**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,DC 20549**

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**FORM 10-K**

**x**                              ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**ForThe Fiscal Year Ended September 30, 2005**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

**CommissionFile Number 001-15951**

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**AVAYA INC.**

(Exact name of registrantas specified in its charter)

| **DELAWARE**                              |   | **22-3713430**       |
|-------------------------------------------|--------|----------------------|
| (State or other  jurisdiction             |   | (I.R.S. Employer     |
| of incorporation  or organization)        |   | Identification  No.) |
| **211 Mount Airy Road**                   |   | ** **           |
| **Basking  Ridge, New Jersey**            |   | **07920**            |
| (Address of  Principal executive offices) |   | (Zip Code)           |

 

Registrant’s telephonenumber, including area code:**(908)-953-6000**

**Securities registered pursuant to Section 12(b) ofthe Act:**

| Title of each class                                                 | ** ** | **Name of each exchange on which registered** |
|---------------------------------------------------------------------|------------|-----------------------------------------------|
| Common Stock, par value $.01 per share                              |       | New York Stock Exchange                       |
| Series A  Junior Participating Preferred Stock Purchase Rights |       | New York Stock Exchange                       |

 

**Securities registered pursuant to Section 12(g) ofthe Act:**None

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes  x  No  o

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K (isnot contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K.x

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Act). Yes  x  No  o

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theAct). Yes  o  No  x

At March 31, 2005,the aggregate market value of the voting common equity held by non-affiliateswas approximately $4.97 billion.

At November 30, 2005,470,525,800 common shares were outstanding.

**DOCUMENTSINCORPORATED BY REFERENCE**
| Portions of the 2005 Annual Report to  Shareholders                          |   | Parts I, II and IV |
|------------------------------------------------------------------------------|--------|-------------------------|
| Portions of the Proxy Statement for the 2006 Annual  Meeting of Shareholders |   | Part III           |

 

 

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**TABLE OF CONTENTS**
| Item       | ** ** | **Description**                                                                                                     | ** ** | ** ** |
|------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|------------|
| ** ** | ** ** | **PART I**                                                                                                     |       |       |
| 1.         |       | Business                                                                                                            |       | 1          |
| 2.         |       | Properties                                                                                                          |       | 22         |
| 3.         |       | Legal  Proceedings                                                                                                  |       | 22         |
| 4.         |       | Submission  of Matters to a Vote of Security-Holders                                                                |       | 22         |
| ** ** | ** ** | **PART II**                                                                                                    |       |       |
| 5.         |       | Market  for Registrant’s Common Equity, Related Stockholder Matters and Issuer  Purchases of Equity Securities |       | 23         |
| 6.         |       | Selected  Financial Data                                                                                            |       | 23         |
| 7.         |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         |       | 24         |
| 7A.        |       | Quantitative  and Qualitative Disclosures About Market Risk                                                         |       | 24         |
| 8.         |       | Financial  Statements and Supplementary Data                                                                        |       | 24         |
| 9.         |       | Changes  in and Disagreements With Accountants on Accounting and Financial Disclosure                               |       | 24         |
| 9A.        |       | Controls  and Procedures                                                                                            |       | 24         |
| 9B.        |       | Other  Information                                                                                                  |       | 25         |
| ** ** | ** ** | **PART III**                                                                                                   |       |       |
| 10.        |       | Directors  and Executive Officers of the Registrant                                                                 |       | 25         |
| 11.        |       | Executive  Compensation                                                                                             |       | 26         |
| 12.        |       | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                    |       | 27         |
| 13.        |       | Certain  Relationships and Related Transactions                                                                     |       | 27         |
| 14.        |       | Principal  Accounting Fees and Services                                                                             |       | 27         |
| ** ** | ** ** | **PART IV**                                                                                                    |       |       |
| 15.        |       | Exhibits  and Financial Statement Schedules                                                                         |       | 27         |

 

This Annual Report on Form 10-K containsregistered and unregistered trademarks and service marks of Avaya and itssubsidiaries and other companies, as indicated. Unless otherwise provided inthis Annual Report on Form 10-K, marks identified by “®,”“TM” and “SM” areregistered marks, trademarks and service marks, respectively, of Avaya Inc. orits subsidiaries. All other trademarks and service marks are the properties oftheir respective owners. Liquid Yield OptionTM Notes is a trademark of Merrill,Lynch & Co., Inc. Microsoft® is a registered trademarkof Microsoft Corporation. Lotus Notes® and Sametime® areregistered trademarks of International Business Machines Corporation.

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**PART I**

**Item 1.**                        *Business.*

We were incorporated under the laws of the State ofDelaware under the name “Lucent EN Corp.” on February 16, 2000, as awholly owned subsidiary of Lucent Technologies Inc. (“Lucent”). As of June 27,2000, our name was changed to “Avaya Inc.” On September 30, 2000,Lucent contributed its enterprise networking business to us and distributed allof the outstanding shares of our capital stock to its shareowners. We refer tothese transactions in this Annual Report on Form 10-K as the “distribution.”Prior to the distribution, we had no material assets or activities as aseparate corporate entity. Following the distribution, we became an independentpublic company, and Lucent has no continuing stock ownership interest in us.

Unless otherwise indicatedby the context, “we,” “us,” “our,” the “Company” and “Avaya” refer to AvayaInc. and its consolidated subsidiaries. When we use the term “traditional” withrespect to “voice communications,” “enterprise voice communications,” “telephony,”“voice telephony,” “voice systems” or “TDM,” we are referring to circuit-basedenterprise voice communications.

**Overview**

For an overview of ourbusiness, including products, applications and services; customers andcompetitive advantage; fiscal 2005 financial and operating goals; key trendsand uncertainties affecting our results; continued focus on cost structure;acquisitions and divestitures; and strategic uses of cash and cash equivalents,please see “Management’s Discussion and Analysis of Financial Conditionand Results of Operations—Overview.”

**Operating Segments**

We offer a broad array of communications solutions,comprised of hardware, software and services, that enable enterprises tocommunicate with their customers, suppliers, partners and employees throughvoice, Web, electronic mail, facsimile, Web chat sessions and other forms ofcommunication, across an array of devices. These devices include telephones,computers, cell phones and personal digital assistants.

Our broad portfolioof products includes:

·       hardwareand software products we have developed internally,

·       hardwareand software products we have obtained through acquisitions and productsmanufactured by third parties that we resell,

·       hardwareand software products provided to us by third parties as components of ourofferings, and

·       hardwareand software products we have developed through our strategic alliances withother technology leaders.

Our products range from communications solutions designed formultinational enterprises with multiple locations worldwide, thousands ofemployees and advanced communications requirements to communications solutions designed for businesses with less thanten employees.

The Company reports its operations in two segments—GlobalCommunications Solutions (“GCS”) and Avaya Global Services (“AGS”). Thisstructure represents a change from the Company’s three-segment structureutilized in fiscal 2004, and better reflects how the businesses are beingmanaged consistent with the Company’s operating structure and go-to-marketstrategies. Accordingly, prior period amounts in our financial statements havebeen restated to reflect this change. The GCS segment, which includes our priorreportable segments of Enterprise Communications Group (“ECG”) and Small andMedium Business Solutions (“SMBS”), develops, markets and sells communicationssystems including 

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IP telephonysolutions, multi-media contact center infrastructure and converged applicationsin support of customer relationship management, unified communications applications,devices such as IP telephone sets, and traditional voice communicationssystems.The AGS segment develops,markets and sells comprehensive end-to-end global service offerings that enablecustomers to plan, design, implement, monitor and manage their convergedcommunications networks worldwide.

The GCS segment includes the portion of the Tenovisrental and managed services revenue attributable to the equipment used inconnection with customer contracts. The portion of customer contractsattributable to maintenance and other services is included in the AGS segment.

For the twelve months ended September 30, 2005,revenue from GCS and AGS was 52% and 48%, respectively, of our total revenue. Becausemany of our customers who purchase equipment and applications from our GCSsegment purchase contracts to service those equipment and applications from ourAGS segment, the performance of our AGS segment is related to the performanceof our GCS segment. Please see Note 15 “Operating Segments,” to our ConsolidatedFinancial Statements which are included in our 2005 Annual Report toShareholders, for financial information regarding our operating segments.

Historically, sales of our traditional enterprisevoice communication solutions represented a significant portion of our revenue.Revenue generated by these systems has been declining, however, and asdescribed more fully under “Global Communications Solutions,” we are focused onthe sale of IP telephony solutions to new customers and the migration ofour existing customers’ networks from traditional voice communications systemsto IP telephony solutions. If we are successful in implementing our strategy,sales of IP telephony solutions will increase, as adoption of IP telephony byenterprises becomes more widespread. Since sales of maintenance contracts toservice enterprise voice communications systems are a significant component ofrevenue generated by our AGS segment, there typically is some correlationbetween AGS revenue trends and trends in sales of our enterprise voicecommunications systems. Although the maintenance revenue for traditionaltelephony systems has declined, this decline is being partially mitigated bynew revenue generated by services offers targeted at the IP telephonyenvironment.

Forthe fiscal years ended September 30, 2005, 2004 and 2003, the percentageof total revenue contributed by each class of similar products, applications orservices is as follows:

| ** **                               | ** ** | **Percentage of Consolidated Revenue**                | ** ** |
|------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                               | ** ** | **     2005     ** | ** ** | **     2004     ** | ** ** | **     2003     ** | ** ** |
| Large  Communications Systems            |       |                                                                 | 32         | % |   |   | 30 | % |   |   | 30 | % |   |
| Small  Communications Systems            |       |                                                                 | 7          | % |   |   | 6 | % |   |   | 5 | % |   |
| Converged Voice  Applications            |       |                                                                 | 12         | % |   |   | 13 | % |   |   | 13 | % |   |
| Other                                    |       |                                                                 | 1          | % |   |   | 1 | % |   |   | 2 | % |   |
| Total Global Communications Solutions    |       |                                                                 | 52         | % |   |   | 50 | % |   |   | 50 | % |   |
| Maintenance                              |       |                                                                 | 30         | % |   |   | 35 | % |   |   | 34 | % |   |
| Implementation  and integration services |       |                                                                 | 10         | % |   |   | 9 | % |   |   | 9 | % |   |
| Managed services                         |       |                                                                 | 7          | % |   |   | 6 | % |   |   | 7 | % |   |
| Other                                    |       |                                                                 | 1          | % |   |   | 0 | % |   |   | 0 | % |   |
| Total Avaya Global Services              |       |                                                                 | 48         | % |   |   | 50 | % |   |   | 50 | % |   |
| Total                                    |       |                                                                 | 100        | % |   |   | 100 | % |   |   | 100 | % |   |

 

***Global Communications Solutions Segment***

Our GCS segment is focused on the sale ofcommunications systems, equipment and applications to our enterprise customers.Our primary offerings for this segment include IP telephony solutions and 

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traditional voice communicationssolutions, multi-media contact center infrastructure and applications insupport of customer relationship management, unified communicationsapplications and devices, such as IP telephone sets. A unique feature of ourstrategy is our ability to help our customers migrate from traditional voicecommunications systems to a converged network that provides for theintegration, based on Internet Protocol technology, of voice, data, video andother application traffic on a single unified network containing both wired andwireless elements. Internet Protocol is a type of protocol, or set ofstandardized procedures, for the formatting and timing of transmission ofcommunications traffic between two pieces of equipment.

We believe theimplementation of a converged network can provide significant benefits to anenterprise in a number of ways. These benefits include:

·       reducedcosts through the use of a single unified network;

·       simplifiedadministration and lower costs for moves, adds and changes;

·       leastcost routing techniques for call processing;

·       increasedworker productivity resulting from enhanced wired and wireless network accessto all communication channels, such as voice, e-mail and fax, from an array ofdevices, including computer, telephone, cell phone, fax machine and personaldigital assistant; and

·       enhancedbusiness performance through the integration of IP telephony with othercommunications applications, such as voice messaging, e-mail, unifiedcommunications and contact centers, and third-party business applications, suchas those that facilitate supply chain management and work flow processes.

**CommunicationSystems.***  *Weare a worldwide leader in enterprise telephony, which we define as the marketfor traditional voice telephony and IP telephony.

Our suite of IPtelephony offerings includes:

·       CommunicationManager, our voice application software that manages call processing,facilitates secure customer interactions across a variety of media and supportsa range of Avaya and third-party applications;

·       ourmedia servers, which put voice applications such as call processing on thecustomer’s local area network;

·       ourmedia gateways, which support traffic routing between traditional voice and IPtelephony systems, providing enterprises with the flexibility to implement anew IP telephony solution or to “IP-enable” their existing voice communicationssystem, thereby helping to preserve existing communications technologyinvestments;

·       asuite of management tools that supports complex voice and data networkinfrastructures;

·       ourAvaya Extension to Cellular solution, which transparently bridges calls to anycell phone; regardless of location or wireless service provider;

·       ourSIP (Session Initiation Protocol) Enablement Services solution, enablingstandards-based, real time multi-modal communication with features such asPresence and Instant Messaging within the secured enterprise network, includingthe ability to support voice communication with existing Avaya analog, digitaland IP devices;

·       ourApplication Enablement platform, allowing enterprises and call centers toefficiently combine various applications to the Telephony and Call Centerinfrastructure.

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In 2003, we entered into a strategic alliance withExtreme Networks Inc. to jointly develop and market convergedcommunications solutions. As part of this relationship, we resell Extreme’sdata networking products on a stand-alone basis and as part of our suite of IPtelephony solutions. Avaya continues to offer data networking capabilitiesintegrated into its converged communications solutions. Extreme also willcontinue to sell its data networking products through its multinationaldistribution channels.

In October 2004, we acquired Spectel plc, a worldleader in audio conferencing solutions. This acquisition enables us to continueto expand our capabilities in audio conferencing, which we believe is a corebusiness communications technology. Spectel’s software-based solutions aredesigned using industry standards, which makes them well-suited to integratewith systems from a variety of vendors. The conferencing solutions offerenterprise self-service or managed on-premise and telecommunications serviceprovider solutions, including applications for advanced services, such asintegration with other productivity software suites. In July 2005, weannounced plans to integrate audio conferencing with IBM Lotus Sametimeand in September 2005 we announced integration with Macromedia’s BreezeWeb conferencing. These partnerships demonstrate how audio conferencing candrive additional value when integrated with enterprise productivity software.

In November 2004, Avaya acquired Tenovis, aEuropean leader in the provision of enterprise communications systems andservices. This acquisition significantly increased Avaya’s size and scale inEurope and we view this as a competitive strength. With this transaction, Avayagains the opportunity to offer communications solutions to the Tenovisinstalled base and new multi-national customers based in Europe. The Tenovisacquisition positions us to capitalize on the acceleration in adoption of IPtelephony in Europe. For fiscal 2005, approximately 41% of our revenues weregenerated outside the U.S.

In December 2004, we acquired RouteScience, amaker of dynamic Adaptive Networking Software (ANS) for enterprises and serviceproviders. The acquisition enhances our software development team in the criticalareas of application-based network assessment, monitoring and intelligent routeadjustment. It enables Avaya to offer customers a wider choice for enhancingreliability when connecting branch offices using IP telephony. As complexcommunications applications move to IP networks, our ability to deliverreal-time data traffic management as part of a complete solution will be acompetitive advantage.

In July 2005, we entered into a strategicalliance with Meru Networks, Inc. to market converged communicationssolutions. Under this agreement, we resell Meru’s wireless data networkingproducts on a stand-alone basis and as part of our suite of IP telephonyofferings.

In October 2005, we entered into a strategicalliance with Juniper Networks, Inc. to jointly market and developintegrated voice, data and security functionality on common platforms to createconverged solutions. The companies are working to complete extensiveinteroperability testing and to jointly develop and market converged solutionsbased on Avaya’s communication applications and endpoint devices and Juniper’srouting and security solutions. The development relationship is focused oncomplete converged campus and branch solutions for enterprise markets.

In November 2005, we entered into a strategicalliance with SAP America, Inc., to market intelligentcommunications-enabled business applications that bring together people andbusiness processes to achieve higher levels of customer service and businessagility. Under the agreement, the companies will jointly market mySAPTM CustomerRelationship Management with Avaya contact center capabilities to enhancecustomer retention and acquisition by improving quality and time-to-resolutionof enterprise transactions. In addition, the companies will also jointly marketbusiness solutions that combine Avaya communication Web services with the SAPEnterprise Services Architecture to deliver intelligent communicationcapabilities that allow business associates to collaborate quickly andeffectively.

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We also offer traditional voice communicationssystems, although the market for these systems is declining and we are focusedon the migration of customers’ traditional voice communications systems to IPtelephony solutions.

*Communications Applications.**  *Our Enterprise CommunicationsApplications organization is focused on applications that facilitate andenhance interactions in an enterprise with customers, partners, suppliers andemployees. This organization is currently focused on infrastructure and applicationsfor multimedia contact centers and unified communications.

*Contact Centers.**  *Our contact center productofferings are software and hardware systems and software applications forcustomer contact centers, assisted or self-service, which are the foundation ofmany customer sales and service offerings. We use the term call centers torefer to applications that primarily manage an enterprise’s interactions withcustomers via the telephone, and the term contact centers to refer toapplications that allow customers to interact with an enterprise using multiplecommunications media, including electronic mail, access from a Web site, Webchat and collaboration, voice self-service, telephone calls and facsimiles. Ourstrategy is to enable enterprises to interact with customers in an efficientand effective way beyond the boundaries of the traditional contact center.

Avaya Customer Interaction Suite offers a suiteof intelligent call routing alternatives that can accommodate single callcenters or multiple call centers through “virtual” routing over a convergednetwork. Calls can be routed to customer care agents or self-serviceapplications based on a variety of criteria or business rules, including callvolume, workload, agent language, subject matter expertise or across time zonesor countries and, in each case, routing is transparent to the customer. Additionallyour suite includes data for reporting and analytics that provide insight onresource utilization and the efficiency and effectiveness of a center.

*Unified Communication.**  *We define Unified Communications asa highly productive unified user experience providing a seamless interfaceacross all communications types, applications, and devices. The Avaya family ofUnified Communications offerings supports virtual teams and increases personalproductivity using business rules and presence based technology to connectthe right people at the right time in the most efficient way.

Our Unified Communications offerings such as IPsoftphone with Instant Messaging, video, voice mail, and “click to call”capabilities are ideal for the telecommuter and mobile worker. These offeringscoupled with voice and web conferencing create a set of productivity toolsrequired for an effective office without boundaries. Avaya Modular Messagingand Message Networking solutions give users a single mailbox for voice, emailand fax visually presented through their favorite email client, eitherMicrosoft Outlook or IBM Lotus Notes. Speech access to email, voice mail,calendar, and dial from directory plus “find me” features provide businessassociates the tools required to conduct business anyplace, anytime, anywhere.

*CommunicationsAppliances.**  *TheCommunications Appliances portfolio consists of a variety of hard and softdevices including:

·       acomprehensive line of digital and IP devices and in-building wireless handsetsand

·       softwarethat extends the reach of enterprise communications by residing on alternativedevices.

Examples of the latter include the Mobility Clientdelivered to run on Nokia Symbian 60 Mobile phones and our IP Softphone, whichprovides the functionality of a digital telephone on a personal computer orhandheld device. The list of mobile platform partnerships continues to grow toexpand Avaya’s mobility reach.

In September 2005, we acquired Nimcat Networks, aprovider of peer-to-peer communications software designed to run in IP devices,targeted to customers with small locations who are looking for low 

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total cost of ownershipand a basic telephony solution. In addition to this technology and the abilityto tap into a previously underserved segment, the acquisition brings to Avayaan R&D center located in the talent rich area of Ottawa, Canada.

*Small and Medium Business Solutions.****  ***Avaya Smalland Medium Business Solutions (SMBS) are focused on communications products andapplications for small and medium-sized businesses. Our primary offeringsinclude IP telephony solutions and traditional voice systems, as well as a hostof applications, including messaging, contact center, mobility, andconferencing, among others. Our products and applications provide enhancedcommunications capabilities to customers with fewer than 250 employees andin a wide range of industries and market segments. SMBS is also targetingwell-defined vertical markets and segments (for example, legal, accounting,retail, real estate, healthcare and minority-owned businesses) todevelop, market and sell solutions that address the specific requirements ofthese businesses.

The products withinthe Avaya SMBS portfolio include:

·       *Avaya IP Office.*   Avaya IP Office is an “all-in-one” IPtelephony solution designed to deliver converged voice and data communicationssolutions to small and medium-sized businesses and branch offices of largerenterprises. IP Office offers a variety of business-enhancing featuresincluding unified messaging, voice mail, conferencing, contact centercapabilities, support for remote workers and other features that are usuallyavailable only with larger, more complex systems that typically cost more. Asof September 30, 2005, Avaya has installed approximately 58,000 IP Officesystems for customers worldwide since its introduction in 2002.

·       *Communication Server Integral.*   The Integral 5Communication Server was specially developed by Tenovis to satisfy theindividual re­quirements of medium-sized companies. Together with IntegratedCommunication Centre Office, it forms an intelligent, expandable and integratedapplication suite. Integral 5 is able to expand to keep pace with our customers’preferences and needs, permitting flexibility, expanded performancecapabilities, and investment security for the future. As of September 30,2005, approximately 77,000 systems had been installed worldwide.

·       *TraditionalVoice Systems.*   We also provide traditional voice systems forthe SMBS market including our Partner® Advanced Communication System, Merlin Magix®  Integrated System and INDeXTM System.

***Avaya Global Services Segment***

Our AGS segment is focused on supporting our broadcustomer base with comprehensive end to end global service offerings thatenable our customers to plan, design, implement, monitor and manage theirconverged communications networks worldwide.

We believecustomers choose AGS based on our:

·       endto end solutions;

·       experienceand expertise;

·       diagnostictools and capability;

·       resources;

·       singlepoint of accountability; and

·       worldwidenetwork of relationships.

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Our broad portfolioaddresses the following business needs of our customers:

*Business communications strategy developmentand planning.**  *Wehelp our customers define communications strategies that support their businessoperations utilizing technologies that are best suited to their businesses,including creating infrastructure and integration road maps, designingarchitectural frameworks and developing transformation and migration plans. Thestrategies are developed through a collaborative effort with the objective ofmaximizing technology investments through network optimization and leveragingcommunications for strategic, competitive advantage.

*Applications design and integration.**  *Through operation, implementation and integrationspecialists worldwide, we help customers leverage and optimize theirmulti-technology, multi-vendor environments through the use of contact centers,Unified Communication networks, and IP telephony with the goal of enhancingcommunication with customers, partners, suppliers, and employees and improvingoperational efficiency.

*Migrating to IP.**  *Through our team of IP migration specialistssupported by our industry-leading Avaya ExpertNetSM  VoIP Assessment Tool, we are able to providesingle point of accountability and full range of service offerings to help ourcustomers develop migration plans to IP telephony, assess network readiness,and address issues of network optimization and security.

*Securing communications networks and ensuringcontinuity.*   Our specialists,working with government, defense, intelligence, and disaster recovery agenciesand certified by the National Security Agency, use documented methodologies tohelp customers reduce risk of unauthorized network intrusion and denial of serviceattacks, protect customer information, and maintain continuous communicationsby identifying vulnerable points intheir communications networks, suggesting security policies and developingdisaster recovery plans.

*Day-to-day communications support and networkmonitoring.**  *Our Services team,supported by extensive tools and technologies such as Avaya Expert SystemsSM Diagnostic Tools, monitors and optimizescustomers’ network performance ensuring availability and keeps communicationnetworks current with the latest releases. In the event of an outage, ourcustomers receive the support they need to recover quickly.

*Managing Business Communications Solutions.*   Ourportfolio of Global Managed Services solutions provides expertise in managingcomplex multi-vendor, multi-technology networks and delivering voiceapplications over the network. These solutions range from simple services onexisting enterprise networks—such as backing up systems, detecting andresolving faults and performing moves, adds, and changes—to comprehensive engagementsthat provide secure business communications support and management of largeenterprise voice networks and migration of those networks to new technologies. Wealso provide on-demand solutions that allow delivery of hosted voiceapplications to end users over telecommunication service provider networks.

AGS has complemented our customers’ businesscommunications capabilities through our Global Managed Services Offerings,including IP Converged Solutions (fully managing complex and migrating businesscommunications infrastructures to client specifications), Managed Applications(consulting, designing, and managing our customers’ contact center &conferencing applications), IP Support Services (remotely managing IPtelephony) and Avaya On-Demand (delivering hosted Avaya applications over thenetwork).

Our hosted offerings allow customers to adopt, procureand implement converged business communication solutions in a network-based,on-demand model. These solutions are delivered in cooperation with telecommunicationsservice providers, such as carriers and other third parties. The on-demandsolutions are designed to reduce the risk and expense in deploying nextgeneration business communications solutions while shortening the time toachieve the benefits of these new applications.

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*Globalization.*   AGSserves customers throughout the world. AGS provides best in class servicecenters staffed to supply expertise on a full range of products 24 hours a dayacross the globe. Globally consistent processes and a global knowledge sharingsystem provide our service representatives with up-to-date skillsand information to solve problems quickly and effectively. AGS supplies ourbusiness partners with a range of options to supplement their own capabilitiesso that each customer is ensured quality support leveraging all of Avaya’scapabilities.

**Customers, Sales and Distribution**

***Customers***

Our customer base is diverse, ranging in size fromsmall businesses employing a few employees to large government agencies andmultinational companies with over 100,000 employees. Our customers includeenterprises operating in a broad range of industries around the world,including financial, manufacturing, media and communications, professionalservices, health care, education and governmental. As a result of ouracquisition of Tenovis in November 2004, we have significantly increasedour presence in Europe, particularly in Germany.

We have thousands of customers, and no single customerrepresented more than 10% of our revenue for fiscal 2005, 2004 or 2003.

For more information concerning customer information aboutgeographic areas, please see Note 15 “Operating Segments,” to our ConsolidatedFinancial Statements, which are included in our 2005 Annual Report toShareholders.

***Sales and Distribution***

Our global go-to-market strategy is designed to focus andstrengthen our reach and impact with three key tiers of customers: largemultinational enterprises, mid-market and more regional enterprises and smallbusinesses. The Company’s global strategy is to serve our customers the waythey prefer to work with us, either through our direct sales force or ourindirect sales channel, which includes our global network of distributors,dealers, value-added resellers, telecommunications service providers and systemintegrators. Each of our channels is equipped to sell both products andservices. As previously disclosed, the Company changed its go-to-marketstrategy at the beginning of fiscal 2005:

·       to realign its sales andmarketing efforts by expanding direct sales coverage of key accounts;

·       by enlarging the number oflarge multinational enterprises accounts;

·       by identifying a second tierof named accounts served by a combination of the Company’s direct sales teamand its channel partners; and

·       by servicing small andmedium-sized business customers primarily through our channel partners.

This change primarily affected the Company’s U.S. businessand had the result, among other things, of reassigning accounts among differentchannels and sales teams. Although the Company expects this realignment toprovide benefits as we focus our direct sales efforts on our larger enterprisecustomers and leverage our channel partners to reach a broader customer base,the benefits have taken longer than expected to materialize, and initiallyresulted in a disruption to our sales efforts, particularly in the firsthalf of fiscal 2005.

**Research and Development**

We invested $394 million, or approximately 8.0%of our total revenue and 15.3% of our GCS revenue, in fiscal 2005 and $348million, or approximately 8.6% of our total revenue and 17.0% of our GCS 

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revenue, in fiscal 2004,in research and development. In-process research and development costs of $7 millionassociated with our Spectel, Nimcat and Tenovis acquisitions are included inthe fiscal 2005 amount.

We plan on using our substantial investments inresearch and development to develop new systems and software related toconverged communication systems, communications applications, multi-mediacontact center innovations, messaging applications, speech enabledapplications, business infrastructure and architectures, converged mobilitysystems, hosted offerings, web services, communications-enabling businessprocesses and applications, data networks and services for Avaya’s customers. Weare also developing self-service web interfaces and tools as part of oursupport offers for use by our customers and indirect channel partners.

Each of our operatingsegments has a dedicated product development organization and receives supportfrom Avaya’s Chief Technology Office to address the strategic technologydirection of Avaya and architectural alignment across the operating segments.

In addition, the researchand development efforts of our operating segments are supported by Avaya LabsResearch, a world-class applied research organization focused on technologiesthat will result in innovative products and services. Avaya Labs Research willcontinue to seek opportunities to work with technology leaders from othercompanies and educational and research institutions to develop uniformtechnological standards as the building blocks for future communications andrelated enterprise systems.

**Manufacturing and Supplies**

We have outsourced substantially all of our productmanufacturing operations. Most of these operations have been outsourced toCelestica Inc. and are currently manufactured in North America, France andMalaysia. Our outsourcing agreement with Celestica expires in May 2006.The agreement will automatically renew for successive one-year terms unlesseither party elects to terminate the agreement by giving notice to the otherparty six months prior to the expiration. Pursuant to the requirements of theagreement, we gave notice to Celestica on November 2, 2005 of ourintention not to renew our outsourcing agreement. A change in contractmanufacturer could adversely affect our operating results. We are indiscussions to negotiate a new outsourcing agreement. The remaining portions ofour manufacturing operations are outsourced to a number of other contractmanufacturers located in the United Kingdom, France and the People’s Republicof China. All manufacturing of the Company’s products is performed inaccordance with detailed specifications and product design furnished by theCompany and is subject to quality control standards.

The success of our manufacturing initiative depends onthe willingness and ability of contract manufacturers to produce our products.We may experience significant disruption to our operations by outsourcing somuch of our manufacturing. If our contract manufacturers terminate theirrelationships with us or are unable to fill our orders on a timely basis, or ifwe do not accurately forecast our requirements, we may be unable to deliver ourproducts to meet our customers’ orders, which could delay or decrease ourrevenue.

We also purchase certain hardware components andlicense certain software components from third-party original equipmentmanufacturers and resell them under the Avaya name. We believe we have adequatesources for the supply of the components of our products and for the finishedproducts that we purchase from third parties.

In addition, we have aDeveloper Community Program that allows independent software vendors,customers, systems integrators and others who are members of the program accessto interface information for our proprietary products so that they mayintegrate their applications and processes with our solutions.

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**Competition**

The market forcommunications solutions, comprised of hardware, software and services, isquickly evolving, highly competitive and subject to rapid technological change.Because we offer a wide range of systems, applications and services for severaltypes of enterprises, we have a broad range of competitors. Many of our competitorsare substantially larger than we are and have significantly greater financial,sales, marketing, distribution, technical, manufacturing and other resources.

Historically, our GCSbusinesses have competed against other providers of enterprise voicecommunications solutions such as Nortel Networks Corporation, SiemensAktiengesellschaft, Alcatel S.A. and NEC Corporation. As we focus on thedevelopment and marketing of advanced communications solutions, such as IPtelephony solutions, we face intense competition from these providers of voicecommunications solutions as well as from data networking companies such asCisco Systems, Inc. and 3Com Corp. We face competition in the smalland medium business market from many competitors, including Cisco, Nortel,Alcatel, NEC, Matsushita Electric Corporation of America, Inter-Tel,Incorporated, 3Com Corp., Aastra Technologies Limited and Mitel Networks Corp.,although the market for these products is fragmented. Our AGS segment competesprimarily with NextiraOne, LLC, Black Box Corporation, Siemens and VerizonCommunications Inc. as well as many consulting firms. In addition, because themarket for our products is subject to rapid technological change, as the marketevolves we may face competition in the future from companies that do notcurrently compete in the enterprise communications market, including companiesthat currently compete in other sectors of the information technology,communications and software industries or communications companies that serveresidential rather than enterprise customers. In particular, as the convergenceof enterprise voice and data networks becomes more widely deployed byenterprises, the business information technology and communication applicationsdeployed on converged networks become more integrated. We may face increasedcompetition from current leaders in information technology infrastructure,information technology, personal and business applications and the softwarethat connects the network infrastructure to those applications. Competitionfrom these potential market entrants may take many forms, including offeringproducts and applications similar to those we offer as part of a larger,bundled offering.

Technologicaldevelopments and consolidation within the communications industry result infrequent changes to our group of competitors. The principal competitive factorsapplicable to our products include:

·       productfeatures, performance and reliability;

·       customerservice and technical support;

·       relationshipswith distributors, value-added resellers and systems integrators;

·       aninstalled base of similar or related products;

·       relationshipswith buyers and decision makers;

·       price;

·       thefinancial condition of the competitor;

·       brandrecognition;

·       theability to integrate various products into a customer’s existing networks,including the ability of a provider’s products to interoperate with otherproviders’ communications products; and

·       theability to be among the first to introduce new products.

For more information concerning competition, please see“Forward Looking Statements—Risks Related To Our Revenue and Business Strategy—Weface intense competition from our current competitors and, as the enterprisecommunications and information technology markets evolve, may face increasedcompetition from companies that do not currently compete directly against us.”

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**Patents,Trademarks and Other Intellectual Property**

Avaya owns a significant number ofcommercially-important patents and is actively filing new applications toprotect its research and development investments in new products and servicesacross all areas of the business. As of September 30, 2005, we heldapproximately 3,100 total worldwide patents and pending patent applications. Inaddition, we hold numerous trademarks, both in the United States and in foreigncountries.

Our intellectual property holdings include thoseassigned to us by Lucent at Avaya’s inception, which included a number ofpatents, trademarks, copyrights, trade secrets and other intellectual propertydirectly related to and important to our business. Lucent and its subsidiariesalso granted rights and licenses to their patents, trademarks, copyrights,trade secrets and other intellectual property needed for the manufacture, useand sale of our products. Rights to these patents were granted through a crosslicense entered into with Lucent. In addition, Lucent also conveyed to Avayanumerous sublicenses under patents of third parties.

Our intellectual property policy is to protect ourproducts, technology and processes by asserting our intellectual propertyrights where appropriate and prudent. We will also obtain patents, copyrights,and other intellectual property rights used in connection with our businesswhen practicable and appropriate. From time to time, assertions of infringementof certain patents or other intellectual property rights of others have beenmade against us. Certain pending claims are in various stages of evaluation,however, we believe no material litigation has arisen from these claims. Basedon industry practice, we believe that any necessary licenses or other rights necessaryfor our current business can be obtained on commercially reasonable terms.However, no assurance can be given that licenses can be obtained on acceptableterms or that litigation will not occur. The failure to obtain necessarylicenses or other rights, or litigation arising out of such claims, couldadversely affect our business.

Formore information concerning patents, trademarks and other intellectualproperty, please see “Forward Looking Statements—Risks Related To OurOperations—If we are unableto protect our proprietary rights, our business and future prospects may beharmed” and “Forward Looking Statements—RisksRelated to Contingent Liabilities—Wemay be subject to litigation and infringement claims, which could cause us toincur significant expenses or prevent us from selling our products or services.”

**Employees**

As of September 30, 2005, we employedapproximately 19,100 employees, of which approximately 18,300 are full-time (approximately12,200 are management and non-represented employees and approximately 6,100 arerepresented employees covered by collective bargaining agreements or workscouncils), approximately 510 are part-timeemployees (approximately 130 are management and non-represented employeesand approximately 380 are represented employees covered by collectivebargaining agreements or works councils) and approximately 250 are non-employeeworkers.

Of the approximately 6,480 full-time and part-timeemployees covered by collective bargaining agreements or works councils,approximately 3,160 employees are covered by collective bargaining agreementsin the United States. Not included in the numbers above are approximately 550non-represented employees employed at Avaya GlobalConnect Limited, ourmajority-owned subsidiary in India, as of September 30, 2005.

Effective June 1, 2003, we renewed our collectivebargaining agreements with the Communications Workers of America and theInternational Brotherhood of Electrical Workers. The renewed agreements are fora term of three years, ending May 27, 2006. In April 2006, we willcommence negotiations to enter into new collective bargaining agreements withthe unions. The current agreements provide for a 3% per year wage increase foremployees during the duration of the agreements, and a 3% increase per year to 

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employees’ pensionbenefits for the duration of the agreements. The agreements also includedadditional cost sharing by employees and retirees for certain medical healthbenefit co-payments.

The renewed collective bargaining agreements continuedour variable workforce arrangement that gave eligible employees who retiredfrom Lucent as of September 30, 2000 the ability to continue working ason-call support service technicians at Avaya. However, that agreement expiredby its terms effective December 1, 2004 and we no longer have a variableworkforce.

We believe that wegenerally have a good relationship with our employees and the unions and workscouncils that represent them.

**Backlog**

Our backlog for productsales generated by our direct sales channel, which represents the aggregate ofthe sales price of orders received from customers, but not yet recognized asrevenue, was approximately $117 million and $80 million on September 30,2005 and September 30, 2004, respectively. The majority of these ordersare fulfilled within two months. However, all orders are subject to possiblerescheduling by customers. Although we believe that the orders included in thebacklog are firm, some orders may be cancelled by the customer without penalty,and we may elect to permit cancellation of orders without penalty wheremanagement believes it is in our best interests to do so.

**Contractswith the U.S. Federal Government**

As required by Federal lawand dictated by the Federal Acquisition Regulations (FAR), all procurementcontracts with agencies of the US Federal government must contain a provisionpermitting the procuring agency to terminate the contract for the convenienceof the government. Each of Avaya’s numerous contracts with the U.S. governmentcontains such a clause. In the event that an agency exercises its rights underthis clause, Avaya would be permitted to submit a “Termination Claim” seekingdirect damages incurred as a result of the termination. Avaya is not aware ofany agency exercising its rights under this clause within the last year, norare we aware of any agency’s plans to do so in the future.

**Seasonality**

Our business hashistorically had some seasonality, with the highest revenues and earningstypically realized in our fourth fiscal quarter. We believe that theseasonality in our business is primarily due to the structure of our salescompensation plan, which is based on annual sales targets. As our compensationplan is based on annual targets, not quarterly targets, there is additionalincentive to finalize as many sales as possible before our fiscal year end. Additionally,we experience increased orders from U.S. governmental organizations in the lastquarter of the U.S. government’s fiscal year which also ends on September 30.

**Environmental,Health and Safety Matters**

The Company is subject to a wide range of governmentalrequirements relating to employee safety and health and to the handling andemission into the environment of various substances used in its past or currentoperations. The Company is subject to certain provisions of environmental laws,particularly in the United States and in Germany, governing the cleanup of soiland groundwater contamination. Such provisions impose liability for the costsof investigating and remediating releases of hazardous materials at currentlyor formerly owned or operated sites. In certain circumstances, this liabilitymay also include the cost of cleaning up historical contamination, whether ornot caused by the Company. The Company is currently conducting investigationand/or cleanup of known contamination at 10 of its current or former facilitieseither voluntarily or pursuant to government directives. Based on currentlyavailable information, none of the sites is reasonably likely to generateenvironmental costs that will be individually material nor will environmentalcosts for all sites in the aggregate be material in any fiscal year. There areno known 

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third parties who may beresponsible for investigation and/or cleanup at these sites and therefore, forpurposes of assessing the adequacy of accruals for these liabilities, theCompany has not assumed that it will recover amounts from any third party,including under any insurance coverage or indemnification arrangement. Althoughthe Company does not separately track recurring costs of managing hazardoussubstances and pollutants in ongoing operations, it does not believe them to bematerial.

It is often difficult to estimate the future impact ofenvironmental matters, including potential liabilities. The Company hasestablished financial reserves to cover environmental liabilities where theyare probable and reasonably estimable. Reserves for estimated losses fromenvironmental matters are undiscounted and consist primarily of estimatedremediation and monitoring costs and are, depending on the site, basedprimarily upon internal or third-party environmental studies and theextent of contamination and the type of required cleanup. The Company is notaware of, and has not included in reserves any provision for, any unassertedenvironmental claims.

The reliability and precision of estimates of theCompany’s environmental costs may be affected by a variety of factors,including whether the remediation treatment will be effective, contaminationsources have been accurately identified and assumptions regarding the movementof contaminants are accurate. In addition, estimates of environmental costs maybe affected by changes in law and regulation, including the willingness ofregulatory authorities to conclude that remediation and/or monitoring performedby the Company is adequate.

The Company assesses theadequacy of environmental reserves on a quarterly basis. The Company does notexpect the outcome of these matters to have a material impact on its financialposition. Expenditures for environmental matters for the twelve months ending September 30,2005 and 2004 were not material to the Company’s financial position, results ofoperations or cash flows. Payment for the environmental costs covered by thereserves may be made over a 30-year period.

**Contributionand Distribution Agreement Between Lucent and Us**

The Contribution andDistribution Agreement sets forth the agreements between us and Lucent withrespect to the principal corporate transactions required to effect thedistribution, and other agreements governing the relationship between Lucentand us.

***The Contribution and the Distribution***

To effect thecontribution, Lucent transferred or caused its subsidiaries to transfer, theassets of its enterprise networking businesses. In general, we assumed all ofthe liabilities of the contributed businesses in accordance with theirrespective terms. Pursuant to the Contribution and Distribution Agreement, thedistribution was effected as of 11:59 p.m. on September 30, 2000.

***Releases and Indemnification***

The Contribution and Distribution Agreement providesfor a full and complete release and discharge of all liabilities existing orarising from all acts and events occurring or failing to occur or alleged tohave occurred or to have failed to occur and all conditions existing or allegedto have existed on or before the date of the Contribution and DistributionAgreement, between or among us or any of our subsidiaries or affiliates, on theone hand, and Lucent or any of its subsidiaries or affiliates other than us, onthe other hand, except as expressly set forth in the Contribution andDistribution Agreement.

We have agreed toindemnify, hold harmless and defend Lucent, each of its affiliates and each oftheir respective directors, officers and employees, from and against certainliabilities relating to, arising out of or resulting from the contribution andthe distribution or any material breach by us of the Contribution andDistribution Agreement or any of the ancillary agreements. Lucent has agreed toindemnify, hold harmless 

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anddefend us, each of our affiliates and each of our respective directors,officers and employees from and against all liabilities related to Lucent’sbusinesses other than the contributed businesses and any material breach byLucent of the agreement or any of the ancillary agreements. Also, each partyhas indemnified the other party and its affiliates, subject to limitedexceptions, against any claims of patent, copyright or trademark infringementor trade secret misappropriation with respect to any product, software or othermaterial provided by or ordered from such party.

***Contingent Liabilities and Contingent Gains***

The Contribution and Distribution Agreement providesfor liability sharing by us and Lucent with respect to contingencies primarilyrelating to our respective businesses or otherwise assigned to each of us. TheContribution and Distribution Agreement requires Lucent to bear 50% of alllosses in excess of $50 million incurred by us in connection with acontingent liability primarily related to our businesses. In addition, we arerequired to bear 10% of all losses in excess of $50 million incurred byLucent in connection with a contingent liability primarily related to Lucent’sbusinesses.

The Contributionand Distribution Agreement also provides that we will bear 10% and Lucent willbear 90% of all losses incurred in connection with shared contingentliabilities, which are defined as:

·       anycontingent liabilities that are not primarily contingent liabilities of Lucentor contingent liabilities associated with the contributed businesses;

·       somespecifically identified liabilities, including liabilities relating toterminated, divested or discontinued businesses or operations; and

·       sharedcontingent liabilities within the meaning of the 1996 separation anddistribution agreement among Lucent, AT&T Corp. and NCR Corporation.

Lucent will assume the defense of, and may seek tosettle or compromise, any third party claim that is a shared contingentliability, and those costs and expenses will be included in the amount to beshared by us and Lucent.

The Contribution and Distribution Agreement providesthat we and Lucent will have the exclusive right to any benefit received withrespect to any contingent gain that primarily relates to the business of, orthat is expressly assigned to, us or Lucent, respectively.

Please see Note 13 “Commitmentsand Contingencies—Legal Proceedings,” to our Consolidated Financial Statementsfor a description of certain matters involving Lucent for which we have assumedresponsibility under the Contribution and Distribution Agreement.

***Tax Sharing Agreement***

In addition, in connectionwith the distribution, we and Lucent entered into a Tax Sharing Agreement whichgoverns Lucent’s and our respective rights, responsibilities and obligationsafter the distribution with respect to taxes for the periods ending on orbefore the distribution. Generally, pre-distribution taxes that are clearlyattributable to the business of one party will be borne solely by that party,and other pre-distribution taxes will be shared by the parties based on aformula set forth in the Tax Sharing Agreement. In addition, the Tax SharingAgreement addresses the allocation of liability for taxes that are incurred asa result of restructuring activities undertaken to implement the distribution.If the distribution fails to qualify as a tax-free distribution under Section 355of the Internal Revenue Code because of an acquisition of our stock or assets,or some other actions of ours, then we will be solely liable for any resultingcorporate taxes.

**Forward Looking Statements**

(Cautionary Statements Under the Private SecuritiesLitigation Reform Act of 1995)

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Our disclosure and analysis in this report containssome forward-looking statements. Forward-looking statements giveour current expectations or forecasts of future events. You can identify thesestatements by the fact that they do not relate strictly to historical orcurrent facts. They use words such as “anticipate,” “estimate,” “expect,” “project,”“intend,” “plan,” “believe” and other words and terms of similar meaning inconnection with any discussion of future operating or financial performance.From time to time, we also may provide oral or written forward-lookingstatements in other materials we release to the public.

Any or all of our forward-looking statements inthis report, in the 2005 Annual Report to Shareholders and in any other publicstatements we make *may turn out to be wrong*.They can be affected by inaccurate assumptions we might make or by known orunknown risks and uncertainties. Many factors mentioned in the discussion belowwill be important in determining future results.

Consequently, no forward-looking statement canbe guaranteed and you are cautioned not to place undue reliance on theseforward-looking statements. Actual future results may vary materially.

Except as may be required under the federal securitieslaws, we undertake no obligation to publicly update forward-lookingstatements, whether as a result of new information, future events or otherwise.You are advised, however, to consult any further disclosures we make on relatedsubjects in our reports to the SEC. Also note that we provide the followingcautionary discussion of risks, uncertainties and possibly inaccurateassumptions relevant to our businesses. These are factors that we think couldcause our actual results to differ materially from expected and historicalresults. Other factors besides those listed here could also adversely affectus. This discussion is provided as permitted by the Private SecuritiesLitigation Reform Act of 1995.

The risks anduncertainties referred to above include, but are not limited to:

·       priceand product competition;

·       rapidor disruptive technological development, including the effects of thetechnology shift from traditional TDM to IP telephony;

·       dependenceon new product development;

·       themix of our products and services;

·       customerdemand for our products and services, including risks specifically associatedwith the services business and, in particular, the maintenance and rental andmanaged services lines of business, primarily due to renegotiations of customercontracts and changes in scope, pricing pressures and cancellations;

·       generalindustry and market conditions and growth rates and general domestic andinternational economic conditions including interest rate and currency exchangerate fluctuations;

·       disruptionassociated with the re-alignment of our sales and marketing efforts;

·       risksrelated to inventory, including warranty costs, obsolescence charges, excesscapacity, material and labor costs, and our distributors’ decisions regardingtheir own inventory levels;

·       theeconomic, political and other risks associated with international sales andoperations, including increased exposure to currency fluctuations and toEuropean economies as a result of our acquisition of Tenovis;

·       theability to successfully integrate acquired companies, including Tenovis, whichhas required significant management time and attention;

·       theability to attract and retain qualified employees;

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·       controlof costs and expenses;

·       U.S.and non-U.S. government regulation; and

·       theability to form and implement alliances.

Set forth below is a detaileddiscussion of certain of these risks and other risks affecting our business.The categorization of risks set forth below is meant to help you betterunderstand the risks facing our business and is not intended to limit yourconsideration of the possible effects of these risks to the listed categories.Any adverse effects related to the risks discussed below may, and likely will,adversely affect many aspects of our business.

***Risks Related To Our Revenue and Business Strategy***

**A key component of our strategy is our focus onthe development and marketing of advanced communications products andapplications and related services, including IP telephony solutions, and thisstrategy may not be successful or may adversely affect our business.**

We are focused onthe development and sales of IP telephony solutions and other advancedcommunications products and applications and related services. In order toexecute this strategy successfully, we must continue to:

·       trainour sales staff and distribution partners to sell new types of products,applications and services and improve our marketing of such products,applications and services;

·       researchand develop more IP telephony solutions and other products and applicationsthat use modes of communications other than voice, which has historically beenour core area of expertise;

·       increasethe performance and reliability of new products and ensure that the performanceand reliability of these products meet our customers’ expectations;

·       acquirekey technologies through licensing, development contracts, alliances andacquisitions;

·       trainour services employees and channel partners to service new products andapplications, and take other measures to ensure we can deliver consistentlevels of service globally to our multinational customers;

·       enhanceour services organization’s ability to identify whether Avaya or non-Avayasources are causing network faults as converged networks move from closed,proprietary networks to standards-based networks;

·       developrelationships with new types of channel partners;

·       makesales to our existing customers that incorporate our advanced communicationsproducts, applications and services with and without retaining their existingnetwork infrastructure;

·       expandour current customer base by selling our advanced communications products,applications and services to enterprises that have not previously purchased ourproducts and applications; and

·       expandour geographic scope.

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If wedo not successfully execute this strategy, our operating results may beadversely affected. Moreover, even if we successfully address these challenges,our operating results may still be adversely affected if the market opportunityfor advanced communications products, applications and services, including IPtelephony solutions, does not develop in the ways that we anticipate. The ratioof revenue attributable to IP telephony solutions versus traditional voicecommunication systems is expected to increase as more and more companiesconvert to IP telephony solutions. IP telephony lines constitute a smallpercentage of global installed enterprise telephony lines and if IP telephonydoes not gain widespread acceptance in the marketplace as an alternative replacementoption for enterprise telephony systems our overall revenue and operatingresults may be adversely affected. Because this market opportunity is in itsearly stages, we cannot predict whether:

·       thedemand for advanced communications products, applications, and services,including IP telephony solutions, will grow as fast as we anticipate;

·       currentor future competitors or new technologies will cause the market to evolve in amanner different than we expect;

·       othertechnologies will become more accepted or standard in our industry; or

·       wewill be able to maintain a leadership or profitable position as thisopportunity develops.

**Revenuegenerated by our traditional enterprise voice communications systems has beendeclining for the last several years and if we do not successfully execute ourstrategy to substitute new technology or expand our sales in market segmentswith higher growth rates, our revenue and operating results may continue to beadversely affected.**

We have been experiencingdeclines in revenue from our traditional enterprise voice communicationsbusiness. We expect, based on various industry reports, that the demand forthese traditional systems to decline over time. We are executing a strategy tocapitalize on products, advanced communications and devices that provide highergrowth opportunities, including IP telephony solutions. Many of theproducts and applications, including IP telephony solutions, have not yet beenwidely adopted by enterprises.

Even if we are successfulin increasing our revenue from sales of IP telephony solutions, if revenue fromsales of traditional enterprise voice communications systems declines fasterthan revenue from sales of IP telephony solutions increases, our overallrevenue and operating results may be adversely affected.

Our traditional enterprisevoice communications systems and the advanced communications products andapplications described above are a part of our Global Communications Solutionssegment. If we are unsuccessful in executing our strategy, the contribution toour results from this segment may fail to grow or may decline and our overalloperating results may be adversely affected. Our Avaya Global Services segmentmay also be adversely affected to the extent that services revenues are relatedto sales of these products and applications.

**Weface intense competition from our current competitors and, as the enterprisecommunications and information technology markets evolve, may face increasedcompetition from companies that do not currently compete directly against us.**

Historically, our GCSbusinesses have competed against other providers of enterprise voicecommunications solutions suchas Nortel Networks Corporation, Siemens Aktiengesellschaft, Alcatel S.A. andNEC Corporation. As we focus on the development and marketing of advancedcommunications solutions, such asIP telephony solutions, we face intense competition from these providers ofvoice communications solutions aswell as from data networking companies such as Cisco Systems, Inc. and3Com Corp. We face competition in the small and medium business marketfrom many competitors, including Cisco, Nortel, Alcatel, NEC, MatsushitaElectric Corporation of America, Inter-Tel, Incorporated, 3Com Corp., and MitelNetworks Corp., although the market for these products is fragmented. Our AGSsegment competes primarily with NextiraOne, LLC, Black Box Corporation, 

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Siemensand Verizon Communications Inc. as well as many consulting firms. In addition,because the market for our products is subject to rapid technological change,as the market evolves we may face competition in the future from companies thatdo not currently compete in the enterprise communications market, includingcompanies that currently compete in other sectors of the informationtechnology, communications and software industries or communications companiesthat serve residential rather than enterprise customers. In particular, as theconvergence of enterprise voice and data networks becomes more widely deployedby enterprises, the business, information technology and communicationapplications deployed on converged networks become more integrated. We may faceincreased competition from current leaders in information technologyinfrastructure, information technology, personal and business applications andthe software that connects the network infrastructure to those applications. Inaddition, these technologies continue to move from a proprietary environment toan open standards-based environment. Competition from these potential marketentrants may take many forms, including offering products and applicationssimilar to those we offer as part of a larger, bundled offering.

Several of these existingcompetitors have, and many of our future competitors may have, greaterfinancial, personnel, research and other resources, more well-establishedbrands or reputations and broader customer bases than we and, as a result,these competitors may be in a stronger position to respond quickly to potentialacquisitions and other market opportunities, new or emerging technologies andchanges in customer requirements. Some of these competitors may have customerbases that are more geographically balanced than ours and, therefore, may beless affected by an economic downturn in a particular region. Competitors withgreater resources also may be able to offer lower prices, additional productsor services or other incentives that we cannot match or do not offer. Inaddition, existing customers of data networking companies that compete againstus may be inclined to purchase enterprise communications solutions from their current datanetworking vendor than from us. Also, as communications and data networksconverge, we may face competition from systems integrators that weretraditionally focused on data network integration. We cannot predict withprecision which competitors may enter our markets in the future, what form suchcompetition may take or whether we will be able to respond effectively to theentry of new competitors into our markets or the rapid evolution in technologyand product development that has characterized our markets. In addition, inorder to effectively compete with any new market entrant, we may need to makeadditional investments in our business or use more capital resources than ourbusiness currently requires or reduce prices, which may adversely affect ourprofitability.

**Althoughour revenue has continued to increase since 2003, we have recently experienceddifficulties in significantly growing our revenue other than through acquisitions,particularly in the U.S.**

Although our revenueincreased from $3,796 million in fiscal 2003 to $4,069 in fiscal 2004 and to$4,902 in fiscal 2005, we have recently experienced difficulty in significantlygrowing our revenue, particularly in the U.S. In addition, our operatingresults for fiscal 2005 include the operating results of Tenovis from November 18,2004, as well as other acquisitions. Excluding these acquisitions, our revenuesfor fiscal 2005 decreased slightly compared to the twelve months ended September 30,2004.

One factor thatsignificantly affects our operating results is the impact of economicconditions on the willingness of enterprises to make capital investments,particularly in enterprise communications technology and related services.Although general economic conditions have improved in recent years, we believethat enterprises continue to be concerned about their ability to increaserevenues and thereby increase their profitability. Accordingly, they have triedto maintain or improve profitability through cost control and constrainedcapital spending. Because it is not certain whether enterprises will increasespending on enterprise communications technology significantly in the nearterm, we could experience continued pressure on our ability to increase ourrevenue.

If these or otherconditions limit our ability to grow revenue or cause our revenue to declineand we cannot reduce costs on a timely basis or at all, our operating resultswill be adversely affected.

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***Risks Related To OurOperations***

**If weare unable to effectively integrate acquired businesses into ours, ouroperating results may be adversely affected. Even if we are successful, theintegration of these businesses has required, and will likely continue torequire, significant resources and management attention.**

We may not be able tosuccessfully integrate acquired businesses into ours, and therefore we may notbe able to realize the intended benefits from the acquisition. If we fail tosuccessfully integrate these acquisitions or if they fail to perform as weanticipated, our existing businesses and our revenue and operating resultscould be adversely affected. If the due diligence and audit of the operationsof these acquired businesses performed by us and by third parties on our behalfwas inadequate or flawed, we could later discover unforeseen financial orbusiness liabilities, or the acquired businesses may not perform as expected.Additionally, acquisitions could result in difficulties assimilating acquiredoperations and products, and the diversion of capital and management’sattention away from other business issues and opportunities. Acquisitions couldalso have a negative impact on our results of operations if it is subsequentlydetermined that goodwill or other acquired intangible assets are impaired, thusresulting in an impairment charge in a future period.

**Wedepend on contract manufacturers to produce the majority of our products and ifthese manufacturers are unable to fill our orders on a timely and reliablebasis, we will likely be unable to deliver our products to meet customer ordersor satisfy their requirements.**

We have outsourcedsubstantially all of our manufacturing operations. Our ability to realize theintended benefits of our manufacturing outsourcing initiative depends on thewillingness and ability of our contract manufacturers to produce our products.We may experience significant disruption to our operations by outsourcing toomuch of our manufacturing. If a contract manufacturer terminates its relationshipwith us or is unable to fill our orders on a timely basis, or if we do notaccurately forecast our requirements, we may be unable to deliver the affectedproducts to meet our customers’ orders, which could delay or decrease ourrevenue or otherwise have an adverse effect on our operations. We periodicallyreview our product manufacturing operations and consider appropriate changes asnecessary. Although we endeavor to appropriately manage any disruption intransitioning from one contract manufacturer to another contract manufacturer,we may experience significant disruption to our operations during any contractmanufacturer transition.

Additionally, ouroutsourcing agreement with our most significant contract manufacturer,Celestica, expires in May 2006. The agreement will automatically renew forsuccessive one-year terms unless either party elects to terminate theagreement by giving notice to the other party six months prior to theexpiration of the renewal term. Pursuant to the requirements of the agreement,we gave notice to Celestica on November 2, 2005 of our intention not torenew our outsourcing agreement. We are in discussions to negotiate a newoutsourcing agreement. There is no guarantee that we will be able to negotiatean agreement with Celestica or, alternatively, negotiate a replacementagreement with a new contract manufacturer on favorable terms. We rely onoutside sources for the supply of the components of our products and for thefinished products that we purchase from third parties. Delays or shortagesassociated with these components could cause significant disruption to ouroperations.

For more information concerning the risks associated withour contract manufacturers operating internationally, please see “ForwardLooking Statements—Risks Related To Our Operations—As our internationalbusiness has grown significantly in the last fiscal year, changes in economicor political conditions in a specific country or region could negatively affectour revenue, costs, expenses and financial condition.”

**If weare unable to protect our proprietary rights, our business and future prospectsmay be harmed.**

Although we attempt toprotect our intellectual property through patents, trademarks, trade secrets,copyrights, confidentiality and nondisclosure agreements and other measures,intellectual property is 

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difficultto protect and these measures may not provide adequate protection for ourproprietary rights, particularly in countries that do not have well-developedjudicial systems or laws protecting intellectual property rights. Patentfilings by third parties, whether made before or after the date of our filings,could render our intellectual property less valuable. Competitors maymisappropriate our intellectual property, disputes as to ownership ofintellectual property may arise and our intellectual property may otherwisebecome known or independently developed by competitors. We believe thatdeveloping new products and technology that are unique to Avaya is critical toour success and failure to adequately manage and protect our intellectualproperty could seriously harm our business and future prospects because webelieve that developing new products and technology that are unique to us iscritical to our success. If we do not obtain sufficient internationalprotection for our intellectual property, our competitiveness in internationalmarkets could be significantly impaired, which would limit our growth andfuture revenue.

In addition, we rely onthe security of our information systems, among other things, to protect ourproprietary information and information of our customers. If we do not maintainadequate security procedures over our information systems, we may besusceptible to computer hacking, cyberterrorism or other unauthorized attemptsby third parties to access our proprietary information or that of ourcustomers. Even if we are able to maintain procedures that are adequate toaddress current security risks, hackers, cyberterrorists or other unauthorizedusers may develop new techniques that will enable them to successfullycircumvent our current security procedures. The failure to protect ourproprietary information could seriously harm our business and future prospectsor expose us to claims by our customers, employees or others that we did notadequately protect their proprietary information.

**Asour international business has grown significantly in the last fiscal year,changes in economic or political conditions in a specific country or regioncould negatively affect our revenue, costs, expenses and financial condition.**

We conduct significantsales and customer support operations in countries outside of the United Statesand also depend on non-U.S. operations of our contract manufacturers and ourdistribution partners. For fiscal 2005 and fiscal 2004, we derived 41% and 24%of our revenue, respectively, from sales outside the United States. Our futureinternational operating results, including our ability to import our productsto, export our products from, or sell our products in various countries, couldbe materially adversely affected by a variety of uncontrollable and changingfactors. These factors include political conditions, economic conditions, legaland regulatory constraints, currency regulations, health or similar issues,natural disasters and other matters in any of the countries or regions in whichwe currently operate or intend to operate in the future. Currently, we haveconcerns about weakness and uncertainty in European economies, including highunemployment levels and low economic growth forecasts, particularly in Germanywhere we have a high concentration of our business resulting from the Tenovisacquisition.

Other factors which mayimpact our international operations include foreign trade, environmental,monetary and fiscal policies, laws, regulations and other activities of foreigngovernments, agencies and similar organizations, and risks associated withhaving facilities located in countries which have historically been less stablethan the United States. One environmental law that will impact ourinternational operations in the European Union (“EU”) is the EU’s Directive onWaste Electrical and Electronic Equipment (“the Directive”) that directsEU-member countries to adopt legislation to regulate the collection, treatment,recovery and environmentally sound disposal of electrical and electronic wasteequipment, whereby commercial users will be obligated to retire, in anenvironmentally sound manner, specific assets that qualify as historical waste.

Additional risks inherentin our international operations generally include, among others, the costs anddifficulties of managing international operations, adverse tax consequences,including imposition of withholding or other taxes on payments by subsidiaries,and greater difficulty in enforcing intellectual property rights. The variousrisks inherent in doing business in the United States generally also exist when

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doingbusiness outside of the United States, and may be exaggerated by the difficultyof doing business in numerous sovereign jurisdictions due to differences inculture, laws and regulations.

In addition, foreigncurrency exchange rates and fluctuations may have an impact on our futurerevenue, costs or cash flows from our international operations, which couldadversely affect our financial performance. Because a significant portion ofour business is conducted outside the United States, we face exposure toadverse movements in foreign currency exchange rates. These exposures maychange over time as business practices evolve, and they could have a materialadverse impact on our financial results and cash flows. An increase in thevalue of the dollar could increase the real cost to our customers of ourproducts in those markets outside the United States, and a weakened dollarcould increase the cost of local operating expenses and procurement of rawmaterials. For more information on how we reduce volatilityassociated with foreign exchange rate changes, please see Note 9 “Derivativesand Other Financial Instruments,” to our Consolidated Financial Statements.

***Risks Related toContingent Liabilities***

**Wemay incur liabilities as a result of our obligation to indemnify, and to sharecertain liabilities with, Lucent in connection with our spin-off from Lucent inSeptember 2000.**

Pursuant to theContribution and Distribution Agreement, Lucent contributed to us substantiallyall of the assets, liabilities and operations associated with its enterprisenetworking businesses and distributed all of the outstanding shares of ourcommon stock to its stockholders. The Contribution and Distribution Agreement,among other things, provides that, in general, we will indemnify Lucent for allliabilities including certain pre-distribution tax obligations of Lucentrelating to our businesses and all contingent liabilities primarily relating toour businesses or otherwise assigned to us. In addition, the Contribution andDistribution Agreement provides that certain contingent liabilities notdirectly identifiable with one of the parties will be shared in the proportionof 90% by Lucent and 10% by us. The Contribution and Distribution Agreementalso provides that contingent liabilities in excess of $50 million thatare primarily related to Lucent’s businesses shall be borne 90% by Lucent and10% by us and contingent liabilities in excess of $50 million that areprimarily related to our businesses shall be borne equally by the parties.

Please see Note 13 “Commitments andContingencies—Legal Proceedings,” to our Consolidated Financial Statementsfor a description of certain matters involving Lucent for which we have assumedresponsibility under the Contribution and Distribution Agreement.

We cannot assure you thatLucent will not submit a claim for indemnification or cost sharing to us inconnection with any future matter. In addition, our ability to assess theimpact of matters for which we may have to indemnify or share the cost withLucent is made more difficult by the fact that we do not control the defense ofthese matters.

**Wemay be subject to litigation and infringement claims, which could cause us toincur significant expenses or prevent us from selling our products or services.**

We cannot assure you thatothers will not claim that our proprietary or licensed products, systems andsoftware are infringing their intellectual property rights or that we do not infact infringe those intellectual property rights. We may be unaware ofintellectual property rights of others that may cover some of our technology.If someone claimed that our proprietary or licensed systems and softwareinfringed their intellectual property rights, any resulting litigation could becostly and time consuming and would divert the attention of management and keypersonnel from other business issues. The complexity of the technology involvedand the uncertainty of intellectual property litigation increase these risks.Claims of intellectual property infringement also might require us to enterinto costly royalty or license agreements. However, we may be unable to obtainroyalty or license agreements on terms acceptable to us or at all. We also maybe subject to significant damages or an injunction against us or ourproprietary or licensed systems. A successful claim of patent or otherintellectual property infringement against us could 

21

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materiallyadversely affect our operating results. We may also be subject to additionalnotice and other requirements to the extent we incorporate open source softwareinto our applications.

In addition, third partieshave, and may in the future, claimed that a customer’s use of our products,systems or software infringes the third party’s intellectual property rights.Under certain circumstances, we may be required to indemnify our customers forsome of the costs and damages related to such an infringement claim. Anyindemnification requirement could have a material adverse effect on ourbusiness and our operating results.

**Ifthe distribution does not qualify for tax-free treatment, we could be requiredto pay Lucent or the Internal Revenue Service a substantial amount of money.**

Lucent has received aprivate letter ruling from the Internal Revenue Service stating, based oncertain assumptions and representations, that the distribution would not betaxable to Lucent. Nevertheless, Lucent could incur a significant tax liabilityif the distribution did not qualify for tax-free treatment because any of thoseassumptions or representations were not correct.

We could be liable for allor a portion of any taxes owed for the following reasons. First, as part of thedistribution, we and Lucent entered into the Tax Sharing Agreement, whichgenerally allocates between Lucent and us the taxes and liabilities relating tothe failure of the distribution to be tax-free. Under the Tax SharingAgreement, if the distribution fails to qualify as a tax-free distributionbecause of an issuance or an acquisition of our stock or an acquisition of ourassets, or some other actions of ours, then we will be solely liable for anyresulting taxes to Lucent.

Second, aside from the TaxSharing Agreement, under U.S. federal income tax laws, we and Lucent arejointly and severally liable for Lucent’s U.S. federal income taxes resultingfrom the distribution being taxable. This means that even if we do not have toindemnify Lucent under the Tax Sharing Agreement, we may still be liable forall or part of these taxes if Lucent fails to pay them. These liabilities ofLucent could arise from actions taken by Lucent over which we have no control,including an issuance or acquisition of stock (or acquisition of assets) ofLucent.

**Item 2.**                        *Properties.*

As of September 30,2005, we had 564 leased facilities (which includes 121 storage locationscontaining between 100 to 1,800 square feet), located in approximately 50countries and 7 research and development facilities located in India, Israel,Germany, and the United States. Our real property portfolio consists ofaggregate floor space of approximately 8.9 million square feet, of whichapproximately 3 million square feet is owned and approximately5.9 million square feet is leased. Our lease terms range from monthlyleases to 16 years. Through our 59.1% interest in Avaya GlobalConnectLtd., we also have an interest in four owned properties and several leasedproperties in various locations. We believe that all of our facilities andequipment are in good condition and are well maintained.

**Item 3.**                        *Legal Proceedings.*

Information required bythis item is incorporated by reference from Note 17, Commitments andContingencies—Legal Proceedings, to our Consolidated FinancialStatements which are included in our 2005 Annual Report to Shareholders.

**Item4.**                        *Submission of Matters to a Vote of Security-Holders.*

During the fourth quarterof the fiscal year covered by this Annual Report on Form 10-K, nomatter was submitted to a vote of security-holders.

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**PART II**

**Item 5.**                        *Market For Registrant’s Common Equity, Related Stockholder Matters andIssuer Purchases of Equity Securities.*

(a)   None.

(b)   None.

(c)   Issuer Purchases of Equity Securities.

On April 19,2005, the Board of Directors authorized a share repurchase plan. Under theprovisions of this plan, the Company is authorized to repurchase and retire upto $500 million of its outstanding common stock through April 1, 2007. TheCompany’s credit facility provided us with the ability to make dividendpayments or distributions or to repurchase, redeem or otherwise acquireshares of our common stock in fiscal year 2005 up to an amount not to exceed$250 million. During fiscal 2005, the Company used approximately $107 millionto repurchase shares. For fiscal 2006, the credit facility limits the Company’sability to make dividend payments or distributions or to repurchase, redeem orotherwise acquire shares of our common stock to $461 million (which represents50% of net income of the Company for fiscal 2005). See Note 8 “Long-Term Debt,”to our consolidated financial statements for further information concerning thelimitations under the credit facility. Repurchases under the plan will be madeat management’s discretion in the open market or in privately negotiatedtransactions in compliance with applicable securities laws and other legalrequirements and are subject to market conditions, share price, the terms ofAvaya’s credit facility and other factors. The following table sets forth therepurchase activity during the fourth quarter of fiscal year 2005:

| ** **                              | ** ** | **Number of  shares  purchased** | ** ** | **Average  price per  share** | ** ** | **Total number  of shares  purchased as  part of program  during the given  period** | ** ** | **Approximate  dollar value of  shares that may  yet be purchased as  part of program*** | ** ** |
|-----------------------------------------|------------|---------------------------------------|------------|------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------|------------|
| July 1–July 31           |       | —                                |       |                               | —     |                                                                                                                    |       |                                                                                                                                  | —     |   |   |   | $ | 453,273,245 |   |   |
| August 1–August 31       |       | 3,520,000                             |       |                               | $          | 10.02                                                                                                                   |       |                                                                                                                                  |       | 3,520,000 |   |   |   | $ | 417,995,661 |   |   |
| September 1–September 30 |       | 2,430,000                             |       |                               | $          | 10.15                                                                                                                   |       |                                                                                                                                  |       | 2,430,000 |   |   |   | $ | 393,326,764 |   |   |
| Fourth quarter of  fiscal year 2005     |       | 5,950,000                             |       |                               | $          | 10.08                                                                                                                   |       |                                                                                                                                  |       | 5,950,000 |   |   |   |   |   |   |

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*                    Subject to thelimitation in our credit facility noted above.

Our equity-basedcompensation program consists principally of stock options and restricted stockunit (“RSU”) awards. Shares underlying restricted stock units are issued to theholder only upon the vesting of the award. Upon the vesting of the RSUs, we maywithhold shares to satisfy the holder’s tax obligation. Because the withholdingdoes not require the transfer of previously-issued shares from the holder toAvaya, such withholding is not deemed an issuer purchase of an equity security.With respect to both the withholding of shares from shares being purchased tocover the exercise price or taxes in the context of the exercise of a stockoption, such withholding is not deemed an issuer purchase of an equity securitybecause the withheld shares had not previously been issued.

**Item6.**                        *Selected Financial Data.*

Information required bythis item is incorporated by reference from “Selected Financial Data,” which isincluded in our 2005 Annual Report to Shareholders.

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**Item 7.**                        *Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.*

Information required bythis item is incorporated by reference from “Management’s Discussion andAnalysis of Financial Condition and Results of Operations,” which isincluded in our 2005 Annual Report to Shareholders.

**Item 7A.**                *Quantitative and Qualitative Disclosures About Market Risk.*

Information required bythis item is incorporated by reference from the discussion under the heading “Management’s Discussion andAnalysis of Financial Condition and Results of Operations—FinancialInstruments,” which is included in our 2005 Annual Report toShareholders.

**Item 8.**                        *Financial Statements and Supplementary Data.*

Information required bythis item is incorporated by reference from the Report of Independent Auditorsand from our Consolidated Financial Statements, which are included in our 2005Annual Report to Shareholders.

**Item 9.**                        *Changes in and Disagreements with Accountants on Accounting andFinancial Disclosure.*

None.

**Item 9A.**                *Controls and Procedures.*

a)     *Evaluation of Disclosure Controls and Procedures.*

We have established disclosure controls and proceduresto ensure that material information relating to us, including our consolidatedsubsidiaries, is made known to the officers who certify our reports and toother members of senior management and the Board of Directors.

Based on their evaluation as of the end of the periodcovered by this Annual Report on Form 10-K, our principal executiveofficer and principal financial officer have concluded that our disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934) are effective to ensure that theinformation required to be disclosed by us in reports that we file or submitunder the Securities Exchange Act of 1934 is recorded, processed, summarizedand reported within the time periods specified in SEC rules andforms.

The Company’s disclosurecontrols are designed to provide a reasonable level of assurance that the statedobjectives are met. The Company’s management, including the principal executiveofficer and principal financial officer, does not expect that the Company’sdisclosure controls or internal controls will prevent all errors and all fraud.A control system, no matter how well conceived and operated, can provide onlyreasonable, not absolute, assurance that the objectives of the control systemare met. The design of a control system must also reflect the fact that thereare resource constraints, with the benefits of controls considered relative totheir costs. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issuesand instances of fraud, if any, within the Company have been prevented ordetected. Because of the inherent limitations in a control system,misstatements due to error or fraud may occur and not be prevented or detected.

b)     *Internal Control Over Financial Reporting.*

Management’s report on our internal control over financialreporting and the report of our independent registered public accounting firmare incorporated by reference to the section entitled “Management’s Report onInternal Control Over Financial Reporting” and the section entitled “InternalControl Over Financial Reporting,” respectively, of our 2005 Annual Report toShareholders.

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There were no significantchanges in our internal control over financial reporting during our fourthfiscal quarter that have materially affected, or are reasonably likely to materiallyaffect our ability to record, process, summarize and report financialinformation.

**Item 9B.**               *Other Information.*

None.

**PART III**

**Item 10.**                 *Directors and Executive Officers of the Registrant.*

Thefollowing table sets forth information as of September 30, 2005 as topersons who serve as our executive officers.

| **Name**                 | ** ** | ** ** | ** ** | **Age**                                                                   | ** ** | **Position** |
|--------------------------|------------|------------|------------|---------------------------------------------------------------------------|------------|--------------|
| Donald K. Peterson       |       | 56         |       | Chairman and Chief  Executive Officer                                     |
| Pamela F. Craven         |       | 51         |       | Senior Vice  President, General Counsel and Secretary                     |
| Louis J. D’Ambrosio |       | 41         |       | Group Vice  President, Global Sales, Channels & Marketing        |
| Maryanne DiMarzo         |       | 54         |       | Senior Vice  President, Human Resources                                   |
| David P. Johnson         |       | 45         |       | Senior Vice  President, Europe, Middle East and Africa                    |
| Thomas A. Lesica         |       | 46         |       | Group Vice  President, Global Technology and Operations                   |
| Garry K. McGuire         |       | 58         |       | Chief Financial  Officer and Senior Vice President, Corporate Development |
| Francis M. Scricco       |       | 56         |       | Group Vice  President, Avaya Global Services                              |
| Michael Thurk            |       | 52         |       | Group Vice President,  Global Communications Solutions                    |

 

The information required by this item relating to ourDirectors (including Mr. Peterson) and nominees, and compliance with Section 16(a) ofthe Securities Act of 1934, is incorporated by reference from the discussionunder the heading “Proposals—Directors’ Proposal to Elect Directors” and “Section 16(a) BeneficialOwnership Reporting Compliance” set forth in our Proxy Statement for the 2006Annual Meeting of Shareholders.

*PamelaF. Craven* has been our Senior Vice President, GeneralCounsel and Secretary since August 2002. From September 2000 until July 2002, Mrs. Cravenwas our Vice President, General Counsel and Secretary. Mrs. Craven was adirector of Avaya from its inception until September 2000 and was VicePresident, General Counsel and Secretary of Lucent Technologies Inc.’s (“Lucent”)Enterprise Networks Group from March 2000 until September 2000. Mrs. Cravenserved as Vice President, Law for Lucent from November 1995 to April 2000and was also Secretary of Lucent from February 1999 until April 2000.

*LouisJ. D’Ambrosio* has been our Senior Vice President andPresident, Global Sales and Marketing since November 2005. From January 2004until November 2005, Mr. D’Ambrosio was our Group Vice President, GlobalSales, Channels & Marketing. From December 2002 until December 2003, Mr. D’Ambrosiowas our Group Vice President, Avaya Global Services. Prior to December 2002, Mr. D’Ambrosioserved in a number of executive positions with International Business MachinesCorporation, including most recently as Vice President of Worldwide Sales andMarketing—Software Business. Mr. D’Ambrosio joined IBM in 1987.

*MaryanneDiMarzo* has been our Senior Vice President, HumanResources since August 2002. Ms. DiMarzo was our Vice President, HumanResources from September 2000 until July 2002. 

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Ms. DiMarzo was VicePresident, Human Resources, for Lucent Technologies Inc.’s (“Lucent”)Enterprise Networks Group from April 2000 until September 2000. From 1997until March 2000, Ms. DiMarzo was Human Resources Vice President ofthe Corporate Centers at Lucent. Ms. DiMarzo will retire from the Companyeffective December 31, 2005.

*DavidP. Johnson* has been our Senior Vice President andPresident, Avaya International since November 2005. From October 2004 until November2005, Mr. Johnson was our Senior Vice President, Europe, Middle East andAfrica. From August 2002 until October 2004, Mr. Johnson was our SeniorVice President, Small and Medium Business Solutions. Mr. Johnson was ourVice President of Worldwide Sales from September 2000 until July 2002.Mr. Johnson was Vice President of Worldwide Sales for Lucent’s EnterpriseNetworks Group from April 2000 until September 2000.

*ThomasA. Lesica*has been our Senior Vice President, GlobalTechnology and Operations since November 2005. From June 2003 until November2005, Mr. Lesica was our Group Vice President, Global Technology andOperations. From May 2000 until June 2003, Mr. Lesica was theChief Operations Officer and Chief Technology Officer of New Roads, Inc.

*GarryK. McGuire*has been our Chief Financial Officer since September2000 and our Senior Vice President, Corporate Development since June 2003.Mr. McGuire was Chief Financial Officer for Lucent Technologies Inc.’s(“Lucent”) Enterprise Networks Group from May 2000 until September 2000. Mr. McGuirecurrently serves as a director of Anadigics, Inc.

*FrancisM. Scricco*has been our Senior Vice President andPresident, Avaya Global Services since November 2005. From March 2004 until November2005, Mr. Scricco was our Group Vice President, Avaya Global Services. From1997 to 2002, Mr. Scricco served in a number of executive positions withArrow Electronics, Inc., including President and Chief Executive Officerfrom 2000-2002 and President and Chief Operating Officer from 1999-2000.

*MichaelThurk*has been our Senior Vice President andPresident, Global Communications Solutions since November 2005. From October 2004until November 2005, Mr. Thurk was our Group Vice President, GlobalCommunications Solutions. Mr. Thurk was our Group Vice President,Enterprise Communications Group from August 2002 until September 2004.Mr. Thurk was our Group Vice President, Systems, from January 2002until July 2002. From June 1998 until December 2001, Mr. Thurkheld various positions at Ericsson including President, EricssonDatacom Inc. and Vice President, Division Data Backbone and OpticalNetworks.

Information required by this item about our auditcommittee and our audit committee financial experts is incorporated byreference from the discussion under the heading “Corporate Governance andRelated Matters—Board of Directors’ Meetings, Committees and Fees” set forth inour Proxy Statement for the 2006 Annual Meeting of Shareholders.

Information required bythis item about our code of ethics is incorporated by reference from thediscussion under the heading***“***Corporate Governance and Related Matters—Code ofConduct” in our Proxy Statement for the 2006 Annual Meeting of Shareholders. Weintend to satisfy the disclosure requirement under Item 5.05 of Form 8-Kregarding an amendment to, or waiver from, a provision of our Code of Conductby posting such information on our website, at *www.avaya.com*.

**Item 11.**                 *Executive Compensation.*

Information required bythis item is incorporated by reference from the discussion under the heading “ExecutiveCompensation and Other Information” in our Proxy Statement for the 2006 AnnualMeeting of Shareholders.

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**Item12.      *SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters.***

Information required bythis item is incorporated by reference from the discussion under the heading“Security Ownership of Certain Beneficial Owners and Management” and under theheading “Executive Compensation and Other Information—Equity Compensation PlanInformation as of September 30, 2005”**inour Proxy Statement for the 2006 Annual Meeting of Shareholders.

**Item 13.      *Certain Relationships and Related Transactions.***

Information required bythis item is incorporated by reference from the discussion under the heading***“***CorporateGovernance and Related Matters—Certain Relationships and Related PartyTransactions” in our Proxy Statement for the 2006 Annual Meeting ofShareholders.

**Item 14.      *Principal Accounting Fees and Services.***

Information required bythis item is incorporated by reference from the discussion under the headings“Corporate Governance and Related Matters—Board of Directors’ Meetings,Committees and Fees—Audit Committee” and “Corporate Governance and RelatedMatters—Audit Committee Information” in our Proxy Statement for the 2006 AnnualMeeting of Shareholders.

**PART IV**

**Item 15.**                 *Exhibits and Financial Statement Schedules.*

Thefollowing documents are filed as a part of this Annual Report on Form 10-K:

(a)(1)   FinancialStatements:
|                                                   | ** ** | ** **                                                                                          | ** ** | **Corresponding page  numbers in Exhibit 13  to this  Annual Report  on Form 10-K** |
|---------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|
| (i)                                               |       | Consolidated Statements of Operations                                                               |       | 34                                                                                            |
| (ii)                                              |       | Consolidated Balance Sheets                                                                         |       | 35                                                                                            |
| (iii)                                             |       | Consolidated Statements of Changes in Stockholders’  Equity and of Comprehensive Income (Loss) |       | 36                                                                                            |
| (iv)                                              |       | Consolidated Statements of Cash Flows                                                               |       | 37                                                                                            |
| (v)                                               |       | Notes to Consolidated Financial Statements                                                          |       | 38                                                                                            |
| (a)(2)   Financial Statement Schedules: |       |                                                                                                |
| (i)                                               |       | Schedule II—Valuation and Qualifying Accounts                                                  |       | Page 32  of this Annual Report on Form 10-K                                         |

 

The schedules listed in Regulation 210.5-04 havebeen omitted because they are not applicable or the required information isshown in the consolidated financial statements or notes thereto.

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(a)(3)   Exhibits:

Thefollowing documents are filed as Exhibits to this Annual Report on Form 10-Kor incorporated by reference herein:
| Exhibit   Number | ** ** | **Description**                                                                                                                                                                                 |
|------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1              |       | Contribution and  Distribution Agreement by and between Lucent Technologies Inc. and Avaya Inc.  dated as of September 30, 2000.+                                                          |
| 2.2              |       | Share Purchase  Agreement, dated as of October 5, 2004, by and among Avaya Inc., Avaya  HoldCo, affiliates of Kohlberg, Kravis Roberts & Co. and Tenovis  Manager Trust GmbH.(12) |
| 3.1              |       | Restated  Certificate of Incorporation of Avaya Inc.+                                                                                                                                           |
| 3.2              |       | Amended and  Restated By-laws of Avaya Inc., as amended on July 18, 2002.(6)                                                                                                               |
| 4.1              |       | Specimen Common  Stock certificate of Avaya Inc.+                                                                                                                                               |
| 4.2              |       | Restated  Certificate of Incorporation of Avaya Inc. (incorporated by reference as  Exhibit 3.1 hereto)+                                                                                   |
| 4.3              |       | Amended and  Restated By-laws of Avaya Inc., as amended on July 18, 2002. (filed as  Exhibit 3.2 hereto)(6)                                                                           |
| 4.4              |       | Rights Agreement  dated as of September 29, 2000 between Avaya Inc. and The Bank of  New York, as Rights Agent.+                                                                      |
| 4.5              |       | Amendment  No. 1 dated as of February 28, 2002 to the Rights Agreement between  Avaya Inc. and the Bank of New York as Rights Agent.(4)                                               |
| 4.6              |       | Form of  Certificate of Designations of Series A Junior Participating Preferred Stock.+                                                                                               |
| 4.7              |       | Form of  Right Certificate.+                                                                                                                                                               |
| 4.8              |       | Preferred Stock  Certificate of Avaya Inc.(1)                                                                                                                                                   |
| 4.9              |       | Series A  Warrant.(1)                                                                                                                                                                      |
| 4.10             |       | Series B  Warrant.(1)                                                                                                                                                                      |
| 4.11             |       | Form of  Indenture between Avaya Inc. and The Bank of New York, as Trustee.(1)                                                                                                             |
| 4.12             |       | Form of  Supplemental Indenture between the Company and The Bank of New York, as  Trustee, relating to the Liquid Yield Options Notes due 2021 (Zero  Coupon-Senior).(6)                   |
| 4.13             |       | Series C  Warrant.(8)                                                                                                                                                                      |
| 4.14             |       | Second  Supplemental Indenture, dated as of March 28, 2002, between the Company  and The Bank of New York, as Trustee.(5)                                                                  |
| 4.15             |       | Form of  Global Note.(5)                                                                                                                                                                   |
| 4.16             |       | Third  Supplemental Indenture, dated as of November 16, 2004, between the  Company and The Bank of New York, as Trustee.(13)                                                               |
| 10.1             |       | Contribution and  Distribution Agreement. (incorporated by reference as Exhibit 2 hereto)+                                                                                                 |
| 10.2             |       | Interim Services  and Systems Replication Agreement.+                                                                                                                                           |
| 10.3             |       | Employee Benefits  Agreement.+                                                                                                                                                                  |
| 10.4             |       | Tax Sharing  Agreement.+                                                                                                                                                                        |
| 10.5             |       | Avaya Inc. Short  Term Incentive Plan.+                                                                                                                                                         |
| 10.6             |       | Avaya Inc. 2000  Long Term Incentive Plan.+                                                                                                                                                     |
| 10.7             |       | Avaya Inc. 2000 Long  Term Incentive Plan Restricted Stock Unit Award Agreement.+                                                                                                               |

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| 10.8   |   | Avaya Inc. 2000  Long Term Incentive Plan Nonstatutory Stock Option Agreement.+                                                                                                                                                                                             |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.9   |   | Avaya Inc.  Deferred Compensation Plan.+                                                                                                                                                                                                                                    |
| 10.10  |   | Employment  Agreement of Donald K. Peterson, dated as of August 8, 1995.+                                                                                                                                                                                         |
| 10.11  |   | Avaya Inc.  Supplemental Pension Plan.+                                                                                                                                                                                                                                     |
| 10.12  |   | Avaya Inc. 2000  Stock Compensation Plan for Non-Employee Directors.+                                                                                                                                                                                                       |
| 10.13  |   | Trademark License  Agreement.+                                                                                                                                                                                                                                              |
| 10.14  |   | Patent and  Technology License Agreement.+                                                                                                                                                                                                                                  |
| 10.15  |   | Technology  Assignment and Joint Ownership Agreement.+                                                                                                                                                                                                                      |
| 10.16  |   | Development  Project Agreement.+                                                                                                                                                                                                                                            |
| 10.17  |   | Preferred Stock  and Warrant Purchase Agreement.+                                                                                                                                                                                                                           |
|   |   | Certificate of  Designations, Preferences and Rights of Series B Convertible  Participating Preferred Stock of Avaya Inc. (attached as Exhibit A to  the Preferred Stock and Warrant Purchase Agreement incorporated by reference  as Exhibit 10.17 hereto)+ |
| 10.18  |   | Stock Purchase  Agreement by and among the Company and the Warburg Entities, dated as of  March 10, 2002.(3)                                                                                                                                                           |
| 10.19  |   | Conversion  Agreement by and among the Company and the Warburg Entities, dated as of  March 10, 2002.(3)                                                                                                                                                               |
| 10.20  |   | Security  Agreement, dated as of March 25, 2002, among the Company, certain  subsidiaries of the Company and The Bank of New York, as Collateral Trustee.(5)                                                                                                           |
| 10.21  |   | Collateral  Agreement, dated as of March 25, 2002, among the Company, certain  subsidiaries of the Company and The Bank of New York, as Collateral  Trustee.(5)                                                                                                        |
| 10.22  |   | Avaya Involuntary  Separation Plan for Senior Officers.(6)                                                                                                                                                                                                                  |
| 10.23  |   | Backstop  Agreement, by and among the Company and the Warburg Entities, dated as of  December 28, 2002.(8)                                                                                                                                                             |
| 10.24  |   | Avaya Inc.  Deferred Compensation Plan, as amended as of October 31, 2003.(9)                                                                                                                                                                                          |
| 10.25  |   | Severance  Agreement, dated as of September 1, 2003, between the Company and Donald  K. Peterson.(13)                                                                                                                                                                  |
| 10.26  |   | Avaya Inc. 2000  Long Term Incentive Plan, amended as of November 1, 2003.(9)                                                                                                                                                                                          |
| 10.27  |   | Avaya Inc. Long  Term Incentive Plan for Management Employees, amended as of November 1,  2003.(9)                                                                                                                                                                     |
| 10.28  |   | Avaya Inc. 2004  Long Term Incentive Plan, which is the amended and restated Avaya Inc. Long  Term Incentive Plan for Management Employees, effective February 26,  2004.(13)                                                                                          |
| 10.29  |   | Avaya Inc. 2004  Long Term Incentive Plan Stock Option Agreement.(13)                                                                                                                                                                                                       |
| 10.30  |   | Avaya Inc. 2004  Long Term Incentive Plan Restricted Stock Unit Award Agreement.(13)                                                                                                                                                                                        |
| 10.31  |   | Avaya Inc.  Savings Restoration Plan, effective January 1, 2004.(13)                                                                                                                                                                                                   |
| 10.32  |   | Avaya Inc. 2004 Long  Term Incentive Plan Performance Vesting Restricted Stock Unit Award Agreement  for Fiscal 2005 Awards.(14)                                                                                                                                            |

29

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| 10.33 |   | Amended and Restated  Five Year Revolving Credit Facility Agreement, dated as of April 30,  2003, among Avaya Inc., as Borrower, the Lenders party thereto, Citibank,  N.A., as Agent, Citigroup Global Markets, Inc., as Lead Arranger, Bank  One, NA, JPMorgan Chase Bank and Deutsche Bank AG New York Branch, as  Co-Syndication Agents and Co- Arrangers and Commerzbank AG, New York Branch  as Co-Arranger.(10) |
|-------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.34 |   | Amendment  No. 1 dated June 25, 2003 to Amended and Restated Five Year  Revolving Credit Facility Agreement, among Avaya Inc., as Borrower and the  Lenders party thereto.(13)                                                                                                                                                                                                                                         |
| 10.35 |   | Amendment  No. 2 dated October 23, 2003 to Amended and Restated Five Year  Revolving Credit Facility Agreement, among Avaya Inc., as Borrower and the  Lenders party thereto.(13)                                                                                                                                                                                                                                      |
| 10.36 |   | Amendment  No. 3 dated January 30, 2004 to Amended and Restated Five Year  Revolving Credit Facility Agreement, among Avaya Inc., as Borrower and the  Lenders party thereto.(11)                                                                                                                                                                                                                                      |
| 10.37 |   | Amendment  No. 4 dated February 6, 2004 to Amended and Restated Five Year  Revolving Credit Facility Agreement, among Avaya Inc., as Borrower and the  Lenders party thereto.(10)                                                                                                                                                                                                                                      |
| 10.38 |   | Amendment  No. 5 dated March 3, 2004 to Amended and Restated Five Year Revolving  Credit Facility Agreement, among Avaya Inc., as Borrower and the Lenders  party thereto.(13)                                                                                                                                                                                                                                         |
| 10.39 |   | Amendment  No. 6 dated October 4, 2004 to Amended and Restated Five Year  Revolving Credit Facility Agreement, among Avaya Inc., as Borrower and the  Lenders party thereto.(14)                                                                                                                                                                                                                                       |
| 10.40 |   | $400,000,000  Credit Agreement dated as of February 23, 2005 among Avaya Inc. and  Avaya International Sales Limited as Borrowers and the Initial Lenders named  therein and Citicorp USA, Inc., as Administrative Agent and JPMorgan  Chase Bank, N.A. as Syndication Agent and Citigroup Global Markets Inc. and  J.P. Morgan Securities Inc. as Joint Bookrunners and Joint Lead  Arrangers.(15)                    |
| 10.41 |   | Amendment  No. 1 to the Credit Agreement dated as of May 25, 2005.(16)                                                                                                                                                                                                                                                                                                                                                 |
| 10.42 |   | Compensation  Arrangements for Named Executive Officers and Non-Employee Directors of Avaya  Inc.*                                                                                                                                                                                                                                                                                                                               |
| 13    |   | The 2005 Annual  Report to Shareholders, which, except for those portions incorporated by  reference, is furnished solely for the information of the Commission and is  not deemed “filed.”*                                                                                                                                                                                                                           |
| 21    |   | Subsidiaries of  Avaya Inc.*                                                                                                                                                                                                                                                                                                                                                                                                     |
| 23.1  |   | Consent of  Independent Registered Public Accounting Firm (PricewaterhouseCoopers LLP).*                                                                                                                                                                                                                                                                                                                                         |
| 24.1  |   | Power of  Attorney.*                                                                                                                                                                                                                                                                                                                                                                                                             |
| 31.1  |   | Rule 13a-14(a)/Rule 15d-14(a) Certification  of the Chief Executive Officer.*                                                                                                                                                                                                                                                                                                                                     |
| 31.2  |   | Rule 13a-14(a)/Rule 15d-14(a) Certification  of the Chief Financial Officer.*                                                                                                                                                                                                                                                                                                                                     |
| 32.1  |   | Section 1350  Certification of the Chief Executive Officer.*                                                                                                                                                                                                                                                                                                                                                                |
| 32.2  |   | Section 1350  Certification of the Chief Financial Officer.*                                                                                                                                                                                                                                                                                                                                                                |

----

+                Incorporated byreference from Avaya’s Registration Statement on Form 10(Reg. No. 1-15951).

*                    Filedherewith.

(1)          Incorporated byreference from Avaya’s Registration Statement on Form S-3 (Reg.No. 333-57962) filed on May 7, 2001.

(2)          Incorporated by referencefrom Avaya’s Registration Statement on Form 8-A datedOctober 30, 2001.

(3)          Incorporated byreference from Avaya’s Current Report on Form 8-K datedMarch 11, 2002.

30

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(4)          Incorporated byreference from Avaya’s Current Report on Form 8-K datedFebruary 27, 2002.

(5)          Incorporated byreference from Avaya’s Current Report on Form 8-K datedMarch 28, 2002.

(6)          Incorporated byreference from Avaya’s Quarterly Report on Form 10-Q for the quarterended June 30, 2002.

(7)          Incorporated byreference from Avaya’s Quarterly Report on Form 8-K datedSeptember 4, 2002.

(8)          Incorporated byreference from Avaya’s Registration Statement on Form S-4 (Reg.No. 333-102120) filed on December 23, 2002.

(9)          Incorporated byreference from Avaya’s Annual Report on Form 10-K for the fiscalyear ended September 30, 2003.

(10)   Incorporated by reference fromAvaya’s Quarterly Report on Form 10-Q for the quarter endedDecember 31, 2003.

(11)   Incorporated by reference fromAvaya’s Current Report on Form 8-K dated February 2, 2004.

(12)   Incorporated by reference fromAvaya’s Current Report on Form 8-K dated October 7, 2004.

(13)   Incorporated by reference fromAvaya’s Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2004.

(14)   Incorporated by reference fromAvaya’s Current Report on Form 8-K dated December 16, 2004.

(15)   Incorporated by reference fromAvaya’s Current Report on Form 8-K dated February 23, 2005.

(16)   Incorporated by reference fromAvaya’s Current Report on Form 8-K dated May 25, 2005.

31

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**AVAYA INC. ANDSUBSIDIARIES**

**SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS**

Information required by this item is incorporated byreference toNote 6, Supplementary Financial Information, to our ConsolidatedFinancial Statements, which are included in our 2005 Annual Report toShareholders.

32

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

|                        |   | Avaya Inc.                                                                  |
|------------------------|--------|-----------------------------------------------------------------------------|
|                   | By:    | /s/  GARRY K. MCGUIRE                                                       |
|                   |   | Garry K. McGuire                                                            |
|                   |   | *Chief  Financial Officer and Senior Vice President, Corporate Development* |
| December 13, 2005 |   | * *                                                                    |
|                        |        |                                                                             |  |  |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons in the capacities and on the dateindicated.

|                       | **Signature** | ** **                                                      | ** ** | ** **             | **Title** | ** ** | ** ** | ** ** | **Date** | ** ** |
|-----------------------|---------------|-----------------------------------------------------------------|------------|------------------------|-----------|------------|------------|------------|----------|------------|
| *                     |          | Chairman of the  Board and Chief Executive                      |       | December 13, 2005 |
| Donald K.  Peterson   |          | Officer (Principal Executive Officer)                           |       |                   |
| /s/  GARRY K. MCGUIRE |          | Chief Financial  Officer and Senior Vice                        |       | December 13, 2005 |
| Garry K. McGuire      |          | President, Corporate  Development (Principal Financial Officer) |       |                   |
| /s/  AMARNATH K. PAI  |          | Vice President,  Finance Operations and                         |       | December 13, 2005 |
| Amarnath K. Pai       |          | Corporate Controller (Principal Accounting Officer)             |       |                   |
| *                     |          | Director                                                        |       | December 13, 2005 |
| Bruce R. Bond         |          |                                                            |       |                   |
| *                     |          | Director                                                        |       | December 13, 2005 |
| Joseph P. Landy       |          |                                                            |       |                   |
| *                     |          | Director                                                        |       | December 13, 2005 |
| Mark Leslie           |          |                                                            |       |                   |
| *                     |          | Director                                                        |       | December 13, 2005 |
| Philip A. Odeen       |          |                                                            |       |                   |

33

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| *                      |   | Director |   | December 13, 2005  |
|------------------------|--------|----------|--------|-------------------------|
| Hellene S. Runtagh     |   |     |   |                    |
| *                      |   | Director |   | December 13,  2005 |
| Daniel  C. Stanzione   |   |     |   |                    |
| *                      |   | Director |   | December 13, 2005  |
| Paula Stern            |   |     |   |                    |
| *                      |   | Director |   | December 13, 2005  |
| Anthony P. Terracciano |   |     |   |                    |
| *                      |   | Director |   | December 13,  2005 |
| Richard  F. Wallman    |   |     |   |                    |
| *                      |   | Director |   | December 13,  2005 |
| Ronald L.  Zarrella    |   |     |   |                    |

 

| *By:   |     | /s/ GARRY K. MCGUIRE |     |
|--------|----------|----------------------|----------|
|   | * * | Garry K. McGuire     | * * |
|   | * * | *Attorney-in-Fact*   | * * |

 

 

34

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**Exhibit Index**
| Exhibit   Number | ** ** | **Description**                                                                                                                                                                                 |
|------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1              |       | Contribution and Distribution Agreement by and  between Lucent Technologies Inc. and Avaya Inc. dated as of  September 30, 2000.+                                                          |
| 2.2              |       | Share Purchase  Agreement, dated as of October 5, 2004, by and among Avaya Inc., Avaya  HoldCo, affiliates of Kohlberg, Kravis Roberts & Co. and Tenovis  Manager Trust GmbH.(12) |
| 3.1              |       | Restated Certificate of  Incorporation of Avaya Inc.+                                                                                                                                           |
| 3.2              |       | Amended and Restated  By-laws of Avaya Inc., as amended on July 18, 2002.(6)                                                                                                               |
| 4.1              |       | Specimen Common Stock  certificate of Avaya Inc.+                                                                                                                                               |
| 4.2              |       | Restated Certificate of  Incorporation of Avaya Inc. (incorporated by reference as Exhibit 3.1  hereto)+                                                                                   |
| 4.3              |       | Amended and Restated  By-laws of Avaya Inc., as amended on July 18, 2002. (filed as  Exhibit 3.2 hereto)(6)                                                                           |
| 4.4              |       | Rights Agreement dated  as of September 29, 2000 between Avaya Inc. and The Bank of New York,  as Rights Agent.+                                                                      |
| 4.5              |       | Amendment No. 1  dated as of February 28, 2002 to the Rights Agreement between Avaya Inc.  and the Bank of New York as Rights Agent.(4)                                               |
| 4.6              |       | Form of Certificate  of Designations of Series A Junior Participating Preferred Stock.+                                                                                               |
| 4.7              |       | Form of Right  Certificate.+                                                                                                                                                               |
| 4.8              |       | Preferred Stock  Certificate of Avaya Inc.(1)                                                                                                                                                   |
| 4.9              |       | Series A Warrant.(1)                                                                                                                                                                       |
| 4.10             |       | Series B  Warrant.(1)                                                                                                                                                                      |
| 4.11             |       | Form of Indenture  between Avaya Inc. and The Bank of New York, as Trustee.(1)                                                                                                             |
| 4.12             |       | Form of  Supplemental Indenture between the Company and The Bank of New York, as  Trustee, relating to the Liquid Yield Options Notes due 2021 (Zero  Coupon-Senior).(6)                   |
| 4.13             |       | Series C  Warrant.(8)                                                                                                                                                                      |
| 4.14             |       | Second Supplemental  Indenture, dated as of March 28, 2002, between the Company and The Bank  of New York, as Trustee.(5)                                                             |
| 4.15             |       | Form of Global  Note.(5)                                                                                                                                                                   |
| 4.16             |       | Third Supplemental  Indenture, dated as of November 16, 2004, between the Company and The Bank  of New York, as Trustee.(13)                                                          |
| 10.1             |       | Contribution and  Distribution Agreement. (incorporated by reference as Exhibit 2 hereto)+                                                                                                 |
| 10.2             |       | Interim Services and  Systems Replication Agreement.+                                                                                                                                           |
| 10.3             |       | Employee Benefits  Agreement.+                                                                                                                                                                  |
| 10.4             |       | Tax Sharing Agreement.+                                                                                                                                                                         |
| 10.5             |       | Avaya Inc. Short Term  Incentive Plan.+                                                                                                                                                         |
| 10.6             |       | Avaya Inc. 2000 Long  Term Incentive Plan.+                                                                                                                                                     |
| 10.7             |       | Avaya Inc. 2000 Long  Term Incentive Plan Restricted Stock Unit Award Agreement.+                                                                                                               |
| 10.8             |       | Avaya Inc. 2000 Long  Term Incentive Plan Nonstatutory Stock Option Agreement.+                                                                                                                 |

35

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| 10.9   |   | Avaya Inc. Deferred  Compensation Plan.+                                                                                                                                                                                                                                    |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.10  |   | Employment Agreement of  Donald K. Peterson, dated as of August 8, 1995.+                                                                                                                                                                                         |
| 10.11  |   | Avaya Inc. Supplemental  Pension Plan.+                                                                                                                                                                                                                                     |
| 10.12  |   | Avaya Inc. 2000 Stock  Compensation Plan for Non-Employee Directors.+                                                                                                                                                                                                       |
| 10.13  |   | Trademark License  Agreement.+                                                                                                                                                                                                                                              |
| 10.14  |   | Patent and Technology  License Agreement.+                                                                                                                                                                                                                                  |
| 10.15  |   | Technology Assignment  and Joint Ownership Agreement.+                                                                                                                                                                                                                      |
| 10.16  |   | Development Project Agreement.+                                                                                                                                                                                                                                             |
| 10.17  |   | Preferred Stock and  Warrant Purchase Agreement.+                                                                                                                                                                                                                           |
|   |   | Certificate of  Designations, Preferences and Rights of Series B Convertible  Participating Preferred Stock of Avaya Inc. (attached as Exhibit A to  the Preferred Stock and Warrant Purchase Agreement incorporated by reference  as Exhibit 10.17 hereto)+ |
| 10.18  |   | Stock Purchase Agreement  by and among the Company and the Warburg Entities, dated as of March 10,  2002.(3)                                                                                                                                                           |
| 10.19  |   | Conversion Agreement by  and among the Company and the Warburg Entities, dated as of March 10,  2002.(3)                                                                                                                                                               |
| 10.20  |   | Security Agreement,  dated as of March 25, 2002, among the Company, certain subsidiaries of  the Company and The Bank of New York, as Collateral Trustee.(5)                                                                                                           |
| 10.21  |   | Collateral Agreement,  dated as of March 25, 2002, among the Company, certain subsidiaries of  the Company and The Bank of New York, as Collateral Trustee.(5)                                                                                                         |
| 10.22  |   | Avaya Involuntary  Separation Plan for Senior Officers.(6)                                                                                                                                                                                                                  |
| 10.23  |   | Backstop Agreement, by  and among the Company and the Warburg Entities, dated as of December 28,  2002.(8)                                                                                                                                                             |
| 10.24  |   | Avaya Inc. Deferred  Compensation Plan, as amended as of October 31, 2003.(9)                                                                                                                                                                                          |
| 10.25  |   | Severance Agreement,  dated as of September 1, 2003, between the Company and Donald K.  Peterson.(13)                                                                                                                                                                  |
| 10.26  |   | Avaya Inc. 2000 Long  Term Incentive Plan, amended as of November 1, 2003.(9)                                                                                                                                                                                          |
| 10.27  |   | Avaya Inc. Long Term  Incentive Plan for Management Employees, amended as of November 1,  2003.(9)                                                                                                                                                                     |
| 10.28  |   | Avaya Inc. 2004 Long  Term Incentive Plan, which is the amended and restated Avaya Inc. Long Term  Incentive Plan for Management Employees, effective February 26,  2004.(13)                                                                                          |
| 10.29  |   | Avaya Inc. 2004 Long  Term Incentive Plan Stock Option Agreement.(13)                                                                                                                                                                                                       |
| 10.30  |   | Avaya Inc. 2004 Long  Term Incentive Plan Restricted Stock Unit Award Agreement.(13)                                                                                                                                                                                        |
| 10.31  |   | Avaya Inc. Savings  Restoration Plan, effective January 1, 2004.(13)                                                                                                                                                                                                   |
| 10.32  |   | Avaya Inc. 2004 Long  Term Incentive Plan Performance Vesting Restricted Stock Unit Award Agreement  for Fiscal 2005 Awards.(14)                                                                                                                                            |

36

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| 10.33 |   | Amended and Restated  Five Year Revolving Credit Facility Agreement, dated as of April 30,  2003, among Avaya Inc., as Borrower, the Lenders party thereto, Citibank,  N.A., as Agent, Citigroup Global Markets, Inc., as Lead Arranger, Bank  One, NA, JPMorgan Chase Bank and Deutsche Bank AG New York Branch, as  Co-Syndication Agents and Co- Arrangers and Commerzbank AG, New York Branch  as Co-Arranger.(10) |
|-------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.34 |   | Amendment No. 1  dated June 25, 2003 to Amended and Restated Five Year Revolving Credit  Facility Agreement, among Avaya Inc., as Borrower and the Lenders party  thereto.(13)                                                                                                                                                                                                                                         |
| 10.35 |   | Amendment No. 2  dated October 23, 2003 to Amended and Restated Five Year Revolving  Credit Facility Agreement, among Avaya Inc., as Borrower and the Lenders  party thereto.(13)                                                                                                                                                                                                                                      |
| 10.36 |   | Amendment No. 3  dated January 30, 2004 to Amended and Restated Five Year Revolving  Credit Facility Agreement, among Avaya Inc., as Borrower and the Lenders  party thereto.(11)                                                                                                                                                                                                                                      |
| 10.37 |   | Amendment No. 4  dated February 6, 2004 to Amended and Restated Five Year Revolving  Credit Facility Agreement, among Avaya Inc., as Borrower and the Lenders  party thereto.(10)                                                                                                                                                                                                                                      |
| 10.38 |   | Amendment No. 5  dated March 3, 2004 to Amended and Restated Five Year Revolving Credit  Facility Agreement, among Avaya Inc., as Borrower and the Lenders party  thereto.(13)                                                                                                                                                                                                                                         |
| 10.39 |   | Amendment No. 6  dated October 4, 2004 to Amended and Restated Five Year Revolving Credit  Facility Agreement, among Avaya Inc., as Borrower and the Lenders party  thereto.(12)                                                                                                                                                                                                                                       |
| 10.40 |   | $400,000,000 Credit  Agreement dated as of February 23, 2005 among Avaya Inc. and Avaya  International Sales Limited as Borrowers and the Initial Lenders named  therein and Citicorp USA, Inc., as Administrative Agent and JPMorgan  Chase Bank, N.A. as Syndication Agent and Citigroup Global Markets Inc. and  J.P. Morgan Securities Inc. as Joint Bookrunners and Joint Lead  Arrangers.(15)                    |
| 10.41 |   | Amendment No. 1 to  the Credit Agreement dated as of May 25, 2005.(16)                                                                                                                                                                                                                                                                                                                                                 |
| 10.42 |   | Compensation  Arrangements for Named Executive Officers and Non-Employee Directors of Avaya  Inc.*                                                                                                                                                                                                                                                                                                                               |
| 13    |   | The 2005 Annual Report  to Shareholders, which, except for those portions incorporated by reference,  is furnished solely for the information of the Commission and is not deemed  “filed.”*                                                                                                                                                                                                                           |
| 21    |   | Subsidiaries of Avaya  Inc.*                                                                                                                                                                                                                                                                                                                                                                                                     |
| 23.1  |   | Consent of Independent Registered  Public Accounting Firm (PricewaterhouseCoopers LLP).*                                                                                                                                                                                                                                                                                                                                         |
| 24.1  |   | Power of Attorney.*                                                                                                                                                                                                                                                                                                                                                                                                              |
| 31.1  |   | Rule 13a-14(a)/Rule 15d-14(a) Certification  of the Chief Executive Officer.*                                                                                                                                                                                                                                                                                                                                     |
| 31.2  |   | Rule 13a-14(a)/Rule 15d-14(a) Certification  of the Chief Financial Officer.*                                                                                                                                                                                                                                                                                                                                     |
| 32.1  |   | Section 1350  Certification of the Chief Executive Officer.*                                                                                                                                                                                                                                                                                                                                                                |
| 32.2  |   | Section 1350  Certification of the Chief Financial Officer.*                                                                                                                                                                                                                                                                                                                                                                |

----

+                Incorporated byreference from Avaya’s Registration Statement on Form 10(Reg. No. 1-15951).

*                    Filedherewith.

(1)          Incorporated byreference from Avaya’s Registration Statement on Form S-3 (Reg.No. 333-57962) filed on May 7, 2001.

(2)          Incorporated byreference from Avaya’s Registration Statement on Form 8-A datedOctober 30, 2001.

(3)          Incorporated byreference from Avaya’s Current Report on Form 8-K dated March 11,2002.

37

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(4)          Incorporated byreference from Avaya’s Current Report on Form 8-K dated February 27,2002.

(5)          Incorporated byreference from Avaya’s Current Report on Form 8-K dated March 28,2002.

(6)          Incorporated byreference from Avaya’s Quarterly Report on Form 10-Q for the quarter endedJune 30, 2002.

(7)          Incorporated byreference from Avaya’s Quarterly Report on Form 8-K datedSeptember 4, 2002.

(8)          Incorporated byreference from Avaya’s Registration Statement on Form S-4 (Reg.No. 333-102120) filed on December 23, 2002.

(9)          Incorporated byreference from Avaya’s Annual Report on Form 10-K for the fiscal yearended September 30, 2003.

(10)   Incorporated by reference fromAvaya’s Quarterly Report on Form 10-Q for the quarter endedDecember 31, 2003.

(11)   Incorporated by reference fromAvaya’s Current Report on Form 8-K dated February 2, 2004.

(12)   Incorporated by reference fromAvaya’s Current Report on Form 8-K dated October 7, 2004.

(13)   Incorporated by reference fromAvaya’s Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2004.

(14)   Incorporated by reference fromAvaya’s Current Report on Form 8-K dated December 16, 2004.

(15)   Incorporated by reference fromAvaya’s Current Report on Form 8-K dated February 23, 2005.

(16)   Incorporated by reference fromAvaya’s Current Report on Form 8-K dated May 25, 2005.

38

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