~variable ~~2016~~rate term B-3 loans and ~~September~~term ~~30,~~B-4 ~~2015~~loans due October 26, ~~our~~2017. While ~~cash~~the ~~and~~Company ~~cash~~has ~~equivalents~~been ~~held~~successful ~~outside~~accessing the ~~U.S.~~capital ~~were~~markets ~~$125~~on ~~million~~terms and ~~$109~~in ~~million~~amounts adequate to meet its objectives in the past, ~~respectively~~there can be no certainty that such funding will be available in needed quantities or on terms favorable to the Company due to market conditions or other occurrences. If Asthe Company is unable to raise the funds required to pay or refinance its term B-3 loans and term B-4 loans prior to the filing due date of ~~March 31~~its annual Form 10-K for the year ending September 30, 2016, ~~balances~~the ofCompany ~~cash~~may not be able to assert that it will continue as a going concern in such filing. The Company’s credit facilities, the indentures governing the 2019 senior secured notes and ~~cash~~the ~~equivalents~~indenture ~~held~~governing ~~outside~~the 2021 senior secured notes contain various covenants that among other matters, requires the UCompany to deliver timely audited financial statements, which shall not be subject to any “going concern” or like qualification or exception or any qualification or exception as to the scope of such audit.S. inA ~~excess~~breach of this or any other covenant could result in~~-country~~ ~~needs~~a default under one or all of the Company’s credit facilities and/or ~~which~~the indentures governing the notes. In the event of any default the applicable lenders could ~~not~~elect to terminate borrowing commitments and declare all borrowings outstanding, together with accrued and unpaid interest and any fees and other obligations, to be ~~distributed~~due and payable. The Company continues to address the ~~U.S.~~near-term ~~without~~maturities ~~restriction~~of ~~were~~debt ~~not~~and ~~material~~has retained advisers to assist with the assessment of opportunities to improve the Company’s capital structure.

IfBased weon dopast ~~not~~performance ~~generate~~and ~~sufficient~~current ~~cash from operations~~expectations, ~~face~~we ~~unanticipated~~believe ~~cash~~that ~~needs~~our ~~such~~existing ~~as the need to fund significant strategic acquisitions or an adverse judgment or do not otherwise have sufficient~~ cash and cash equivalents, weof ~~may~~$269 ~~need~~million toas ~~incur~~of ~~additional debt or issue additional equity. In order to meet our cash needs we may~~June 30, ~~from time to time~~2016, ~~borrow~~future ~~under~~cash ~~our~~provided ~~credit~~by ~~facilities~~operating ~~or issue long-term or short-term debt or equity~~activities, ifand ~~the~~borrowings ~~market~~available ~~and~~under our credit facilities ~~and~~will ~~the~~be ~~indentures~~sufficient ~~governing our notes permit us~~ to domeet ~~so.~~our ~~Furthermore, if we acquire a business in the~~ future ~~that~~cash ~~has existing debt, our debt service~~ requirements ~~may~~described ~~increase.~~above ~~We regularly evaluate market conditions, our liquidity profile, and various financing alternatives~~ for ~~opportunities~~at toleast ~~enhance~~the ~~our~~next ~~capital~~twelve ~~structure~~months. IfOur ~~market~~ability ~~conditions~~to ~~are~~meet ~~favorable,~~these ~~we may refinance our existing debt or issue additional securities.~~

The Company has variable rate term B-3 loans due October 26, 2017 in the amount of $616 million and variable rate term B-6 loans due March 31, 2018 in the amount of $537 million. While we have been successful in the past to access the capital 43

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~~markets~~requirements will depend on ~~terms~~our ~~and~~ability into ~~amounts~~generate ~~adequate~~the cash we are forecasting from operations, which is subject to ~~meet~~general ~~our~~economic, ~~objectives~~financial, ~~there~~competitive, ~~can~~legislative, beregulatory noand ~~certainty~~other factors that ~~such~~are ~~funding~~beyond ~~will~~our becontrol, ~~available~~and inour ~~needed~~ability ~~quantities~~to orfund onother ~~terms~~liquidity ~~favorable~~needs, toincluding, uswithout ~~due~~limitation, toadverse ~~market~~legal ~~conditions~~outcomes oras ~~other~~discussed ~~occurrences~~above.

Based on past performance and current expectations, we believe that our existing cash and cash equivalents of $312 million as of March 31, 2016, future cash provided by operating activities and borrowings available under our credit facilities 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

On February 12, 2016, Moody’s downgraded our corporate family credit rating to Caa1 from B3 and affirmed its negative outlook. On April 8, 2016, Standard & Poor’s lowered its corporate credit rating to CCC from B- and lowered its outlook to negative from stable. 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 23, 2015 and determined that there were no significant changes to our critical accounting policies in the ~~six~~nine months ended ~~March~~June 3130, 2016 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.” All statements other than statements of historical fact are “forward-looking” statements for purposes of the U.S. Federal and state securities laws. In some cases these statements may be identified by the use of forward looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “our vision,” “plan,” “potential,” “predict,” “should,” “will” or “would” or the negative thereof or other variations thereon or comparable terminology. These statements discuss future expectations, contain projections of results of operations or of financial condition, or state trends and known uncertainties or other forward-looking information. You are cautioned that forward-looking statements are inherently uncertain. Each forward-looking statement contained in this report is subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statement. 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 caution readers not to place considerable reliance on such 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 degree of leverage and its effect on our ability to refinance our existing debt and/or raise additional capital and to react to changes in the economy or our industry;


•	our liquidity and our access to capital markets;


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


•	our reliance on our indirect sales channel;


•	our ability to remain competitive in the markets we serve;


•	the market for our products and services;


•	fluctuations in foreign currency exchange rates;


•	risks relating to the transaction of business internationally;


•	economic conditions and the willingness of enterprises to make technology investments;


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


•	our use of software from open source code sources;


•	our ability to retain and attract key employees;


•	our ability to manage our supply chain and logistics functions;


•	our ability to integrate acquired businesses;


•	our ability to successfully transition toward or integrate the products of acquired businesses into our portfolio;


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


•	an adverse result in any significant litigation, including antitrust, intellectual property or employment litigation;


•	our ability to maintain adequate security over our information systems, products and services;


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


•	our ability to detect and fix design defects and "bugs";


•	pension and post-retirement healthcare and life insurance liabilities; and


•	our ability to realize the benefits we expect from our cost reduction initiatives.

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. 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 a measure of 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, including one-time charges, permitted in calculating covenant compliance under our debt agreements. 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. Moreover, it may not be comparable to the measure for any subsequent four-quarter period or any complete fiscal year.

We also calculate Adjusted EBITDA for purposes other than debt covenant compliance using a different formulation than that allowed in our debt documents. Certain employee and management benefit plans are determined using financial targets based on Adjusted EBITDA. We also believe Adjusted EBITDA is more useful to equity investors than the calculation of debt adjusted EBITDA because the former does not include adjustments for certain items that we believe are indicative of our performance. In addition, we believe Adjusted EBITDA provides more comparability between our historical results and results that reflect purchase accounting and our current capital structure. Accordingly, Adjusted EBITDA measures our financial performance based on operational factors that management can impact in the short-term, such as our pricing strategies, volume, costs and expenses of the organization, and it presents our financial performance in a way that can be more easily compared to prior quarters or fiscal years.

EBITDA and Adjusted EBITDA have limitations as analytical tools. EBITDA measures do not represent net income (loss) or cash flow from operations as those terms are defined by GAAP and do not necessarily indicate whether cash flows will be sufficient to fund cash needs. While EBITDA 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 excludes the impact of earnings or charges resulting from matters that we consider not to be indicative of our ongoing operations. In particular, our formulation of Adjusted EBITDA allows adjustment for certain amounts that are included in calculating net income (loss) as set forth in the following table including, but not limited to, restructuring charges, certain fees payable to our private equity sponsors and other advisors, resolution of certain legal matters and a portion of our pension and post-employment benefits costs which represents the amortization of pension service costs and actuarial gain (loss) associated with these benefits. However, these are expenses that may recur, may vary and are difficult to predict.

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The unaudited reconciliation of net loss, 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	2016			2015			2016			2015
Net loss	$	(~~103~~115	)	$	(2249	)	$	(~~130~~245	)	$	(1968	)
Interest expense	117			~~110~~113			~~235~~352			~~222~~335
Interest income	—(1		)	(1—		)	—(1		)	(1		)
Provision for (benefit from) income taxes	5			(6		)	9			(3		)
Provision for income taxes	57			3			66			—
Depreciation and amortization	9193			9293			~~184~~277			~~186~~279
EBITDA	~~110~~151			~~173~~160			~~298~~449			~~385~~545
Restructuring charges, net	2144			107			4488			2532
Sponsors' and other advisory fees (a)	49			21			615			45
Integration-related costs (b)	1			—			1			1
Acquisition and integration-related costs (b)	1			1			2			2
Third party sales transformation costs (c)	3—			—			5			—
Non-cash share-based compensation	4			4			8			11
Loss on extinguishment of debt (d)	—			6			—			6
Third-party fees expensed in connection with the debt modification (e)	—			8			—			8
Non-cash share-based compensation	4			4			12			15
Gain on sale of investments and long-lived assets, net	—			(1		)	—			(1		)
Change in certain tax indemnifications	—			—			—			(9		)
Resolution of certain legal matters (d)	51			—			51			—
Resolution of certain legal matters (f)	2			—			53			—
(Gain) loss on foreign currency transactions	(31		)	13			(910		)	(52		)
Pension/OPEB/nonretirement postemployment benefits and long-term disability costs (e)	14			17			29			34
Pension/OPEB/nonretirement postemployment benefits and long-term disability costs (g)	13			18			42			52
Other	—			1—			—			1
Adjusted EBITDA	$	~~205~~223		$	~~208~~207		$	~~433~~656		$	~~447~~654


(a)	Sponsors’ fees represent monitoring fees payable to affiliates of the Sponsors and their designees pursuant to a management services agreement. Other advisory fees represents costs incurred to assist in the assessment of strategic and financial alternatives to improve the Company’s capital structure.


(b)	Integration-related costs primarily represent third-party consulting fees related to developing compatible IT systems and internal processes with those of acquired entities.


(c)	Third party sales transformation costs are consulting fees incurred in support of the Company's sales initiatives and the realignment of its sales organization.

(d) ~~Resolution~~Loss on extinguishment of debt represents the loss recognized in connection with certain ~~legal~~debt ~~matters~~refinancing ~~includes~~transactions ~~settlements~~entered into during fiscal 2015. The loss is based on the difference between the reacquisition price and ~~associated~~the ~~legal~~carrying value (including unamortized debt issue costs) of the debt. See Note 6, "Financing Arrangements," to our unaudited interim Consolidated Financial Statements located elsewhere in this Form 10-Q.

(e) ~~Represents~~The ~~that~~third-party ~~portion~~fees ofexpensed ~~pension~~in ~~and~~connection ~~post-employment~~with ~~benefit~~debt ~~costs~~modification ~~which~~represent ~~represents~~fees ~~the~~paid ~~amortization~~to ofthird ~~prior~~parties ~~service~~in ~~costs~~connection ~~and~~with ~~net~~certain ~~actuarial~~debt ~~gain~~refinancing ~~(loss)~~transactions ~~associated~~entered ~~with~~into ~~these~~during ~~benefits~~fiscal 2015. See Note 6, "Financing Arrangements," to our unaudited interim Consolidated Financial Statements located elsewhere in this Form 10-Q.

46(f) Resolution of certain legal matters includes settlements and associated legal costs.


(g)	Represents that portion of pension and post-employment benefit costs which represents the amortization of prior service costs and net actuarial gain (loss) associated with these 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, 2015 filed with the SEC on November 23, 2015. As of ~~March~~June 3130, 2016, 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 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 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 13, “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~~June 3130, 2016 to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2015.



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 periodic reports and current reports with the SEC voluntarily to comply with the terms of the indenture governing its senior secured notes due March 1, 2021.

Subsequent to the quarter ended ~~March~~June 3130, 2016, there were no events that took place that are required to be disclosed in a report on Form 8-K that have not yet been reported.

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Item 6.	Exhibits.

ExhibitNumber
10.1		~~Separation~~Form ~~Agreement~~of ~~and~~Avaya ~~General~~Inc. ~~Release~~Executive byChange ~~and~~in Control Agreement, dated May 13, 2016, between Avaya Inc. and ~~Roger~~an ~~Gaston,~~executive ~~effective~~(Incorporated asby ofreference ~~March~~to 31Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 19, 2016)
10.2		Avaya Inc. Executive Change in Control Agreement, dated May 13, 2016, between Avaya Inc. and Kevin J. Kennedy (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on May 19, 2016)
10.3		Avaya Inc. 2016 Key Employee Incentive Plan, effective April 1, 2016 (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on May 19, 2016)
10.4		Form of Participation Agreement, dated May 13, 2016, between Avaya Inc. and an executive (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on May 19, 2016)
10.5		Form of Retention Bonus Agreement, dated May 13, 2016, between Avaya Inc. and an executive (Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on May 19, 2016)
10.6		Retention Bonus Agreement, dated May 13, 2016, between Avaya Inc. and James Chirico (Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the SEC on May 19, 2016)
10.7		Avaya Holdings Corp. Cash Long-Term Incentive Plan, effective as of May 19, 2016 (Incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed with the SEC on May 19, 2016)
10.8		Form of Avaya Holdings Corp. Long-Term Cash Award Agreement (Incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed with the SEC on May 19, 2016)
10.9		Avaya Inc. Involuntary Separation Plan for Senior Officers, amended and restated effective May 13, 2016
31.1		Certification of Kevin J. Kennedy pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of David Vellequette pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Kevin J. Kennedy pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of David Vellequette pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101		The following materials from Avaya Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~March~~June 3130, 2016, formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Balance Sheets at ~~March~~June 3130, 2016 and September 30, 2015, (ii) Consolidated Statement of Operations for the three and ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015, (iii) the Consolidated Statement of Comprehensive Income for the three and ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015, (iv) Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~March~~June 3130, 2016 and 2015, 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 DELL'~~Osso~~OSSO L. David Dell'OssoVice President, Corporate Controller & Chief Accounting Officer(Principal Accounting Officer)

~~May~~August 1612, 2016

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