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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ý☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended September 30, 20192021
or
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-38289
AVAYA HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
Delaware26-1119726
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
4655 Great America2605 Meridian Parkway,
Santa Clara, California
Suite 200		9505427713
Durham,North Carolina
(Address of Principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (908) 953-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common StockAVYANew York Stock Exchange ("NYSE")
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ý ☒No  ¨☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨☐   No  ý☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý☒   No  ¨☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files).    Yes  ý☒    No  ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerx
☒
Accelerated filer¨
☐
Non-accelerated filer¨
☐
Smaller Reporting Company¨
☐
Emerging growth company¨
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.    ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨☐   No  ý☒
The aggregate market value of the registrant's Common Stock held by non-affiliates on March 29, 2019,31, 2021, the last business day of the
registrant's most recently completed second quarter, was $1,858 million.$2,338 million.
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  ý☒    No  ¨☐
As of October 31, 2019, 111,170,9632021, 84,115,602 shares of Common Stock, $.01 par value, of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K will be incorporated by reference from certain portions of the registrant's definitive proxy
statement for its 20202022 Annual General Meeting of Stockholders, or will be included in an amendment hereto, to be filed with the
Securities and Exchange Commission not later than 120 days after the close of the registrant's fiscal year ended September 30, 2019.
2021.




TABLE OF CONTENTS
 
 
ItemDescriptionPageItemDescriptionPage
 
PART I PART I
1.
Business
3
1.
2
1A.
Risk Factors
22
1A.
16
1B.
Unresolved Staff Comments
41
1B.
37
2.
Properties
41
2.
37
3.
Legal Proceedings
41
3.
37
4.
Mine Safety Disclosures
41
4.
37
 
PART II PART II
5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
42
5.
38
6.
Selected Financial Data
44
6.
40
7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
46
7.
41
7A.
Quantitative and Qualitative Disclosures About Market Risk
65
7A.
54
8.
Financial Statements and Supplementary Data
66
8.
55
9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
151
9.
117
9A.
Controls and Procedures
151
9A.
117
9B.
Other Information
152
9B.
117
9C.9C.
117
 
PART III PART III
10.
Directors, Executive Officers and Corporate Governance
153
10.
118
11.
Executive Compensation
153
11.
118
12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
153
12.
118
13.
Certain Relationships and Related Transactions, and Director Independence
153
13.
118
14.
Principal Accounting Fees and Services
153
14.
118
 
PART IV PART IV
15.
Exhibits, Financial Statement Schedules
154
15.
119
16.
Form 10-K Summary
154
16.
123
When we use the terms "we," "us," "our," "Avaya" or the "Company," we mean Avaya Holdings Corp., a Delaware corporation, and its consolidated subsidiaries taken as a whole, unless the context otherwise indicates.
This Annual Report on Form 10-K contains the registered and unregistered trademarks or service marks of Avaya and are the property of Avaya Holdings Corp. and/or its affiliates. This Annual Report on Form 10-K also contains additional trade names, trademarks or service marks belonging to us and to other companies. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.
 





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Cautionary Note Regarding Forward-looking Statements
Certain statements in this Annual Report on Form 10-K, including statements containing words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project," "target," "model," "can," "could," "may," "should," "will," "would" or similar words or the negative thereof, constitute "forward-looking statements." These forward-looking statements, which are based on our current plans, expectations, estimates and projections about future events, should not be unduly relied upon. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements to materially differ from any future results, performance and achievements expressed or implied by such forward-looking statements. We caution you therefore against relying on any of these forward-looking statements.
The forward-looking statements included herein are based upon our assumptions, estimates and beliefs and involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements and may be affected by a variety of risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Risks, uncertainties and other factors that may cause these forward-looking statements to be inaccurate include, among others: the risks and factors discussed in Part I, Item 1A "Risk Factors" and Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" to this Annual Report on Form 10-K.
All forward-looking statements are made as of the date of this Annual Report on Form 10-K and the risk that actual results will differ materially from the expectations expressed in this Annual Report will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements after the date of this Annual Report, whether as a result of new information, future events, changed circumstances or any other reason. In light of the significant uncertainties inherent in the forward-looking statements included in this Annual Report, the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this Annual Report will be achieved.
Marketing, Ranking and Other Industry Data
This Annual Report on Form 10-K includes industry and trade association data, forecasts and information that we have prepared based, in part, upon data, forecasts and information obtained from independent trade associations, industry publications and surveys and other information available to us. Some data is also based on our good faith estimates, which are derived from management’s knowledge of the industry and independent sources. Industry publications and surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. We have not independently verified any of the data from third-party sources, nor have we ascertained the underlying economic assumptions relied upon therein. In particular, the Gartner and Aragon reports described below represent research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. ("Gartner") and Aragon Research, Inc., ("Aragon"), respectively, and are not representations of fact. Each of the Gartner and Aragon reports speaks as of its original publication date (and not as of the date of this filing) and the opinions expressed in the Gartner and Aragon reports are subject to change without notice. Gartner and Aragon dodoes not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner and Aragon research publications consist of the opinions of Gartner’s and Aragon's research organizations and should not be construed as statements of fact. Gartner and Aragon disclaim all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose. Statements as to our market position are based on market data currently available to us. Our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading Item 1A, "Risk Factors" in this Annual Report on Form 10-K. Certain information in the text of this Annual Report on Form 10-K is contained in industry publications or data compiled by a third-party. The sources of these industry publications and data are provided below:
Gartner Forecast: PCs, Ultramobiles•Aragon Report: The Aragon Research GlobeTM for Unified Communications and Mobile Phones, Worldwide, 2017-2023, 3Q19 Update, Ranjit Atwal, et al., September 2019.Collaboration, 2021, Jim Lundy, June 2021
•Aragon Report: The Aragon Research GlobeTM for Intelligent Contact Centers, 2021, Jim Lundy, July 2021



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PART I
•
Aragon Report: The Aragon Research GlobeTM for Unified Communications and Collaboration, 2019, Jim Lundy, et al., April 2019
•
Aragon Report: The Aragon Research GlobeTM for Intelligent Contact Center, 2019, Jim Lundy, May 2019
Available Information
The Company's corporate governance documents, including the Board of Directors' Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee charters are available, free of charge, on Avaya’s website or in print for stockholders.

All of the Company's periodic reports filed with the Securities and Exchange Commission ("SEC") pursuant to Section 13(a), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, are available, free of charge, on Avaya’s website, including its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and any amendments to those reports. These reports and amendments are available on Avaya’s website as soon as reasonably practicable after the Company electronically files the reports or amendments with the SEC. The SEC maintains a website (www.sec.gov) that contains these reports, proxy and information statements and other information.




PART I
Item 1.Business
Our Company
Avaya is a global leader in digital communications products, solutions and services for businesses of all sizes.sizes, delivering its technology predominantly through software and services. We enable organizations around the globe to succeed by creating intelligent communications experiences for customersour clients, their employees and employees.their customers. Avaya builds innovative open, converged unified communications and innovativecollaboration ("UCC") and contact center ("CC") software solutions to enhance and simplify communications and collaboration in the cloud, on-premiseson-premise or a hybrid of both. Our global, experienced team of professionals delivers award-winning services from initial planning and design, to seamless implementation and integration, to ongoing managed operations, optimization, training and support. As
Businesses are built by the experiences they provide, and Avaya delivers millions of September 30, 2019, we hadthose experiences globally through its software and solutions every day. Avaya is shaping the future of businesses and workplaces, with innovation and partnerships that deliver tangible business results. Our cloud communications solutions and multi-cloud software ecosystem power tailored, intelligent, and effortless customer and employee experiences that enable our clients to effectively engage and interact with their customers.
Avaya shifted its entire comprehensive software portfolio to Avaya OneCloud, which offers significant capabilities across contact center (OneCloud CCaaS), unified communications and collaboration (OneCloud UCaaS), and communications platform as a presenceservice (OneCloud CPaaS). We believe the Avaya OneCloud open, composable platform approach uniquely positions us to address a customer’s needs in approximately 175 countries worldwidecreating a Digital Workplace for their campus-based and duringremote employees through Unified Communications and Collaboration and the past four fiscal years we served more than 90%Customer Experience Center, our name for contact centers, helping clients deliver tangible business results.
Avaya offers a range of software sales and licensing models that can be deployed on-premise or via a public, private, or hybrid cloud. With our open, extensible development platform, customers and third parties can easily create custom applications and automated workflows for their unique needs, and integrate Avaya’s capabilities into the customer's existing infrastructure and business applications. Our solutions enable a seamless communications experience that adapts to how employees work, instead of changing how they work.
Avaya also offers one of the Fortune 100 organizations.broadest portfolios of business devices in the industry, including handsets, video conferencing units and headsets to meet the needs of every type of worker across a customer’s organization and help our customers get the most out of their communications investments. Avaya IP-enabled handsets, multimedia devices and conferencing systems enhance collaboration and productivity, and position organizations to incorporate future technological advancements.
Operating Segments
Our business has two operating segments: Products & Solutions and Services.
Products & Solutions
Products & Solutions encompasses our unified communicationsUCC and contact centerCC software platforms, applications and devices.
Unified Communications ("UC"): Avaya's UC•Avaya OneCloud UCaaS solutions enable organizations to reimagine collaborative work environments and help companies increase employee productivity, improve customer service and reduce costs. With Avaya's UC solutions,Avaya OneCloud UCaaS, organizations can provide their workers with a single application, or "app,"app for all-channel calling, messaging, meetings and team collaboration with the same ease of use as existing consumer apps. Avaya embeds communications directly into the apps, browsers and devices employees use every day, giving them a more natural, efficient and flexible way to connect, engage, respond and share - where and how they want.
During fiscal 2021, we expanded our portfolio to include new cloud-based solutions, and we continued integrating Artificial Intelligence ("AI") to create enhanced user experience and improve performance. For additional information on Avaya OneCloud, see "—Avaya OneCloud Deployment Options and Capabilities."
•Avaya offers an open, extensible development platform, enabling customers and third parties to easily create custom applications and automated workflows for their unique needs, integrating Avaya’s capabilities into the customer's existing infrastructure and business applications. Our solutions enable a seamless communications experience that adapts to how employees work instead of changing how they work. Avaya continues to evolve its UC solutions including for cloud deployment.
Contact Center ("CC"):OneCloud CCaaS solutions: Avaya’s industry-leading digital contact center solutions enable customersclients to build a customized portfolio of applications to drive stronger customer engagement and higher customer lifetime value. Our reliable, secure and scalable communications solutions include voice, email, chat, social media, video, performance management and third-party integration that can improve customer service and help companies compete more effectively. Like the UC business, Avaya is evolving the CC solution setdelivers OneCloud CCaaS solutions for cloud deployment.
We are also focused on ensuring an outstanding experience for mobile callers by integrating transformative technologies, including Artificial Intelligence ("AI"), mobility, big data analyticsdeployment and, in fiscal 2021, we continued to aggressively integrate AI, machine learning and leading-edge cybersecurity capabilities into our contact center solutions. As organizations use these solutions to gainportfolio, providing our clients a deeper understanding of their customercustomers’ needs we believewith a robust and secure platform.
•Avaya OneCloud CPaaS combines the cloud with our communications platforms, providing a development platform and the application programming interfaces that their teams become more efficient and effective and, as a result, their customer loyalty grows.
Both UCenable developers to easily integrate both UCC and CC are supported by our portfolio of innovative business phones and multimedia devices, which is one of the broadest in the industry. Avaya brings consumer technology to employee mobile devices and desktops in a way that can help our customers enhance customer service,
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communications capabilities directly into internal and external collaborationcustomer-facing applications and employee productivity. Customers experience seamless audioworkflows. Organizations can quickly deliver modular, composable applications ("apps") and video capabilities for both Avayaexperiences that meet ever-changing customer and approved third-party UC platforms via open Session Initiation Protocol ("SIP") devices. SIP is used for signaling and controlling multi-media communication sessions in applications of Internet telephony for voice and video calls, along with integration with numerous apps that help connect and accelerate business. Developers can easily customize capabilities for their specific needs with our client Software Development Kit ("SDK").operational needs.
Services
ServicesComplementing our product and solutions portfolio is a global, award-winning services portfolio, delivered by Avaya and our extensive partner ecosystem. Our services portfolio, which includes solution upgrades and provides new technology through our Avaya OneCloud subscription offerings, consists of three business areas: of:
•Global Support Services Enterprise Cloud and Managed Services and Professional Services.
Global Support Servicesprovide offerings that help businesses protect their technology investments and address the risk of system outages and help businesses protect their technology investments.outages. We help our customers maintain their competitivenessgain a competitive edge through proactive problem prevention, rapid resolution and continual solution optimization. The majorityGlobal support services also provide software solutions delivered through a subscription model to provide our customers an improved user experience and solution enhancements. Most of our global support services revenue in this business is recurring in nature.

•Enterprise Cloud and Managed Services enable customers to take advantage of our technology via the cloud, on-premises,on-premise, or a hybrid of both, depending on the solution and the needs of the customer. The majorityMost of our enterprise cloud and managed services revenue in this business is recurring in nature and based on multi-year services contracts.
•Professional Services enable businesses worldwideour customers to take full advantage of their IT and communications solution investments to drive measurable business results. Our experienced consultants and engineers partner with clientscustomers along each step of the solution lifecycle to deliver services that add value and drive business transformation and provide continuously increasing value. The majoritytransformation. Most of our professional services revenue in this business is non-recurring in nature.
Together,
With these comprehensive services, enable clients tocustomers can leverage communications technology to help them maximize their business results. We help our customers use communications to minimize the risk of outages, enabledrive employee productivity and deliver a differentiated customer experience.
Our services teams also help our clientscustomers transition at their desired pace to next generationnext-generation communications technology solutions, either via the cloud, on-premises, or a hybrid of both.solutions. Customers can choose various levelsthe level of support for their communications solutions includingbest suited for their needs, which may include deployment, training, monitoring, troubleshooting andsolution management, optimization and more. Our proactive, preventative systemsystems and service teams' performance monitoring can quickly identify and resolveaddress issues shouldbefore they arise. Remote diagnostics and resolutions rapidly fixfocus on fixing existing problems and avoidavoiding potential issues helpingin order to help our customers save time and reduce the risk of an outage.
Cloud
For customers who choose a cloud model, we utilize Avaya OneCloud Deployment Options and Capabilities
Cloud and Software-as-a-Service (“SaaS”) models generally refer to deliver our Products & Solutions and Services. Avaya OneCloud delivers flexible business communications services and solutions to connect our customers with their customers, helping them to improve productivity and grow their businesses. With Avaya OneCloud, our customers can integrate, customize and scale operations to be more agile in delivering newthe products and services that allow organizations to market.move from owning, managing and running solutions to paying only for the capabilities they need. Avaya OneCloud helps ensureprovides an option for customers to access all of Avaya's software and solutions and customize as they see fit.
Avaya OneCloud provides the full spectrum of deployment options, including via private, public and hybrid cloud, as well as on-premise. This enables organizations to deploy our solutions in the way that best serves their business requirements and complements their existing investments, while moving with the speed and agility they require.
Avaya OneCloud, delivered as Private, Public, Hybrid or On-Premise
•Private cloud: Each organization has its own instance of the software, although the platform is shared across multiple organizations, and can leverage its existing technology infrastructure investments without having to operate them. In this model, the organization transitions from a commercial model to a usage model and engages Avaya or a business partner to operate its investments on their behalf. The customer receives a tailored solution using the latest software with standardized cloud contracts.
•Public cloud: Each organization is a tenant of a shared instance of the software on a shared platform.
•Hybrid cloud: In a hybrid deployment, customers are able to leverage private cloud features that are already performing to their specifications and then integrate newly developed capabilities from the broader public cloud portfolio.
•On-Premise: While a growing portion of our business is transitioning to our private, public and hybrid cloud-facing consumption models, there are customers that have business models and/or requirements that mandate a premise-based infrastructure and therefore we will continue to support such solutions.
Avaya’s solutions are addressing the convergence of private and public cloud deployments observed across the industry. Used in conjunction with our private cloud solution, a customer can use a public cloud to provide capability at the edge of their network in a cost effective manner. Avaya’s investments in data-driven intelligent automation mean that if an organization
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needs to deploy an advanced, integrated, value-focused solution via a private cloud but needs it deployed in just hours, Avaya can deliver such a solution on the requested timeline. The benefit to the organization is “always available” access to the latest capabilities and innovation, quickly and at scale.
Avaya OneCloud, delivered as Subscription
Subscription begins the customer’s journey to the cloud by changing the commercial model from an ownership model with an existing on-premise solution to a usage model with monthly or annual subscription payments. The customer only pays for the software and solutions that they need as opposed to buying an off-the-shelf solution that cannot be easily tailored to their needs, while providing access to the latest software.
Avaya OneCloud Migration
We believe our migration methodology differentiates us from many other cloud vendors in the market because of our range of services and ability to seamlessly migrate our customers have up-to-dateto the cloud. We provide a range of cloud-facing deployment options best suited to a customer’s business and the capabilities to help our customers deploy these options. Our approach also provides flexible options based on standardized methodologies, a range of services, enterprise software expertise and tools to help organizations along every step of their journey to the cloud by reducing transition complexities and risks as they move from their current deployment to a cloud-based one.
With our comprehensive Avaya OneCloud portfolio and a long-term technology so theydevelopment roadmap in place, we are helping our customers build state-of-the-art digital workplaces and contact centers. Our customers can deliver meaningfultake advantage of public, private and hybrid cloud solutions at any stage in their journey, and leverage new capabilities and innovations from Avaya and its ever-expanding partner ecosystem by consuming these software capabilities from the cloud, over-the-top of their on-premise solutions.
Application Developer Products
Along with off-the-shelf integration with frequently used business applications across an organization, Avaya’s converged communications platform simplifies the embedding of Avaya OneCloud communications and collaboration capabilities into business applications, including customer relationship management and enterprise resources planning. Our platform enables customers and third parties to work with Avaya to create customized engagement applications and to meet the unique operating requirements of a customer with unified communications and contact center capabilities including voice, video, messaging, meetings and more. Avaya also offers acloud-based execution and test environment for developing proof-of-concept applications.
The Avaya Client Software Development Kit ("SDK") provides a developer-friendly set of tools that enables the building of innovative user experiences for vertical or business specific applications. Any functionality Avaya uses in its own clients and applications is available to theirdevelopers through the SDK. Developers can mix and match functionality from both our unified communications and contact center solutions.
Avaya has an extensive developer program, Avaya DevConnect, that enables third parties to support and extend the capabilities of Avaya solutions to address business challenges. Thousands of companies around the world are program members, including developers, system integrators, service providers and Avaya customers.
Cloud, Alliance Partner and Subscription (“CAPS”) Revenues
We measure our success in transforming our business to the cloud and our ability to reduce our dependence on premise-based perpetual licensing models by analyzing the contribution of our “CAPS revenue” to total consolidated revenue. CAPS revenue refers to revenue from cloud based solutions, together with revenues from our Strategic PartnershipAlliance Partnerships and Subscription revenue. Our CAPS revenue as a percentage of total consolidated revenue has grown over the past three fiscal years, representing 40%, 26% and 16% of total consolidated revenue for fiscal 2021, 2020, and 2019, respectively.
Global Alliances
Avaya global alliances are strategically oriented technical and commercial relationships with RingCentralkey partners that we believe enhance both companies' go-to-market strategy. We have three primary types of global alliances: Global Service Provider alliances, Global Systems Integrator alliances and Ecosystem alliances.
On October 3, 2019,•Global Service Provider alliances: Through these partnering arrangements with leading telecommunications service providers, we pursue sell-to and sell-through opportunities for Avaya solutions and services. These alliances are integral in selling and implementing our cloud-based services. We also see them as a principal route to market for our UCaaS and CCaaS solutions. During fiscal 2020, we entered into certain agreements regarding a strategic partnership with RingCentral, Inc. (“RingCentral”RingCentral"), a leading provider of global enterprise cloud communications, collaboration and contact center solutions, to accelerate our transition to the cloud. Through this partnership, we will introduce and deploybegan deployment of Avaya Cloud Office, our OneCloud UCaaS solution the same year.
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•Global Systems Integrator alliances: These refer to arrangements with systems integrator partners, as well as key channel partners with strong professional services and personalized integration capabilities who include Avaya solutions within broader digital transformation programs and end-to-end vertical solutions.
•Ecosystem alliances: These partnering arrangements are with industry leaders and leading technology companies. They feature deeper, R&D-led integrations and/or expanded go-to-market efforts, such as the DevConnect Select Product Program or the Avaya & Friends Program for international markets. During fiscal 2021, we expanded our partnership with Salesforce by RingCentral (“developing Avaya Cloud Office” or “ACO”), a new global unified communications as a service (“UCaaS”) solution. Avaya Cloud Office will expand our industry-leading portfolioOneCloud for Salesforce and offering it in Salesforce AppExchange, we worked with Google to offer a full suite of UC, CC, UCaaS anddevelop AI based solutions for the contact center, asand we worked with Microsoft to develop an Azure based contact center and offer it through the Azure MarketPlace.
Channel Partners
Our channel partners serve our customers worldwide through our Avaya Edge business partner program. Through certifications, the Avaya Edge program positions Value Added Reseller partners to sell, implement and maintain our communications systems, applications and services. Avaya Edge offers clearly defined partner categories with financial, technical, sales and marketing benefits that grow with levels of certification and revenue contribution. We support partners in the program by providing our comprehensive Avaya OneCloud portfolio of solutions in addition to sales, marketing and technical support. Although the terms of individual channel partner agreements may deviate from our standard program terms, our standard program agreements for resellers generally provide for a service ("CCaaS") solutions to a global customer base, which includes more than 100,000 customers, over 100 million UC linesterm of one year, with automatic renewal for successive one-year terms. Agreements may generally be terminated by either party for convenience upon 30-days' prior notice, and 5 million CC users in approximately 175 countries. Avaya Cloud Office provides us with an opportunity to unlock value from a largely unmonetized baseour standard program agreements for distributors may generally be terminated by either party for convenience upon 90 days prior notice. Certain of our business as it brings compelling value tocontractual agreements with our customerslargest distributors and partners. ACO combines RingCentral’s leading UCaaS platform with Avaya technology, services and migration capabilities to create a highly differentiated UCaaS offering. Under the partnership, the Company is required to market and sell ACO as its exclusive UCaaS solution (subject to certain exceptions). Avaya now has a full suite of public, private and hybrid cloud solutions for its global UC and CC customers and partners. ACO is expected to launch in the second quarter of fiscal 2020. On October 25, 2019, the Company and RingCentral received notice from the U.S. Federal Trade Commission that it had granted earlyresellers, however, permit termination effective immediately, of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Actrelationship by either party for convenience upon prior notice of 1976 ("HSR Act")180 days. Our partner agreements generally provide for the transaction,responsibilities, conduct, order and the transaction closed on October 31, 2019.delivery, pricing and payment, and include customary indemnification, warranty and other similar provisions. The CompanyCompany's largest distributor, ScanSource Inc., is currently in the process of evaluating the impactalso its largest customer and represented 7% of the arrangementCompany's total consolidated revenue for fiscal 2021. See Item 1A, "Risk Factors-Risks Related to Our Business-Our Operations, Markets and Competition-Our growth strategy depends in part on our reliance on our indirect sales channel" for additional information on the Company's reliance on its Consolidated Financial Statements.indirect sales channel.
Emergence from Bankruptcy
On January 19, 2017 (the "Petition Date"), Avaya Holdings Corp., together with certain of its affiliates (collectively, the "Debtors"), filed voluntary petitions for relief (the "Bankruptcy Filing") under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). On November 28, 2017, the Bankruptcy Court entered an order confirming the Second Amended Joint Plan of Reorganization filed by the Debtors on October 24, 2017 (the "Plan of Reorganization"). On December 15, 2017 (the "Emergence Date"), the Plan of Reorganization became effective and the Debtors emerged from bankruptcy.
Beginning on the Emergence Date, the Company applied fresh start accounting, which resulted in a new basis of accounting and the Company becoming a new entity for financial reporting purposes. As a result of the application of fresh start accounting and the effects of the implementation of the Plan of Reorganization, the Consolidated Financial Statements after December 15, 2017 are not comparable with the Consolidated Financial Statements on or prior to that date. Our financial results for the period from October 1, 2017 through December 15, 2017 are referred to as those of the "Predecessor" period. Our financial results for the period from December 16, 2017 through September 30, 2018 are referred to as those of the "Successor" period or periods. Our results of operations as reported in our Consolidated Financial Statements for these periods are in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Although GAAP

requires that we report on our results for the period from October 1, 2017 through December 15, 2017 and the period from December 16, 2017 through September 30, 2018 separately, we have in certain instances in this report presented operating results for the fiscal year ended September 30, 2018 by combining the results of the Predecessor and Successor periods because such presentation provides the most meaningful comparison of our results to prior periods.
For a more detailed discussion of our bankruptcy proceedings (the "Restructuring"), see Part II, Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and Part II, Item 8, Note 5, "Fresh Start Accounting," to our Consolidated Financial Statements.
Our Business Today
Our solutions address the needs of a diverse range of businesses, including large multinational enterprises, small and medium-sized businesses and government organizations. Our customers operate in a broad range of industries, including financial services, healthcare, hospitality, education, government, manufacturing, retail, transportation, energy, media and communications. We employ a flexible go-to-market strategy with direct or indirect presence in approximately 175190 countries. As of September 30, 2019,2021, we had more than 4,0003,800 active channel partners and for fiscal 20192021 our product revenue from indirect sales through our channel partners represented 70%68% of our total Products & Solutions segment revenue.
For fiscal 2019, 2018 (on a combined basis)2021, 2020 and 2017,2019, we generated revenue of $2,887$2,973 million, $2,851$2,873 million and $3,272$2,887 million, of which 42%33%, 44%,37% and 44%42% was generated by productsProducts & Solutions and 58%67%, 56%,63% and 56%58% by services,Services, respectively. Revenue by business area is presented in the following table for the periods indicated:
Fiscal years ended September 30,
(In millions)202120202019
Products & Solutions:
Unified Communications and Collaboration$683 $710 $863 
Contact Center309 363 359 
992 1,073 1,222 
Services:
Global Support Services1,401 1,238 1,086 
Enterprise Cloud and Managed Services281 282 297 
Professional Services299 280 282 
1,981 1,800 1,665 
$2,973 $2,873 $2,887 
Our software revenue as a percentage of total consolidated revenue has grown over the past three fiscal years, representing 64%, 61% and 52% of total consolidated revenue for fiscal 2021, 2020, and 2019, respectively. Our software revenue aggregates revenue across our two reporting segments. Software revenue includes subscription, public and private cloud,
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  Successor  Predecessor Non-GAAP Combined Predecessor
(In millions) Fiscal year ended September 30, 2019 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal year ended September 30, 2018 Fiscal year ended September 30, 2017
Products:           
Unified Communications $863
 $718
  $180
 $898
 $936
Contact Center 359
 271
  73
 344
 361
Networking(a)
 —
 —
  —
 —
 140
  1,222
 989
  253
 1,242
 1,437
Services:           
Global Support Services 1,086
 786
  244
 1,030
 1,267
Enterprise Cloud and Managed Services 297
 245
  57
 302
 296
Professional Services 282
 227
  50
 277
 272
  1,665
 1,258
  351
 1,609
 1,835
  $2,887
 $2,247
  $604
 $2,851
 $3,272
perpetual licenses and related software maintenance revenue. On-premise license revenue is included in Product & Solutions, while subscription, cloud related software maintenance revenue are primarily included in Services.
(a)The Company's Networking business was sold on July 14, 2017.
AOne of our key focus of the Companyfocuses is increasing its recurring revenue. We defineour recurring revenue as— revenue from products and services that are delivered pursuant to multi-period contracts, including recurring subscription-based software revenue, maintenance, Global Support Servicesglobal support services and Enterprise Cloudenterprise cloud and Managed Services.managed services. Non-recurring revenue consists of hardware, non-recurring perpetual-based software and one-time professional services. Hardware predominantly consists of endpoints, more commonly referred to aswhich include phones, video conferencing equipment and non-recurringheadsets. Non-recurring software is predominantly comprised of perpetual licenses. One-time professional services include installation services, as well as project-based deployment, design and optimization services.
During fiscal 2021, Avaya introduced Avaya OneCloud ARR (Annualized Recurring Revenue) as a key performance indicator, which provides a leading indicator into the software solutions driving our growth. This metric is similar to what our industry peers report and reflects only the recurring components of Avaya’s portfolio. Revenues reported as part of Avaya OneCloud ARR include revenues from:
•Avaya OneCloud CCaaS
•Avaya OneCloud CPaaS
•Avaya OneCloud DaaS (Device as a Service)
•Avaya OneCloud Private Cloud
•Avaya OneCloud Subscription
•Avaya Spaces
•Recurring revenues generated from Avaya Cloud Office
Avaya OneCloud ARR does not include recurring revenues from Maintenance, Managed Services or Avaya Cloud Office one-time revenues.
In fiscal 2021, OneCloud ARR was $530 million, compared to $191 million reported for fiscal 2020. We believe the OneCloud ARR, combined with our remaining performance obligations, provides a view into our long-term revenue growth potential and trajectory.
Trends Shaping Our Industry
We believe several key trends are shaping our industry, creating a substantial opportunity for U.S.Avaya and other market participants to capitalize on these trends. These trends include:participants:
Convergence with UC/collaboration and CC as they are becoming less distinct technologies, and more similar with integrated services and capabilities across devices and channels. Avaya already has more than 10,000 customers that range in size from 10 seats to 250,000 seats on a converged UC and CC platform, and we are in a position of strength to lead in bringing customers•The COVID-19 pandemic significantly accelerated the power of this convergence.

Increasingtrend toward remote workerswork and workforce mobility with greater use of mobile devices by consumersrequirements as the need to work from home — or from anywhere — dramatically increased and employees. This is happening as business leaders also shift priorities to digitally transform their companies, taking advantage of disruptive technologies likehighlighted the need for dynamic, cloud-based solutions that can be used anytime and delivery models, big data, IoT, cybersecurityanywhere. Our customers have realized the advantages of remote work and AI.many are adopting or are considering adopting a permanent hybrid model that combines remote work with a return to the office. Avaya solutions are well positioned to enable this new future of work and collaboration.
Increased preference•UCC, CC and CPaaS are converging to become part of an integrated services offering delivering next-generation communications capabilities across a host of devices and channels.
•Preference for cloud delivery of software applications and management of multiple and varied devices continues to grow, all of which must be handled with the security theirthat business demands.
Omnichannel communication customer service continue•The Experience Economy continues to risegrow. The Experience Economy is based on the concept that experience is a key source of value — it is a differentiator that creates competitive advantage for products and become an increasingly critical element in contact center solutions, asservices. As consumers embrace new technologies and devices in creative ways and at an accelerating pace.
Increasedpace, Avaya is continuing to invest in AI-powered solutions delivered through cloud and subscription models to create “Experiences that Matter” for customers, employees and agents. This increased adoption and deployment of AI is providing alternative methodssignificant new opportunities for service components for both UCenhanced UCC and CC. The market is adopting model-based implementation of AI communication services at an accelerated pace. This can potentially lower adoption cost, increase effectivenessCC solutions that improve the customer experience and offer expanded alternatives for functions with traditional methods for rendered services.transform the Digital Workplace.
Our Market Opportunity
We believe that the aforementionedthese trends create significant market opportunity for employee, customer, developerthe next-generation UCaaS, Collaboration, CCaaS and analytics engagement solutions.CPaaS solutions that Avaya has brought to the market in fiscal 2021. The limitations of traditional collaboration productspremise-based communications solutions and services and capital-intensive buying models present an opportunity for differentiated vendors to gain market share.share in the cloud. We believe that the total available market for these solutions includes spending on UCcommunications applications, and CC applications,the business devices that improve the application experience, as well as spending on one-timeone-
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time and recurring professional, enterprise cloud and managed services, and support services to implement, maintain and manage these solutions.
We are expanding our business in several of these areas, such as enterprise cloudprimarily with cloud-facing and managed services, and othersubscription-based consumption models. We are also growing marketsin the customer segments that we serve, including large enterprises with more than 2,0001,000 employees, as well as midmarket enterprises havingwith between 50 and 250 agents in the contact center market and between 100 and 1,000 agents for CC and between 1,000 and 5,000 employees for UC.
customers using our communications and collaboration solutions. The growth opportunity in these markets comes from the need for enterprises to increase productivity and upgrade their UCunified communications and collaboration and contact center strategy to a more integrated approach to account for changing customer expectations and the accelerated work from home / work from anywhere trend, increased mobility, varied devices and the demand for seamless experiences across multiple communications channels. In response to this need,these needs, we expect that aggregate total spending on UC,UCC, CC, developer engagement, analytics,CPaaS, services and support, services,and enterprise cloud and managed services and professional services to grow.grow, with the majority of growth coming from cloud services.
Furthermore,Although the midmarket is a growing opportunitydecision makers for our solutions. We believe the market opportunity for the portion of the midmarket segment which we serve is growingsolutions and is currently underserved. We have a set of offerings that are specifically designed to address the needs of midmarket businesses and to simplify processes and streamline information exchange within companies. Our set of offerings provides midmarket companies the opportunity to deliver a collaboration experience that integrates voice, video and mobile device communications at price points that deliver favorable returns on their investment.
Although weservices have traditionally sold our products, servicesbeen senior IT leadership, up to and solutions toincluding Chief Information Officers ("CIOs"), our research finds that more andnow more of the buying decisions are being influenced by business units and the broader C-suite, including Chief Executive Officers ("CEOs"(“CEOs”), Chief Marketing Officers ("CMOs"(“CMOs”) and Chief Digital Officers ("CDOs"). They are becominghave become more involved becauseas digital transformation has expanded beyond the data center and IT infrastructure to encompass lines of business operations and customer experiences. CEOs, CMOs and CDOs are recognizing growing customer and employee demand for better interactions across multiple channels of their choosing, and they see an opportunity to differentiate their companies and lines of business throughby providing their employees with an opportunity to deliver a superior customer experience.
We believe that due to the increasing importance of technology as both an internal and external facingexternal-facing presence of the enterprise, as well as the high stakes of data breaches and similar cyber-security events, CEOs are increasingly engaged in the decision-making process. CMOs and CDOs are gaining additional budget authority as they are tasked with managing customer experience and marketing activities using modernsophisticated communications technology and rich data. We believe that because of this shiftthe shifts in decision-making roles, the focus of customer engagementexperience solutions needshould be to provide businesses with better ways to engage with end users securely across multiple platforms and channels, creating better customer experiences, and thusultimately, higher revenues for the business.

In our experience, decision makers have three critical priorities:
1)
Manage the reliable and secure integration of an increasing number and variety of devices and endpoints: Today, business users not only use desk-based devices, but also laptops, smartphones and tablets. Gartner reports for September 2019 forecast that these devices are growing at a compound annual growth rate of 1.9% for smartphones, and (2.2)% for tablets (traditional) worldwide from 2019 through 2023(1). To communicate seamlessly and securely across devices, applications and endpoints must be managed as part of an integrated communications infrastructure.
•Shift to cloud-based solutions: Companies today seek technology that helps them lower Total Cost of Ownership (“TCO”) and increase deployment speed and application agility, including a variety of public, private and hybrid cloud solutions. They are also shifting away from a complex, proprietary capital-intensive consumption model to one that is more flexible and efficient in gaining access to the latest technology.
•Leverage existing technology infrastructure while positioning for the future: The speed at which new technology enters the market is challenging companies to rapidly adopt and install new technology. We believe this pressure creates strong demand for scalable systems that do not require enterprise-wide overhauls of existing technology to implement newer solutions and technologies. Instead, it favors incremental, flexible, extensible technologies that are easy to adopt and compatible with existing infrastructures.
•Manage the reliable and secure integration of an increasing number and variety of devices and endpoints: Today, business users leverage laptops, smartphones and tablets just as often – if not more than – desk-based devices.The ability to communicate seamlessly and securely across devices, applications and endpoints must be managed as part of an integrated communications infrastructure.
2)
Leverage existing technology infrastructure while positioning for the future: The speed at which new enterprise technology enters the market is challenging companies to rapidly adopt and install new technology. We believe this pressure creates strong demand for systems that do not require enterprise-wide overhauls of existing technology. Instead, it favors incremental, flexible, extensible technologies that are easy to adopt and compatible with existing infrastructures.
3)
Shift to cloud-based applications: Companies today seek technology that helps them lower Total Cost of Ownership ("TCO") and increase deployment speed and application agility, including a variety of public, private and hybrid cloud solutions. They also seek to shift away from a complex, proprietary capital-intensive model to one that is more open and efficient.
Our Answer
MobilityWe believe we have positioned Avaya as the leader in cloud-based Digital Workplace and AICustomer Experience Solutions by:
•Defining innovation in our core market segments by delivering powerful AI-enabled cloud communications solutions.
•Winning with global services capabilities that support customer cloud adoption and drive expansion.
•Activating, converting and transforming our installed base by providing a customer journey that enables them to effortlessly migrate to and consume Avaya cloud services.
In addition, Avaya intends to:
•Increase our Midmarket Capabilities and Market Share: We believe our market opportunity for the portion of the midmarket segment that Avaya serves is growing. We define the midmarket as firms with between 50 and 250 agents for CC and between 100 and 1,000 employees for UCC. Not only do we believe this segment is growing, but we also believe midmarket businesses are underserved and willing to invest in IT enhancements. We intend to continue to
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invest in our midmarket offerings and go-to-market resources to increase market share and meet the growing demands of this segment.
•Increase Sales to Existing Customers and Pursue New Customers: We have a significant opportunity to increase sales to our existing customers by offering new solutions from our Avaya OneCloud portfolio. Our market leadership, global scale and extensive customer interaction, including at the C-suite level, supports our Avaya OneCloud portfolio, creating a strong software platform from which to drive and shape the evolution of enterprise communications. We have strong credibility with our customers, which provides us with a competitive edge as our customers make the transition to the cloud. Additionally, our refreshed product and services portfolio increases the potential for acquiring new customers.
We are pursuing advances in mobilityboth HIPAA and AI as part of our disruptive innovation strategy. Given their growing importance in contact centers and in the broader communications area, we believe that by taking a leadership position in mobility and AI, and generating new revenue streams with each, we can enhance our overall competitiveness while protecting the market for our current core products.
Both mobility and AI are sizeable opportunities for Avaya, with the potential to expand Avaya’s Total Addressable Market ("TAM"). We are already generating revenue from AI, and we are embracing a few core principlesPCI DSS (Payment Card Industry Data Security Standard) compliant as we pursue these innovations:
Disrupt - the more an innovation invalidates the status quo, the better;
Reduce adoption friction - make the innovation straightforward to select and deploy, embrace the multi-vendor marketplace; and
Partner intelligently - leverage provocative partner intellectual property and thought leadership to speed market introduction, presenting Avaya as the industry platform.
A Mobile Environment
The increase in mobile technology has created a world more focused on real-time, flexible and always-on communication. We see companies increasingly looking for ways to make corporate applications and customer information and interactions more accessible via mobile devices as the usage of those devices continues to rise worldwide.
To support the Avaya Mobile Experience, Avaya became a licensed mobile network operator in the U.S. This provides Avayabelieve the ability to obtain control of toll-free numbersservice the healthcare and treat them as part of the mobile network, bypassing the legacy fixed last mile and reducing cost. We estimate toll-free numbers to represent a $2 billion expense in the U.S. today and there is an opportunity for significant cost reduction for Avaya Mobile Experience customers.
In addition, our customers can now provide mobile omnichannel experiences directly to their mobile callers, for example, by responding to a call with an SMS or mobile web page,pharmaceuticals industries, as well as utilizingmerchants that accept credit cards, significantly expands our call deflection security capabilitypotential customer base and total addressable market. These certifications allow for market penetration into what are otherwise restrictive and difficult markets.
•Invest in Sales and Distribution Capabilities: Our flexible go-to-market strategy consists of both a direct sales force and an indirect sales force through our alliances and channel partners, which seamlessly converts voice calls intoallows us to reach customers across industries and around the globe. We believe our channel partner network is a digital interaction beforevaluable competitive differentiator based on our brand and long history of having a channel sales go-to-market motion. We intend to continue investing in our channel partners and sales forces to optimize their market focus and enter new vertical segments. We provide our channel partners, including master agents and sales agents, with training, marketing programs and technical support that helps to further differentiate our offerings from those of our competitors. These agents are our primary distribution channel for small to midmarket customers. Under our master agent program, small to midmarket sales agents connect prospective customers with our direct sales force which then handles the call connects, providing userstransaction from contracting and partnering with greater flexibility to maximize their customer experience during such interactions.
Our commercial model is simple: we charge a per-minute rate, and a per-call deflection fee if the customer is redirected to a web page, mobile application or message directly. Wedetermine what services are building an Avaya Mobile Identity serviceappropriate to support mobile

(1)Forecast: Mobile Phones, Worldwide, 2017-2023, 3Q19 Update Published 25 September 2019. The Gartner Report(s) described throughout this report, (the "Gartner Report(s)") represent(s) research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. ("Gartner"). Each Gartner Report speaks as of its original publication date (and not as ofultimately managing and billing the date of this Annual Report on Form 10-K) and the opinions expressed in the Gartner Report(s) are subject to change without notice.


applications. An advanced security framework sits underneath the service's applications identity and authentication capabilities, taking advantage of biometrics, blockchain and the latest cryptography technologies. We believe the security of this solution is a competitive advantage not easy to replicate by our competitors. With this next-generation, cloud-based, user ID and authentication solution, enterprises can encourage their customers to adopt a new method of accessing secure smartphone-based online enterprise services. This service will be accessible anywhere smartphone coverage is available.  
Use of AI
Our AI strategy is to build solutions internally and with partners to help organizations transform their customer experiences. We classify AI contact center applications in three categories:
◦Agent assistance and productivity;
◦Conversational self-service; and
◦Smart routing and behavioral pairing.
We have offers available today in each category and a development roadmap for the future. Avaya services provided. The master agent program provides an option that rounds out the available choices for customers, channel partners and sales agents to access Avaya’s industry-leading communications solutions.
We deploy these solutionsalso leverage our sales and distribution channels to drive value foraccelerate customer adoption of our contact center customers.
Avaya Conversational Intelligence ("ACI"), our agent assistance and productivity solution, offers and delivers a real-time speech transcription platform. Benefits include lower costs and increased productivity by reducing agent workload and driving better customer outcomes with real time guidance based on what is being said on the call. We enhance this conversational self-service via continued partnerships with Google AI and IBM Watson. Our approach allows customers to select from industry leading bots to support digital self-service and augment that self-service via select digital channels inclusive of leading social media and social messaging services.
Smart routing and behavioral pairing are offered through native integration with our partner, Afiniti, enabling a seamless deployment of enterprise behavioral pairing. These solutions help customers optimize the agent-customer assignment in order to maximize revenue, reduce churn and deliver other concrete and measurable benefits to large enterprises. We developed this product by leveraging years of experience and expertise in data modeling and do not believe there is an equivalent to this solution in the market today.
Avaya’scloud-based solutions and their features cover the spectrumgenerate an increasing percentage of AI contact center application domains. Our platform is open, as evidenced by our AI Connect program. We integrate with IBM Watson, Google, Salesforce, Nuancerevenue from our new high-value software products, video collaboration, midmarket offerings and others, to complement our technology. Avaya was also selected by Intel for Intel’s AI Builders Program. Intel and Avaya engineers jointly engage at deep technical levels to improve the performance and scale of Avaya’s AI solutions, such as ACI, when deployed on Intel hardware.
Our efforts in AI solutions development have been recognized throughout the industry. Most recently, Avaya was named a winner of the 2018 Aragon Research Innovation Award for Artificial Intelligence in People-Centric Collaboration.
Communications-enabled Business Applications
Teams need to work together from any location, using their preferred applications, and are increasingly accessing these applications via the cloud. Moving in and out of applications to perform communications functions reduces productivity. Avaya helps employees obtain access to real-time information quickly and easily by integrating communication functionality directly into businessuser experience applications.
Digital Engagement Hubs Replacing Call Centers
Like workforces, end users are also increasingly using mobile devices and expecting service interactions with companies across multiple communications channels and devices. Customer interactions are evolving from voice-centric, point-in-time, contact center transactions to ongoing customer conversations across multiple media and modes of communication. Customers expect businesses to know about the history of their interactions, even when they occur across a mix of self-service and agent assisted communications methods, including voice, video, email, chat, mobile, web and social media.
We aim to build on our industry leadership and grow our business by addressing these types of trends. We have and continue to invest in open communications platforms and ecosystems that serve a broad range of needs. While we remain committed to protecting and evolving the investments that customers have made in our technology and solutions, we are also responding to the emerging landscape by evolving our market and product approach in three important ways.
1)We have invested in R&D and new technologies to develop and provide more comprehensive contact center and unified communications products and services, continuing our focus on enterprise customers while expanding the value we can provide to midmarket customers.

2)We have evolved our product design philosophy, anticipating demand for applications that are cloud- and mobile-enabled. We design our products to be flexible, extensible, secure and reliable. This approach allows our customers to transition from traditional communications and collaboration technology to newer solutions that are more mobile, manageable and cost-effective.
3)We have increased our focus on delivering integrated solutions including:
Unified Communications ("UC"): an integrated solution including voice and video calling, messaging, meetings, and team collaboration available through a single application on virtually any device, web browsers, huddle video room systems and multimedia phones. Our development environment enables customers and partners to create vertically oriented user experiences and integrate directly into cloud business applications.
Contact Center ("CC"): a single, integrated, digital solution which is open, context-driven, fully integrated and fully customizable through our open, easy-to-use development platform.
Services: Avaya is a leading provider of recurring support services relating to business communications products. Our worldwide services-delivery infrastructure and capabilities help customers address critical business communications needs from initial planning and design through implementation, maintenance and day-to-day operation, monitoring and troubleshooting.
Application Developer Products
Along with off-the-shelf integration with frequently used business applications across an organization, Avaya’s converged communications platform simplifies the embedding of Avaya OneCloud communications and collaboration capabilities into business applications, including customer relationship management and enterprise resources planning. Our platform enables customers and third parties to work with Avaya to create customized engagement applications and to meet the unique operating requirements of a customer with unified communications and contact center capabilities including voice, video, messaging, meetings and more. Avaya also offers acloud-based execution and test environment for developing proof-of-concept applications.
The Avaya Client Software Development Kit ("SDK") provides a developer-friendly set of tools that enables the building of innovative user experiences for vertical or business specific applications. Any functionality Avaya uses in its own clients and applications is available to developers through the SDK. Developers can mix and match functionality from both our unified communications and contact center solutions.
Avaya has an extensive developer program, Avaya DevConnect, that enables third parties to support and extend the capabilities of Avaya solutions to address business challenges. Thousands of companies around the world are program members, including developers, system integrators, service providers and Avaya customers.
Cloud, Alliance Partner and Subscription (“CAPS”) Revenues
We measure our success in transforming our business to the cloud and our ability to reduce our dependence on premise-based perpetual licensing models by analyzing the contribution of our “CAPS revenue” to total consolidated revenue. CAPS revenue refers to revenue from cloud based solutions, together with revenues from our Strategic Alliance Partnerships and Subscription revenue. Our CAPS revenue as a percentage of total consolidated revenue has grown over the past three fiscal years, representing 40%, 26% and 16% of total consolidated revenue for fiscal 2021, 2020, and 2019, respectively.
Global Alliances
Avaya global alliances are strategically oriented technical and commercial relationships with key partners that we believe enhance both companies' go-to-market strategy. We have three primary types of global alliances: Global Service Provider alliances, Global Systems Integrator alliances and Ecosystem alliances.
•Global Service Provider alliances: Through these partnering arrangements with leading telecommunications service providers, we pursue sell-to and sell-through opportunities for Avaya solutions and services. These alliances are integral in selling and implementing our cloud-based services. We also see them as a principal route to market for our UCaaS and CCaaS solutions. During fiscal 2020, we entered a strategic partnership with RingCentral, Inc. (“RingCentral") and began deployment of Avaya Cloud Office, our OneCloud UCaaS solution the same year.
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•Global Systems Integrator alliances: These refer to arrangements with systems integrator partners, as well as key channel partners with strong professional services and personalized integration capabilities who include Avaya solutions within broader digital transformation programs and end-to-end vertical solutions.
•Ecosystem alliances: These partnering arrangements are with industry leaders and leading technology companies. They feature deeper, R&D-led integrations and/or expanded go-to-market efforts, such as the DevConnect Select Product Program or the Avaya & Friends Program for international markets. During fiscal 2021, we expanded our partnership with Salesforce by developing Avaya OneCloud for Salesforce and offering it in Salesforce AppExchange, we worked with Google to develop AI based solutions for the contact center, and we worked with Microsoft to develop an Azure based contact center and offer it through the Azure MarketPlace.
Channel Partners
Our Competitive Strengthschannel partners serve our customers worldwide through our Avaya Edge business partner program. Through certifications, the Avaya Edge program positions Value Added Reseller partners to sell, implement and maintain our communications systems, applications and services. Avaya Edge offers clearly defined partner categories with financial, technical, sales and marketing benefits that grow with levels of certification and revenue contribution. We support partners in the program by providing our comprehensive Avaya OneCloud portfolio of solutions in addition to sales, marketing and technical support. Although the terms of individual channel partner agreements may deviate from our standard program terms, our standard program agreements for resellers generally provide for a term of one year, with automatic renewal for successive one-year terms. Agreements may generally be terminated by either party for convenience upon 30-days' prior notice, and our standard program agreements for distributors may generally be terminated by either party for convenience upon 90 days prior notice. Certain of our contractual agreements with our largest distributors and resellers, however, permit termination of the relationship by either party for convenience upon prior notice of 180 days. Our partner agreements generally provide for responsibilities, conduct, order and delivery, pricing and payment, and include customary indemnification, warranty and other similar provisions. The Company's largest distributor, ScanSource Inc., is also its largest customer and represented 7% of the Company's total consolidated revenue for fiscal 2021. See Item 1A, "Risk Factors-Risks Related to Our Business-Our Operations, Markets and Competition-Our growth strategy depends in part on our reliance on our indirect sales channel" for additional information on the Company's reliance on its indirect sales channel.
Our Business Today
Our solutions address the needs of a diverse range of businesses, including large multinational enterprises, small and medium-sized businesses and government organizations. Our customers operate in a broad range of industries, including financial services, healthcare, hospitality, education, government, manufacturing, retail, transportation, energy, media and communications. We employ a flexible go-to-market strategy with direct or indirect presence in approximately 190 countries. As of September 30, 2021, we had more than 3,800 active channel partners and for fiscal 2021 our product revenue from indirect sales through our channel partners represented 68% of our total Products & Solutions segment revenue.
For fiscal 2021, 2020 and 2019, we generated revenue of $2,973 million, $2,873 million and $2,887 million, of which 33%, 37% and 42% was generated by Products & Solutions and 67%, 63% and 58% by Services, respectively. Revenue by business area is presented in the following table for the periods indicated:
Fiscal years ended September 30,
(In millions)202120202019
Products & Solutions:
Unified Communications and Collaboration$683 $710 $863 
Contact Center309 363 359 
992 1,073 1,222 
Services:
Global Support Services1,401 1,238 1,086 
Enterprise Cloud and Managed Services281 282 297 
Professional Services299 280 282 
1,981 1,800 1,665 
$2,973 $2,873 $2,887 
Our software revenue as a percentage of total consolidated revenue has grown over the past three fiscal years, representing 64%, 61% and 52% of total consolidated revenue for fiscal 2021, 2020, and 2019, respectively. Our software revenue aggregates revenue across our two reporting segments. Software revenue includes subscription, public and private cloud,
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perpetual licenses and related software maintenance revenue. On-premise license revenue is included in Product & Solutions, while subscription, cloud related software maintenance revenue are primarily included in Services.
One of our key focuses is increasing our recurring revenue — revenue from products and services that are delivered pursuant to multi-period contracts, including recurring subscription-based software revenue, maintenance, global support services and enterprise cloud and managed services. Non-recurring revenue consists of hardware, non-recurring perpetual-based software and one-time professional services. Hardware predominantly consists of endpoints, which include phones, video conferencing equipment and headsets. Non-recurring software is predominantly comprised of perpetual licenses. One-time professional services include installation services, as well as project-based deployment, design and optimization services.
During fiscal 2021, Avaya introduced Avaya OneCloud ARR (Annualized Recurring Revenue) as a key performance indicator, which provides a leading indicator into the software solutions driving our growth. This metric is similar to what our industry peers report and reflects only the recurring components of Avaya’s portfolio. Revenues reported as part of Avaya OneCloud ARR include revenues from:
•Avaya OneCloud CCaaS
•Avaya OneCloud CPaaS
•Avaya OneCloud DaaS (Device as a Service)
•Avaya OneCloud Private Cloud
•Avaya OneCloud Subscription
•Avaya Spaces
•Recurring revenues generated from Avaya Cloud Office
Avaya OneCloud ARR does not include recurring revenues from Maintenance, Managed Services or Avaya Cloud Office one-time revenues.
In fiscal 2021, OneCloud ARR was $530 million, compared to $191 million reported for fiscal 2020. We believe the OneCloud ARR, combined with our remaining performance obligations, provides a view into our long-term revenue growth potential and trajectory.
Trends Shaping Our Industry
We believe several key trends are shaping our industry, creating a substantial opportunity for Avaya and other market participants:
•The COVID-19 pandemic significantly accelerated the following competitive strengths position ustrend toward remote work and workforce mobility requirements as the need to capitalizework from home — or from anywhere — dramatically increased and highlighted the need for dynamic, cloud-based solutions that can be used anytime and anywhere. Our customers have realized the advantages of remote work and many are adopting or are considering adopting a permanent hybrid model that combines remote work with a return to the office. Avaya solutions are well positioned to enable this new future of work and collaboration.
•UCC, CC and CPaaS are converging to become part of an integrated services offering delivering next-generation communications capabilities across a host of devices and channels.
•Preference for cloud delivery of software applications and management of multiple and varied devices continues to grow, all of which must be handled with the security that business demands.
•The Experience Economy continues to grow. The Experience Economy is based on the concept that experience is a key source of value — it is a differentiator that creates competitive advantage for products and services. As consumers embrace new technologies and devices in creative ways and at an accelerating pace, Avaya is continuing to invest in AI-powered solutions delivered through cloud and subscription models to create “Experiences that Matter” for customers, employees and agents. This increased adoption and deployment of AI is providing significant new opportunities created byfor enhanced UCC and CC solutions that improve the customer experience and transform the Digital Workplace.
Our Market Opportunity
We believe that these trends create significant market opportunity for the next-generation UCaaS, Collaboration, CCaaS and CPaaS solutions that Avaya has brought to the market trends affecting our industry.
A Leading Position across our Primary Markets
We are a leader in businessfiscal 2021. The limitations of traditional premise-based communications with leadingsolutions and services and capital-intensive buying models present an opportunity for differentiated vendors to gain market share in worldwide contact center and unified messaging, and among the leaders in unified communications and enterprise telephony.cloud. We were recognized as a Leader in The Aragon Research Globe for Unified Communications and Collaboration in April 2019 and The Aragon Research Globe for Intelligent Contact Center reports in June 2019(1). Additionally, we believe that we are a leading provider of privatethe total available market for these solutions includes spending on communications applications, and the business devices that improve the application experience, as well as spending on one-
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time and recurring professional, enterprise cloud and managed services, and support services to implement, maintain and manage these solutions.
We are expanding our business in several of these areas, primarily with cloud-facing and subscription-based consumption models. We are also growing in the customer segments that our market leadership and incumbent position within our customer base provides us with a superior opportunity to cross-sell to existing customers and position ourselves to win over new customers. Our strategic partnership with RingCentral will further enhance our cloud-based offerings with the introduction of Avaya Cloud Office.
Our Open Standards Technology Supports Multi-vendor, Multi-platform Environments
Our open, standards-based technology is designed to accommodate customers with multi-vendor environments seeking to leverage existing investments. Providingwe serve, including large enterprises with strong integration capabilities allows themmore than 1,000 employees, as well as midmarket enterprises with between 50 and 250 agents in the contact center market and between 100 and 1,000 employees for customers using our communications and collaboration solutions. The growth opportunity in these markets comes from the need for enterprises to take advantage of newincrease productivity and upgrade their unified communications and collaboration and contact center technology as it is introduced. It does not limit customersstrategy to a single vendor or addmore integrated approach to account for changing customer expectations and the backlogaccelerated work from home / work from anywhere trend, increased mobility, and the demand for seamless experiences across multiple communications channels. In response to these needs, we expect that aggregate total spending on UCC, CC, CPaaS, services and support, and enterprise cloud and managed services to grow, with the majority of integration work. We also continuegrowth coming from cloud services.
Although the decision makers for our solutions and services have traditionally been senior IT leadership, up to invest in our developer ecosystem, Avaya DevConnect, which has grown to include more than 110,000 members as of September 30, 2019. Avaya DevConnect, together with our Application Programming Interfacesand including Chief Information Officers ("API"CIOs"), whichour research finds that now more of the buying decisions are being influenced by business units and the broader C-suite, including Chief Executive Officers (“CEOs”), Chief Marketing Officers (“CMOs”) and Chief Digital Officers ("CDOs"). They have become more involved as digital transformation has expanded beyond the data center and IT infrastructure to encompass lines of business operations and customer experiences. CEOs, CMOs and CDOs are recognizing growing customer and employee demand for better interactions across multiple channels of their choosing, and they see an opportunity to differentiate their companies and lines of business by providing their employees with an opportunity to deliver a set of routines, protocols and tools for building software applications and applications development environments, allow our customers to derive unique and additional value from our architecture.
Leading Service Capabilities Provide a Significant Recurring Revenue Stream
Avaya is a leading provider of recurring support services relating to business communications products. Our worldwide services-delivery infrastructure and capabilities help customers address critical business communications needs from initial planning and design through implementation, maintenance and day-to-day operation, monitoring and troubleshooting. We have more than 3,000 trained and certified professional consultants worldwide who can help customers find and implement the right communications solution.superior customer experience.
We believe Avaya Services is well positioned for successthat due to our close collaboration between our R&Dthe increasing importance of technology as both an internal and service planning teams in advance of new products being released. As a pioneerexternal-facing presence of the omnichannel supportenterprise, as well as the high stakes of data breaches and similar cyber-security events, CEOs are increasingly engaged in the decision-making process. CMOs and CDOs are gaining additional budget authority as they are tasked with managing customer experience and marketing activities using sophisticated communications technology and rich data. We believe that because of the shifts in enterprise support, Avaya Services gives customersdecision-making roles, the option to interact with "Ava", our virtual agent, to get immediate answers online. Customers can also connect with onefocus of our experts via web chat, web talk or web video. Avaya Services can also directly access our R&D teams when necessary to resolve customer issues. Avaya Services includes high levels of automation to on-board and manage a client's communications infrastructure, delivering faster, more effective deployments from proof of concept to production. This includes a robust communications automation platform with full event orchestration leveraging advanced AI functionality. All combined, these capabilities allow Avayaexperience solutions should be to provide quality servicebusinesses with better ways to engage with end users securely across multiple platforms and channels, creating better customer experiences, and ultimately, higher revenues for the business.
In our experience, decision makers have three critical priorities:
•Shift to cloud-based solutions: Companies today seek technology that helps them lower Total Cost of Ownership (“TCO”) and increase deployment speed and application agility, including a variety of public, private and hybrid cloud solutions. They are also shifting away from a complex, proprietary capital-intensive consumption model to one that is more flexible and efficient in gaining access to the latest technology.
•Leverage existing technology infrastructure while positioning for the future: The speed at which new technology enters the market is challenging companies to rapidly adopt and install new technology. We believe this pressure creates strong demand for scalable systems that do not require enterprise-wide overhauls of existing technology to implement newer solutions and technologies. Instead, it favors incremental, flexible, extensible technologies that are easy to adopt and compatible with existing infrastructures.
•Manage the reliable and secure integration of an increasing number and variety of devices and endpoints: Today, business users leverage laptops, smartphones and tablets just as often – if not more than – desk-based devices.The ability to communicate seamlessly and securely across devices, applications and endpoints must be managed as part of an integrated communications infrastructure.
Our Answer
We believe we have positioned Avaya products.as the leader in cloud-based Digital Workplace and Customer Experience Solutions by:
•Defining innovation in our core market segments by delivering powerful AI-enabled cloud communications solutions.
•Winning with global services capabilities that support customer cloud adoption and drive expansion.
•Activating, converting and transforming our installed base by providing a customer journey that enables them to effortlessly migrate to and consume Avaya Services offers a broad portfolio of capabilities through our Professional Services organization, including implementation/enablement services, system optimization, innovation services, management partnership and custom applications development.

cloud services.
In addition, Avaya Services delivers Enterprise Cloud and Managed Services with a focus on customer performance and growth. These services can range from managing software releases, to operating customer cloud, premise or hybrid-based communication systems, to helping customers migrate to next-generation business communications environments. We believe that our deep understanding of application management supporting unified communications, contact center and video position us best to manage and operate cloud-based communications systems for our customers.intends to:
We believe our personnel are the best in the industry because they are trained and supported by the best in the industry. The high level of customer satisfaction ratings we receive for support transactions is a testament to the expertise of our people. These dedicated professionals have passion for satisfying customer needs, driving a proactive and preventive agenda to help customers maintain optimum levels of service.
Our Global Support Services and Enterprise Cloud and Managed Services are most often provided to customers through recurring contracts. Recurring contracts for Global Support Services typically have terms that range from one to five years, and contracts for Enterprise Cloud and Managed Services typically have terms that range from one to seven years. We believe our services relationships have provided us with a large recurring revenue base and significant visibility into our customers’ future collaboration needs.
Lower Total Cost of Ownership
Many vendors try to address customer demands by layering on more architectures and protocols. In the process, they frequently sacrifice simplicity, flexibility and TCO. In contrast, our products and services address these needs with less hardware and without sacrificing performance, which, when combined with our deployment methods help contribute to a lower TCO for Unified Communications and Contact Center solutions.
Our Growth Strategy
We believe we are well-positioned to capitalize on the disruption and opportunity presented by digital transformation to create long-term sustainable value. We are investing significantly in our people and technology and have established four strategic pillars that will serve as our growth engines:
1)
Innovate in our core business solutions. As a leader in unified communications and the contact center, our extensive experience and expertise are critical factors in customers' decision-making processes. We will continue to invest in enhancing our core solution areas, delivering secure, scalable and reliable solutions that focus on simplifying and integrating the user experience.
2)
Bring emerging technologies to market. By innovating in disruptive areas such as AI and mobility, and building an ecosystem with technology partners like Afiniti and others, we will drive new opportunities for our customers.
3)
Deliver breadth and depth of cloud. Customers need a partner who can help them unlock the benefits of cloud, in a way that works for their specific needs, whether in the cloud, on-premises or a hybrid of both. Avaya is investing and building a cloud ecosystem, and delivering across all fronts with a cloud-first approach that builds on the power, reliability and security that customers have come to expect from Avaya. Our strategic partnership with RingCentral will further enhance our cloud-based offerings with the introductions of Avaya Cloud Office.
4)
Deliver high-value services. We provide world-class global services that help customers maximize the value of their investments and drive business value. We will expand offerings and capabilities in managed and professional services to meet the changing needs of our customers.
Expand our Cloud Offerings and Capabilities
In our experience, technology and business leaders are increasingly turning to cloud-based technologies and business models that allow enterprises to cut costs, increase productivity, simplify IT environments and shift, when possible, to subscription-based models. We are investing in a strategy to expand our cloud and hybrid cloud solutions and to deliver a complete portfolio of technologies across on-premises, private, public and hybrid cloud development models. We believe our strategic partnership with RingCentral under Avaya Cloud Office will allow us to further meet the market's desire for cloud-based models.
Increase Mobility Offerings to Customers
As global workforces change and demand mobile engagement solutions, we intend to meet these demands. For example, the Avaya Aura Platform and Avaya IP Office Platform are designed to support mobility, providing dynamic access to applications and services based on need, not location. We launched the Avaya Mobile Experience, which keeps mobile calls to contact centers in a mobile network end-to-end, allowing for cost reduction, but more importantly allowing for new and enhanced end-customer experiences, as the mobile context is now available to the contact center. The Avaya Mobile Experience has now entered its commercial phase, with customer contracts signed and deployments under way.

Invest in Open Standards, Product Differentiation and Innovation
As potential customers look to migrate to our products and services, our open architecture can integrate with incumbent competitor systems and provide a path for gradual transition, while still achieving cost savings and improved functionality.
During fiscal 2019, we enhanced our product line with 113 new products, versions and releases. We also expect to continue to make investments in product innovation and R&D across the portfolio to create enhancements and breakthroughs. We believe this approach will encourage customers to upgrade their products with a higher degree of frequency. We also plan to continue embracing cloud computing and mobility opportunities, and to seek new ways to leverage the virtual desktop infrastructure trend to securely deliver business communications to users. Our AI strategy is to build solutions internally and with partners to help organizations transform their customer experiences. We have offers available today and a development roadmap. We are deploying these disruptive solutions to drive value for our contact center customers.
Expand our Services Business
We are working to broaden the options for cloud-based service offerings, expand our consulting services capabilities and to upsell the installed base to our Enterprise Cloud and Managed Services offerings. We also strive to provide more options along the spectrum of our existing service offerings. We are constantly developing our tools and infrastructure to improve the service levels we provide. Our custom applications development team also currently has a backlog of customer-funded application development opportunities that we are working to monetize.
•Increase our Midmarket Offerings, Capabilities and Market Share
Share: We believe our market opportunity for the portion of the midmarket segment that Avaya serves is growing. We define the midmarket as firms with between 25050 and 1,000250 agents for CC and between 1,000100 and 5,0001,000 employees for UC.UCC. Not only do we believe this segment is growing, but we also believe midmarket businesses are underserved and willing to invest in IT enhancements. We intend to continue to
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invest in our midmarket offerings and go-to-market resources to increase market share and meet the growing demands of this segment.
•Increase Sales to Existing Customers and Pursue New Customers
Customers: We believe that we have a significant opportunity to increase our sales to our existing customers by offering new solutions from our diverse product portfolio, including cloud and mobility solutions. This ability is supported by ourAvaya OneCloud portfolio. Our market leadership, global scale and extensive customer interaction, including at the C-suite level, and createssupports our Avaya OneCloud portfolio, creating a strong software platform from which to drive and shape the evolution of enterprise communications. Our track recordWe have strong credibility with our customers, gives us credibility that we believewhich provides us with a competitive advantage in helping them cope with this evolution. In addition, we believeedge as our customers make the transition to the cloud. Additionally, our refreshed product and services portfolio provides increasedincreases the potential for acquiring new customers.
We have worked diligently to becomeare both HIPAA and PCI DSS (Payment Card Industry Data Security Standard) compliant as we believe the ability to service these two areas willthe healthcare and pharmaceuticals industries, as well as merchants that accept credit cards, significantly expandexpands our potential customer base and total addressable market. These new certifications allow for market penetration into what are otherwise restrictive and difficult markets, including healthcare and pharmaceuticals.markets.
•Invest in Sales and Distribution Capabilities
Capabilities: Our flexible go-to-market strategy consists of both a direct sales force and an indirect sales force through our alliances and channel partners, allowingwhich allows us to reach customers across industries and around the globe. We believe our channel partner network is a valuable competitive differentiator based on our brand and long history of having a channel sales go-to-market motion. We intend to continue investing in our channel partners and sales forceforces to optimize their market focus and enter new vertical segments, and tosegments. We provide our channel partners, including master agents and sales agents, with training, marketing programs and technical support throughthat helps to further differentiate our Avaya Edge program. During fiscal 2019, we more than doubled the numberofferings from those of signedour competitors. These agents achieving a total of 495 compared to 234 agents in fiscal 2018, to expandare our primary distribution channel for small to midmarket customers. Under the Master Agentour master agent program, small to midmarket sales agents connect potentialprospective customers with Avaya,our direct sales force which then handles the rest oftransaction from contracting and partnering with the transaction including contracting, provisioning,customer to determine what services are appropriate to ultimately managing and billing the unified communications servicescustomer for the business.Avaya services provided. The Master Agentmaster agent program provides a newan option that rounds out the available choices for customers, channel partners and sales agents to access Avaya’s industry-leading communications solutions.
We also leverage our sales and distribution channels to accelerate customer adoption of our cloud-based solutions and generate an increasing percentage of our revenue from our new high-value software products, video collaboration, midmarket offerings and user experience applications.
Expand Margins and Profitability
We have maintained our focus on profitability levels and implemented several cost-saving initiatives. These initiatives have contributed to improvements in our gross margin. We expect to pursue additional cost-reduction opportunities, which are likely to be more targeted and may include increased automation of our processes, headcount attrition, actions to address unproductive assets, real estate consolidation, sales back-office and frontline skill transformations and balancing our professional services structure. For example, in July 2017, we sold our Networking business, which had historically underperformed our other two segments in profitability. While we anticipate margin and profitability growth to increase over

the long-term as a result of these cost-saving initiatives, we expect slight decreases in margin during fiscal 2020 as we invest in our new product offerings, mainly ReadyNow and ACO.
Our Products and Solutions
Avaya provides a diverse leading-edge portfolio of products and solutions which, when combined with the robust set of offers from our partner ecosystem, create powerful solutions to address our customers' unique needs and challenges. Much of our portfolio has undergone rigorous interoperability and security testing and has been approved for acquisition by the U.S. Government.
Avaya unified communications and contact center products and solutions help organizations of all sizes improve efficiency, engagement and competitiveness. Our open and flexible solutions seamlessly integrate voice, video and data, so users can communicate and collaborate in real-time in the mode best suited to each interaction, for the best experience, every time.
Unified Communications
We unify the communications capabilities that businesses use every day, delivering experiences that can transform organizations.
Voice and Video Calling
Voice often remains the center of communications, as a conversation often can be the fastest and clearest way to resolve issues and build relationships. Avaya provides simple access to advanced features, all available via desk phones, the web and mobile devices.
Many enterprises can base their communications and customer contact services on an Avaya Aura foundation. This high-performance solution features five nines reliability (99.999% uptime), is scalable up to 300,000 users and 1,000,000 devices, and is built to the customers’ specific needs. Its virtualized architecture approach allows for flexible deployment models, from operating on-site at the customer location, to running in public clouds like Amazon Web Services, Microsoft Azure or Google Cloud Platform. Perpetual and flexible subscription licensing models are available, and it can also be delivered as a service from Avaya.
Small to medium businesses can take advantage of the seamless voice, video and mobility capabilities that large enterprises use, but at a scale that is efficient and affordable for them. Our collaboration and communications solutions are built to simplify processes, streamline communications and adapt to changing business needs. They offer significant deployment and licensing flexibility, and additional capabilities can be added as needed. They can be deployed on-premises or through virtualized or containerized architectures in the cloud, with licensing models ranging from perpetual to subscription models.
Messaging and Employee Collaboration
Avaya’s premier unified communications app, Avaya IXTM Workplace, provides one-stop access to all communications needs. Its "mobile-first" design provides at-a-glance visibility and one-touch access to everything that a user needs in real time, including a personal calendar and meetings, contacts, instant messages / chat and voice and video calling. Available across Windows, Mac, Android, iOS devices and WebRTC enabled browsers, a user can support multiple devices from a single extension giving one-number reach on the user’s device of choice. This enterprise-grade solution delivers reliable and secure access from virtually any device or location, including remote access without VPN connectivity.
Avaya’s unified communications capabilities also include our cloud-based team collaboration app, Avaya IXTM Collaboration. It provides users both inside and outside an organization with persistent team messaging and chat, file sharing and task assignment, along with one-touch audio and video conferencing. The Essential level, which is a standard package, is available for free, with Business and Power packages available for purchase with high-capacity and expanded features.
Meetings and Conferencing
Avaya takes rich meeting and conferencing capabilities to the desktops and mobile devices that employees use every day. Our premier solution, Avaya IXTM Meetings, integrates audio, HD video, web collaboration and streaming into a single solution that delivers the benefits of face-to-face interactions from virtually any device to improve employee engagement and team productivity, and serve customers better and faster.
The solution enables users to meet and stay productive from nearly anywhere on their Windows, Mac, iOS or Android devices; dial in with their phones for audio conferencing; and use huddle or HD video room systems from Avaya or nearly any H.323 or SIP standards-based vendor. WebRTC technology enables meeting participants to join directly from their browser without downloading an app or plug-in, which is invaluable for guest participants.

Avaya IXTM Meetings is available in the cloud or on-premises and is integrated into the Avaya IXTM Workplace app for one touch access to schedule, start or join a meeting. Avaya also offers a unique hybrid deployment model where an Avaya customer with on-premises telephony can seamlessly consume their meetings capabilities from the cloud.
Application Developer Products
Along with off-the-shelf integration with popularfrequently used business applications such as Salesforce, Slack and Office 365,across an organization, Avaya’s unifiedconverged communications platform simplifies the embedding of Avaya OneCloud communications and collaboration capabilities into business applications, such asincluding customer relationship management orand enterprise resources planning. ThisOur platform allowsenables customers and third parties andto work with Avaya to create customized engagement applications and environments to meet the unique needs. Customers and third parties can integrate business applicationsoperating requirements of a customer with unified communications technology and contact center capabilities including voice, video, messagesmessaging, meetings and meetings.more. Avaya also offers acloud-based execution and test environment for developing proof-of-concept applications.
The Avaya IXTMClient SDKSoftware Development Kit ("SDK") provides a developer-friendly set of tools that enables the building of innovative user experiences for vertical or business specific applications. Any functionality Avaya uses in its own clients and applications is available to developers through the SDK. Developers can mix and match functionality from both our unified communications and contact center solutions.
Avaya has an extensive developer program, boasting over one million active developers. Avaya DevConnect, that enables third parties to support and extend the capabilities of Avaya solutions to address business challenges. Thousands of companies from around the world are program members, including developers, system integrators, service providers and Avaya customers.
Communications Platform as a Service ("CPaaS")
Avaya also has a full API enabled CPaaS platform offering voice, SMS, call recording, speech recognition, text to speech transcription, burstable SIP trunkingCloud, Alliance Partner and conferencing services as communications-enabling applications and workflows across the enterprise.
Avaya is further investing in its CPaaS platform to enable its global Aura customer base to attach cloud native applications that can be used as opposed to making additional capital investments. We believe that engagement platforms and applications developed on CPaaS will be one of the largest growth areas for Avaya in the next 12-36 months.
Contact Center
Avaya provides an integrated contact center portfolio consisting of assisted service, self-service, workforce engagement management and AI solutions that enables customers to increase operational efficiency, empower more engaged workforces to perform more effectively and improve the quality and value of customer interactions. Enterprise and midmarket customers can select the deployment option that best suits their business needs, whether on-premises, in the cloud or a hybrid of both.
Assisted Service
Avaya provides the core integrated solutions for serving the needs of the entire customer engagement strategy across all devices and channels including mobile, web, voice, video, email, webchat, chatbot, SMS, social and fax.
Avaya IXTM Contact Center solutions empower businesses to deliver managed, measurable and prompt responses to customer inquiries throughout the customer journey. Organizations can improve customer experiences, accelerate interactions, build brand loyalty and improve agent efficiency.
Avaya IXTM Workspaces combines information from multiple sources, including customer profiles, buying history and interaction journeys, and makes them instantly available in a single, consolidated desktop, improving agent productivity and allowing supervisors to allocate resources to higher-value interactions.
Self-Service
Avaya's Self-Service solutions enable agents to focus their efforts on higher priority tasks by automating inbound and outbound speech, video, email and chat applications. WithAvaya Self-Servicesolutions, contact centers can increase efficiency, have lower reliance on more expensive agent-based service and empower customers by giving them access to service when they want it, via their preferred touch point. Common uses for contact centers include automating simple, repetitive tasks, such as account status, providing proactive notifications for appointments, past due notices, service outages and connecting with customers through seamless two-way interaction via email/SMS.
Workforce Engagement Management

Workforce Engagement Management improves customer experience, operational performance and industry compliance. Through interaction recording, quality evaluations, customer feedback, automated scheduling and real-time and historical reports, contact centers can identify areas of excellence and improvement.
The Avaya IXTM Workforce Engagement solution suite unifies contact recording, quality monitoring, eLearning, coaching, performance scorecards, workforce management, voice analytics, desktop and process analytics, and customer feedback within a single user interface, and centralizes administration and reporting for ease of use. Organizations can securely capture, analyze and store customer interactions that can be used to help comply with regulatory mandates such as Payment Card Industry Data Security Standard ("PCI DSS"), General Data Protection Regulation ("GDPR"Subscription (“CAPS”) and Markets in Financial Instruments Directive ("MiFID") II.
By monitoring interactions from start to finish, supervisors can evaluate agent performance across customer discussions, data entry, screen navigation and data retrieval to uncover performance shortfalls; obtain insight into customer expectations; and take steps to proactively address customer requirements quickly and effectively. Organizations can also improve agent performance with automated coaching, eLearning and scoreboard assessments to transfer knowledge and best practices.
Avaya IXTM Workforce Engagement also enables more efficient resource management by enabling supervisors to analyze historical data to forecast future transaction volume and handle times by automatically producing schedules to deploy the right agents with the appropriate skills at the right time.
Avaya Analytics helps enterprises analyze customer trends, develop benchmarks and focus service improvements leveraging real-time and historical reporting. Enterprises can take advantage of big data across their entire organization to gain actionable insights into the customer journey and team analytics.
AI Solutions
Avaya AI Solutions enable contact centers to create smarter interactions and represent a quantum leap forward compared to more traditional contact center solutions, advancing the customer experience and agent performance. Organizations can improve the customer journey through intelligent pairing, self-service, chatbots, virtual assistants and machine learning.
Avaya AI Solutions can help organizations create more personalized customer experiences, garner deeper customer insights, drive customer loyalty, improve agent management and satisfaction, lower their TCO and increase growth, profitability and revenues.
By intelligently pairing callers to agents, organizations can identify subtle, yet valuable, patterns of human interactions and behavior that can help transform their contact center into a revenue center. Avaya AI Solutions integrate with industry leading chatbot, Natural Language Processing ("NLP") and digital messaging aggregators. Organizations can engage with customers across social media, chat and messaging channels to provide immediate self-service, as well as deliver them to agent-based customer care with full context of the upfront automated experience.
To enhance the mobile caller experience, reduce fraud and phishing, and lower costs, Avaya and non-Avaya contact centers can use Avaya Mobile Experience. Unique in the marketplace, this patented, cloud-based, toll-free and Direct Inward Dial ("DID") service identifies mobile devices and gathers verifiable caller information that can be used to reduce call-handling times and offer tailored mobile caller experiences, such as the ability to switch from a voice to a digital interaction.
Devices
Avaya Devices: Avaya Vantage is offered as a dedicated desktop communications device that seamlessly integrates voice, video, chat and collaboration apps. The modern all-glass device has no mechanical buttons, offers superior audio quality and an optional corded or cordless handset. Avaya Vantage is a convenient and cost-effective platform to provide vertical and use-case specific client interfaces developed with the Avaya client SDK while also supporting Android applications and customization, as well as out of the box connectivity with Avaya's range of Unified Communications and Collaboration offerings.
Avaya Phones: Avaya’s range of phones and portable technologies include internet protocol ("IP") and digital desk phones, digital enhanced cordless telecommunications handsets, wireless phones and conference room phones. Avaya phones offer capabilities such as touch screen and applications, integration to corporate calendar, directory and presence, enhanced audio quality for a "you-are-there" experience, customization and soft keys, and multiple lines appearances.

Avaya Video Conferencing Endpoints: Dedicated hardware video conferencing endpoints ranging from immersive multi-stream telepresence and conference room systems to dedicated desktop systems.
Our Services
The Company’s Services portfolio consults, enables, supports, manages, optimizes and even outsources enterprise communications products (applications and networks) to help customers achieve better business outcomes. Avaya’s portfolio of services enables customers to mitigate risk, reduce TCO and optimize communication products. Services is supported by patented design and management tools, and by network operations and technical support centers around the world.
The Company’s Services portfolio is divided into Professional Services, Global Support Services and Enterprise Cloud and Managed Services.
Professional Services
Avaya Professional Servicesenables our clients to work with some of the best Unified Communications and Contact Center technical talent in the industry to architect, design, implement and develop innovative communications solutions.
Our strategic and technical consulting, as well as our deployment and customization services, help customers accelerate business performance and deliver an improved customer experience. Whether deploying new products or optimizing existing capabilities, we leverage specialists globally across three core areas:
1)
Enablement Services: Provide access to expertise and resources for planning, defining and deploying Avaya products to maximize technology potential, simplify business processes, improve security and minimize risk. Avaya integrates and tests equipment, trains employees and deploys a plan to help ensure success.
2)
Optimization Services: Help drive increased value and improved business results by leveraging customers’ existing technology. Avaya's advanced solution architects analyze a communications environment in the context of customer business priorities, recommend enhancements and implement proven best practices.
3)
Innovation Services: Help identify improved methods for using communications and collaboration to increase business productivity, employee efficiency and customer service levels. Our consultative approach, deep industry experience and custom application services-from business planning to execution and product integration-create alignment with a customer’s specific business objectives.
In fiscal 2019, we expanded our focus on several key areas that are central to our going forward strategy:
1)Customer Journey Transformation: We are engaging with our key clients in a highly consultative way to help them better leverage their communications investment. This model has led to an increase in large, complex projects for our top enterprise clients. Our extensive knowledge of our customers' journeys, leveraging reference architectures, is a cornerstone of Avaya’s growth strategy going forward.
2)Agile Development Business: The increase in large projects has also led to increases in our agile development business. We help clients develop customized, leading-edge applications that fully integrate into their environment to solve key business problems and take advantage of opportunities.
3)Professional Services: We have a fully integrated, global professional services team that has grown to more than 1,200 professionals today. This team provides the same high level of technical talent and tool support in all regions of the world. To further this team’s effectiveness, Avaya expects to implement a new professional automated tool in fiscal 2020. The tool will improve our ability to deliver the highest level of quality support our customers have come to expect, while increasing the efficiency of their budget. Among a wide range of benefits, the integrated tool streamlines resource assignment allowing for earlier engagement and tighter alignment with our sales group, ultimately improving near term as well as long term productivity and service levels.
Global Support Services
Global Support Services provides maintenance support across the Avaya portfolio and an ecosystem of third-party integrated solutions. We believe Avaya has the largest UC and CC client base in the world and possesses the largest set of UC and CC technical talent of any vendor, leveraging world class automation to support our clients.
The portfolio includes:
A comprehensive suite of support options both directly and through partners to proactively resolve issues and improve uptime. Global Support Services offers capabilities that include 24/7 remote support, proactive remote monitoring, sophisticated diagnostic tools, parts replacement and on-site response.
Our Avaya Support website quickly connects customers to advanced Avaya technicians via live chat, voice or video. The website also provides access to "Ava," an interactive virtual chat agent based on Avaya Automated Chat that

quickly searches our knowledge base and a wide range of "how-to" videos to answer customer support questions. Ava learns with each customer interaction and can make the decision to transition the chat to an Avaya technician, often without the customer realizing the change is taking place.
Avaya offers market-leading support, management and optimization of enterprise communications networks. We do this through patented design and management tools, and network operations and technical support centers around the world. The contracts for these services typically run three years, though they can be of both shorter and longer duration depending upon customer preferences. Custom or complex services contracts are typically five years in length.
All new support solutions are published online by our engineers, generally within 30 minutes of finding a resolution, adding value for customers by providing known solutions for potential issues rapidly. Most of our customers also benefit from Avaya EXPERT Systems, which provides real-time monitoring of diagnostic and system status. This solution proactively identifies potential issues to improve reliability, uptime and faster issue resolution.
Avaya can also manage existing infrastructure from nearly any communications vendor. Many customers leverage this model to manage existing complex environments. Customers are also provided with the option of upgrading to the latest technology through a recurring operational expense, rather than a one-time capital expenditure.Revenues
We have and will continue to make investments to improvemeasure our client support. Examples of this over the past year include:
Enhanced automation to enablesuccess in transforming our clients to get to the right technical expert in a quicker and more effective way, improving overall customer satisfaction. 
Implemented a new Support Services Customer Success team, which we believe has helped enable us to more rapidly onboard and understand our clients' UC and CC strategies, issues and opportunities. We expect this investment to help our clients further view us as a trusted consultative provider that will result in increased adoption, accelerated momentum and transition to our full-service stack, including the cloud.
Continuing to evolve our real-time, automated evaluation of global clients' solution performance, which gives visibility across many different support criteria to enable proactive deep-dives with clients.
Enterprise Cloud and Managed Services
Enterprise Cloud and Managed Services provides a set of managed and private cloud services for enterprise clients, where Avaya runs the production operations of a client’s communications environment, either on their premise (managed services) or hosted on our data centers (private cloud). Avaya is one of the largest communications private cloud providers in the world, having been a leader in this area for the past nine years. Our offering has been based on a fully managed, dedicated set of hardware and software in our data centers or within a client���s data center. Our go-forward strategy is focused on developing a new, innovative, next-generation global virtualized private cloud offering.
Our enterprise clients want Avaya to help lead them into next-generation cloud solutions at their specific pace and scope. They require a high level of architecture support to design a private cloud solution that effectively integrates with their key applications, offering them the ability to do Proof of Concepts ("POCs") and trials of cloud delivery models in a low-risk and effective fashion with seamless transitions to full production environments, and using financial models that reduce their TCO. In effect, customers want a near public cloud price model, with the ability to flexibly customize and integrate in a private cloud model.
Our strategy is to build a global virtualized private cloud service based on a set of "Ready Now" reference architectures. In January 2019, we introduced ReadyNow at our customer conference and began roll out in February. Along with several custom elements Avaya has standardized in a "mass custom" model, the key elements of the new offer which will include the following:
1)
A standard set of Avaya OneCloudTM ReadyNow reference architectures that enable quick and effective POC’s and trials, prior to implementing production environments for clients. The cloud platform will be based on Avaya’s industry-leading UC and CC technology that will meet the majority of enterprise client requirements, with the ability to customize.
2)A new set of automation platforms to effectively build and deploy solutions for clients that will enable Avaya to replicate a client’s sophisticated premise-based implementations to our cloud solution in an unprecedented level of speed, accuracy and effectiveness.
3)A client success model to help clients ramp up users on the platform and achieve defined business outcomes.
4)A new Enterprise Communications Cloud Architect team, consisting of some of the best enterprise communications cloud technical talent in the industry, that works with clients in the architecture, design, operations and implementation of their secure virtualized private cloud environment. In addition, the Avaya team

will stay with the client as their top technical advisor as they move to full production in their new private cloud environment, helping them fully realize the benefit of the solution and driving adoption, growth and retention.
5)A set of managed services offers to effectively operate the private cloud environment at a high level of availability, performance and Quality of Service ("QOS") Service Level Agreements ("SLAs"). These offerings will include full multi-vendor support of their current communications technology environment as they begin their migration to the cloud.
6)A global network of data centers running the same virtualized private cloud architectures, all run with the same industry-leading set of automation, workflow and team.
The Avaya customer set provides an excellent opportunity for growth. We have the relationships and knowledge to become our existing customers cloud communications provider. Our partners' accounts are also an excellent opportunity for growth, with Avaya providing the cloud capability and the partner developing the opportunity to increase recurring revenue with their client set.
Avaya OneCloud
Avaya OneCloud provides cloud solutions that deliver flexible features, functions and value to improve productivity and grow businesses. Avaya OneCloud can be delivered through Avaya Public Cloud solutions, Avaya Enterprise Cloud and Managed Services or Avaya Hybrid Cloud solutions.
Avaya Hybrid Cloud solutions provide a migration path between premise-based and cloud-delivered services. Customers can maximize their on-premise investment, while taking advantage of what the cloud can deliver.
WithAvaya Enterprise Cloud and Managed Services, Avaya helps install, operate and manage customer cloud solutions based on service agreements that the customer designs. Avaya can provision the equipment stack and host it on-premise. Avaya OneCloud encompasses our Products & Solutions and Services. Enterprise Cloud and Managed Services can be procured in standard packages or in fully custom arrangements that include on-premises or private cloud options, Service Level Agreements, billing and reporting.
Avaya Public Cloud solutions, including Avaya Cloud Office,are delivered in a cloud-based model ensuring customers have the latest software that helps control costs with self-service tools and reduced operational costs. Our cloud solutions provide customers piece of mind knowing they are always up-to-date, secure and compliant. Our CCaaS and our UCaaS solutions help teams connect, call, meet and collaborate with others using both Avaya and third-party platforms devices or systems from most locations.
Cloud Enablement Products
On May 20, 2019, the Company made a $10 million investment in a UCaaS provider enabling compliance with Federal Risk and Authorization Management Program ("FedRAMP") security requirements. This strategic investment allows Avaya to offer a cloud-based Voice over Internet Protocol infrastructure service via a FedRAMP authorized hosting platform and reinforces our determination to provide industry leading products in the cloud space to an even broader customer base, especially in the restrictive government space.
UCaaS, CCaaS, CPaaS and Converged Platform:The UCaaS, CCaaS and CPaaS services are cloud delivered services that use multi-tenant control technology and containerized communications platforms to extend Avaya’s industry leading contact center, unified communications and disruptive products to the cloud allowing Avaya-hosted and third partiesour ability to make them availablereduce our dependence on premise-based perpetual licensing models by analyzing the contribution of our “CAPS revenue” to total consolidated revenue. CAPS revenue refers to revenue from cloud based solutions, together with revenues from our Strategic Alliance Partnerships and Subscription revenue. Our CAPS revenue as a service. Converged Platform offers our customers a fully enabled turnkey solution with complete Avaya hardware and software for those seeking a rapid solution deployment or who prefer a fully configured and engineered solution from Avaya.
Avaya Powered by IXTMis a partner-hosted cloud solution that offers the complete capabilitiespercentage of Avaya IP Office, Avaya IP Office Contact Center and Avaya Contact Center Select software. Hosted in the partner’s datacenter, it leverages Avaya’s unique hybrid cloud solutions for seamless integration and migration between a customer’s premises-based solution and cloud-delivered services.
Avaya IXTM Meetings is a cloud service, sold by our partners but hosted by Avaya, where customers can purchase virtual HD video meeting rooms in the cloud for a monthly fee or through an annual contract. Users can connect with Windows, MacOS, iOS and Android devices and through WebRTC enabled browsers, along with video conferencing room systems.
Research and Development ("R&D")
We make substantial investments in R&D to develop new systems, solutions and software in support of business communications, including, but not limited to, converged communications systems, communications applications, multimedia contact center innovations, collaboration tools, messaging applications, video, speech-enabled applications, business

infrastructure and architecture, converged mobility systems, cloud offerings, web services, artificial intelligence, communications-enabled business processes and applications, and services for our customers. Overtotal consolidated revenue has grown over the past three fiscal years, we have invested $800 million in R&D, including technology acquisitions.representing 40%, 26% and 16% of total consolidated revenue for fiscal 2021, 2020, and 2019, respectively.
We invested 16.7%, 16.9%, and 15.7% in R&D as a percentage of product revenue in fiscal 2019, 2018 and 2017, respectively. These investments reflect a consistent investment in R&D as a percentage of product revenue. Our investments in fiscal 2019 focused on driving innovative cloud solutions across our portfolio, new AI and mobile capabilities, and new releases of our UC and CC solutions.
Patents, Trademarks and Other Intellectual Property
We own a significant number of patents important to our business and we expect to continue to file patent applications to protect our R&D investments in new products and services across all areas of our business. As of September 30, 2019, we had more than 4,500 patents and pending patent applications, including foreign counterpart patents and foreign applications. Our patents and pending patent applications cover a wide range of products and services involving a variety of technologies, including, but not limited to, unified communications (including video, social media, telephony and messaging), contact centers, wireless communications and networking. The durations of our patents are determined by the laws of the country of issuance. For the U.S., patents may be 20 years from the date of the patent's filing, depending upon term adjustments made by the patent office. In addition, we hold numerous trademarks, in the U.S. and in other countries. We also have licenses to intellectual property for the manufacture, use and sale of our products.
We obtain patent and other intellectual property rights used in connection with our business when practicable and appropriate. Historically, we have done so both organically, through commercial relationships, and in connection with acquisitions.
We look to maximize the return on investment in our patent portfolio by selectively selling patents at market prices and cross licensing with other parties when such sales or licensing is in our interests. These monetization programs are conducted in a manner that helps to preserve Avaya’s freedom to operate and to help ensure that Avaya retains patents needed for defensive use.
From time to time, assertions of infringement of certain patents or other intellectual property rights of others have been made against us. In addition, certain pending claims are in various stages of litigation. Based on our experience and customary industry practice, we believe that any licenses or other rights that might be necessary for us to continue with our current business could be obtained on commercially reasonable terms. For more information concerning the risks related to patents, trademarks and other intellectual property, see Item 1A, "Risk Factors-Risks Related to Our Business-Intellectual Property and Information Security-We may be subject to litigation and infringement claims, which could cause us to incur significant expenses or prevent us from selling our products or services."
Global Alliances and Partnerships
Avaya has formed commercial and partnering arrangements through global alliances to expand the availability of our products and services and enhance the value derived by customers. A recent example of such a partnership is Avaya's strategic partnership with RingCentral. Global alliances are strategically oriented technical and commercial relationships with key partners.partners that we believe enhance both companies' go-to-market strategy. We have three primary types of global alliances: Global Service Provider alliances, Global Systems Integrator alliances and Ecosystem alliances.
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Global Service Provider alliances are partnering arrangements with leading telecommunications service providers, such as AT&T, for enterprise communications and collaboration. We pursue sell-to and sell-through opportunities for Avaya products and services. These alliances are integral in selling and implementing our cloud-based services. We also see them as a principal route to market for our UCaaS and CCaaS solutions.
•Global Service Provider alliances: Through these partnering arrangements with leading telecommunications service providers, we pursue sell-to and sell-through opportunities for Avaya solutions and services. These alliances are integral in selling and implementing our cloud-based services. We also see them as a principal route to market for our UCaaS and CCaaS solutions. During fiscal 2020, we entered a strategic partnership with RingCentral, Inc. (“RingCentral") and began deployment of Avaya Cloud Office, our OneCloud UCaaS solution the same year.
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•Global Systems Integrator alliances: These refer to arrangements with systems integrator partners, as well as key channel partners with strong professional services and personalized integration capabilities who include Avaya solutions within broader digital transformation programs and end-to-end vertical solutions.
•Ecosystem alliances: These partnering arrangements are with industry leaders and leading technology companies. They feature deeper, R&D-led integrations and/or expanded go-to-market efforts, such as the DevConnect Select Product Program or the Avaya & Friends Program for international markets. During fiscal 2021, we expanded our partnership with Salesforce by developing Avaya OneCloud for Salesforce and offering it in Salesforce AppExchange, we worked with Google to develop AI based solutions for the contact center, and we worked with Microsoft to develop an Azure based contact center and offer it through the Azure MarketPlace.
Channel Partners
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Global Systems Integratoralliances are identical in nature to our Global Service Provider alliances, except that these are forged with systems integrator partners, such as IBM, as well as key channel partners with strong professional services and systems integration capabilities, such as ConvergeOne.
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Ecosystem alliances are partnering arrangements by Avaya with industry leaders, including Google, IBM Nuance, Salesforce, Verint, Afiniti, Intel and other leading technology companies. These ecosystem alliances expand the already robust set of technology partnerships established through the Avaya DevConnect program with deeper, R&D-led integrations and/or expanded GTM efforts, such as the DevConnect Select Product Program or the Avaya & Friends Program for international markets.
Our channel partners serve our customers worldwide through our Avaya Edge our business partner program. Through certifications, the Avaya Edge program positions resellerValue Added Reseller partners to sell, implement and maintain our communications systems, applications and services. Avaya Edge offers clearly defined partner categories with financial, technical, sales and marketing benefits that grow with levels of certification.certification and revenue contribution. We support partners in the program by providing aour comprehensive Avaya OneCloud portfolio of industry-leading productssolutions in addition to sales, marketing and technical support. Although the terms of individual channel

partner agreements may deviate from our standard program terms, our standard program agreements for resellers generally provide for a term of one year, with automatic renewal for successive one-year terms. Agreements may generally be terminated by either party for convenience upon 30-days' prior notice, and our standard program agreements for distributors may generally be terminated by either party for convenience upon 90 days prior notice. Certain of our contractual agreements with our largest distributors and resellers, however, permit termination of the relationship by either party for convenience upon prior notice of 180 days. Our partner agreements generally provide for responsibilities, conduct, order and delivery, pricing and payment, and include customary indemnification, warranty and other similar provisions. The Company's largest distributor, ScanSource Inc., is also its largest customer and represented 11%7% of the Company's total consolidated revenue for fiscal 2019.2021. See Item 1A, "Risk Factors-Risks Related to Our Business-Our Operations, Markets and Competition-Our growth strategy depends in part on our reliance on our indirect sales channel" for additional information on the Company's reliance on its indirect sales channel.
Our Business Today
Our solutions address the needs of a diverse range of businesses, including large multinational enterprises, small and medium-sized businesses and government organizations. Our customers operate in a broad range of industries, including financial services, healthcare, hospitality, education, government, manufacturing, retail, transportation, energy, media and communications. We employ a flexible go-to-market strategy with direct or indirect presence in approximately 190 countries. As of September 30, 2021, we had more than 3,800 active channel partners and for fiscal 2021 our product revenue from indirect sales through our channel partners represented 68% of our total Products & Solutions segment revenue.
For fiscal 2021, 2020 and 2019, we generated revenue of $2,973 million, $2,873 million and $2,887 million, of which 33%, 37% and 42% was generated by Products & Solutions and 67%, 63% and 58% by Services, respectively. Revenue by business area is presented in the following table for the periods indicated:
Fiscal years ended September 30,
(In millions)202120202019
Products & Solutions:
Unified Communications and Collaboration$683 $710 $863 
Contact Center309 363 359 
992 1,073 1,222 
Services:
Global Support Services1,401 1,238 1,086 
Enterprise Cloud and Managed Services281 282 297 
Professional Services299 280 282 
1,981 1,800 1,665 
$2,973 $2,873 $2,887 
Our software revenue as a percentage of total consolidated revenue has grown over the past three fiscal years, representing 64%, 61% and 52% of total consolidated revenue for fiscal 2021, 2020, and 2019, respectively. Our software revenue aggregates revenue across our two reporting segments. Software revenue includes subscription, public and private cloud,
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perpetual licenses and related software maintenance revenue. On-premise license revenue is included in Product & Solutions, while subscription, cloud related software maintenance revenue are primarily included in Services.
One of our key focuses is increasing our recurring revenue — revenue from products and services that are delivered pursuant to multi-period contracts, including recurring subscription-based software revenue, maintenance, global support services and enterprise cloud and managed services. Non-recurring revenue consists of hardware, non-recurring perpetual-based software and one-time professional services. Hardware predominantly consists of endpoints, which include phones, video conferencing equipment and headsets. Non-recurring software is predominantly comprised of perpetual licenses. One-time professional services include installation services, as well as project-based deployment, design and optimization services.
During fiscal 2021, Avaya introduced Avaya OneCloud ARR (Annualized Recurring Revenue) as a key performance indicator, which provides a leading indicator into the software solutions driving our growth. This metric is similar to what our industry peers report and reflects only the recurring components of Avaya’s portfolio. Revenues reported as part of Avaya OneCloud ARR include revenues from:
•Avaya OneCloud CCaaS
•Avaya OneCloud CPaaS
•Avaya OneCloud DaaS (Device as a Service)
•Avaya OneCloud Private Cloud
•Avaya OneCloud Subscription
•Avaya Spaces
•Recurring revenues generated from Avaya Cloud Office
Avaya OneCloud ARR does not include recurring revenues from Maintenance, Managed Services or Avaya Cloud Office one-time revenues.
In fiscal 2021, OneCloud ARR was $530 million, compared to $191 million reported for fiscal 2020. We believe the OneCloud ARR, combined with our remaining performance obligations, provides a view into our long-term revenue growth potential and trajectory.
Trends Shaping Our Industry
We believe several key trends are shaping our industry, creating a substantial opportunity for Avaya and other market participants:
•The COVID-19 pandemic significantly accelerated the trend toward remote work and workforce mobility requirements as the need to work from home — or from anywhere — dramatically increased and highlighted the need for dynamic, cloud-based solutions that can be used anytime and anywhere. Our customers have realized the advantages of remote work and many are adopting or are considering adopting a permanent hybrid model that combines remote work with a return to the office. Avaya solutions are well positioned to enable this new future of work and collaboration.
•UCC, CC and CPaaS are converging to become part of an integrated services offering delivering next-generation communications capabilities across a host of devices and channels.
•Preference for cloud delivery of software applications and management of multiple and varied devices continues to grow, all of which must be handled with the security that business demands.
•The Experience Economy continues to grow. The Experience Economy is based on the concept that experience is a key source of value — it is a differentiator that creates competitive advantage for products and services. As consumers embrace new technologies and devices in creative ways and at an accelerating pace, Avaya is continuing to invest in AI-powered solutions delivered through cloud and subscription models to create “Experiences that Matter” for customers, employees and agents. This increased adoption and deployment of AI is providing significant new opportunities for enhanced UCC and CC solutions that improve the customer experience and transform the Digital Workplace.
Our Market Opportunity
We believe that these trends create significant market opportunity for the next-generation UCaaS, Collaboration, CCaaS and CPaaS solutions that Avaya has brought to the market in fiscal 2021. The limitations of traditional premise-based communications solutions and services and capital-intensive buying models present an opportunity for differentiated vendors to gain market share in the cloud. We believe that the total available market for these solutions includes spending on communications applications, and the business devices that improve the application experience, as well as spending on one-
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time and recurring professional, enterprise cloud and managed services, and support services to implement, maintain and manage these solutions.
We are expanding our business in several of these areas, primarily with cloud-facing and subscription-based consumption models. We are also growing in the customer segments that we serve, including large enterprises with more than 1,000 employees, as well as midmarket enterprises with between 50 and 250 agents in the contact center market and between 100 and 1,000 employees for customers using our communications and collaboration solutions. The growth opportunity in these markets comes from the need for enterprises to increase productivity and upgrade their unified communications and collaboration and contact center strategy to a more integrated approach to account for changing customer expectations and the accelerated work from home / work from anywhere trend, increased mobility, and the demand for seamless experiences across multiple communications channels. In response to these needs, we expect that aggregate total spending on UCC, CC, CPaaS, services and support, and enterprise cloud and managed services to grow, with the majority of growth coming from cloud services.
Although the decision makers for our solutions and services have traditionally been senior IT leadership, up to and including Chief Information Officers ("CIOs"), our research finds that now more of the buying decisions are being influenced by business units and the broader C-suite, including Chief Executive Officers (“CEOs”), Chief Marketing Officers (“CMOs”) and Chief Digital Officers ("CDOs"). They have become more involved as digital transformation has expanded beyond the data center and IT infrastructure to encompass lines of business operations and customer experiences. CEOs, CMOs and CDOs are recognizing growing customer and employee demand for better interactions across multiple channels of their choosing, and they see an opportunity to differentiate their companies and lines of business by providing their employees with an opportunity to deliver a superior customer experience.
We believe that due to the increasing importance of technology as both an internal and external-facing presence of the enterprise, as well as the high stakes of data breaches and similar cyber-security events, CEOs are increasingly engaged in the decision-making process. CMOs and CDOs are gaining additional budget authority as they are tasked with managing customer experience and marketing activities using sophisticated communications technology and rich data. We believe that because of the shifts in decision-making roles, the focus of customer experience solutions should be to provide businesses with better ways to engage with end users securely across multiple platforms and channels, creating better customer experiences, and ultimately, higher revenues for the business.
In our experience, decision makers have three critical priorities:
•Shift to cloud-based solutions: Companies today seek technology that helps them lower Total Cost of Ownership (“TCO”) and increase deployment speed and application agility, including a variety of public, private and hybrid cloud solutions. They are also shifting away from a complex, proprietary capital-intensive consumption model to one that is more flexible and efficient in gaining access to the latest technology.
•Leverage existing technology infrastructure while positioning for the future: The speed at which new technology enters the market is challenging companies to rapidly adopt and install new technology. We believe this pressure creates strong demand for scalable systems that do not require enterprise-wide overhauls of existing technology to implement newer solutions and technologies. Instead, it favors incremental, flexible, extensible technologies that are easy to adopt and compatible with existing infrastructures.
•Manage the reliable and secure integration of an increasing number and variety of devices and endpoints: Today, business users leverage laptops, smartphones and tablets just as often – if not more than – desk-based devices.The ability to communicate seamlessly and securely across devices, applications and endpoints must be managed as part of an integrated communications infrastructure.
Our Answer
We believe we have positioned Avaya as the leader in cloud-based Digital Workplace and Customer Experience Solutions by:
•Defining innovation in our core market segments by delivering powerful AI-enabled cloud communications solutions.
•Winning with global services capabilities that support customer cloud adoption and drive expansion.
•Activating, converting and transforming our installed base by providing a customer journey that enables them to effortlessly migrate to and consume Avaya cloud services.
In addition, Avaya intends to:
•Increase our Midmarket Capabilities and Market Share: We believe our market opportunity for the portion of the midmarket segment that Avaya serves is growing. We define the midmarket as firms with between 50 and 250 agents for CC and between 100 and 1,000 employees for UCC. Not only do we believe this segment is growing, but we also believe midmarket businesses are underserved and willing to invest in IT enhancements. We intend to continue to
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invest in our midmarket offerings and go-to-market resources to increase market share and meet the growing demands of this segment.
•Increase Sales to Existing Customers and Pursue New Customers: We have a significant opportunity to increase sales to our existing customers by offering new solutions from our Avaya OneCloud portfolio. Our market leadership, global scale and extensive customer interaction, including at the C-suite level, supports our Avaya OneCloud portfolio, creating a strong software platform from which to drive and shape the evolution of enterprise communications. We have strong credibility with our customers, which provides us with a competitive edge as our customers make the transition to the cloud. Additionally, our refreshed product and services portfolio increases the potential for acquiring new customers.
We are both HIPAA and PCI DSS (Payment Card Industry Data Security Standard) compliant as we believe the ability to service the healthcare and pharmaceuticals industries, as well as merchants that accept credit cards, significantly expands our potential customer base and total addressable market. These certifications allow for market penetration into what are otherwise restrictive and difficult markets.
•Invest in Sales and Distribution Capabilities: Our flexible go-to-market strategy consists of both a direct sales force and an indirect sales force through our alliances and channel partners, which allows us to reach customers across industries and around the globe. We believe our channel partner network is a valuable competitive differentiator based on our brand and long history of having a channel sales go-to-market motion. We intend to continue investing in our channel partners and sales forces to optimize their market focus and enter new vertical segments. We provide our channel partners, including master agents and sales agents, with training, marketing programs and technical support that helps to further differentiate our offerings from those of our competitors. These agents are our primary distribution channel for small to midmarket customers. Under our master agent program, small to midmarket sales agents connect prospective customers with our direct sales force which then handles the transaction from contracting and partnering with the customer to determine what services are appropriate to ultimately managing and billing the customer for the Avaya services provided. The master agent program provides an option that rounds out the available choices for customers, channel partners and sales agents to access Avaya’s industry-leading communications solutions.
We also leverage our sales and distribution channels to accelerate customer adoption of our cloud-based solutions and generate an increasing percentage of our revenue from our new high-value software products, video collaboration, midmarket offerings and user experience applications.
Our Competitive Strengths
We believe the following competitive strengths position us to capitalize on the opportunities created by the market trends affecting our industry.
A Leading Position across our Primary Markets
With a full suite of UCaaS, CCaaS and CPaaS solutions offered under Avaya OneCloud and our expansive go-to-market capability, we are a global leader in business communications. We maintain a leading market share in worldwide contact center agents and are recognized by industry analysts as being among the leaders in unified communications and collaboration seats. Additionally, we believe we are a leading provider of private cloud and managed services and that our market leadership and incumbent position within our customer base provides us with a superior opportunity to cross-sell to existing customers and position ourselves to win over new customers.
Our Open Standards Technology Supports Multi-vendor, Multi-platform Environments
Our open, standards-based technology is designed to accommodate customers with multi-vendor environments seeking to leverage existing investments. Providing enterprises with strong integration capabilities positions them to take advantage of new UCC and CC technology as it is introduced. Our software technology does not limit customers to a single vendor or add to the backlog of integration work. We also continue to invest in our developer ecosystem, Avaya DevConnect, which has grown to include approximately 120,000 members as of September 30, 2021. Avaya DevConnect, together with our Application Programming Interfaces ("APIs"), which are a set of routines, protocols and tools for building software applications and applications development environments, allow our customers to derive unique and additional value from our architecture.
Building on our Leading Service Capabilities for a Significant Recurring Revenue Stream
Avaya's services relationships have long been significant contributors to our large recurring revenue base and provide us with significant visibility into our customers' future collaboration needs. Our global support services and enterprise cloud and managed services are typically provided to customers through recurring contracts. These contracts generally have terms that range from one to five years.
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In addition to insights into their ongoing operational needs, our professional services team engages in migration planning, security services, custom application integration and other consulting activities that position us to understand our customers’ business needs today and in the future.
•Global Support Services: Avaya is a leading provider of recurring support services for business communications solutions. Our worldwide services-delivery infrastructure and capabilities help customers address critical business communications needs from initial planning and design through implementation, maintenance and day-to-day operation, monitoring and solution management. With more than 3,800 trained and certified services professionals worldwide, we can help customers find and implement the right communications solutions. The launch of Avaya OneCloud Subscription is a further evolution of our global support services business and provides our customers with additional flexibility in how they consume our solutions.
•We believe the Avaya support services team continues to be well-positioned for success due to the close collaboration between our R&D and service planning teams in advance of new product releases. We offer high levels of automation to onboard and manage a customer’s communications infrastructure, delivering faster, more effective deployments from proof of concept to production. This includes a robust communications automation platform with full event orchestration leveraging advanced AI functionality. As a pioneer of the omnichannel support experience in enterprise support, Avaya also provides customers the option to interact with our chatbots to access immediate support online. Customers can also connect with one of our experts via web chat, web talk or web video. When necessary, Avaya Services can also directly access our R&D teams to resolve customer issues. All combined, these capabilities enable Avaya to provide the highest-quality service for Avaya products.
•Enterprise Cloud and Managed Services: Avaya’s enterprise cloud solutions and managed services solutions focus on customer performance and growth, encompassing software releases, operating customer cloud, premise or hybrid-based communication systems and helping customers migrate to next-generation business communications environments. We believe that our deep understanding of application management supporting unified communications, collaboration and contact center solutions positions us to best manage and operate cloud-based communications systems for our customers.
•Professional Services: Avaya offers a broad portfolio of capabilities through its professional services, including implementation/enablement services, system optimization, innovation services, partner solution integration and custom applications development.

We believe our employees and consultants are among the best in our industry because they are trained and supported by the best in the industry. The high level of customer satisfaction ratings we receive for support transactions is a testament to the expertise of our people. Our dedicated professionals are focused on satisfying customer needs, driving a proactive and preventive agenda to help customers maintain optimum levels of service.
We continue to broaden the options for cloud-based service offerings, expanding our consulting services capabilities and upselling our existing customers to our cloud-based and managed services offerings. We are investing to provide additional options along the spectrum of support service offerings, constantly developing our tools and infrastructure to improve our service levels. An important element in Avaya’s cloud strategy is its continued investment and growth of the Avaya Customer Success Function which includes three main responsibilities: Adoption, Expansion and Renewal for all cloud-based commercial agreements.
•The Adoption responsibility centers on ensuring Avaya cloud customers are effectively onboarded onto the cloud solution and have the capabilities to begin consuming their Avaya entitlements.
•The Expansion responsibility centers on the Customer Success team working with Avaya customers during the term of the arrangement to determine where Avaya technology solutions could be of value throughout their organization. This could mean additional entitlements of the same solutions or the positioning of new Avaya capabilities and solutions.
•Finally, the Renewal responsibility centers on ensuring that Avaya customers have fully consumed and adopted their entitlements and extend their commercial agreement with Avaya.

It is through Customer Success that Avaya intends to provide a consistent cloud journey for Avaya’s cloud customers.
Open Standards, Product Differentiation and Innovation
Avaya’s open architecture provides a competitive advantage for us as potential customers consider migrating to our solutions and services because we can integrate with incumbent competitor systems and provide a path for gradual transition, while immediately achieving overall cost savings and improved functionality.
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Throughout fiscal 2021, we enhanced our Avaya OneCloud portfolio by rolling out new solutions to address growing demand for our UCaaS, CCaaS, CPaaS and Subscription offerings, as customers transition to cloud-based and subscription consumption models to support public, private and hybrid cloud or on-premise deployments.
We expect to continue investing in innovation across the portfolio to bring further enhancements and breakthroughs to market, encouraging customers to continue to add innovative new capabilities to their systems. As we expand our cloud and mobility opportunities, we are also identifying new ways to leverage virtual desktop infrastructure to securely deliver business communications to users. We are developing AI solutions internally and with partners to help organizations transform customer experiences. We are deploying these disruptive solutions to drive incremental value for our customers, and their customers.
Research and Development ("R&D")
Avaya makes substantial investments in R&D to develop new systems, solutions and software in support of business communications, including, but not limited to, converged communications systems, communications applications, multimedia contact center innovations, collaboration tools, messaging applications, video, speech-enabled applications, business infrastructure and architecture, converged mobility systems, cloud offerings, web services, artificial intelligence, communications-enabled business processes and applications, and services for our customers. Over the past three fiscal years, we have invested approximately $650 million in R&D, including technology acquisitions.
We invested 23.0%, 19.3% and 16.7% in R&D as a percentage of product revenue in fiscal 2021, 2020 and 2019, respectively, reflecting a consistent investment in R&D as a percentage of product revenue and evidencing our commitment to innovation. Our investments in fiscal 2021 focused on driving innovative cloud solutions across our portfolio and new releases of our UCC and CC solutions.
Patents, Trademarks and Other Intellectual Property
We own a significant number of patents important to our business and we expect to continue to file patent applications to protect our R&D investments in new products and services across all areas of our business. As of September 30, 2021, we had more than 4,300 patents and pending patent applications, including foreign counterpart patents and foreign applications. These patents and pending patent applications cover a wide range of products and services involving a variety of technologies. For the United States, patents terms may be 20 years from the date of the patent's filing, depending upon term adjustments made by the patent office. In addition, we hold numerous trademarks in the United States and in other countries. We also have licenses to intellectual property for the manufacture, use and sale of our products.
We obtain patent and other intellectual property rights used in connection with our business when practicable and appropriate. Historically, we have done so both organically, through commercial relationships, and in connection with acquisitions.
We manage our patent portfolio to maximize return on investment by selectively selling patents at market prices and cross-licensing with other parties when such sales or licensing are in best our interests. These monetization programs are conducted in a manner that helps to preserve Avaya’s freedom to operate and to help ensure that Avaya retains patents needed for defensive use.
From time to time, assertions of infringement of certain patents or other intellectual property rights of others have been made against us, and certain pending claims are in various stages of litigation. Based on our experience and customary industry practice, we believe that any licenses or other rights that might be necessary for us to continue with our current business could be obtained on commercially reasonable terms. For more information concerning the risks related to patents, trademarks and other intellectual property, see Item 1A, "Risk Factors-Risks Related to Our Business-Intellectual Property and Information Security-We may be subject to litigation and infringement claims, which could cause us to incur significant expenses or prevent us from selling our products or services."
Customers
Avaya employs a flexible, go-to-market strategy to support our diverse customer base. Our customers range in size from small businesses employing a few individuals to large government agencies and multinational companies with tens of thousands of employees. Our customers operate in a broad range of industries, including financial services, manufacturing, retail, transportation, energy, media and communications, hospitality, health care, education and government. Our customers include leading Forbes Global 2000 companies across all these industries. For more information concerning the risks related to contracts with the U.S. federal government, see Item 1A, "Risk Factors - Risks Related to Our Business-Our Operations, Markets and Competition-Contracting with government entities can be complex, expensive and time-consuming."
Sales and Distribution
Our cloud first, global go-to-market strategy is designed to focus and strengthen our reach and impact on large multinational enterprises, midmarket and regional enterprises and small businesses. Our sales organizations are equipped to sell our comprehensive Avaya OneCloud portfolio complemented by services offerings including product support, integration and other professional services and enterprise cloud and managed services serving our customers in the way they prefer to work with us,
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either directly with Avaya or indirectly through our sales channels. Underneath our Avaya Edge Channel program, we have built an expansive network of cloud system integrators, technology solutions distributors (master agents), sales agents and other service providers which also have been enabled to market, sell and service our Avaya OneCloud portfolio along with our traditional global partner network consisting of strategic alliances, channel partners, distributors, dealers, value-added resellers, telecommunications service providers and system integrators which have the ability to sell our full portfolio of offerings, including our Avaya OneCloud offerings.
We continue to focus on efficient deployment of Avaya sales resources, both directly and indirectly through our channel partners, for maximum market penetration and global growth. Our investment in our sales organization includes fully integrated curricula on the sales process, guided selling, sales enablement and on our solutions for all roles within our sales organization.
Seasonal trends impact the sale of our products. Typically, our second fiscal quarter is our weakest and our fourth fiscal quarter is our strongest, see Item 1A, "Risk Factors - Risks Related to Our Financial Results, Finances and Capital Structure-In addition to experiencing some seasonal trends, our quarterly and annual revenues and operating results have historically fluctuated and the results of one period may not provide a reliable indicator of our future performance."
Development Partnerships
The Avaya DevConnect program is designed to promote the development, compliance-testing and co-marketing of innovative third-party products that are compatible with Avaya’s standards-based products. Member organizations have expertise in a broad range of technologies, including IP telephony, contact center and unified communications and collaboration applications.
As of September 30, 2019, approximately 30,0002021, over 33,000 companies have registered with the program, including more thanapproximately 300 companies operating at higher program levels, eligible for technical support and to submit their products or services for compatibility testing through the program by the Avaya Solution Interoperability and Test Lab ("Avaya Test Lab"). Avaya Test LabDevConnect engineers work in concert with each submitting member company to develop comprehensive test plans for each application to validate the product integrations.
Customers
We employ a flexible, go-to-market strategy to support a diverse customer base, ranging in size from small businesses employing a few employees to large government agencies and multinational companies with more than 100,000 employees. As of September 30, 2019, we had a direct or indirect presence in approximately 175 countries worldwide and during the past four fiscal years we served more than 90% of the Fortune 100. Our customers operate in a broad range of industries, including financial services, manufacturing, retail, transportation, energy, media and communications, hospitality, health care, education and government. They represent leading companies from the Forbes Global 2000 from industries such as airlines, auto and truck manufacturers, hotels and motels, major banks and investment services firms.
Sales and Distribution
Our global go-to-market strategy is designed to focus and strengthen our reach and impact on large multinational enterprises, midmarket and regional enterprises and small businesses. Our go-to-market strategy is intended to serve our customers the way they prefer to work with us, either directly with Avaya or indirectly through our sales channel, which includes our global network of channel alliance partners, distributors, dealers, value-added resellers, telecommunications service providers and system integrators. Our sales organizations are equipped with a broad product and software portfolio, complemented with services offerings including product support, integration and other professional services, and Enterprise Cloud and Managed Services.
We continue to focus on efficient deployment of Avaya sales resources, both directly and indirectly through our channel partners, for maximum market penetration and global growth. Our investment in our sales organization includes sales process, skills and solutions curricula for all roles within our sales organization.
Manufacturing and Suppliers
We have outsourced substantially all of our manufacturing operations to several contract manufacturers. Our contract manufacturers produce the vast majority of our products in facilities located in southern China, with other products manufactured in facilities located in Mexico, Taiwan, Germany, Ireland and the U.S. All manufacturing of our products is performed in accordance with detailed specifications and product designs, furnished or approved by Avaya, and is subject to rigorous quality control standards. We periodically review our product manufacturing operations and consider changes we believe may be necessary or appropriate. We also purchase certain hardware components and license certain software components from third-party Original Equipment manufacturersManufacturers ("OEMs"), which we then resell separately or as part of our products under the Avaya brand.
In some cases, certain components are available only from a single source or from a limited number of suppliers. Delays or shortages associated with these components could cause significant disruption to our operations, although we have not yet had any such event have a material impact on us. We have also outsourced substantially all our warehousing and distribution logistics operations to several providers of such services on a global basis, and any delays or material changes in such services could cause significant disruption to our operations, although many alternative suppliers are active in the market today. For

more information on risks related to products, components and logistics, see Item 1A, "Risk Factors-Risks Related to Our Business-Our Operations, Markets and Competition-We rely on third-party contract manufacturers, component suppliers and partners (some of which are sole source and limited source suppliers) and warehousing and distribution logistics providers. If these relationships are disrupted and we are unable to obtain substitute manufacturers, suppliers or partners, on favorable terms or at all, our business, operating results and financial condition may be harmed."
The Company has not experienced any material impacts from the tariffs levied by the U.S. Government on goods manufactured in China and sold into U.S. markets.
Competition
Although we believe we are differentiated from any single competitor, the following represent the Company's primary competitors in various lines of our business:
•Enterprise UC:UCC: Alcatel-Lucent Enterprise, Atos Unify, Cisco, Huawei, Microsoft and NEC.
•Midmarket UCC: Cisco, Microsoft, NEC, Unify, Alcatel-Lucent EnterpriseMitel and Huawei.
NEC.
Midmarket UC: Mitel, NEC, Cisco and Microsoft.
•Cloud Products and Services: 8x8, Alcatel-Lucent Enterprise (with RingCentral), Atos Unify (with RingCentral), Cisco, Microsoft, RingCentral, 8x8, Mitel,Fuze, Google, LogMeIn, FuzeMicrosoft, Mitel, RingCentral, Twilio, Vonage and Twilio.
Zoom.
•Video Products and Solutions: BlueJeans, Cisco, Google, Huawei, LifeSize, LogMeIn, Microsoft, Poly, RingCentral, Yealink, Zoom LogMeIn, Google, Poly, Huawei, ZTE, BlueJeans and LifeSize.
ZTE.
•Enterprise Contact Center Products and Services:Genesys, Cisco, Aspect Software, Huawei,Cisco, Enghouse Interactive, Genesys, Huawei, Mitel and Mitel.
NEC.
•Midmarket Contact Center Products and Services:Genesys, Amazon, Cisco, Five9, Genesys, NICE InContact, AmazonSerenova, Talkdesk, Twilio and Vonage.
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We also face competition in certain geographies with companies that have a particular strength and focus in these regions, such as Huawei and ZTE in China and Intelbras in Latin America and Matsushita Electric in Asia.America.
While we believe our global, in-house end-to-end services organization as well as our indirect channel provide us with a competitive advantage, we face competition from companies offering products and services directly or indirectly through their channel partners, as well as resellers, consulting and systems integration firms and network service providers.
For more information on risks related to our competition, see Item 1A, "Risk Factors-Risks Related to Our Business-Our Operations, Markets and Competition-WeCompetition- We face formidable competition from providers of unified communications and contact center solutions and services, including cloud-based solutions, and this competition may negatively impact our business and limit our growth."
Employees and Human Capital Management
Our Global Footprint
Our ability to attract, retain and engage diverse talent is critical to the successful execution of our strategy and delivering on our mission to create experiences that matter for our customers and employees. Our cultural principles of Simplicity, Trust, Accountability, Teamwork and Empowerment are foundational to our culture and serve as the framework for each phase of the employee life cycle.
As of September 30, 2019,2021, we had approximately 7,900employed 8,063 employees, of whom approximately 2,800which 39% were located in North America (United States and Canada), 24% were located in Asia Pacific, 9% were located in the U.S.Caribbean and approximately 5,100Latin America and 28% were located outsidein Europe, Middle East and Africa. In addition, 23% of our global employee headcount identified as female. In the U.S. Approximately 7,500 were non-representedUnited States, 28% of the employee headcount identified as female and 27% of our employees and approximately 350 wereself-identified as a minority group.
Of our 2,729 employees located in the United States, 11% are represented by a labor union. In certain foreign countries, our employees coveredare represented by collective bargaining agreements. Of the approximately 350 full-time employees covered bytrade unions, work councils or collective bargaining agreements approximately 328 wereat the national level.
At Avaya, we champion an open, fair and supportive environment where our employees can thrive both professionally and personally. We work hard, give back to our communities, take care of our customers and promote high levels of employee engagement and well-being. Human capital management and environmental, social and governance ("ESG") matters are woven into the everyday fabric of Avaya's culture and actively sponsored by our executive leadership. In addition, aspects of human capital management and ESG are overseen by our Board of Directors as well as the Compensation Committee, Audit Committee and the Nominating and Corporate Governance Committee.
Our People First Strategy
Our people first strategy enables a culture that empowers our team members to leverage their strengths and experiences and also provides development and growth opportunities to sustain and expand our world class services and cultivate innovation. Underpinned by our cultural principles, our global population demonstrates the following attributes in the U.S.way we work and in everything we do:
•We espouse a customer-centric approach to focus on making our customers' lives simpler and more efficient.
•We foster a safe environment where innovative solutions are encouraged and rewarded.
•We encourage our people to speak up, take responsibility and embrace ownership.
•We lead by example and function as a transparent and dynamic team working towards a unified vision.
•We recognize one another for our achievements and strengths and value diversity of thought and the restuniqueness of everyone in a collaborative environment.
•We empower our people to take risks, immerse themselves in the experience and drive customer success.
Employee Engagement
We enhance employee engagement by soliciting and addressing feedback, investing in our employees and promoting diversity, equity, inclusion and belonging.
We regularly conduct employee surveys to better understand and improve perceptions in the areas of engagement, recognition, career development, inclusion, leadership and management effectiveness and ethics and integrity. We met industry benchmark for participation rate in our most recent survey in 2021 with employee engagement of 84%. We use the feedback to identify opportunities and take action to continually strengthen our culture and enhance engagement, as demonstrated by our successful retention of 94% of our employees who were located outsidetop-rated in our annual performance reviews and further validated by Forbes' recognition of Avaya as one of the U.S. We’ve attractedWorld's Best Employers in 2021 for the second consecutive year.
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At Avaya, we are acutely aware that developing our talent is both critical for continuing success in a rapidly evolving industry as well as for employee retention. We invest significant resources in professional development, career advancement and training for our global employee population. In addition to ongoing performance reviews and development discussions that occur as part of our formalized annual performance lifecycle, consistent, meaningful conversations are encouraged between employees and managers to continue the dialogue regarding aspirations, goals and career growth.
We invested in new tools, resources and partnerships to further develop our internal capabilities to develop talent and strengthenedbuild leadership acumen to support our management team. We’ve assembledbusiness success in 2021. We made learning tools such as LinkedIn Learning available to all global employees, hosted leadership development programs with partners such as BetterUp and ZengerFolkman and launched initiatives to promote diversity awareness with Blue Ocean Brain.
Diversity, Equity, Inclusion and Belonging (DEI&B) at Avaya
At Avaya, we drive and promote a clear strategy to build a workplace that mirrors the society in which we do business — a workplace where individuality is celebrated and harnessed to create a culture of engagement, innovation, inclusivity and belonging.
To successfully execute on our strategy, we have established a Global DEI&B Council, chaired by our CEO, to ensure alignment between our DEI&B strategy and our overall business strategy and a Global DEI&B Committee, chaired by our Chief Human Resources Officer, to ensure global calibration and oversee the execution of various DEI&B initiatives.
In addition, we benefited from significant growth in Employee Resource Groups ("ERGs"), employee-led groups that bring employees together to foster a sense of belonging, at Avaya. Following a revamp of the ERG process and design construct in 2020, we now have six active ERGs: Avaya Blacks Leading Empowerment (ABLE), Abilities Employee Resource Group (AERG), Asociacion Latinos Mundiales Avaya (ALMA), Asian Pacific Islanders @ Avaya (API@A), PRIDE, Veterans @ Avaya (VETA) and Women's Inspired Network@Avaya (WIN@A). ERG representatives serve on the Global DEI&B Committee to discuss insights, recommendations and initiatives with leadership.
We focus on ensuring our hiring pipeline is accessible, dynamic and that we draw from a diverse pool of talent. To further these objectives, we utilize tools to support 'blind sourcing', conduct on-going training of our talent acquisition teams around topics such as unconscious bias, micro aggressions and inequities, and provide hiring managers toolkits to engage and attract diverse talent networks.
Employee Benefits
We provide comprehensive health insurance plans that include medical, dental and vision for our employees and their families in most countries. Our global employee population has access to employee assistance and wellness programs, including those covering financial wellness.
We offer an Employee Stock Purchase Plan that permits employees to use payroll deductions to purchase our stock at a 15% discount to market. Following a phased launch initiated in late 2020, we have been experiencing robust participation rates. Approximately 40% of our employees in the United States are active participants. In addition to the Employee Stock Purchase Program, in fiscal 2021 we extended our incentive equity program, increasing the number of recipients six-fold as of September 30, 2021 as compared to the prior fiscal year end, to further align our employees with stockholder interests and our continuing success as well as to enhance engagement.
Corporate Responsibility
At Avaya, we are committed to ensuring the health and well-being of our employees, investing in our communities, creating products that are inherently sustainable, keeping our customers' solutions and data secure and reducing our environmental impact. Remaining steadfast in our commitment to combat climate change, Avaya exceeded its 2020 target by reducing Scope 1 & Scope 2 emissions by 65% and Scope 3 emissions from business travel by 49% from 2014 levels. We plan to build on our achievements and continue the momentum as we develop new senior management team whocarbon emission reduction targets in support of the transition to a low carbon economy. Additional detail on our environmental, social and governance initiatives, including with respect to human capital, climate change and charitable giving, are action-oriented,included in our Corporate Responsibility Report and on our website.1
Employee Safety and Well-Being / Our Response to COVID-19
The COVID-19 pandemic continues to have widespread and unpredictable impacts on global communities, economies and business practices, and continues to impact our global employees, partners and customers. Avaya successfully and swiftly instituted protocols and policies focused on prioritizing the health and safety of our employees, including creating COVID
1 The contents of our website and our Corporate Responsibility Report and CDP Climate Change Questionnaire are referenced for general information only and are not incorporated into this 10-K.
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response teams, while maintaining business continuity and minimizing disruption to customer support and service delivery at the onset of the pandemic.
We took immediate steps to modify employee travel policies, implemented office closures and allowed employees that were not critical to maintaining physical infrastructure to work remotely. Our COVID response teams continue to regularly review and adapt our policies to minimize health and safety risk based on evolving research and guidance and key COVID-19 related data. We facilitate data-informed executive decision-making and ensure consistent, regular and transparent communications with our employees and other stakeholders.
We are actively monitoring changes to regulations and guidance as we implement a disruptive mindsetphased re-opening of our offices, based on local circumstances and guided by safety. Our return to offices will incorporate new flexible work arrangements to combine the willingnessbenefits of in-person collaboration with increased flexibility to movedrive both innovation and productivity.
This year truly demonstrated the business forwardimportance of not only protecting our employees' physical safety but caring for their mental health. We monitored our employees' well-being and implemented programs to achieve our objectives.ensure that employees felt fully supported. All Avaya employees have access to a complete wellness platform with resources and tools to track activity, get wellness advice, find healthy recipes, and access support on the road to achieving their health goals.
Environmental, Health and Safety Matters
We areAvaya is subject to a wide range of governmental requirements relating to safety, health and environmental protection, including:
•certain provisions of environmental laws governing the cleanup of soil and groundwater contamination;
•various local, federal and international laws and regulations regarding the material content and electrical design of our products that require us to be financially responsible for the collection, treatment, recycling and disposal of those products; and
•various employee safety and health regulations that are imposed in various countries within which we operate.operate, including those related to COVID-19.
We are currently involved in a few remediations at currently or formerly owned or leased sites, which we do not believe will have a material impact on our business or results of operations. See Item 1A, "Risk Factors-Risks Related to Our Business-Global Operations and Regulations-We may be adversely affected by environmental, health and safety laws, regulations, costs and other liabilities" for a discussion of the potential impact such governmental requirements and climate change risks may have on our business.

Corporate Responsibility and Culture at Avaya
Avaya’s Corporate Responsibility Program incorporates four key elements: Environment, Community, Marketplace and Workplace. For the Environment element, Avaya looks to implement environmental stewardship practices at our global locations. The element of Community represents Avaya working to positively impact society and supporting the communities where we are located. The Marketplace element includes engaging in fair and ethical business dealings with our customers, our partners and our supply chain. The Workplace element focuses on developing a desirable place to work for our employees across the globe.
With Avaya joining the CEO Action for Diversity & Inclusion™ this year, Avaya is looking to build a workforce as diverse as our world.
Cybersecurity
Avaya has a vigorous, risk-based cybersecurity program, dedicated to protecting our data as well as data belonging to our customers and partners. We utilize a defensive in-depth strategy, with multiple layers of security controls to protect our data and solutions. Organizationally, we have a Product Security Counsel,Council, cross-functional Cyber Incident Response teams, Security Operations Centers, and strong governance to ensure compliance with our security policies and protocols. These teams are comprised of experts across our enterprise, as well as outside experts, to ensure that we are monitoring the effectiveness of our cybersecurity governance and vulnerability management programs.
For more information on risks related to data security, see Item 1A, "Risk Factors-Risks Related to Our Business-Our Operations, MarketsBusiness-Intellectual Property and Competition-AInformation Security-A breach of the security of our information systems, products or services or of the information systems of our third-party providers could adversely affect our business, operating results and financial condition."
Corporate Information
Our principal executive offices are located at 4655 Great America2605 Meridian Parkway, Santa Clara, CA 95054.Suite 200, Durham, North Carolina. Our corporate telephone number is (908) 953-6000. Our website address is www.avaya.com. Information contained in, and that can be accessed through our website is not incorporated into and does not form a part of this Annual Report on Form 10-K.
Avaya Holdings is a holding company with no stand-alone operations and has no material assets other than its ownership interest in Avaya Inc. and its subsidiaries. All of the Company’s operations are conducted through its various subsidiaries, which are organized and operated according to the laws of their jurisdiction of incorporation or formation, as applicable, and consolidated by the Company.

The Company's corporate governance documents, including the Board of Directors' Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee charters are available, free of charge, on Avaya’s website at https://investors.avaya.com.

All of the Company's periodic reports filed with the Securities and Exchange Commission ("SEC") pursuant to Section 13(a), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, are available, free of charge, on Avaya’s website, including its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and any amendments to those reports. These reports and amendments are available on Avaya’s website as soon as reasonably
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practicable after the Company electronically files the reports or amendments with the SEC. The SEC maintains a website (www.sec.gov) that contains these reports, proxy and information statements and other information.
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Item 1A.Risk Factors
Summary of Risk Factors
The risk factors summarized and detailed below could materially harm our business, operating results and/or financial condition, impair our future prospects and/or cause the price of our common stock to decline. These are not all of the risks we face and other factors not presently known to us or that we currently believe are immaterial may also affect our business if they occur. Material risks that may affect our business, operating results and financial condition include, but are not necessarily limited to, those relating to:
Risks Related to our Business
•executing our strategic operating plan, including our strategic partnership with RingCentral, Inc.;
•shifting more of our business to a subscription-based operating expense model which may harm our cash flows;
•completing acquisitions and/or strategic alliances, including those needed to increase our share of the cloud communications industry and integrating such acquired businesses and alliances;
•market opportunities may not develop for our solutions and services in ways that we anticipate and we may not succeed in developing new innovative solutions and services to keep pace with rapidly changing technology, evolving industry standards and customer preferences;
•industry consolidation and competition from providers of unified communications and contact center solutions and services, including cloud-based solutions;
•increasing use of artificial intelligence in our offerings may expose us to social and ethical issues which may result in reputational harm and liability;
•our ability to continue to expand our cloud-based solutions and services offerings;
•our reliance on our indirect sales channel;
•disruptions to our third-party contract manufacturers, component suppliers and partners (some of which are sole source and limited source suppliers) and warehousing and distribution logistics providers;
•compliance with laws and regulations relating to the formation, administration, performance and pricing of contracts with government entities;
•our ability to detect and correct design defects, errors, failures or “bugs” in our products and services;
•litigation, intellectual property, infringement claims and the protection of our intellectual property;
•some of our products contain software from open source code sources;
•failure to comply with laws and contractual obligations related to data privacy and protection;
•security breaches of our information systems, products or services or of the information systems of our third-party providers;
•operational, logistical, economic and/or political challenges in a specific country or region, including compliance with United States ("U.S.") and foreign government laws and regulations, which could negatively affect our revenue, costs, expenses and financial condition or those of our channel partners and distributors;
•compliance with certain telecommunications or other rules and regulations, which could subject us to enforcement actions, fines, loss of licenses and possibly restrictions on our ability to operate or offer certain of our services;
•compliance with laws and regulations relating to the formation, administration, performance and pricing of contracts with government entities and changes in, and responses to, U.S. trade policy, including the imposition of tariffs and sanctions and retaliatory measures by other countries;
Risks Related to Our Financial Results, Finances and Capital Structure
•our revenues and operating results have historically fluctuated and may not be a reliable indicator of our future performance;
•shifts in the mix of sizes or types of organizations that purchase our solutions or the mix of products, solutions and services purchased by our customers could affect our gross margins and operating results;
•we may be required to record a significant charge to earnings if our goodwill or intangible assets become impaired;
•our degree of leverage and related interest expense;
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•restrictions included in our financing agreements and indentures;
•our ability to service all of our indebtedness and other ongoing liquidity needs and to raise additional capital to fund our operations;
•the price of our common stock may be volatile and fluctuate substantially;
•our intention not to pay dividends on our common stock for the foreseeable future;
•potential for significantly dilutive issuance of common stock and/or preferred stock, including upon the conversion of our convertible notes and preferred stock; and
•the holders of our Series A Preferred Stock have certain consent rights over charter amendments and issuances of senior equity and they may exercise their redemption or put rights.

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Risks Related to Our Business
Our Operations, Markets and Competition
If we do not successfully execute our strategic operating plan, or ifwhich depends in part on our strategic operating plan is flawed,ability to increase our business, operating resultsshare of the market for cloud-based solutions, software and financial conditionservices offerings, our business could be materially and adversely affected.
Each year, we develop our strategic operating plan that serves as a roadmap for implementing our business strategy and the basis for the allocation of resources, capital, investment decisions, product life cycles, process improvements and strategic alliances and acquisitions. In developing theour strategic operating plan, we make certain assumptions including, but not limited to, those related to the market environment, customer demand, evolving technologies, competition, market consolidation, the global economy and our overall strategic priorities for the upcoming fiscal year. We sell business communications solutions and services in markets where the technology available and the utilized go-to-market models are rapidly changing. Actual economic, market and other conditions may be different from our assumptions and we may not be able to successfully execute our strategic operating plan.
We sell business communications solutions and services in markets where the technology available and the utilized go-to-market models change rapidly. We are in the midst of a multi-year transformation, evolving from a traditional telecommunications hardware company into a software and services company, focused on expanding our cloud- and mobile-enabled contact center, unified communications and innovative next-generation workflow automation solutions. To increase our revenue, we must continue to expand and develop new cloud-based solutions and services offerings as the market rapidly develops and changes. Our cloud enabled unified communications and contact center solutions and services must offer relevant features and provide consistent high-quality services at competitive prices to attract new customers and to migrate existing customers to such solutions and services. The functionality, relevance and customer acceptance of our cloud-based solutions and services will depend, in part, on our ability and our partners' ability to integrate our offerings with third-party applications and platforms, including enterprise collaboration, enterprise resource planning, customer relationship management, human capital management and other proprietary application suites. Moreover, our business will remain dependent on customer decisions to migrate their legacy communications infrastructures to cloud solutions based on newer technology.
If the market for cloud-based communications fails to develop, develops more slowly than we doanticipate, or develops in a manner different than we expect, or if we are not able to successfully develop and expand our cloud-based solutions and services offerings, our cloud-based solutions and services could fail to achieve market acceptance. This in turn could impact our growth strategy and our ability to execute our strategic operating plan, or if actual results vary significantly from our assumptions,and our business, operating results and financial condition could be materially and adversely impacted. Potential adverse impacts include, but are not limited
The timing of our cash flows may be negatively impacted as we shift more of our business to investments madea subscription-based model.
We intend to increase our recurring revenue by shifting more of our business to a subscription-based model instead of a perpetual license model. To do this, we need to offer relevant cloud-enabled unified communications and contact center solutions and services at competitive prices, which will both attract new customers and which we can bundle and upsell to existing customers. If we successfully increase our subscription revenues, we expect that it will result in research and development that do not develop into commercially successful products, operating inefficiencies, unsuccessful strategic alliances or acquisitions or lower revenues duemore of our cash receipts being deferred relative to our sales focushistorical perpetual license model as payments are spread over a pre-determined time period (e.g. monthly or annually) rather than being misaligned with customer demand or an inability to compete effectively against competitors.received upfront.
There is no assurance thatIf we will be ableare unable to successfully complete acquisitions and/or strategic alliances including those needed to increaseand effectively integrate acquired businesses, our share of the cloud communications industry, so that webusiness, operating results and financial condition may accelerate the execution of our growth strategy.be adversely affected.
Our strategic operating plan requires continued investments in acquisitions and strategic alliances with other companies in various areas, including, without limitation,specifically, with respect to, accelerating the development, sales and delivery of our cloud-based solutions and services.services, such as our acquisition of CTIntegrations, LLC, a digital channel platform, in August 2021. Identifying and evaluating potential strategic alternatives and/or partners may be time consuming and divert the attention and focus of management and other key personnel. In addition, we may incur substantial expenses as part of that process. Any potential transaction would be dependent upon a number of factors that may be beyond our control, including among other things, economic conditions, market consolidation, industry trends and competing bidders. There is no assurance that we will be able to complete any acquisition or strategic alliance even if we expend significant sums and efforts in connection with a potential transaction. Without such transactions it may be challenging for us to execute on our strategic operating plan in our desired time frame and our business, operating results and financial condition could be harmed.
Once we complete an acquisition or other material investment, we may not be able to successfully integrate acquired businesses, resulting in the failure to realize the intended benefits. Acquisitions could result in difficulties integrating acquired operations and, where deemed desirable, transitioning overlapping products into a single product line, thereby resulting in the diversion of capital and the attention of management and other key personnel away from other business issues and opportunities. We may also fail to retain employees acquired through acquisitions, which may negatively impact our integration efforts or our due diligence efforts may not reveal all potential liabilities associated with the acquired entity. We may incur substantial expenses as part of these corporate development and integration processes and if we fail to successfully identify, execute and integrate acquisitions or product portfolios, or if they fail to perform as we anticipate, our existing businesses and
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our revenue and operating results could be adversely affected.
Our strategic operating plan relies in part upon the successful execution of our strategic partnership with RingCentral, Inc. ("RingCentral"), which may not be successful. 
Our strategystrategic operating plan relies on market acceptance of our cloud-based solutions and investing in being at the forefront of offering these solutions. Our ability to implement this strategy relies, at least in part, on our strategic partnership with RingCentral. A strategic partnership between two independent businesses is a complex, costly, and time-consuming process that will require significant management attention and resources. Realizing the benefits of our strategic partnership with RingCentral will depend in part on our ability to work with RingCentral to develop, market and sell Avaya Cloud Office by RingCentral ("Avaya Cloud Office" or "ACO"). Setting upAs with any strategic partnership, unforeseen challenges may arise, which could impact the operations and processes under which we and RingCentral will work together may disrupt our business and, if implemented ineffectively, would limitultimate benefits achieved from the expected benefits to us.alliance. In addition, the process of bringing ACO to market in additional countries may take longer than anticipated, which could negate some of our anticipated benefits and revenue opportunities.
The failure to meet the challenges involved in having two businesses work together could harm our ability to realize the anticipated benefits of this partnership, including realization of amounts previously paid, and cause an interruption of, or a loss of momentum in, our business activities in a way that could adversely affect our results of operations. Due to this, as well as the potential that weactivities. We may also incur significant costs associated with this partnership butand our revenues may not increase as anticipated, our business, operating results and financial conditionwhich may be materially and adversely affected.
If we are unable to integrate acquired businesses effectively, our business, operating results and financial condition may be adversely affected.
Our strategic operating plan requires continued investments in acquisitions, such as our acquisition of Intellisist, Inc. (d/b/a Spoken), a U.S. based private technology company, which provides cloud-based CCaaS solutions and customer experience management and automation applications, in March 2018. We may not be able to successfully integrate acquired businesses and, where desired, their product portfolios into ours, and therefore we may not be able to realize the intended benefits. If we fail to successfully integrate acquisitions or product portfolios, or if they fail to perform as we anticipate, our existing businesses and our revenue and operating results could be adversely affected. If the due diligence of the operations and customer arrangements of acquired businesses performed by us and by third parties on our behalf is inadequate or flawed, or if

we later discover unforeseen financial or business liabilities, acquired businesses and their assets may not perform as expected or we may come to realize that our initial investment was too large or unwarranted. Additionally, acquisitions could result in difficulties integrating acquired operations and, where deemed desirable, transitioning overlapping products into a single product line, thereby resulting in the diversion of capital and the attention of management and other key personnel away from other business issues and opportunities. We may fail to retain employees acquired through acquisitions, which may negatively impact our integration efforts. Consequently, the failure to integrate acquired businesses effectively may adversely impactaffect our business, operating results and financial condition.
The market opportunity forOur business communications solutions and services may not develop inmatch market opportunities and the ways that we anticipate, and we may not succeed in developing new innovative solutions and services which could harm our business, operating resultswe develop may not keep pace with rapidly changing technology, evolving industry standards and financial condition.customer preferences.
The demand for our solutions and services can change quickly and in ways that we may not anticipate because the market in which we operate is characterized by rapid, and sometimes disruptive, technological developments, evolving industry standards, frequent new product introductions and enhancements, changes in customer requirements and a limited ability to accurately forecast future customer orders. Our solutions and services may not satisfy customer needs and we may not be able to successfully identify new market opportunities for our solutions and services. Also, our partners may stop providing Avaya services or products or reduce the amount of Avaya services or products they offer.
In addition, we may not be able to successfully develop and bring new solutions to market in a timely manner. Our solutions need to keep pace with changes in technology, industry standards and customer needs. Our operating results may be adversely affected if the market opportunity for our solutions and services does not develop in the ways that we anticipate and/or if otherwe are not able to successfully identify new market opportunities for our solutions and services, develop and bring new solutions to market in a timely manner or achieve market acceptance of our solutions and services.
Social and ethical issues relating to the use of AI in our offerings may result in reputational harm or liability.
Social and ethical issues relating to the use of new and evolving technologies become more acceptedsuch as artificial intelligence ("AI") in our offerings, may result in reputational harm and liability, and may cause us to incur additional research and development ("R&D") costs to resolve such issues. We are increasingly building AI into many of our offerings and we anticipate it will be a growing aspect of our solutions as our offerings evolve. AI presents emerging ethical issues and if we enable or standardoffer solutions that draw controversy due to their perceived or actual impact on society, we may experience brand or reputational harm, competitive harm or legal liability. Potential government regulation in the space of AI ethics may also increase the burden and cost of research and development in this area, subjecting us to brand or reputational harm, competitive harm or legal liability. Failure to address AI ethics issues by us or others in our industry or disruptcould undermine public confidence in AI and slow adoption of AI in our technology platforms.products and services.
We face formidable competition from providers of unified communications and contact center solutions and services, including cloud-based solutions, and this competition may negatively impact our business and limit our growth.
The markets for our solutions and services are characterized by rapid changes in customer demands, ongoing technological changes, evolving industry standards, new product introductions, and evolving methods of building and operating networks. Both traditional and new competitors are investing heavily in this market and competing for customers. As these markets evolve, we expect competition to intensify and to expand to include companies that do not currently compete against us.
Because we offer customizable solutions for contact centers and unified communications which are cloud-based, on-premise or hybrid, solutions, we face a wide range of competitors. Some of our competitors include:
•Enterprise UC: UCC: Alcatel-Lucent Enterprise, Atos Unify, Cisco, Huawei, Microsoft and NEC.
•Midmarket UCC:Cisco, Microsoft, NEC, Unify, Alcatel-Lucent EnterpriseMitel and Huawei.
NEC.
Midmarket UC: Mitel, NEC, Cisco and Microsoft.
•Cloud Products and Services: 8x8, Alcatel-Lucent Enterprise (with RingCentral), Atos Unify (with RingCentral), Cisco, Microsoft, RingCentral, 8x8, Mitel,Fuze, Google, LogMeIn, FuzeMicrosoft, Mitel, RingCentral, Twilio, Vonage and Twilio.Zoom.
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•Video Products and Solutions: BlueJeans, Cisco, Google, Huawei, LifeSize, LogMeIn, Microsoft, Poly, RingCentral, Yealink, Zoom LogMeIn, Google, Poly, Huawei, ZTE, BlueJeans and LifeSize.
ZTE.
•Enterprise Contact Center Products and Services: Genesys, Cisco, Aspect Software, Huawei,Cisco, Enghouse Interactive, Genesys, Huawei, Mitel and Mitel.
NEC.
•Midmarket Contact Center Products and Services: Genesys,Amazon, Cisco, Five9, Genesys, NICE InContact, AmazonSerenova, Talkdesk, Twilio and Vonage.
We also face competition in certain geographies with companies that have a particular strength and focus in thesesome of the geographic regions in which we operate, such as Huawei and ZTE in China and Intelbras in Latin America and Matsushita Electric in Asia.America.
Several of our existing competitors have, and many of our future competitors may have, greater financial, personnel, technical, R&D and other resources, more well-established brands or reputations and broader customer bases than we do and, as a result, these competitors may be in a stronger positionable to respond more quickly to potential acquisitions and other market opportunities, new or emerging technologies and changes in customer requirements. On the other hand, smaller competitors may be able to respond to technological evolution and changes in customer demand with more speed and agility than we can. In addition, some competitors may have customer bases that are more geographically balanced than ours and, therefore, may be less affected by an economic downturn in a particular region. Other companies may have relationships with channel partners, distributors, resellers, consulting and systems integration firms and/or network service providers which pose a competitive threat to us. Moreover, other competitors may have deeper expertise in a particular stand-alone technology that develops more quickly than we anticipate. Competitors with greater resources may also may be able to offer lower prices, additional products or services or other incentives that we cannot match or do not offer.
We may face increased competition from current leaders in IT infrastructure, consumer products, personal and business applications and the software that connects the network infrastructure to those applications. In addition, because the business communications market continues to evolve and technology continues to develop rapidly, we may face competition in the future from companies that do not currently compete against us, but whose current business activities may bring them into competition with us in the future. In particular, this may be the case as business, information technology and communications applications deployed on converged networks become more integrated to support business communications. We may face increased competition from current leaders in IT infrastructure, consumer products, personal and business applications and the software that connects the network infrastructure to those applications. With respect to services, we may also face competition from companies that seek to sell remotely hosted services or software as a service directly to end

customers. Competition from these potential market entrants may take many forms, including offering products and applicationssolutions similar to those that we offer. In addition, certain of these technologies continue to move from a proprietary environment to an open standards-based environment.
We cannot predict which competitors may enter our markets, what forms such competition may take or whether we will be able to respond effectively to new competitors or to the rapid evolution in technology and product development that has characterized our businesses. In addition, in order to effectively compete with any new technology or a new market entrant, we may need to make additional investments in our business, use more capital resources than our business currently requires or reduce prices, any of which may materially and adversely affect particular parts of our business, or our business as a whole.business.
Industry consolidation may lead to stronger competition and may harm our business, operating results and financial condition.
There has been a trend toward industry consolidation in the markets in which we compete. For instance,compete as companies whichthat provide unified communications are purchasing contact center providers, such as Vonage's acquisition of NewVoiceMedia.providers. We expect this trend to continue as companies attempt to strengthen or hold their positions in an evolving market and as companies are acquired or sell businesses because they are unable to continue all or a portion of their operations. Companies that are strategic alliance partners in some areas of our business may acquire or form alliances with our competitors, thereby reducingand reduce their business with us. Furthermore, rapid consolidation, particularly in the value-added reseller (“VAR”) and service provider market,markets, will lead to fewer customers, with the effect that loss of a major customer could have a material impact on our business.
We also believe that industryIndustry consolidation may result in stronger competitors that are better able to compete as sole-source vendors for customers.customers and our partners may turn toward other solutions. This could lead to more variability in our operating results and could have a material adverse effect on our business, operating results and financial condition.
Our growth strategy depends on our ability to continue to expand our cloud-based solutions and services offerings and grow our share of the cloud communications market for such offerings through customer acceptance.
An important element of our growth strategy is our ability to significantly increase revenues generated from sales of our cloud-based communications solutions and related services. To increase our revenue, we must continue to expand and develop new cloud-based solutions and services offerings as the market rapidly develops and changes. Our cloud enabled unified communications and contact center solutions and services must offer relevant features and provide consistent high-quality services at competitive prices to attract new customers and to migrate existing customers to subscribe to such solutions and services. While
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we have entered into a strategic partnership with RingCentral that we believe will enhanceenhances our cloud-based offerings, there is no assurance that this partnership will provide us with the desired long-term growth opportunities and results as there are a number of dependencies, including successful execution and ACO customer acceptance.acceptance of ACO.
The cloud communications industry is competitive and rapidly evolving, and we expect competition to increase. The functionality, relevance and customer acceptance of our cloud-based solutions and services will depend, in part, on our ability and our partners' ability to integrate these with third-party applications and platforms, including enterprise collaboration, enterprise resource planning, customer relationsrelationship management, human capital management and other proprietary application suites. If we fail to integrate our software with new third-party back-end enterprise applications and platforms used by our customers, we may not be able to offer the functionality that our customers need, which would negatively impact our ability to generate revenue and adversely impact our business.
As is typical of any new solution introduced in a rapidly evolving market, the level of demand for, and market acceptance of these new solutions is uncertain. If we successfully expand and develop our cloud-based solutions and services, including, without limitation, ReadyNow and Avaya OneCloud as well as our developmentPrivate and introduction of Avaya Cloud Office, our business will remain dependent on customer decisions to migrate their legacy communications infrastructures to cloud solutions based on newer technology. While these investment decisions are often driven by macroeconomic factors, customers may also delay the purchase of newer technology due to a range of other factors, including prioritization of other IT projects, delays or failures to meet customers' certificationscertification requirements, and the weighing of the costs and benefits of deploying new infrastructures and devices.devices and the need to deploy capital to respond to unforeseen circumstances. In addition, customers’customers' focus on the architecture, management and integration of such new technologies, possible cyber breaches and other security considerations could also affect market acceptance of new solutions. If the market for cloud-based communications fails to develop, develops more slowly than we anticipate, or develops in a manner different than we expect, or if we are not able to successfully develop and expand our cloud-based solutions and services offerings, our cloud-based solutions and services could fail to achieve market acceptance, which in turn could impact our growth strategy and materially and adversely affect our business, operating results and financial condition.
Our solutions and services may fail to keep pace with rapidly changing technology, evolving industry standards and customer preferences.
Both traditional and new competitors are investing heavily in our markets and competing for customers. As next-generation business communications technology continues to evolve, including, without limitation, cloud-based communications solutions, we must keep pace in order to maintain or expand our market leading position. We are increasingly focused on new, high value software solutions to drive revenue. If we are not able to successfully develop and bring these new solutions to

market in a timely manner, achieve market acceptance of our solutions and services or identify new market opportunities for our solutions and services, our business, operating results and financial condition may be materially and adversely affected.
In addition, our solutions need to keep pace with new smart devices and the release of new operating systems so that our customers may continue to use and manage our cloud-based solutions on smart devices. The creation, support and maintenance of our mobile applications may require significant resources and requires us to maintain good relations with the application developers and users. If we are unable to support the mobile platforms which our customers use or maintain good working relationships with these developers and users, our growth business and operating results may be impacted.
Our strategy depends in part on our reliance on our indirect sales channel.
An important element of our go-to-market strategy to expand sales coverage, penetrate new markets and increase market absorption of new solutions is the use of our global network of alliance partners, distributors, dealers, value-added resellers, telecommunications service providers and system integrators, who are collectively referred to as our "channel partners". Our financial results could be adversely affected if our relationships with these channel partners were to deteriorate, if our support pricing or other services strategies conflict with those of our channel partners, if any of our competitors were to enter into strategic relationships with or acquire any of our channel partners, if some or all of our channel partners do not become enabled to sell new solutions and services or if the financial condition of some or all of our channel partners were to weaken. In addition, we may expend time, money and other resources on developing and maintaining channel relationships that are ultimately unsuccessful. Furthermore, despite the benefits of a robust indirect channel, our channel partners have direct contact with our customers, which may foster independent relationships between them and may lead them to sell non-Avaya solutions to certain customers which may result in a loss of certain services agreementsbusiness and revenue for us.
There can be no assurance that we will be successful in maintaining, expanding or developing relationships with channel partners. If we are not successful, we may lose sales opportunities, customers or market share. Although the terms of individual channel partner agreements may deviate from our standard program terms, our standard program agreements for resellers generally provide for a term of one year with automatic renewals for successive one-year terms and generally may be terminated by either party for convenience upon 30 days' notice. Our standard program agreements for distributors generally may be terminated by either party for convenience upon 90 days' prior written notice. Certain of our contractual agreements with our largest distributors and resellers, however, permit termination of the relationship by either party for convenience upon prior notice of 180 days. In addition, our alliance partners (including RingCentral), distributors and resellers are permitted to work with other vendors, including our competitors, and most of them do so. See Part I, Item 1, "Business-Alliances and Partnerships" to this Annual Report on Form 10-K for more information on our global channel partner program and the standard terms of our program agreements.
We rely on third-party contract manufacturers, component suppliers and partners (some of which are sole source and limited source suppliers) and warehousing and distribution logistics providers. If these relationships are disrupted and we are unable to obtain substitute manufacturers, suppliers or partners, on favorable terms or at all, our business, operating results and financial condition may be harmed.
We have outsourced substantially all of our manufacturing operations to several contract manufacturers. Our contract manufacturers produce the vast majority of our products in facilities located in southern China, with other products manufactured in facilities located in Mexico, Taiwan, Germany, Ireland and the U.S. All manufacturing of our products is performed in accordance with detailed specifications and product designs furnished or approved by us and is subject to rigorous quality control standards. We periodically review our product manufacturing operations and consider changes we believe may
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be necessary or appropriate. Although we closely manage the transition process when manufacturing changes are required, we could experience disruption to our operations during any such transition. Any such disruption could negatively affect our reputation and our operating results. We also purchase certain hardware components and license certain software components and resell them separately or as part of our products under the Avaya brand. In some cases, certain components are available only from a single source or from a limited source of suppliers. These sole source and limited source suppliers may stop selling their components at commercially reasonable prices or at all. Interruptions, delays or shortages associated with these components could cause significant disruption to our operations. We may not be able to make scheduled product deliveries to our customers in a timely fashion. We could incur significant costs to redesign our products or to qualify alternative suppliers, which would reduce our realized margins. We have also outsourced substantially all of our warehousing and distribution logistics operations to several providers of such services on a global basis, and any delays or material changes in such services could cause significant disruption to our operations. If any of our providers of outsourced services were to experience financial difficulty or seek protection under bankruptcy laws it could also affect their ability to perform services for us.
In addition, we rely on third parties to provide certain services to us or to our customers, including hosting partners and providers of other cloud-based services. If these third-party providers do not perform as expected, our customers may be adversely affected, resulting in potential liability and negative exposure for us. If it is necessary to migrate these services to other providers due to poor performance, cyber breaches or other security considerations, or other financial or operational factors, it could result in service disruptions to our customers and significant time and expense to us, any of which could adversely affect our business, operating results and financial condition.

Changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences, may have a material adverse impact on our business, operating results and financial condition.
The U.S. government has adopted a new approach to trade policy, including in some cases renegotiating and terminating certain existing bilateral or multi-lateral trade agreements, such as the North American Free Trade Agreement ("NAFTA"). The U.S. government has also initiated tariffs on certain foreign goods from a variety of countries and regions, most notably China, and has raised the possibility of imposing significant, additional tariff increases or expanding the tariffs to capture other types of goods. In response, many of these foreign governments have imposed retaliatory tariffs on goods that their countries import from the U.S. Changes in U.S. trade policy have and may continue to result in one or more foreign governments adopting responsive trade policies that make it more difficult or costly for us to do business in or import our products from those countries.  This in turn could require us to increase prices to our customers, which may reduce demand, or, if we are unable to increase prices, result in lowering our margin on products sold.
We cannot predict the extent to which the U.S. or other countries will impose new or additional quotas, duties, tariffs, taxes or other similar restrictions upon the import or export of our products in the future, nor can we predict future trade policy or the terms of any renegotiated trade agreements and their impact on our business.  The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could have a material adverse effect on our business, operating results and financial condition.
A breach of the security of our information systems, products or services or of the information systems of our third-party providers could adversely affect our business, operating results and financial condition.
We rely on the security of our information systems and, in certain circumstances, those of our third-party providers, such as channel partners, vendors, consultants and contract manufacturers, to protect our proprietary information and information of our customers. In addition, the growth of bring your own device ("BYOD") programs has heightened the need for enhanced security measures. IT security system failures, including a breach of our or our third-party providers’ data security, could disrupt our ability to function in the normal course of business by potentially causing, among other things, delays in the fulfillment or cancellation of customer orders, disruptions in the manufacture or shipment of products or delivery of services or an unintentional disclosure of customer, employee or our information. Additionally, despite our security procedures or those of our third-party providers, information systems and our products and services may be vulnerable to threats such as computer hacking, cyber-terrorism or other unauthorized attempts by third parties to access, modify or delete our or our customers’ proprietary information.
We take cybersecurity seriously and devote significant resources and tools to protect our systems, products and data from unwanted intrusions and to ensure we meet our contractual and regulatory obligations. However, these security efforts are costly to implement and may not be successful. There can be no assurance that we will be able to prevent, detect and adequately address or mitigate such cyber-attacks or security breaches. We investigate potential data breach issues identified through our security procedures and terminate, mitigate and remediate such issues as appropriate. Past incidents have involved outside actors and internal issues stemming from certain configuration and migration issues of our internal applications to other platforms. Any such breach could have a material adverse effect on our operating results and our reputation as a provider of business communications products and services and could cause irreparable damage to us or our systems regardless of whether we or our third-party providers are able to adequately recover critical systems following a systems failure. In addition, regulatory or legislative action related to cybersecurity, privacy and data protection worldwide, such as the European GDPR, which went into effect in May 2018, may increase the costs to develop, implement or secure our products and services. We expect cybersecurity regulations to continue to evolve and be costly to implement. If we violate or fail to comply with such regulatory or legislative requirements, we could be fined or otherwise sanctioned and such fines or penalties could have a material adverse effect on our business and operations.
We rely on third parties to provide certain data hosting services to us or to our customers, and interruptions or delays in those services could harm our business.
Our cloud-based solutions rely on uninterrupted connection to the Internet through data centers and networks. To provide such service for our customers in North America, we utilize data center hosting facilities located in California, Colorado, Florida, Georgia, Iowa, North Carolina, Ohio, Oregon, Virginia and Washington. We also intend to serve other global customers from data center hosting facilities located in India, Japan and Singapore. We do not control the operation of these facilities, and they are vulnerable to service interruptions or damage from floods, earthquakes, fires, power loss, telecommunications failures and similar events. They may also be subject to acts of vandalism or terrorism, sabotage, similar misconduct and/or human error. The occurrence of these or other unanticipated problems at these facilities could result in lengthy interruptions in the ability to use our solutions efficiently or at all, which could harm our business, operating results and financial condition.

Contracting with government entities can be complex, expensive and time-consuming.
In fiscal 2021, the Company’s revenue from contracts with U.S. federal government entities was approximately $231 million. The procurement process for government entities is in many ways more challenging than contracting in the private sector. We must comply with laws and regulations relating to the formation, administration, performance and pricing of contracts with government entities, including U.S. federal, state and local governmental bodies. These laws and regulations may impose added costs on our business or prolong or complicate our sales efforts, and failure to comply with these laws and regulations or other applicable requirements could lead to claims for damages from our customers, penalties, termination of contracts and other adverse consequences. Any such damages, penalties, disruptions or limitations in our ability to do business with government entities could have a material adverse effect on our business, operating results and financial condition.
Government entities often require highly specialized contract terms that may differ from our standard arrangements. Government entities often impose compliance requirements that are complicated, require preferential pricing or “most favored nation” terms and conditions, or are otherwise time-consuming and expensive to satisfy. Compliance with these special standards or satisfaction of such requirements could complicate our efforts to obtain business or increase the cost of doing so. Even if we do meet these special standards or requirements, the increased costs associated with providing our solutions to government customers could harm our margins.
Business communications solutions are complex, and design defects, errors, failures or "bugs" may be difficult to detect and correct and could harm our reputation, result in significant costs to us and cause us to lose customers.
Business communications products are complex, integrating hardware, software and many elements of a customer’s existing network and communications infrastructure. Despite testing conducted prior to the release of solutions to the market and quality assurance programs, hardware may malfunction and software may contain "bugs" that are difficult to detect and fix. Any such issues could interfere with the expected operation of a solution, which might negatively impact customer satisfaction, reduce sales opportunities or affect gross margins.
Depending upon the size and scope of any such issue, remediation may have a material impact on our business. Our inability to cure an application or product defect, should one occur, could result in the failure of an application or product line, the temporary or permanent withdrawal from an application, product or market, damage to our reputation, an increase in inventory costs, an increase in warranty claims, lawsuits by customers or customers’ or channel partners’ end users, or application or product reengineering expenses. Our insurance may not cover or may be insufficient to cover claims that are successfully asserted against us.
Our ability to retain and attract key personnel is critical to the success of our business and execution of our growth strategy.
The success of our business depends on the skill, experience and dedication of our employee base. If we are unable to retain and recruit sufficiently experienced and capable employees, including those who can help us increase revenues generated from our cloud-based solutions and services, our business and financial results may suffer. Experienced and capable employees in the technology industry remain in high demand, and there is continual competition for their talents. If executives, managers or other key personnel resign, retire or are terminated, or their service is otherwise interrupted, we may not be able to replace them in a timely manner and we could experience significant declines in productivity and/or errors due to insufficient staffing or managerial oversight. Moreover, turnover of senior management and other key personnel can adversely impact, among other things, our operating results, our customer relationships and lead us to incur significant expenses related to executive transition costs that may impact our operating results. In addition, our ability to adequately staff our R&D efforts in the U.S. may be inhibited by changes to U.S. immigration policies that restrain the flow of professional and technical talent. While we strive to maintain our competitiveness in the marketplace, there can be no assurance that we will be able to successfully retain and attract the employees that we need to achieve our business objectives.
Business interruptions, whether due to catastrophic disasters or other events, could adversely affect our operations.
Our operations and those of our contract manufacturers and outsourced service providers are vulnerable to interruption by fire, earthquake, hurricane, flood or other natural disasters, power loss, computer viruses, computer systems failure, telecommunications failure, quarantines, national catastrophe, terrorist activities, war and other events beyond our control. For instance, we have operations in the Silicon Valley area of California near known earthquake fault zones, which are vulnerable to damage from earthquakes. Our disaster recovery plans may not be sufficient to address these interruptions. If any disaster were to occur, our ability and the ability of our contract manufacturers and outsourced service providers to operate could be seriously impaired and we could experience material harm to our business, operating results and financial condition. In addition, the coverage or limits of our business interruption insurance may not be sufficient to compensate for any losses or damages that may occur.

Intellectual Property and Information Security
We are dependent on our intellectual property. If we are not able to protect our proprietary rights or if those rights are invalidated or circumvented, our business may be adversely affected.
Our business is primarily dependent on our technology and our ability to innovate in business communications and, as a result, we are reliant on our intellectual property. We generally protect our intellectual property through patents, trademarks, trade secrets, copyrights, confidentiality and nondisclosure agreements and other measures to the extent our budget permits. There can be no assurance that patents will be issued from pending applications that we have filed or that our patents will be sufficient to protect our key technology from misappropriation or falling into the public domain, nor can assurances be made that any of
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our patents, patent applications, trademarks or our other intellectual property or proprietary rights will not be challenged, invalidated or circumvented.
Preventing unauthorized use or infringement of our intellectual property rights is inherently difficult. Moreover, it may be difficult or practically impossible to detect theft, unauthorized use of our intellectual property or the production and sale of counterfeit versions of our products and solutions. For example, we actively combat software piracy as we enforce our intellectual property rights and we actively pursue counterfeiters and their distributors, but we nonetheless may lose revenue due to illegal or unauthorized use of our software. Such counterfeit sales, to the extent they replace otherwise legitimate sales, could adversely affect our operating results. If piracy activities continue at historical levels or increase, they may further harm our business. Enforcement of our intellectual property rights also depends on our legal actions being successful against these infringers, but these actions may not be successful, even when our rights have been infringed.
In addition, our business is global and the level of protection of our proprietary technology varies by country and may be particularly uncertain in countries that do not have well developed judicial systems or laws that adequately protect intellectual property rights. The level of protection afforded to our intellectual property may also be particularly uncertain in countries that require the transfer of technology as a condition to market access. Our partnerships with foreign entities sometimes require us to transfer technology and/or certain intellectual property rights in countries that afford less protection of intellectual property rights than other countries. While we believe such technology and intellectual property transfer requirements have not adversely affected our business, such requirements may change over time and become detrimental to our ability to protect our technology or intellectual property in certain foreign countries. Patent litigation and other challenges to our patents and other proprietary rights are costly and unpredictable and may prevent us from marketing and selling a product in a particular geographic area. Financial considerations also preclude us from seeking patent protection in every country where infringement litigation could arise. Our inability to predict our intellectual property requirements in all geographies and affordability constraints also impact our intellectual property protection investment decisions. If we are unable to protect our proprietary rights, we may be at a disadvantage to others who do not incur the substantial time and expense we incur to create our products.
Preventing unauthorized use or infringement of our intellectual property rights is inherently difficult. Moreover, it may be difficult or practically impossible to detect theft or unauthorized use of our intellectual property. For example, we actively combat software piracy as we enforce our intellectual property rights, but we nonetheless lose significant revenue due to illegal or unauthorized use of our software. If piracy activities continue at historical levels or increase, they may further harm our business. Enforcement of our intellectual property rights also depends on our legal actions being successful against these infringers, but these actions may not be successful, even when our rights have been infringed.
In addition, our business is global and the level of protection of our proprietary technology varies by country and may be particularly uncertain in countries that do not have well developed judicial systems or laws that adequately protect intellectual property rights. Patent litigation and other challenges to our patents and other proprietary rights are costly and unpredictable and may prevent us from marketing and selling a product in a particular geographic area. Financial considerations also preclude us from seeking patent protection in every country where infringement litigation could arise. Our inability to predict our intellectual property requirements in all geographies and affordability constraints also impact our intellectual property protection investment decisions. If we are unable to protect our proprietary rights, we may be at a disadvantage to others who do not incur the substantial time and expense we incur to create our products.
Certain software we use is from open source code sources, which, under certain circumstances, may lead to unintended consequences and, therefore, could materially adversely affect our business, operating results and financial condition.
Some of our products contain software from open source code sources. The use of such open source code may subject us to certain conditions, including the obligation to offer our products that use open source code to third parties for no cost. We monitor our use of such open source code to avoid subjecting our products to conditions we do not intend. However, the use of such open source code may ultimately subject some of our products to unintended conditions, which could require us to take remedial action that may divert resources away from our development efforts and, therefore, could materially adversely affect our business, operating results and financial condition.
We may be subject to litigation and infringement claims, which could cause us to incur significant expenses or prevent us from selling our products or services.
From time to time, we receive notices and claims from third parties asserting that our proprietary or licensed products, systems and software infringe their intellectual property rights. There can be no assurance that the number of these notices and claims will not increase in the future or that we do not in fact infringe those intellectual property rights. Irrespective of the merits of these claims, any resulting litigation could be costly and time consuming and could divert the attention of management and key personnel from other business issues. The complexity of the technology involved and the uncertainty of intellectual property litigation increase these risks. These matters may result in any number of outcomes for us, including entering into licensing agreements, redesigning our products to avoid infringement, being enjoined from selling products or solutions that are found to infringe intellectual property rights of others, paying damages if products are found to infringe and indemnifying customers from infringement claims as part of our contractual obligations. Royalty or license agreements may be very costly and we may be unable to obtain royalty or license agreements on terms acceptable to us or at all. Such agreementsall which may cause operating margins to decline.
In addition, some of our employees previously have been employed at other companies that provide similar products and services. We may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. These claims and other claims of patent or other intellectual

property infringement against us could materially adversely affect our business, operating results and financial condition.
We have made and will likely continue to make investments to license and/or acquire the use of third-party intellectual property rights and technology as part of our strategy to manage this risk, but there can be no assurance that we will be successful or that any costs relating to such activity will not be material. We may also be subject to additional notice, attribution and other compliance requirements to the extent we incorporate open source software into our applications. In addition, third parties have claimed, and may in the future claim, 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 for some of the costs and damages related to such an infringement claim. Any indemnification requirement could have a material adverse effect on our business, operating results and financial condition. Additionally, any insurance that we have may not be sufficient to cover all amounts related to such indemnification.
Certain software we use is from open source code sources, which, under certain circumstances, may lead to unintended consequences and, therefore, could materially adversely affect our business, operating results and financial condition.
Some of our products contain software from open source code sources. The use of such open source code may subject us to certain conditions, including the obligation to offer our products that use open source code to third parties for no cost. We monitor our use of such open source code to avoid subjecting our products to conditions we do not intend. However, the use of such open source code may ultimately subject some of our products to unintended conditions, which could require us to take
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remedial action that may divert resources away from our development efforts and, therefore, could materially adversely affect our business, operating results and financial condition.
Failure to comply with laws and contractual obligations related to data privacy and protection could have a material adverse effect on our business, operating results and financial condition.
We are subject to the data privacy and protection laws and regulations adopted by federal, state and foreign governmental agencies, including but not limited to, the European Union's ("EU") GDPR.General Data Protection Regulation ("EU GDPR") and the United Kingdom's ("UK") General Data Protection Regulation ("UK GDPR," and together with the EU GDPR, "GDPR") and California’s Consumer Privacy Act (“CCPA”). Data privacy and protection is highly regulated and the GDPR imposes new obligations on companies, including us, who process personal data of data subjects who are in the EU or UK, regardless of whether or not that processing takes place in the EU.EU or UK. These requirements substantially increase potential liability for all such companies for failure to comply with data protection rules.
Privacy laws restrict our storage, use, processing, disclosure, transfer and protection of personal information, including credit card data, provided to us by our customers as well as data we collect from our customers and employees. We strive to comply with all applicable laws, regulations, policies and legal obligations relating to privacy and data protection. Our privacy compliance program is based on our binding corporate rules which have been approved by EU regulatory authorities. As the UK is no longer part of the EU, we have applied for UK binding corporate rules. We endeavor to apply uniform data handling practices, based on GDPR standards, on a global basis throughout all Avaya entities which process personal data, and have signed on to our binding corporate rules. We have dedicated significant time, capital and other resources to craft binding corporate rules that meet the requirements of the GDPR and other laws such as CCPA. Privacy laws and legal requirements relating to the transfer of personal data continue to evolve. Restrictions on the flow of data across borders could increase the cost and complexity of delivering our products and services in some markets. We expect that as privacy laws continue to change and become more prevalent throughout the world, we will be required to dedicate additional resources to ensure continued compliance.
From time to time we have notified the Hessen authorities our lead supervisory authority in the EU and UK of certainpotential personal data breaches and privacy issues.issues, and we keep them appropriately updated. No such disclosure has led to fines in the past and we do not anticipate any disclosure under consideration will lead to fines or other adverse outcomes. If the authorities determine that we have not complied with applicable laws and regulations, we may be subject to fines, penalties and lawsuits, and our reputation may suffer. In particular, finesFines imposed on other companies by various data privacy regulatory authorities from the EU or UK for violations of the GDPR have been significant in amount. Furthermore, we may be subject to increased scrutiny going forward and we may also be required to make modifications to our data practices that could have an adverse impact on our business.
These data privacy risks are particularly relevant and applicable to us as a technology company because we process vast amounts of personal and non-personal data on behalf of our customers and we also host significant and increasing amounts of data in our cloud solutions and in the cloud solutions of other companies. We believe that regulation will continue to increase around the world with respectregulations pertaining to the solicitation, collection, exporting, processing, and/or use of personal, financial, and consumer information.information will continue to expand globally. In addition, the interpretation and application of existing consumer and data protection laws and industry standards in the U.S., Europe and elsewhere is often uncertain and in flux. The application of existing laws to cloud-based solutions is particularly uncertain and cloud-based solutions may be subject to further regulation, the impact of which cannot be fully understood at this time. Moreover, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data and privacy practices. Complying with these varioussuch laws and regulations may cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business.
We are also subject to the privacy and data protection-related obligations in our contractsContracts with our customers, channel partners and other third parties.parties also subject us to privacy and data protection-related obligations. Any failure, or perceived failure, by us to comply with federal, state, or international laws, including laws and regulations regulating privacy, data or consumer protection, or to comply with our contractual obligations related to privacy, could result in proceedings or actions against us by governmental entities, contractual parties or others, which could result in significant liability to us as well as harm to our reputation. Additionally, third parties on which we rely enter into contracts to protect and safeguard our customers' data. Should such parties violate these agreements or suffer a security breach, we could be subject to proceedings or actions against us by governmental entities, contractual parties or others, which could result in significant liability to us as well as harm to our reputation.
A breach of the security of our information systems, products or services or of the information systems of our third-party providers could adversely affect our business, operating results and financial condition.
We rely on the security of our information systems and, in certain circumstances, those of our third-party providers, such as channel partners, vendors, consultants and contract manufacturers, to protect our proprietary information and information of our customers. In addition, the growth of bring your own device ("BYOD") programs has increased the need for enhanced security measures. IT security system failures, including a breach of our or our third-party providers’ data security systems, could disrupt our ability to function in the normal course of business by potentially causing, among other things, delays in the
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fulfillment or cancellation of customer orders, disruptions in the manufacture or shipment of products or delivery of services or an unintentional disclosure of customer, employee or our information. Additionally, despite our security procedures or those of our third-party providers, information systems and our products and services may be vulnerable to threats such as computer hacking, cyber-terrorism or other unauthorized attempts by third parties to access, modify or delete our or our customers’ proprietary information.
We take cybersecurity seriously and devote significant resources and tools to protect our systems, products and data and the data of our customers from intrusions and to ensure compliance with our contractual and regulatory obligations. However, these security efforts are costly to implement and may not be successful. Cyberattacks and similar threats are constantly evolving, increasing the difficulty of detecting and successfully defending against them. Computer malware, viruses, scraping and general hacking have become more prevalent in our industry, have occurred on our systems in the past, and may occur on our systems in the future. There can be no assurance that we will be able to prevent, detect and adequately insure against and address or mitigate cyberattacks or security breaches. We investigate potential data breach issues identified through our security procedures and terminate, mitigate and remediate such issues as appropriate. Past incidents have involved outside actors and issues stemming from certain internal configuration and migration issues of our applications to other platforms. A breach of our systems could have a material adverse effect on our reputation as a provider of business communications products and services and could cause irreparable damage to us or our systems regardless of whether we or our third-party providers are able to adequately recover critical systems following a systems failure, either or both of which could, in turn, have a material adverse effect on our operating results and financial conditions. In addition, regulatory or legislative action related to cybersecurity, privacy and data protection worldwide, such as the EU GDPR, which went into effect in May 2018, and the UK GDPR, which went into effect in January 2021, may increase the costs to develop, implement or secure our products and services. We expect cybersecurity regulations to continue to evolve and be costly to implement. Furthermore, we may need to increase or change our cybersecurity systems and expenditures to support expansion of sales into new industry segments or new geographic markets. If we violate or fail to comply with such regulatory or legislative requirements, we could be fined, which fines could be substantial, or otherwise sanctioned. Any such fines or penalties could have a material adverse effect on our business and operations.

Global Operations and Regulations
Since we operate internationally, operational, logistical, economic and/or political challenges in a specific country or region could negatively affect our revenue, costs, expenses and financial condition or those of our channel partners and distributors.
We do business in approximately 175190 countries. We conduct significant sales and customer support operations and significant amounts of our R&D activities in countries outside of the U.S., and we also depend on non-U.S. operations of our contract manufacturers and our channel partners. For fiscal 2019,2021, we derived 46%43% of our revenue from sales outside of the U.S., with the most significant portions generated from Germany, the United Kingdom and Canada. In addition, we intend to continue to grow our business internationally. The vast majority of our contract manufacturing also takes place outside the U.S., primarily in southern China.
Accordingly, our results could be materially and adversely affected by a variety of uncontrollable and changing factors relating to international business operations, including:

•economic conditions and geopolitical developments, including trade sanctions, tariffs, changes to significant trading relationships such as the United Kingdom’s ongoing process ofUK’s withdrawal from the EU, and the negotiation of new or revised international trade arrangements;agreements and retaliatory efforts from such trade restrictions, constraints and prohibitions, such as the U.S. China trade dispute and the EU's position on humanitarian rights towards countries in the Middle East, Africa and Asian territories;
•political or social unrest, economic instability or corruption or sovereign debt risks in a specific country or region;
legal•laws and regulatory constraints, such asregulations, both international and local, laws and regulations related to trade compliance, anti-corruption, anti-bribery, information security, data privacy and protection, labor, the environment, climate change and other topics and requirements;
•protectionist and local security legislation;
•difficulty in enforcing intellectual property rights, such as protecting against the counterfeiting of our products;
•less established legal and judicial systems necessary to enforce our rights;
•relationships with employees and works councils,as well as difficulties in finding qualified employees, including skilled design and technical employees, as companies expand their operations offshore;
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•high levels of inflation and currency fluctuations;
•unfavorable tax and currency regulations;
•military conflict, terrorist activities and health pandemics or similar issues;
•future government shutdowns or uncertainties which could affect the portion of our revenues which comes from the U.S. federal government sector;
•differing responses to the COVID-19 pandemic;
•natural disasters, such as earthquakes, hurricanes or floods, anywhere we and/or our channel partners and distributors have business operations; and
•other matters in any of the countries or regions in which we and our contract manufacturers and business partners currently operate or intend to operate, including in the U.S.
Any or all of these factors could materially adversely affect our business, operating results or financial condition. In addition, the various risks inherent in doing business in the U.S. generally also exist when doing business outside of the U.S., and they may be exaggerated by the difficulty of doing business in numerous sovereign jurisdictions due to differences in culture, laws, policies and regulations. Furthermore, our prospective effective tax rate could be adversely affected by, among other things, changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of our deferred tax assets and liabilities or changes in tax laws, regulations, accounting principles or interpretations thereof.
We rely on third parties to provide certain data hosting services to us or to our customers, and interruptions or delays in those services could harm our business.
Our cloud-based solutions rely on uninterrupted connection to the Internet through data centers and networks. To provide such service for our customers, we utilize data center hosting facilities located in the U.S. and the EU, as well as in our Asia Pacific region and our Central America and Latin America regions. We also use facilities provided by Google, Amazon, Microsoft and Equinix as we migrate to cloud solutions. We do not control the operation of these facilities, and they are vulnerable to service interruptions or damage from floods, earthquakes, fires, power loss, telecommunications failures and similar events. They may also be subject to acts of vandalism or terrorism, sabotage, similar misconduct and/or human error. Moreover, if any of these data centers and networks cease operations, we would need to migrate our solutions and our customers to other providers. The occurrence of these or other unanticipated problems at these facilities could result in lengthy interruptions in the ability to use our solutions efficiently or at all, which could harm our business, operating results and financial condition.
If we do not comply with certain telecommunications or other rules and regulations, we could be subject to enforcement actions, fines, loss of licenses and possibly restrictions on our ability to operate or offer certain of our services.
Certain of our cloud-based communications and collaboration solutions are regulated in the U.S. by the Federal Communications Commission and various state and local agencies, and across the globe by governments of various foreign countries. Furthermore, we are subject to existing or potential regulations relating to privacy, consumer protection, protection of customer information, disability access, porting of numbers, Universal Service and Telecommunications Relay Service Fund contributions, emergency access, law enforcement intercept, and other requirements. We are required to pay state and local 911 fees and contribute to state universal funds in states that assess interconnected Voice over Internet Protocol (“VoIP”) services, and the expansion of telecommunications regulations in the U.S. to our non-interconnected VoIP services could result in additional federal and state regulatory obligations and taxes. In addition, government agenciesas we continue to grow our business internationally, we will be subject to laws and regulations in the countries where we offer services. Many of these laws and regulations are new, like the European Electronics Communications Code which regulates electronic communications networks and services in the EU, may be subject to differing interpretations, may be inconsistent or conflict with other countries impose their own regulatory requirements on those solutions.rules and are constantly evolving in ways that could be harmful to our business and thereby may impact our ability to offer services and our cost to deliver services in these countries. The application and interpretation of these laws and regulations is uncertain, and it is possible that we or our products or solutions may not be compliant with each applicable law or regulation. If we do not comply with applicable federal, state, local and foreign rules and regulations, we could be subject to enforcement actions, fines, loss of licenses and possible restrictions on our ability to operate or offer certain of our solutions or requirements to modify certain solutions, which could have a material adverse effect on our operating results and financial condition. Moreover, changes in telecommunications requirements, or regulatory requirements in other industries in which we operate now or in the future, could have a material adverse effect on our business, operating results and financial condition, as regulations that may not directly apply to our business, but which do apply to our customers or partners, can also impact our business.
Changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences, may have a material adverse impact on our business, operating results and financial condition.
The United Kingdom’s withdrawal
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There have been significant changes and proposed changes in recent years to U.S. trade policies, tariffs, and treaties affecting imports. For example, the U.S. has imposed supplemental tariffs of up to 25% on certain imports from China, as well as increased tariffs and import restrictions on products imported from various other countries. In response, China and other countries have imposed or proposed additional tariffs on certain exports from the EU may adversely impact our operationsU.S. The U.S. has also recently renegotiated the multilateral trading relationship between the U.S., Canada and Mexico, resulting in the United Kingdom and elsewhere.
In June 2016, votersreplacement of the North American Free Trade Agreement ("NAFTA") with a new U.S.-Mexico-Canada Agreement ("USMCA"). Changes in the United Kingdom approved an advisory referendum to withdraw from the EU, commonly referred to as "Brexit".  The political and economic instability created by the Brexit vote has causedU.S. trade policy have and may continue to cause significant volatilityresult in global financial markets and the value of the Pound Sterling currency and other currencies, including the Euro. Dependingone or more foreign governments adopting responsive trade policies that make it more difficult or costly for us to do business in or import our products from those countries. This in turn could require us to increase prices to our customers, which may reduce demand, or, if we are unable to increase prices, result in lowering our margin on the terms reached regarding the United Kingdom’s exit from the EU, it is possible that there may be adverse practical and/or operational implications on our business.products sold.
Currently, the most immediate impact may be to the relevant regulatory regimes under which our United Kingdom subsidiaries operate, including the offering of communications services, as well as data privacy. Since the vote to withdraw from the EU, negotiations and arrangements between the United Kingdom, the EU and other countries outside of the EU have been, and will continue to be, complex and time consuming. The potential withdrawal could adversely impact our United Kingdom subsidiaries and add operational complexities that did not previously exist.
The timing of the proposed exit was recently extended and is now scheduled for January 31, 2020. However, the impact on regulatory regimes remains uncertain. At this time, weWe cannot predict the impact that an actual exit fromextent to which the EUU.S. or other countries will have on

impose new or additional quotas, duties, tariffs, taxes or other similar restrictions upon the import or export of our business generallyproducts in the future, nor can we predict future trade policy or the terms of any renegotiated trade agreements and our United Kingdom subsidiaries more specifically, and no assurance can be given that our operating results, financial condition and prospects would not be adversely impacted by the result.
We may be adversely affected by environmental, health and safety laws, regulations, costs and other liabilities.
We are subject to a wide range of federal, state, local and international governmental requirements relating to the discharge of substances into the environment, protection of the environment and worker health and safety. If we violate or fail to comply with these requirements, we could be fined or otherwise sanctioned by regulators, lose customers and damage our reputation, which could have an adverse effecttheir impact on our business. As new presidential administrations take office they often assess and/or make changes to policies of previous administrations. The Federal Comprehensive Environmental Response, Compensation,adoption and Liability Act ("CERCLA"), and comparable state statutes impose liability, without regard to fault or legalityexpansion of trade restrictions, the original conduct, on classes of persons that are considered to have contributed to the releaseoccurrence of a hazardous substance intotrade war, or other governmental action related to tariffs or trade agreements or policies has the environment. Such classes of persons include the current and past owners or operators of sites where a hazardous substance was released, and companies that disposed or arrangedpotential to adversely impact demand for disposal of hazardous substances at off-site locations such as landfills. Under CERCLA, these persons may be subject to strict, joint and several liability for theour products, our costs, of cleaning up the hazardous substances that have been released into the environment and for damages to natural resources, and it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment.
We currently own or formerly owned several properties or facilities that for many years were used for industrial activities, including the manufacture of electronics equipment. These propertiesour customers, our suppliers, and the substances disposed or released on them may be subject to CERCLA, the Resource Conservation and Recovery Act and analogous state or foreign laws. For example, we are presently involvedU.S. economy, which in remediation efforts at several currently or formerly owned sites related to historical site use which we do not believe will have a material impact on our business or operations, although no assurance can be given that these remediation efforts or remediation efforts we are required to undertake in the future will not have a material adverse effect on our business or operations.
We are also subject to various local, federal and international laws and regulations regarding the materials content and electrical design of our products that require us to be financially responsible for the collection, treatment, recycling and disposal of those products. For example, the EU has adopted the Restriction on Hazardous Substances and Waste Electrical and Electronic Equipment Directive, with similar laws and regulations being enacted in other regions. Since May 2014, the U.S. requires companies to publicly disclose their use of conflict minerals that originated in the Democratic Republic of the Congo, or an adjoining country. Additionally, requirements such as the EU Energy Labelling Directive, impose requirements relating to the energy efficiency of our products. Our failure or the undetected failure of our supply chain to comply with existing or future environmental, health and safety requirements could subject us to liabilities exceeding our reserves or adversely affect our business, operating results or financial condition.
A growing number of climate change regulations and initiatives are either in force or pending at the local, federal and international levels as part of a transition to a lower-carbon economy that is underway globally. With growing awareness of climate change, the demand for lower emissions products and services is increasing. As we continue to shift our products and services to the cloud, this creates an opportunity to serve customers' needs and requirements. The lower-carbon economy may also entail extensive policy, legal, technology and market changes to address mitigation and adaptation requirements related to climate change. Depending on the nature, speed and focus of these changes, transition risks may pose varying levels of financial and reputational risk to our organization. Our operations and supply chain could face increased climate change-related regulations, modifications to transportation to meet lower emission requirements, changes to types of materials used for products and packaging to reduce emissions, increased utility costs to address cleaner energy technologies, increased costs related to severe weather events, and emissions reductions associated with operations, business travel or products. These costs and changes to operations could have a financial impact on our business and result in an adverse impact on our operating results or reputation.
A violation of the FCPA may adversely affect the Company's business and operations.
As a U.S. corporation, we are subject to the regulations imposed by the Foreign Corrupt Practices Act (the "FCPA"), which generally prohibits U.S. companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or maintaining business. We have adopted stringent procedures to enforce compliance with the FCPA. Nevertheless, we do business and may do additional business in the future in countries and regions where strict compliance with anti-bribery laws may not be customary and we may be held liable for actions taken by our strategic or local partners even though these partners may not be subject to the FCPA. Our personnel and intermediaries, including our local operators and strategic partners, may face, directly or indirectly, corrupt demands by government officials, political parties and officials, tribal or insurgent organizations, or private entities in the countries in which we operate or may operate in the future. As a result, we face the risk that an unauthorized payment or offer of payment could be made by one of our employees or intermediaries, even if such parties are not always subject to our control or are not themselves subject to the FCPA or other similar laws to which we

may be subject. Any allegation or determination that we have violated the FCPAturn could have a material adverse effect on our business, operating results and financial position, results of operations and cash flows.condition.

Risks Related to Our Financial Results, Finances and Capital Structure
Financial Performance
In addition to experiencing some seasonal trends, our quarterly and annual revenues and operating results have historically fluctuated and the results of one period may not provide a reliable indicator of our future performance.
Our quarterly and annual revenues and operating results have historically fluctuated and are not necessarily indicative of results to be expected in future periods. Fluctuations in our financial results from period to period are caused by many factors, including, but not limited to, the size and timing of new logos, changes in foreign currency exchange rates, the mix of products sold by us and general economic conditions.
It is also difficult to predict our revenue for a particular quarter, especially in light of the growing demand for IT purchases under a subscription-based operating expense model instead of a capital expense model and the increasing proportion of our revenue coming from software and services. Both of these trends spread the timing of related revenue recognition over a longer period of time. In addition, execution of sales opportunities sometimes traverses from the intended fiscal quarter to the next. Moreover, our efforts to address the challenges facing our business could increase the level of variability in our financial results because the rate at which we are able to realize the benefits from those efforts may vary from period to period.
We also experience some seasonal trends in the sale of our products that also may produce variations in our quarterly results and financial condition. Typically, our second fiscal quarter is our weakest and our fourth fiscal quarter is our strongest. Many of the factors that create and affect seasonal trends are beyond our control.
In addition, the Company applied fresh start accounting upon its emergence from bankruptcy. As a result, assets and liabilities were adjusted to fair value as of the Emergence Date. Accordingly, our financial condition and operating results after the Emergence Date are not comparable to the financial condition and operating results reflected in our historical Consolidated Financial Statements prior to the Emergence Date. 
Shifts in the mix of sizes or types of organizations that purchase our solutions or changes in the components of our solutions purchased by our customers could affect our gross margins and operating results.
Our gross margins and our operating results can vary depending on numerous factors related to the implementation and use of our solutions, including the sizes and types of organizations that purchase our solutions, the mix of software and hardware they purchase and the level of professional services and support they require. We provide our solutions to a broad range of companies, from small businesses to large multinational enterprises and government organizations. Sales to larger enterprises generally result in greater revenue but may take longer to negotiate and finalize than sales to small businesses. Conversely, sales to small businesses may be faster to execute than sales to larger enterprises, but they may involve greater credit risk and fewer opportunities to sell additional services. Moreover, an important element of our growth strategy is to continue to evolve from a traditional telecommunications hardware company into a software and services company, focused on expanding our cloud- and mobile-enabled contact center, unified communications and innovative next-generation workflow automation solutions. As we increase the proportion of our revenue coming from software solutions as opposed to hardware solutions, we expect to see an improvement in our gross margins and operating results.results but if we are unsuccessful we might not recognize these gross margin improvements. Overall, if the mix of companies that purchase our solutions, or the mix of solution components purchased by our customers, changes unfavorably, our revenues and gross margins could decrease and our operating results could be harmed.
The Company could be subject to changes in its tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities, which could have a material and adverse impact on the Company’s operating results, cash flows and financial condition.
The Company is subject to taxes in the U.S. and numerous foreign jurisdictions, where a number of the Company’s subsidiaries are organized or the Company's solutions and devices are sold. Due to economic and political conditions, tax rates in various jurisdictions including the U.S. may be subject to change. The Company’s future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities and changes in tax laws or their interpretation.
U.S. tax reform legislation enacted in December 2017 known colloquially as the "Tax Cuts and Jobs Act," among other things, makes significant changes to the rules applicable to the taxation of corporations, such as changing the corporate tax rate to a flat 21% rate, modifying the rules regarding limitations on certain deductions for executive compensation, introducing a capital investment deduction in certain circumstances, placing certain limitations on the interest deduction, modifying the rules regarding the usability of certain net operating losses, implementing a minimum tax on the "global intangible low-taxed income" of a "United States shareholder" of a "controlled foreign corporation," modifying certain rules applicable to U.S. shareholders of controlled foreign corporations, imposing a deemed repatriation tax on certain earnings and adding certain anti-

base erosion rules. It is possible that any amendment to these new rules, or clarification as to the application thereof, may have a material and adverse impact on our operating results, cash flows and financial condition.
Tax examinations and audits could have a material and adverse impact on the Company’s cash flows and financial condition.
The Company is subject to the examination of its tax returns and other tax matters by the U.S. Internal Revenue Service and other tax authorities and governmental bodies. The Company regularly assesses the likelihood of an adverse outcome resulting from such examinations to determine the adequacy of its provision for taxes. There can be no assurance as to the outcome of any such examinations.
If the Company’s effective tax rates were to increase, or if the ultimate determination of the Company’s taxes owed were for an amount in excess of amounts previously accrued, the Company’s operating results, cash flows and financial condition could be materially and adversely affected.
Fluctuations in foreign currency exchange rates and interest rates could negatively impact our operating results, financial condition and cash flows.
We are a global company with significant international operations and we transact business in many currencies. As such, we are exposed to adverse movements in foreign currency exchange rates. The majority of our revenues and expenses are denominated in U.S. dollars. However, we are exposed to foreign currency exchange rate fluctuations related to certain revenues and expenses denominated in foreign currencies. Our primary currency exposures relate to net operating expenses denominated in Euro, Indian Rupee and Mexican Peso. These exposures may change over time as business practices evolve and the geographic mix of our business changes. In addition, a portion of our borrowings bears interest at prevailing interest rates based upon the LIBOR Rate plus an applicable margin. Therefore, we are subject to risk from changes in interest rates on the variable component of the rate.  From time to time we use derivative instruments to hedge foreign currency risks associated with certain monetary assets and liabilities, primarily accounts receivable, accounts payable and certain intercompany obligations, as well as to hedge risks associated with changes in interest rates. The measures we have taken to help mitigate these risks are discussed in Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," of this Annual Report on Form 10-K. However, any attempts to hedge against foreign currency exchange rate and/or interest rate fluctuation risk may be unsuccessful and result in an adverse impact to our operating results, financial condition and cash flows.
We also continuously monitor economic conditions, including inflation rates, in the various foreign locations in which we operate. As of July 1, 2018, we concluded that Argentina represents a hyperinflationary economy as its projected three-year cumulative inflation rate exceeds 100%. As a result, we changed the local functional currency for our Argentinian operations from the Argentine Peso to the U.S. Dollar effective July 1, 2018 and remeasured the financial statements for those operations to the U.S. Dollar as of July 1, 2018 in accordance with ASC 830 "Foreign Currency Matters." Although the remeasurement on July 1, 2018 did not have an impact on our Consolidated Financial Statements, foreign exchange transaction gains and losses recognized on or after July 1, 2018 will be based on Argentina’s new U.S. dollar functional currency.
If we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that we establish and maintain internal control over financial reporting and we are also required to establish disclosure controls and procedures under applicable SEC rules. An effective internal control environment is necessary to enable us to produce reliable financial reports and is an important component of our efforts to prevent and detect financial reporting errors and fraud. Management is required to provide an annual assessment on the effectiveness of our internal control over financial reporting and our independent registered public accounting firm is also required to attest to the effectiveness of our internal control over financial reporting. Our and our auditor’s testing may reveal significant deficiencies in our internal control over financial reporting that are deemed to be material weaknesses and render our internal control over financial reporting ineffective. In the past these assessments and similar reviews have led to the discovery of material weaknesses, all of which have been remediated. However, no assurance can be given that we won't discover material weaknesses in the future. We have incurred and we expect to continue to incur substantial accounting and auditing expense and expend significant management time in complying with the requirements of Section 404.
While an effective internal control environment is necessary to enable us to produce reliable financial reports and is an important component of our efforts to prevent and detect financial reporting errors and fraud, disclosure controls and internal control over financial reporting are generally not capable of preventing or detecting all financial reporting errors and all fraud. A control system, no matter how well-designed and operated, is designed to reduce rather than eliminate the risk of material misstatements in our financial statements. There are inherent limitations on the effectiveness of internal controls, including collusion, management override and failure in human judgment. A control system can provide only reasonable, not absolute, assurance of achieving the desired control objectives and the design of a control system must reflect the fact that resource constraints exist.

If we are not able to comply with the requirements of Section 404, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses:
we could fail to meet our financial reporting obligations;
our reputation may be adversely affected and our business and operating results could be harmed;
the market price of our stock could decline; and
we could be subject to litigation and/or investigations or sanctions by the Securities and Exchange Commission (the "SEC"), the New York Stock Exchange or other regulatory authorities.
We have a significant number of foreign subsidiaries with whom we have entered into many related party transactions. Our relationship with these entities could adversely affect us in the event of their bankruptcy or similar insolvency proceeding.
We have historically entered into many transactions with our subsidiaries. These transactions include financial guarantees and other credit support arrangements, including letters of comfort pursuant to which we undertake to provide financial support to these entities and adequate resources as required to ensure that they are able to meet certain liabilities and local solvency requirements. We are currently party to many such transactions, and it is likely we will enter into new and similar transactions in the future.
In the event that any of these entities become bankrupt or insolvent, there can be no assurance that a court or other foreign tribunal, liquidator, monitor, trustee or similar party would not seek to enforce these intercompany arrangements and guarantees or otherwise seek relief against us and our other subsidiaries. If any of our material foreign subsidiaries (e.g., subsidiaries that hold a significant number of our customer contracts, or that are the parent company of other material subsidiaries) becomes subject to a bankruptcy, liquidation or similar insolvency proceeding, such proceeding could have a material adverse effect on our business, operating results and financial condition.
We are a holding company and rely on dividends, distributions and other payments, advances and transfers of funds from our subsidiaries to meet our obligations.
We have no direct operations and derive all of our operating cash flow from our subsidiaries. Because we conduct our operations through our subsidiaries, we depend on those entities for dividends and other payments or distributions to meet our obligations. The deterioration of the earnings from, or other available assets of, our subsidiaries for any reason could limit or impair their ability to pay dividends or other distributions to us.
We may not realize the benefits we expect from our cost-reduction initiatives.
From time to time we may initiate cost savings programs designed to streamline operations. As discussed in Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations-Factors and Trends Affecting Our Results of Operations," we have initiated such programs historically, and we will continue to evaluate similar opportunities to the extent the business need arises. These types of cost-reduction activities are complex. Even if we carry out these strategies in the manner we expect, we may not be able to achieve the efficiencies or savings we anticipate or on the timetables we anticipate. Any expected efficiencies and benefits might be delayed or not realized, and, as a result, our operations and business could be disrupted. Our ability to realize gross margin improvements and other efficiencies expected to result from these initiatives is subject to many risks, including delays in the anticipated timing of activities, lack of sustainability in cost savings over time, unexpected costs associated with operating our business, our success in reinvesting any savings arising from these initiatives, time required to complete planned actions, absence of material issues associated with workforce reductions and avoidance of unexpected disruptions in service. A failure to implement these types of initiatives or realize expected benefits could have an adverse effect on our financial condition that could be material.
If our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings.
At September 30, 2019,2021, the Company had $2,891$2,235 million of intangible assets and $2,103$1,480 million of goodwill on its Consolidated Balance Sheet. The intangible assets are principally composed of technology and patents, customer relationships, and trademarks and trade names. Goodwill and intangible assets with indefinite lives are tested for impairment on an annual basis and also when events or changes in circumstances indicate that impairment may have occurred. Intangible assets with determinable lives, which were $2,558$1,902 million at September 30, 2019,2021, are tested for impairment only when events or changes in circumstances indicate that an impairment may have occurred. Determining whether an impairment exists can be difficult and requires management to make significant estimates and judgments. During fiscal 2019,Although the Company recorded a goodwilldid not record an impairment charge of $657 million related
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during fiscal 2021, to the Company's Products & Solutions segment primarily due to a sustained decrease in the Company's stock price and a reduction in the Company's long-term forecast. To the extent that business conditions deteriorate further, in this or other segments, or if changes in key assumptions and estimates differ significantly from management's expectations, it may be necessary to record additional impairment charges in the future. See Note 8, "Goodwill,"

7, "Goodwill" and Note 9,8, "Intangible Assets," net" to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information.
Levels of returns on pension and post-retirement benefit plan assets, changes in interest rates and other factors affecting the amounts to be contributed to fund future pension and post-retirement benefit plan liabilities could adversely affect our cash flows, operating results and financial condition in future periods.
We sponsor a number of defined benefit plans for employees in the United States,U.S., Canada, and various foreign locations. Pension and other post-retirement plan costs and required contributions are based upon a number of actuarial assumptions, including an expected long-term rate of return on pension plan assets, level of employer contributions, the expected life span of pension plan beneficiaries and the discount rate used to determine the present value of future pension obligations. Any of these assumptions could prove to be wrong, resulting in a shortfall of our pension and post-retirement benefit plan assets compared to obligations under our pension and post-retirement benefit plans. Future pension funding requirements, and the timing of funding payments, may also be subject to changes in legislation.
In addition, our major defined benefit pension plans in the U.S. are funded with trust assets invested in a globally diversified portfolio of securities and other investments. These assets are subject to market fluctuations, will yield uncertain returns and cause volatility in the net periodic benefit cost and future funding requirements of the plans. A decline in the market value of the pension and post-retirement benefit plan assets below our projected return rates will increase the funding requirements under our pension and post-retirement benefit plans if the actual asset returns do not recover these declines in value in the foreseeable future. We are responsible for funding any shortfall of our pension and post-retirement benefit plans’ assets compared to obligations under the pension and post-retirement benefit plans, and a significant increase in our pension liabilities could have a material adverse effect on our cash flows, operating results and financial condition.

We are exposed to risks inherent in our defined benefit pension plans in Germany.
We operate several defined benefit plans in Germany (collectively, the "German Plans") and as of September 30, 2019,2021, the total projected benefit obligation for the German Plans of $531$488 million exceeded plan assets of $4 million, resulting in an aggregate pension liability for the German Plans of $527$484 million. Under the German Plans, which were closed to new members in 2006, retirees generally benefit from the receipt of a perpetual annuity at retirement, based on their years of service and ending salary. The total projected benefit obligation is based on actuarial valuations, which themselves are based on assumptions and estimates about the long-term operation of the plans, including mortality rates of members, the performance of financial markets and interest rates. Our funding requirements for future years may increase from current levels depending on the net liability position of these plans. In addition, if the actual experience of the plans differs from our assumptions, the net liability could increase and additional contributions may be required. Changes to pension legislation in Germany may also adversely affect our funding requirements. Increases in the net pension liability or increases in future cash contributions could have a material adverse effect on our cash flows, operating results and financial condition.
Risks Related to Our Indebtedness
Our degree of leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and expose us to interest rate risk on our variable rate debt and prevent us from meeting obligations on our indebtedness.debt.
We have a significant amount of debt outstanding. As of September 30, 2019,2021, we had $2,874$1,543 million of loans outstanding under the Term Loan Credit Agreement, $44$37 million issued and outstanding letters of credit and guarantees under the ABL Credit Agreement, and $350 million of 2.25% convertible senior notes due June 15, 2023 (the "Convertible Notes") and $1,000 million of 6.125% senior first lien notes due September 15, 2028 (the "Senior Notes") outstanding (all as defined in Part II, Item 8, Note 12,11, "Financing Arrangements" of this Annual Report on Form 10-K). In addition, as of September 30, 20192021 we could have borrowed an additional $142$147 million under our ABL Credit Agreement. In November 2019, the Company made a debt principal paydown of $250 million.
Our degree of leverage could have consequences, including:
making it more difficult for us to make payments on our indebtedness;
•increasing our vulnerability to general economic and industry conditions;
•requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures, research and development and future business opportunities;
•exposing us to the risk of increased interest rates under Avaya Inc.’s credit facilities to the extent such facilities have variable rates of interest;interest, as well as to refinancing risks as facilities mature;
•limiting our ability to make strategic acquisitions and investments;

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•limiting our ability to refinance our indebtedness as it becomes due; and
•limiting our ability to adjust quickly or at all to changing market conditions and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged.
Our ability to continue to fund our obligations and to reduce debt may be affected by generalGeneral economic, financial market, competitive, legislative and regulatory factors, among other things. An inabilitythings, may negatively affect our ability to fund our debt requirements or reduce our debt, which could have a material adverse effect on our business, operating results, cash flows and financial condition.
Despite our level of indebtedness, we and our subsidiaries may be able to incur additional indebtedness. ThisThe incurrence of additional indebtedness could further exacerbate the risks associated with our degree of leverage.
We and our subsidiaries may be able to incur additional indebtedness in the future. Although our Term Loan and ABL Credit Agreements and the indenture for our Senior Notes contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and any indebtedness incurred in compliance with these restrictions could be substantial. In addition, the indenture for the Convertible Notes does not restrict us from incurring additional debt. To the extent newwe or our subsidiaries incur additional debt is added to our and our subsidiaries’ currentlybeyond anticipated debt levels, the related risks that we and our subsidiaries face could intensify.
Our financing agreements contain restrictions that limit, in certain respects, our flexibility in operating our business.
Our financing agreements contain various covenants that limit our ability to engage in specific types of transactions. These covenants limit our and our subsidiaries’ ability to:
•incur or guarantee additional debt and issue or sell certain preferred stock;
•pay dividends on, redeem or repurchase our capital stock;
•make certain acquisitions or investments;
•incur or assume certain liens;
•enter into transactions with affiliates; and
•sell assets to, or merge or consolidate with, another company.
A breach of any of these covenants could result in a default under one or more of our debt instruments.
There is no assurance we will be able to repay or refinance all or any portion of our or our subsidiaries’ debt in the future. If we were unable to repay or otherwise refinance these borrowings and loans when due, the applicable secured lenders could proceed against the collateral granted to them to secure that indebtedness, which could force us into bankruptcy or liquidation. In the event our lenders accelerate the repayment of our or our subsidiaries’ borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness.
We may not be able to generate sufficient cash to service all of our indebtedness and our other ongoing liquidity needs, and we may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on or to refinance our debt obligations and to fund our planned capital expenditures, acquisitions and other ongoing liquidity needs depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. In particular, we intend to increase our recurring revenue by shifting more of our business to a subscription-based model. If we successfully increase our subscription revenues, we expect this will result in more of our cash receipts being deferred relative to our historical perpetual license model as payments are spread over a pre-determined time period (e.g., annually) rather than being received upfront, which may defer cash flows needed to service our debt. There can be no assurance that we will maintain a level of cash flow from operating activities in an amount sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.
If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to try to dispose of material assets or operations to meet our debt service and other obligations. Our credit facilities restrict the ability of Avaya Inc. and certain of its subsidiaries to dispose of assets and use the proceeds from the disposition. Accordingly, we may not be able to consummate those dispositions or to obtain any proceeds on terms acceptable to us or at all, and any such proceedsobligations, which may not be adequate to meet any debt service obligations when due. If we are unable to repay or otherwise refinance these borrowings and loans when due, the applicable secured lenders could proceed against the collateral pledged to them to secure that indebtedness, which could force us into bankruptcy or liquidation. In the event our lenders accelerate the repayment of our or our subsidiaries’ borrowings, we and our subsidiaries may not have sufficient assets to repay such indebtedness.
A ratings downgrade or other negative action by a ratings organization could adversely affect our cost of capital.
Credit rating agencies continually revise their ratings for companies they follow. TheAny adverse developments in our business and operations could lead to a ratings downgrade for Avaya Holdings Corp., Avaya Inc. or any of our rated debt securities. In addition, the condition of the financial and credit markets and prevailing interest rates have been, and will continue to be, subject to fluctuation. In addition, any adverse developments in our business and operations could lead to a ratings downgrade for Avaya Holdings Corp. and/or Avaya Inc.  Any such fluctuation in our credit rating may impact our ability to access debt markets in the future orand that, in addition to changes in interest rates, could increase our cost of future debt which could have a material adverse effect on our operating results and financial condition which in returnand may adversely affect the trading price of shares of our common stock.

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Risks Related to Ownership of Our Common Stock, Preferred Stock and Convertible Notes
An active trading market for our common stock may not be sustained.
Although our common stock is currently quoted on the New York Stock Exchange, an active trading market for our common stock may not be sustained. If the market is not sustained, it may be difficult for shareholders to sell shares of our common stock at a price that is attractive or at all. In addition, an inactive market may impair our ability to raise capital by selling shares and may impair our ability to acquire other companies by using our shares as consideration, which, in turn, could materially adversely affect our business.
The price of our common stock and/or Convertible Notes may be volatile and fluctuate substantially.
Our common stock is listed on the New York Stock Exchange and the price for our common stock has historically been volatile. The market price of our common stock, as well as our Convertible Notes (as they are convertible into our common stock), may continue to be highly volatile and may fluctuate substantially due to the following factors (in addition to the other risk factors described in this section):
•general economic conditions;
•political dynamics in the countries we operate in;
•fluctuations in our operating results;
•high levels of inflation and other decreases in purchasing power;
•variances in our financial performance from the expectations of equity and/or debt research analysts;
•conditions and trends in the markets we serve;
•announcements of significant new services or products by us or our competitors;
•additions of or changes to key employees;
•changes in market valuations or earnings of our competitors;
•trading volumes of our common stock and/or Convertible Notes;
•future sales of our equity securities and/or future issuances of indebtedness;
•changes in the estimation of the future sizes and growth rates of our markets;
•legislation or regulatory policies, practices or actions;
•hedging or arbitrage trading activity by third parties, including by the counterparties to the note hedge and warrant transactions that we entered into in connection with the issuance of the Convertible Notes; and
•dilution that may occur upon any conversion of shares of our Series A Preferred Stock or the Convertible Notes or the exercise of the warrants we issued in connection with the issuance of the Convertible Notes.
In addition, the stock markets in general have experienced extreme price and volume fluctuations that have at times been unrelated or disproportionate to the operating performance of the particular companies affected. These market and industry factors may materially harm the market price of our common stock and/or Convertible Notes irrespective of our operating performance.
If securities or industry analysts discontinue publishing research or reports about our business, or publish negative reports about our business, our share price and trading volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us, our business, our market and our competitors. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our shares or change their opinion of our shares, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
We currently do not intend to pay dividends on our common stock.
We do not anticipate paying any cash dividends on shares of our common stock for the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend on operating results, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant.
The issuance of shares of our Series A Convertible Preferred Stock to RingCentral dilutes the relative voting power and ownership of holders of our common stock and may adversely affect the market price of our common stock.
Pursuant to an Investment Agreement, dated as of October 3, 2019, by and between us and RingCentral, we sold 125,000 shares of our newly designated Series A Convertible Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”) to RingCentral on October 31, 2019 (the “Closing”).

The shares sold toAs of September 30, 2021, the preferred stock held by RingCentral at the Closing representrepresented approximately 6%9% of our outstanding common stock on an as-converted basis. The Series A Preferred Stock is convertible at the option of the holder at any time into shares of common stock at an initial conversion price of $16.00 per share, subject to adjustment as set forth in the Certificate of Designations which details the terms and conditions of the Series A Preferred Stock.
The holders of our Series A Preferred Stock are entitled to vote, on an as-converted basis, together with holders of our common stock on all matters submitted to a vote of the holders of our common stock. Prior to our receipt of an approval by our stockholders as required under New York Stock Exchange Listed Company Manual Rule 312.03 (“Stockholder Approval”),In any such vote, RingCentral's aggregate voting power of the Series A Preferred Stock and other shares of our common stock which may be issued to them under that certain Framework Agreement, dated as of October 3, 2019, by and between Avaya Inc. and RingCentral (the "Framework Agreement"), will be limited, prior to our receipt of an approval by our stockholders as required under New York Stock Exchange Listed Company Manual Rule 312.03 (“Stockholder Approval”), to the voting power equivalent to no more than 19.9% of our outstanding common stock. If Stockholder Approval is obtained, this limitation will no longer apply. Notwithstanding that limit, the issuance of the Series A Preferred Stock to RingCentral effectively reduces the relative voting
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power of the holders of our common stock. The conversion of the Series A Preferred Stock into common stock would dilute the ownership interest of existing holders of our common stock.
For a periodIn addition, pursuant to the Framework Agreement, RingCentral paid Avaya $375 million, predominantly for future fees, as well as for certain licensing rights, and RingCentral will have the right to convert still outstanding amounts into shares of eighteen months following issuance ofour common stock or our Series A Preferred Stock, the sale or transferStock. The issuance of the Series A Preferred Stocksuch additional shares and the common stock issuable upon conversion thereof is subject to certain lock up provisions that, subject to exceptions, prohibit sale or transfer. Following expiration of RingCentral’s eighteen-month lock-up period, any sales in the public market of such common stock or the common stock issuable upon conversion of the Series A Preferred Stock could adversely affect prevailing market prices of our common stock. We granted RingCentral customary registration rights in respect of any shares of common stock issued upon conversion of the Series A Preferred Stock. TheseStock and have filed a registration rights would facilitatestatement permitting the resale by RingCentral of such securities into the public market, and any such resale would increase the number of shares of our common stock available for public trading.underlying the Series A Preferred Stock in compliance with this obligation. As a result, subject to certain exceptions, RingCentral will be able to freely sell the common stock it will hold following conversion of the Series A Preferred Stock. Sales by RingCentral of a substantial number of shares of our common stock in the public market, or the perception that such sales might occur, could have a material adverse effect on the price of our common stock.
Our Series A Preferred Stock has rights, preferences and privileges that are not held by, and are preferential to, the rights of our common stockholders, which could adversely affect our liquidity and financial condition and result in the interests of RingCentral differing from those of our common stockholders.condition.
As a holder of our Series A Preferred Stock, RingCentral is entitled to:
•receive dividends, in preference and priority to holders of our common stock or other series of Company stock, which will accrue on a daily basis at the rate of 3% per annum of the stated value of the Series A Preferred Stock. The stated value of the Series A Preferred Stock is initially $1,000 per share and it will be increased by the sum of any dividends on such shares not paid in cash. These dividends are cumulative, compound quarterly and are paid quarterly in arrears.
•participate in any dividends we pay on our common stock, equal to the dividend which holders would have received if their Series A Preferred Stock had been converted into common stock on the date such common stock dividend was determined.
•receive, in the event our Company is liquidated or dissolved, before any distribution is made to holders of our common stock, an amount equal to the liquidation preference (which equals the stated value referenced above plus any accrued and unpaid dividends) for each share of Series A Preferred Stock held.
RingCentral also has•consent rights with respect to certain redemption rights or put rights to requireactions by us, to repurchase all or any portion ofincluding amending our organizational documents in a manner that would have an adverse effect on the Series A Preferred Stock afterand issuing securities that are senior to, or equal in priority with, the terminationSeries A Preferred Stock.
•nominate one person for election to our Board of the Framework AgreementDirectors, who our Board of Directors will recommend that our stockholders vote in favor of, until such time when RingCentral and its affiliates hold or upon the occurrencebeneficially own less than 4,759,339 shares of certain events.our common stock (on an as-converted basis).
These dividend and share repurchase obligations could impact our liquidity and reduce the amount of cash flows available for working capital, capital expenditures, growth opportunities, acquisitions and other general corporate purposes and could limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition.
RingCentral has certain consent rights over charter amendments and issuances of senior equity andIn addition, to the abilityextent that we need to designate a member of our Board of Directors.
The transaction documents entered into in connection with the sale of the Series A Preferred Stock to RingCentral grant to RingCentral customary consent rights with respect to certain actions by us, including:
amendingamend our organizational documents, in a manner that would have an adverse effect on the Series A Preferred Stock; and
issuing securities that are seniorwhether to or equal in priority with, the Series A Preferred Stock.
In addition, pursuant to an Investor Rights Agreement, until such time when RingCentral and its affiliates hold or beneficially own less than 4,759,339 shares of our common stock (on an as-converted basis), RingCentral has the right to nominate one

person for election to our Board of Directors and our Board of Directors will recommend that our stockholders vote in favor of such nominee.
The director designated by RingCentral is entitled to attend meetings of our Board’s Audit, Compensation, and Nominating and Governance Committees as a non-voting observer, or such director may choose to serve on the Audit Committee and Nominating and Corporate Governance Committees of our Board, subject to applicable law and stock exchange rules. Such director is also entitled to be an observer to the Compensation Committee of our Board.
To the extent that we seek to raise capital in the form of senior preferred stock for instance because it is the most efficient or only form of capital available to us, or we need to amend our organizational documents for whateveranother reason, and RingCentral does not provide its consent to any such issuance or amendment, it could have a material adverse effect on our business and/or liquidity.
RingCentral has certain redemption or put rights to require us to repurchase all or any portion of the Series A Preferred Stock for cash. We may not be able to raise the funds necessary to finance such a required repurchase. 
RingCentral has certain redemption or put rights to require us, to repurchase all or any portion of the Series A Preferred Stock for cash. RingCentral can exercise such redemption rights, upon at least 21 days’ notice, after the termination of the Framework Agreement or upon the occurrence of certain events. If and to the extent this redemption right is exercised, we would have to purchase each share of Series A Preferred Stock at the per share price equal to the stated value of the Series A Preferred Stock, which is initially $1,000 per share and which will be increased by the sum of any dividends on such shares, plus all accrued but unpaid dividends. 
It is possible that we would not have sufficient funds to make any required repurchase of Series A Preferred Stock. Moreover,Stock and we may not be able to arrange financing, to pay the repurchase price.
The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and operating results and/or the market for our common stock.
In the event the conditional conversion feature of our Convertible Notes is triggered, holders of Convertible Notes will be
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entitled to convert the Convertible Notes at any time during specified periods at their option. If one or more holders elect to convert their Convertible Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. If we elect to satisfy this obligation by delivering common stock it would have a dilutive effect on our other stockholders. In addition, even if holders do not elect to convert their Convertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.
The convertible note hedge and warrant transactions may affect the value of the Convertible Notes and our common stock.
In connection with the pricing of the Convertible Notes, we entered into a convertible note hedge ("Bond Hedge") transaction with each of Barclays Bank PLC, Credit Suisse Capital LLC and JPMorgan Chase Bank, National Association (the "Call Spread Counterparties"). The Bond Hedge transactions reduced the potential dilution upon conversion of the Convertible Notes. We also entered into a warrant ("Call Spread Warrant") transaction with each of the Call Spread Counterparties. The Call Spread Warrant transactions could separately have a dilutive effect on our earnings per share to the extent that the market price per share of our common stock exceeds the applicable strike price of the Call Spread Warrants.
Each of the Call Spread Counterparties (or an affiliate) may modify its initial hedge position by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions following the pricing of the Convertible Notes and prior to the maturity of the Convertible Notes (and is likely to do so during any observation period related to a conversion of the Convertible Notes). This activity could also cause or avoid an increase or a decrease in the market price of our common stock or the Convertible Notes, which could affect the ability to convert the Convertible Notes and, to the extent the activity occurs during any observation period related to a conversion of the Convertible Notes, it could affect the number of shares and value of the consideration that holders of the Convertible Notes will receive upon conversion of the Convertible Notes.
Significant exercises of equity awards or warrants or conversion of preferred stock or convertible debt could adversely affect the market price of the Company’s common stock.
As of September 30, 2019,2021, we had 111,046,08584,115,602 shares of common stock issued and 111,033,405 shares of common stock outstanding. The total number of shares of our common stock issued and outstanding does not include 4,261,0815,178,288 shares and 5,645,200 shares that may be issued upon the exercise or vesting of equity awards and warrants issued upon emergence from bankruptcy, respectively. In addition, we have the ability to issue an additional 1,002,13110,750,733 equity awards tied to our common stock under our currently authorized equity incentive plans. Furthermore, the maximum number of shares of common stock issuable upon conversion of our Convertible Notes is 16,393,440 and our Series A Preferred Stock issued to RingCentral is

initially convertible into 7,812,5008,150,392 shares of common stock.stock as of September 30, 2021. The exercise of equity awards and warrants and the conversion of our convertible debt instruments and preferred stock could adversely affect the price of the Company’s common stock, will reduce the percentage of common stock held by the Company’s current stockholders and may cause its current stockholders to suffer significant dilution, which may adversely affect the market.
Our governing documents contain provisions which may disadvantage our stockholders, by impeding or discouraging a takeover and limiting stockholders' ability to obtain a favorable judicial forum for disputes with us.
Our amended and restated certificate of incorporation and our amended and restated bylaws may impede or discourage a takeover,contain provisions which could reduce the market price of our common stock and the value of the preferred stock and the Convertible Notes.
Certain provisions in our amended and restated certificate of incorporation and our amended and restated bylaws may delay or prevent a third party from acquiring control of us, even if a change in control would be beneficial to our existing stockholders. Our governing documents include provisions that:
authorize our board of directors to create and issue, without stockholder approval, up to 55,000,000 shares of undesignated preferred stock, which could be used to dilute the ownership of a hostile acquirer;
grant the board of directors the exclusive right to fill a vacancy on the board of directors, whether such vacancy is due to an increase in the number of directors or death, resignation or removal of a director, which prevents stockholders from being able to fill such vacancies on the board of directors; and
require stockholders to follow certain advance notice procedures to bring a proposal before an annual meeting, including proposing nominees for election as directors, which may discourage a potential acquirer from soliciting proxies to elect the acquirer’s own director or slate of directors.
These provisions could impede a merger, takeover or other business combination involving us or discourage a potential acquirer from making a tender offer for our common stock, which, under certain circumstances, could reduce the market price of our common stock and the value of our preferred stock and Convertible Notes.
In addition, our amended and restated certificate of incorporation requires that, unless we consent in writing to the fullest extent permitted by law, that derivative actions brought in the nameselection of the Company, actions against our directors, officers and employees for breach of fiduciary duty and other similar actions may be brought only inan alternative forum, the Court of Chancery inof the State of Delaware.Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL or (iv) any action asserting a claim governed by the internal affairs doctrine.

This forum selection provision in our amended and restated certificate of incorporation may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us. It is also possible that, notwithstanding the forum selection clause included in our certificate of incorporation, a court could rule that such a provision is inapplicable or unenforceable.
General Risk Factors
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The effects of the COVID-19 pandemic have materially affected how we and our customers are operating our businesses and the duration and extent to which this will impact our business, results of operations and financial condition and/or cash flows remains uncertain.
The COVID-19 pandemic and related public health measures are having a negative impact on regional, national and global economies, disrupting supply chains and reducing international trade and business activity. The pandemic has caused many governments throughout the world to implement stay-at-home orders, quarantines, significant restrictions on travel, social distancing measures including restrictions that prohibit many employees from commuting to their customary work locations and regulations detailing specific return to office conditions, all of which may require these employees to work remotely if possible. Many of these restrictions have remained in place for months and in light of the emergence of new variants, may continue in one fashion or another for the foreseeable future.
The COVID-19 pandemic has not materially impacted us to date but may affect our operations in a variety of ways, including, but not limited to:
•Our ability to operate, as well as our partners' and/or customers' ability to operate, has been and may continue to be hindered, which may cause our business and operating results to decline.
•The inability of our employees to access customers' sites may hinder our ability to offer services that can only be provided on site, as well as our ability to make in person sales visits and demonstrations.
•Clients and customers have had and may continue to have difficulty meeting their payment obligations to us, resulting in late or non-payment of amounts owed.
•We may experience significant reductions or volatility in demand for our solutions as customers may not be able to enter into new purchase commitments or otherwise invest in their business due to financial downturns or general economic uncertainty.
•We may experience temporary or long-term disruptions in our supply chain and increased costs, which may significantly impact our distribution network, results of operations (including sales) or business.
•To the extent a number of our employees, including our executive officers and other members of our management team, are impacted in significant numbers by the pandemic and are not available to conduct work, our business and operating results may be negatively impacted.
•We may not be able to ensure business continuity in the event our continuity of operations and crisis management plans are not effective or are improperly implemented.
•The significant disruption of global financial markets, which has impacted the value of our common stock and could further materially impact the value of our stock in the future, may reduce our ability to access additional capital, which could in the future negatively affect our liquidity and could affect our business in the near and long-term.
The extent to which the COVID-19 pandemic will impact our business, financial performance and liquidity, including our ability to execute our near-term and long-term business strategies and initiatives in the expected time frame, will depend on future developments, including the duration and severity of the pandemic, the emergence of new variants, changes in infection rates, the vaccine participation rate, the effectiveness of vaccines and the speed with which the vaccine can be distributed, as well as regulations and requirements impacting the return to our offices and/or our ability to visit customer sites, none of which can be predicted. Any of the foregoing factors, or other cascading effects of the COVID-19 pandemic that are not currently foreseeable, could have a material adverse effect on our business, results of operations, financial condition and/or cash flows. Additionally, as pandemic conditions wane, we cannot predict how quickly the marketplaces in which we operate will return to pre-pandemic levels.
Our ability to retain and attract key personnel is critical to the success of our business and execution of our growth strategy.
The success of our business depends on the skill, experience and dedication of our employee base. If we are unable to retain and recruit sufficiently experienced and capable employees, including those who can help us increase revenues generated from our cloud-based solutions and services, our business and financial results may suffer. Experienced and capable employees in the technology industry remain in high demand, and there is continual competition for their talents. If executives, managers or other key personnel resign, retire or are terminated, or their service is otherwise interrupted, we may not be able to replace them in a timely manner and we could experience significant declines in productivity and/or errors due to insufficient staffing or managerial oversight. Moreover, turnover of senior management and other key personnel can adversely impact, among other things, our operating results, our customer relationships and lead us to incur significant expenses related to executive transition costs that may impact our operating results. In addition, our ability to adequately staff our R&D efforts in the U.S. may be inhibited by COVID-19 and/or changes to U.S. immigration policies that restrain the flow of professional and technical talent.
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While we strive to maintain our competitiveness in the marketplace, there can be no assurance that we will be able to successfully retain and attract the employees that we need to achieve our business objectives.
Business and/or supply chain interruptions, whether due to catastrophic disasters or other events, could adversely affect our operations.
Our operations and those of our contract manufacturers and outsourced service providers are vulnerable to interruption by fire, earthquake, hurricane, flood or other natural disasters, power loss, computer viruses, computer systems failure, telecommunications failure, pandemics, quarantines, national catastrophe, terrorist activities, war and other events beyond our control. For instance, we have operations in the Silicon Valley area of California near known earthquake fault zones, which are vulnerable to damage from earthquakes. Our disaster recovery plans may not be sufficient to address these interruptions. If any disaster were to occur, our ability and the ability of our contract manufacturers and outsourced service providers to operate could be seriously impaired and we could experience material harm to our business, operating results and financial condition. Because our ability to attract and retain customers depends on our ability to provide customers with highly reliable service, even minor interruptions in our operations could harm our reputation as a reliable solutions provider. In addition, the coverage or limits of our business interruption insurance may not be sufficient to compensate for any losses or damages that may occur.
In addition, these catastrophic disasters or other events, such as the global shortage of semiconductor chips, could lead to supply chain disruptions, restrictions on our ability to distribute our products and restrictions on our abilities to provide services in the regions affected. Any prolonged and significant supply chain disruption that impacts us or our customers, partners, vendors and/or suppliers, or an inability to provide products or services, would likely impact our sales in the affected region, increase our costs and negatively affect our operating results. For instance, the COVID-19 pandemic, which we saw in fiscal 2021 and fiscal 2020 adversely affected the global economy and financial markets, resulting in an economic downturn that affected demand for our products and services and likely impacted our operating results. Similarly, the decrease in the availability of global shipping has raised freight and shipping costs and there are no assurances that such shipping disruptions and higher logistics costs will not continue or increase, which may adversely affect our operating results and financial condition.
We may not realize the benefits we expect from our cost-reduction initiatives.
From time to time we may initiate cost savings programs designed to streamline operations. As discussed in Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations-Factors and Trends Affecting Our Results of Operations," we have initiated such programs historically, and we will continue to evaluate similar opportunities to the extent the business need arises. These types of cost-reduction activities are complex. Even if we carry out these strategies in the manner we expect, we may not be able to achieve the efficiencies or savings we anticipate or on the timetables we anticipate. Any expected efficiencies and benefits might be delayed or not realized, and, as a result, our operations and business could be disrupted. Our ability to realize gross margin improvements and other efficiencies expected to result from these initiatives is subject to many risks, including delays in the anticipated timing of activities, lack of sustainability in cost savings over time, unexpected costs associated with operating our business, our success in reinvesting any savings arising from these initiatives, time required to complete planned actions, absence of material issues associated with workforce reductions and avoidance of unexpected disruptions in service. A failure to implement these types of initiatives or realize expected benefits could have an adverse effect on our financial condition that could be material.
We are exposed to the credit risk of some of our clients and customers, which may harm our operating results and financial condition.
Most of our sales in the U.S. have standard payment terms of 30 days and, because of local customs or conditions, longer in some markets outside the U.S. We believe customer financing is a competitive factor in obtaining business, particularly in serving customers involved in significant infrastructure projects. Our financing arrangements may include not only financing the acquisition of our solutions and services but also providing additional funds for other costs associated with installation and integration of our solutions and services.
We have a thorough credit process for extending credit limits to our customers, which considers the financial profile of our end user customers in addition to that of the direct customer, distributor or channel partner. We evaluate numerous factors in extending credit, which may include credit ratings, financial performance and discussions with customers. Notwithstanding that, our exposure to the credit risks relating to our financing activities described above may increase if our customers are adversely affected by periods of economic uncertainty or a global economic downturn. For instance, due to the impact of the COVID-19 pandemic, certain clients and customers have had and may continue to have difficulty meeting their payment obligations to us, resulting in late or non-payment of amounts owed. Although these losses have not been material to date, future losses, if incurred, could harm our business and have a material adverse effect on our operating results and financial condition.
34


The Company could be subject to changes in its tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities, which could have a material and adverse impact on the Company’s operating results, cash flows and financial condition.
The Company is subject to taxes in the U.S. and numerous foreign jurisdictions, where a number of the Company’s subsidiaries are organized or the Company's solutions and devices are sold. Due to economic and political conditions, tax rates in various jurisdictions including the U.S. may be subject to change. The Company’s future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities and changes in tax laws or their interpretation.
If the Company’s effective tax rates were to increase, or if the ultimate determination of the Company’s taxes owed were for an amount in excess of amounts previously accrued, the Company’s operating results, cash flows and financial condition could be materially and adversely affected. Any new U.S. or international tax legislation could modify existing rules, limit certain deductions and/or impose new taxes, any of which may have a material and adverse impact on our operating results, cash flows and financial condition.
Tax examinations and audits could have a material and adverse impact on the Company’s cash flows and financial condition.
The Company is subject to the examination of its tax returns and other tax matters by the U.S. Internal Revenue Service and other U.S. or foreign tax authorities and governmental bodies. The Company regularly assesses the likelihood of an adverse outcome resulting from such examinations to determine the adequacy of its provision for taxes. There can be no assurance as to the outcome of any such examinations.
Fluctuations in foreign currency exchange rates and interest rates could negatively impact our operating results, financial condition and cash flows.
We are a global company with significant international operations and we transact business in many currencies. The majority of our revenues and expenses are denominated in U.S. dollars. However, we are exposed to foreign currency exchange rate fluctuations related to certain revenues and expenses denominated in foreign currencies. Our primary currency exposures relate to net operating expenses denominated in Euro, Indian Rupee and Argentine Peso. These exposures may change over time as business practices evolve and the geographic mix of our business changes. In addition, a portion of our borrowings bears interest at prevailing interest rates based upon the LIBOR Rate plus an applicable margin. Therefore, we are subject to risk from changes in interest rates on the variable component of the rate. From time to time we use derivative instruments to hedge foreign currency risks associated with certain monetary assets and liabilities, primarily accounts receivable, accounts payable and certain intercompany obligations, as well as to hedge risks associated with changes in interest rates. The measures we have taken to help mitigate these risks are discussed in Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," of this Annual Report on Form 10-K. However, any attempts to hedge against foreign currency exchange rate and/or interest rate fluctuation risk may be unsuccessful and result in an adverse impact to our operating results, financial condition and cash flows.
If we fail to maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that we establish and maintain internal control over financial reporting and we are also required to establish disclosure controls and procedures under applicable Securities and Exchange Commission (the "SEC") rules. An effective internal control environment is necessary to enable us to produce reliable financial reports and is an important component of our efforts to prevent and detect financial reporting errors and fraud. Management is required to provide an annual assessment on the effectiveness of our internal control over financial reporting and our independent registered public accounting firm is also required to attest to the effectiveness of our internal control over financial reporting. Our and our auditor’s testing may reveal significant deficiencies in our internal control over financial reporting that are deemed to be material weaknesses and render our internal control over financial reporting ineffective. In the past, these assessments and similar reviews have led to the discovery of material weaknesses, all of which have been remediated. However, no assurance can be given that we will not discover material weaknesses in the future. In addition, the effectiveness of an internal control system is inherently limited and we cannot assure you that our internal controls will prevent or detect every misstatement or omission. We have incurred and we expect to continue to incur substantial accounting and auditing expense and expend significant management time in complying with the requirements of Section 404.
If we are not able to comply with the requirements of Section 404, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses:
•we could fail to meet our financial reporting obligations;
•our reputation may be adversely affected and our business and operating results could be harmed;
35


•the market price of our stock could decline; and
•we could be subject to litigation and/or investigations or sanctions by the SEC, the New York Stock Exchange or other regulatory authorities.
If securities or industry analysts discontinue publishing research or reports about our business, or publish negative reports about our business, our share price and trading volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us, our business, our market and our competitors. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our shares or change their opinion of our shares, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
36


Item 1B.Unresolved Staff Comments
None.
Item 2.Properties
As of September 30, 2019,2021, we had 131117 leased facilities located in 5859 countries. These included 117 primary research and development facilities located in Canada, Czech Republic, India, Ireland, Israel, Italy and the U.S. Our real property portfolio consists of aggregate floor space of 2.41.5 million square feet, substantially all of which is leased. Our lease terms range from monthly leases to 108 years. We believe that all of our facilities are in good condition and are well maintained. Our facilities are used for the current operations of allboth of our operating segments. For additional information regarding obligations under operating leases, see Note 23,5, "Leases," to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Item 3.Legal Proceedings
The information concerning legal proceedings set forth under Note 22, "Commitments and Contingencies," to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.10-K, is incorporated by reference in response to this item.
Item 3.4.Legal ProceedingsMine Safety Disclosures
The information concerning legal proceedings set forth under Note 23, "Commitments and Contingencies," in Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K, is incorporated herein by reference.
Not applicable.
37


PART II
Item 4.Mine Safety Disclosures
Not applicable.

PART II
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
The common sharesstock of Avaya Holdings Corp. are listed on the New York Stock Exchange ("NYSE") and began trading on the NYSE on January 17, 2018, under the symbol "AVYA."
Number of Holders of Common SharesStock
The number of record holders of the common sharesstock as of October 31, 20192021 was 152. That number does not include the beneficial owners of shares held in "street" name or held through participants in depositories, such as The Depository Trust Company.
Dividends
No dividends were paid by Avaya Holdings Corp. on its common stock over the past twothree fiscal years and dothe Company does not anticipate paying any cash dividends on its common stock in the foreseeable future.
Purchases of Equity Securities by the Issuer
The following table provides information with respect to purchases by the Company of shares of the common stock during the quarterthree months ended September 30, 2019:
2021:
  Issuer Purchases of Equity Securities
  (a) (b) (c) (d)
Period 
Total Number of Shares (or Units) Purchased(1)
 Average Price Paid per Share (or Unit) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs 
Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under Plans or Programs(2)(3)
July 1 - 31, 2019 90,003
 $11.9100
 —
 $15,000,000
August 1 - 31, 2019 8,011
 $12.1500
 —
 $15,000,000
September 1 - 30, 2019 —
 $—
 —
 $15,000,000
Total 98,014
   —
  
Period
Total Number of Shares (or Units) Purchased(1)
Average Price Paid per Share (or Unit)(4)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under Plans or Programs(2)(3)
July 1 - 31, 2021198,608 $25.2600 198,608 $157,456,592 
August 1 - 31, 2021354,640 $21.2856 273,488 $151,559,742 
September 1 - 30, 2021227,398 $19.7290 206,778 $147,473,425 
Total780,646 $21.8433 678,874 
(1) RepresentsAugust and September 2021 include 81,152 and 20,620 shares of common stock withheld for taxes on restricted stock units that vested.vested, respectively.
(2) On November 14, 2018, the Company's Board of Directors approvedThe Company maintains a warrant repurchase program authorizing the Companyit to repurchase the Company’sCompany's outstanding warrants to purchase shares of the Company’sCompany's common stock for an aggregate expenditure of up to $15 million. The repurchases may be made from time to time in the open market, through block trades or in privately negotiated transactions.
(3) On October 1, 2019, the Company's Board of Directors approvedThe Company maintains a stockshare repurchase program authorizing the Companyit to repurchase the Company’s Common StockCompany's common stock for an aggregate expenditure of up to $500 million. The repurchases may be made from time to time in the open market, through block trades or in privately negotiated transactions. See Note 26, "Subsequent Events," to our Consolidated Financial Statements includedShare repurchases presented in Part II, Item 8 of this Annual Reportthe table above are based on Form 10-K for additional information.the transaction settlement date.
(4) Average price paid per share includes transaction costs associated with the repurchases.
Recent Sales of Unregistered Securities
None.

38


Stock Performance Graph
The following graph compares the cumulative total return on our common stock for the period from December 19, 2017, the date the common stock began trading, through September 30, 2019,2021, with the total return over the same period on the Russell 2000 Index and the NASDAQ Computer Index. The graph assumes that $100 was invested on December 19, 2017 in the Company's common stock and in each of the indices and assumes reinvestment of dividends, if any. The graph is based on historical data and is not necessarily indicative of future price performance.avya-20210930_g1.jpg
chart-0f561d74aca5597b891a01.jpg
12/19/17
12/29/17
03/29/18
06/29/18
09/28/18
12/31/18
03/29/19
06/28/19
09/30/19
12/19/1712/29/1703/29/1806/29/1809/28/1812/31/1803/29/1906/28/1909/30/19
Avaya Holdings Corp.$100.00
$106.69
$136.17
$122.07
$134.59
$88.51
$102.31
$72.40
$62.19
Avaya Holdings Corp.$100.00 $106.69 $136.17 $122.07 $134.59 $88.51 $102.31 $72.40 $62.19 
Russell 2000 Index$100.00
$99.92
$99.52
$106.92
$110.40
$87.75
$100.19
$101.94
$99.13
Russell 2000 Index$100.00 $99.92 $99.52 $106.92 $110.40 $87.75 $100.19 $101.94 $99.13 
NASDAQ Computer Index$100.00
$98.21
$100.68
$107.76
$116.13
$94.59
$112.28
$116.62
$121.79
NASDAQ Computer Index$100.00 $98.21 $100.68 $107.76 $116.13 $94.59 $112.28 $116.62 $121.79 
12/31/1903/31/2006/30/2009/30/2012/31/2003/31/2106/30/2109/30/21
Avaya Holdings Corp.Avaya Holdings Corp.$82.07 $49.18 $75.14 $92.41 $116.41 $170.40 $163.53 $120.30 
Russell 2000 IndexRussell 2000 Index$108.57 $75.03 $93.79 $98.11 $133.90 $150.90 $157.37 $150.51 
NASDAQ Computer IndexNASDAQ Computer Index$142.21 $125.93 $167.07 $187.82 $219.94 $227.99 $259.78 $264.24 
This Performance Graph willshall not be, or deemed to be, incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference. In addition, the Performance Graph will not be deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulation 14A or 14C, other than as provided in Regulation S-K, or to the liabilities of section 18 of the Securities Exchange Act of 1934, except to the extent that the Company specifically requests that such information be treated as soliciting material or specifically incorporates it by reference into a filing under the Securities Act or the Exchange Act.

39


Item 6.Selected Financial DataNone.
The selected Consolidated Statements of Operations data for fiscal 2019 (Successor), the period from December 16, 2017 through September 30, 2018 (Successor), the period from October 1, 2017 through December 15, 2017 (Predecessor) and fiscal 2017 (Predecessor), and the selected Consolidated Balance Sheets data as of September 30, 2019 and 2018, are derived from our audited Consolidated Financial Statements included in this Form 10-K. The selected Consolidated Statements of Operations data for fiscal 2016 and 2015, and the selected Consolidated Balance Sheets data as of September 30, 2017, 2016 and 2015, are derived from audited Consolidated Financial Statements that are not included in this Form 10-K. The information set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related notes included in Part II, Item 8, "Consolidated Financial Statements and Supplementary Data" in this Annual Report on Form 10-K.
  Successor  Predecessor
Statement of Operations Data: Fiscal year ended
September 30, 2019		 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal years ended September 30,
(In millions, except per share amounts)     2017 2016 2015
Revenue $2,887
 $2,247
  $604
 $3,272
 $3,702
 $4,081
Net (loss) income (671) 287
  2,977
 (182) (730) (168)
(Loss) earnings per share:             
Basic $(6.06) $2.61
  $5.19
 $(0.43) $(1.54) $(0.43)
Diluted $(6.06) $2.58
  $5.19
 $(0.43) $(1.54) $(0.43)
              
  Successor  Predecessor  
Balance Sheet Data: As of September 30,  As of September 30,  
(In millions) 2019 2018  2017 2016 2015  
Cash and cash equivalents $752
 $700
  $876
 $336
 $323
  
Total assets 6,950
 7,679
  5,898
 5,821
 6,836
  
Total debt (including current and long-term portion) 3,119
 3,126
  725
 6,018
 5,967
  
Liabilities subject to compromise —
 —
  7,705
 —
 —
  
Capital leases 19
 31
  26
 56
 61
  
Total stockholders' equity (deficit) 1,300
 2,051
  (5,013) (5,023) (4,001)  
              
  Successor  Predecessor
Other Financial Data: Fiscal year ended September 30, 2019 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal years ended September 30,
(In millions)     2017 2016 2015
Cash provided by (used for) operating activities $241
 $202
  $(414) $301
 $113
 $215
EBITDA(a)
 (3) 289
  3,479
 370
 125
 724
Adjusted EBITDA(a)
 706
 611
  135
 866
 940
 900
40
(a) Each of EBITDA and Adjusted EBITDA are non-GAAP financial measures. See "Management’s Discussion and Analysis of Financial Condition and Results of Operations-EBITDA and Adjusted EBITDA" for a definition and explanation of EBITDA and Adjusted EBITDA and reconciliation of net (loss) income to EBITDA and Adjusted EBITDA.

The following are significant items affecting the comparability of the selected consolidated financial data for the periods presented:
On December 15, 2017, the Company emerged from bankruptcy and applied fresh start accounting, which required the allocation of its reorganization value to its individual assets based on their estimated fair values. As a result of the application of fresh start accounting and the effects of the implementation of the Plan of Reorganization, the Consolidated Financial Statements after December 15, 2017 are not comparable with the Consolidated Financial

Statements as of or prior to that date. See Note 5, "Fresh Start Accounting," to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for a more detailed discussion.
The Company adopted ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" and its related amendments (collectively "ASC 606"), on October 1, 2018, using the modified retrospective method. As a result, the reported results for fiscal 2019 reflect the application of ASC 606, while the reported results for prior fiscal years are not adjusted and continue to be reported under ASC 605.
In fiscal 2019 (Successor), 2017 (Predecessor) and 2016 (Predecessor), the Company recorded pre-tax impairment charges of $659 million, $117 million and $542 million, respectively, related to goodwill and indefinite-lived intangible assets. See Note 8, "Goodwill," and Note 9, "Intangible Assets," to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information.
During the period from October 1, 2017 through December 15, 2017 (Predecessor) and fiscal 2017 (Predecessor), the Company recorded pre-tax reorganization, net credits (costs) of $3,416 million and $(98) million, respectively. The period from October 1, 2017 through December 15, 2017 (Predecessor) primarily consists of the net gain from the consummation of the Plan of Reorganization and the related settlement of liabilities. The period from October 1, 2017 through December 15, 2017 (Predecessor) and fiscal 2017 (Predecessor) also include amounts incurred subsequent to the Bankruptcy Filing as a direct result of the Bankruptcy Filing and are comprised of professional service fees and contract rejection fees.
The Company acquired Spoken on March 9, 2018. Spoken has been included in the Company's results of operations since the acquisition date. See Note 7, "Business Combinations," to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for a more detailed discussion.
The Company sold its Networking business on July 14, 2017 which resulted in a pre-tax gain of $2 million in fiscal 2017 (Predecessor). See Note 4, "Emergence from Voluntary Reorganization under Chapter 11 Proceedings," to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information.
On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was signed into law, which lowered the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018. During the period from December 16, 2017 through September 30, 2018 (Successor), the Company recorded an income tax benefit of $245 million to adjust deferred tax balances to reflect the new rates. See Note 15, "Income Taxes," to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information.
Restructuring charges, net were $22 million, $81 million, $14 million, $30 million, $105 million and $62 million on a pre-tax basis for fiscal 2019 (Successor), the period from December 16, 2017 through September 30, 2018 (Successor), the period from October 1, 2017 through December 15, 2017 (Predecessor), and fiscal 2017, 2016 and 2015 (Predecessor), respectively. See Note 11, "Business Restructuring Reserves and Programs," to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information.
In fiscal 2017 (Predecessor), the Company recorded non-cash interest expense of $61 million related to the accelerated amortization of debt issuance costs and accretion of debt discount related to the Company’s Bankruptcy Filing. In addition, effective January 19, 2017, the Company ceased recording interest expense on outstanding pre-petition debt classified as Liabilities subject to compromise. Contractual interest expense represented amounts due under the contractual terms of outstanding debt, including debt subject to compromise. For the period from October 1, 2017 through December 15, 2017 (Predecessor) and the period from January 19, 2017 through September 30, 2017 (Predecessor), contractual interest expense of $94 million and $316 million was not recorded as interest expense, as it was not an allowed claim under the Bankruptcy Filing.
As of September 30, 2017 (Predecessor), Liabilities subject to compromise included $5,832 million of Predecessor debt and $12 million of Predecessor capital lease obligations.


Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
"Management’sThis "Management’s Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with the Consolidated Financial Statements and related notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K. The matters discussed in this "Management’s Discussion and Analysis of Financial Condition and Results of Operations" contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve significant risks and uncertainties. See the "Cautionary Note Regarding Forward-looking Statements" above and Part 1, Item 1A, "Risk Factors" in this Annual Report on Form 10-K for additional information regarding forward-looking statements and the factors that could cause actual results to differ materially from those anticipated in the forward-looking statements.
Overview
Avaya is a global leader in digital communications products, solutions and services for businesses of all sizes.sizes delivering its technology predominantly through software and services. We enable organizations around the globe to succeed by creating intelligent communications experiences for customersour clients, their employees and employees.their customers. Avaya builds innovative open, converged unified communications and innovativecollaboration ("UCC") and contact center ("CC") solutions to enhance and simplify communications and collaboration in the cloud, on-premiseson-premise or a hybrid of both. Our global, experienced team of professionals delivers award-winning services from initial planning and design, to seamless implementation and integration, to ongoing managed operations, optimization, training and support.
Avaya shifted its entire comprehensive portfolio of capabilities to Avaya OneCloud, which offers significant capabilities across contact center (OneCloud CCaaS), unified communications and collaboration (OneCloud UCaaS), and communications platform as a service (OneCloud CPaaS). We believe the Avaya OneCloud open, composable platform approach uniquely positions us to address a customer’s needs in creating a Digital Workplace for their campus-based and remote employees through Unified Communications and Collaboration and the Customer Experience Center, our name for contact centers, helping clients deliver tangible business results.
Avaya also offers one of the broadest portfolios of business devices in the industry, including handsets, video conferencing units and headsets to meet the needs of every type of worker across a customer’s organization and help our customers get the most out of their communications investments. Avaya IP-enabled handsets, multimedia devices and conferencing systems enhance collaboration and productivity, and position organizations to incorporate future technological advancements.
Our business has two operating segments: Products & Solutions and Services.
Products & Solutions
Products & Solutions encompasses our unified communicationsUCC and contact centerCC software platforms, applications and devices.
Unified Communications ("UC"): Avaya's unified communicationsAvaya OneCloud UCaaS solutions enable organizations to reimagine what teaming can meancollaborative work environments and help companies increase employee productivity, improve customer service and reduce costs. With Avaya's UC solutions,Avaya OneCloud UCaaS, organizations can provide their workers with a single app for all-channel calling, messaging, meetings and team collaboration with the same ease of use they receive fromas existing consumer apps. Avaya embeds communications directly into the applications,apps, browsers and devices employees use every day, giving peoplethem a more natural, efficient and flexible way to connect, engage, respond and share - where and how they want - for better business results.want. During fiscal 2021, we expanded our portfolio to include new cloud-based solutions, and we continued integrating Artificial Intelligence ("AI") to create enhanced user experience and improve performance.
Avaya offers an open, extensible development platform, so that customers and third parties can easily create custom applications and automated workflows for their unique needs, integrating Avaya’s capabilities into the customer's existing infrastructure and business applications. Our solutions enable a seamless communications experience that fits into how employees work instead of changing how they work. Avaya continues to evolve its UC solutions for cloud deployment, as some customers prefer to consume this service via the cloud.
Contact Center ("CC"):OneCloud CCaaS solutions: Avaya’s industry-leading digital contact center solutions enable customersclients to build a customized portfolio of applications drivingto drive stronger customer engagement and higher customer lifetime value. Our reliable, secure and scalable communications solutions include voice, email, chat, social media, video, performance management and ease of third-party integration that can improve customer service and help companies compete more effectively. Like the UC business, Avaya is evolving the CC solution setdelivering OneCloud CCaaS solutions for cloud development.
Avaya also focuses on ensuring an outstanding experience for mobile callers by integrating transformative technologies, including Artificial Intelligence ("AI"), mobility, big data analytics,deployment and, in fiscal 2021, we continued to aggressively integrate AI, machine learning and leading-edge cybersecurity capabilities into our contact center solutions. As organizations use these solutions to gainportfolio, providing our clients a deeper understanding of their customercustomers’ needs we believewith a robust and secure platform.
Avaya OneCloud CPaaS combines the cloud with our communications platforms, providing a development platform and the application programming interfaces that their teams become more efficient and effective and their customer loyalty grows.
Both UCenable developers to easily integrate both UCC and CC are supported by our portfolio of innovative business phones and multimedia devices, which is one of the broadest in the industry. Avaya brings consumer technology to employee mobile devices and the desktop in a way that can help our customers enhance customer service,communications capabilities directly into internal and external collaboration,customer-facing applications and employee productivity. Customers experience seamless audioworkflows. Organizations can quickly deliver modular, composable applications ("apps") and video capabilities for bothexperiences that meet ever-changing customer and operational needs.

41


Services
Complementing our product and solutions portfolio is a global, award-winning services portfolio, delivered by Avaya and approved third-party UC platforms via open Session Initiation Protocol ("SIP") devices. SIP is used for signalingour extensive partner ecosystem. Our services portfolio, which includes solution upgrades and controlling multi-media communication sessions in applications of Internet telephony for voice and video calls, along with integration with numerous appsprovides new technology through our Avaya OneCloud subscription offerings, consists of:
•Global Support Services provide offerings that help connectbusinesses protect their technology investments and accelerate business. Developers can easily customize capabilities for their specific needs with our client Software Development Kit ("SDK").
Services
Services consists of three business areas: Global Support Services, Enterprise Cloud and Managed Services and Professional Services.

Global Support Services features offerings that address the risk of system outages and also help businesses protect their technology investments.outages. We help our customers maintain their competitivenessgain a competitive edge through proactive problem prevention, rapid resolution and continual solution optimization. The majorityGlobal support services also provide software solutions delivered through a subscription model to provide our customers an improved user experience and solution enhancements. Most of our global support services revenue in this business is recurring in nature.
•Enterprise Cloud and Managed Services enables enable customers to take advantage of our technology via the cloud, on-premises,on-premise, or a hybrid of both, depending on the solution and the needs of the customer. The majorityMost of our enterprise cloud and managed services revenue in this business is recurring in nature and based on multi-year services contracts.
•Professional Services enables businesses worldwide enable our customers to take full advantage of their IT and communications solution investments to drive measurable business results. Our expertexperienced consultants and experienced engineers workpartner with clients as a strategic partnercustomers along each step of the solution lifecycle to deliver services that add value and drive business transformation and expand ongoing value. The majoritytransformation. Most of our professional services revenue in this business is one-timenon-recurring in nature.
Together,With these comprehensive services, enable clients tocustomers can leverage communications technology to help them maximize their business results. Our global team of professionals delivers services from initial planning and design, to seamless implementation and integration, to ongoing managed operations, optimization, training and support. We help our customers use communications to minimize the risk of outages, enabledrive employee productivity and deliver a differentiated customer experience.
Our services teams also help our clientscustomers transition at their desired pace to next generationnext-generation communications technology solutions, either via the cloud, on-premises, or a hybrid of both.solutions. Customers can choose various levelsthe level of support for their communications solutions includingbest suited for their needs, which may include deployment, training, monitoring, troubleshooting andsolution management, optimization and more. Our proactive, preventative systemsystems and service team’s performance monitoring can quickly identify and resolve issues.address issues before they arise. Remote diagnostics and resolutions rapidly fixfocus on fixing existing problems and avoidavoiding potential issues helpingin order to help our customers to save time and reducingreduce the risk of an outage.
Recent Developments
Strategic Partnership with RingCentral
On October 3, 2019, the Company entered into certain agreements regarding a strategic partnership with RingCentral, Inc. (“RingCentral”), a leading provider of global enterprise cloud communications, collaboration and contact center solutions, to accelerate the Company's transition to the cloud. Through this partnership, the Company will introduce Avaya Cloud Office by RingCentral (“Avaya Cloud Office” or “ACO”), a new global unified communications as a service (“UCaaS”) solution. Avaya Cloud Office will expand the Company's industry-leading portfolio to offer a full suite of UC, CC, UCaaS and contact center as a service ("CCaaS") solutions to a global customer base, which includes more than 100,000 customers, over 100 million UC lines and 5 million CC users in approximately 175 countries. Avaya Cloud Office provides the Company with an opportunity to unlock value from a largely unmonetized base of our business as it brings compelling value to our customers and partners. ACO combines RingCentral’s leading UCaaS platform with Avaya technology, services and migration capabilities to create a highly differentiated UCaaS offering. Under the partnership, the Company is required to market and sell ACO as its exclusive UCaaS solution (subject to certain exceptions). Avaya now has a full suite of public, private and hybrid cloud solutions for its global UC and CC customers and partners. ACO is expected to launch in the second quarter of fiscal 2020. On October 25, 2019, the Company and RingCentral received notice from the U.S. Federal Trade Commission that it had granted early termination, effective immediately, of the applicable waiting period under the Hart-Scott-Rodino Antitrust Act of 1976 ("HSR Act") for the transaction, and the transaction closed on October 31, 2019. As consideration for the strategic partnership, RingCentral contributed $500 million to the Company, comprised of a $125 million preferred equity investment and an advance of $375 million for future payments and certain licensing rights. The Company is currently in the process of evaluating the impact of the arrangement on its Consolidated Financial Statements. See Note 26, “Subsequent Events,” to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information about the transaction.
Factors and Trends Affecting Our Results of Operations
There are a number ofseveral trends and uncertainties affecting our business. Most importantly, we are dependent on general economic conditions, and the willingness of our customers to invest in technology. Instability in the geopolitical environment of our customers, instability in the global credit markets and other similar disruptions put pressure on the global economy causing uncertainties. Our business is also affected by changes in foreign currency exchange rates. We believe these uncertainties have impacted our customers’ willingness to spend on ITtechnology and the manner in which theyour customers procure such technology and services.
Industry Trends
•UCC, CC and CPaaS are converging to become part of an integrated services offering delivering next-generation communications capabilities across a host of devices and channels.
•Preference for cloud delivery of applications and management of multiple and varied devices continues to grow, all of which must be handled with the security that business demands.
•The Experience Economy continues to grow. The Experience Economy is based on the concept that experience is a key source of value — it is a differentiator that creates competitive advantage for products and services. As consumers embrace new technologies and services.devices in creative ways and at an accelerating pace, Avaya is continuing to invest in AI-powered solutions delivered through cloud and subscription models to create “Experiences that Matter” for customers, employees and agents. This includes delaysincreased adoption and deployment of AI is providing significant new opportunities for enhanced UCC and CC solutions that improve the customer experience and transform the Digital Workplace.
Coronavirus ("COVID-19") Update
The COVID-19 pandemic has had widespread and unprecedented impacts on regional, national and global economies. The COVID-19 pandemic and its related economic effects have not had a material impact on our business or rejectionliquidity. However, the ultimate impact of capital projects,the pandemic on our business, including our ability to execute our near-term and long-term business strategies and initiatives in the expected time frame, will depend on future pandemic related developments, including the duration and severity of the pandemic, the implementation or re-implementation of governmental and employer requirements to limit the spread of the virus, the speed with which vaccines can be distributed globally, the pace of acceptance of the vaccine by the public and the emergence of new variants, which are uncertain and cannot be predicted.
Our focus throughout the pandemic has been and remains on promoting employee health and safety, serving our customers and ensuring business continuity.
42


We believe that the current macroeconomic environment caused by the COVID-19 pandemic has accelerated a developing trend in the way people work, with more employees working remotely, and believe this could increase demand for certain of the Company's products and services.
As a result of a growing market trend preferring cloud consumption, more customers are exploring subscription and pay-per-use based models, rather than CapEx models, for procuring technology. The shift to subscription and pay-per-use models enables customers to manage costs and efficiencies by paying a subscription or a per minute or per message fee for business

communications services rather than purchasing the underlying products and services, infrastructure and personnel, which are owned and managed by the equipment vendor or a cloud and managed services provider. We believe the market trend toward these flexible consumption models will continue as we see an increasing number of opportunities and requests for proposals based on subscription and pay-per-use models. This trend has driven an increase in the proportion of total Company revenues attributable to software and services. In addition, we believe customers are moving away from owned and operated infrastructure, preferring cloud offerings and virtualized server defined networks, which reduce our associated maintenance support opportunities. We continue to evolve into a software and services business and focus our go-to-market efforts by introducing new solutions and innovations, particularly on workflow automation, multi-channel customer engagement and cloud-enabled communications applications. The Company is focused on growing products and services with a recurring revenue stream. Recurring revenue includes products and services that are delivered pursuant to multi-period contracts including revenue recurring from sales of software, maintenance, Cloud, and Enterprise Cloud and Managed Services.
The Company has maintained its focus on profitability levels and investing in future results. As the Company continues its transformation to a software and service-led organization, it has implemented programs designed to streamline its operations, generate cost savings and eliminate overlapping processes and resources. These cost savings programs include: (1) reducing headcount, (2) eliminating real estate costs associated with unused or under-utilized facilities and (3) implementing gross margin improvement and other cost reduction initiatives. The Company continues to evaluate opportunities to streamline its operations and identify cost savings globally and may take additional restructuring actions in the future. The costs of those actions could be material.
Financial Results Summary
On January 19, 2017 (the "Petition Date"), Avaya Holdings Corp., together with certain of its affiliates (collectively, the "Debtors"), filed voluntary petitions for relief (the "Bankruptcy Filing") under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court").
On November 28, 2017, the Bankruptcy Court entered an order confirming the Second Amended Joint Plan of Reorganization filed by the Debtors on October 24, 2017 (the "Plan of Reorganization"). On December 15, 2017 (the "Emergence Date"), the Plan of Reorganization became effective and the Debtors emerged from bankruptcy.
Beginning on the Emergence Date, the Company applied fresh start accounting, which resulted in a new basis of accounting and the Company becoming a new entity for financial reporting purposes. As a result of the application of fresh start accounting and the effects of the implementation of the Plan of Reorganization, the Consolidated Financial Statements after December 15, 2017 are not comparableFiscal year ended September 30, 2021 compared with the Consolidated Financial Statements on or prior to that date. Refer to Note 5, "Fresh Start Accounting," to our Consolidated Financial Statements for further details.
As a result, our financial results for the period from October 1, 2017 through December 15, 2017 are referred to as those of the "Predecessor" period. Our financial results for fiscal 2019 and the period from December 16, 2017 throughFiscal year ended September 30, 2018 are referred to as those of the "Successor" period. Our results of operations as reported in our Consolidated Financial Statements are in accordance with GAAP and therefore reported separately for each of these periods. Although GAAP requires that we report on our results for the period from October 1, 2017 through December 15, 2017 and the period from December 16, 2017 through September 30, 2018 separately, management views and assesses the Company’s operating results for fiscal 2018 by combining the results of the applicable Predecessor and Successor periods because such presentation provides the most meaningful comparison of our results to the current period.
The Company cannot adequately compare the operating results of the period from December 16, 2017 through September 30, 2018 against the subsequent period reported in its Consolidated Financial Statements without combining it with the period from October 1, 2017 through December 15, 2017 and does not believe that reviewing the results of each of these periods in isolation would be useful in identifying any trends in or reaching any conclusions regarding the Company’s overall operating performance. Management believes that the key performance metrics such as revenue, gross margin and operating (loss) income for the Successor period when combined with the Predecessor period provides more meaningful comparisons to other periods and are useful in identifying current business trends. Accordingly, in addition to presenting our results of operations as reported in our Consolidated Financial Statements in accordance with GAAP, the table and discussion below also present the combined results for fiscal 2018.
The combined results for fiscal 2018, which we refer to herein as results for "fiscal 2018," represent the sum of the reported amounts for the Predecessor period from October 1, 2017 through December 15, 2017 and the Successor period from December 16, 2017 through September 30, 2018. These combined results are not considered to be prepared in accordance with GAAP and have not been prepared as pro forma results under applicable regulations. The combined operating results may not reflect the actual results we would have achieved absent our emergence from bankruptcy and may not be indicative of future results.

New Revenue Recognition Standard
In May 2014, the Financial Accounting Standards Board "FASB" issued Accounting Standards Update "ASU" No. 2014-09, "Revenue from Contracts with Customers ("ASU 2014-09")." This standard superseded most of the previous revenue recognition guidance under GAAP and is intended to improve and converge with international standards the financial reporting requirements for revenue recognition. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. New disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required. Subsequently, the FASB issued several standards that clarified certain aspects of ASU 2014-09 but did not significantly change the original standard. The Company adopted ASU 2014-09 and its related amendments (collectively "ASC 606") as of October 1, 2018 using the modified retrospective transition method. Refer to Note 3, "Recent Accounting Pronouncements" and Note 6, "Revenue Recognition" to our Consolidated Financial Statements for disclosures related to the adoption of ASC 606 and an updated accounting policy related to revenue recognition and contract costs.
With the adoption of ASC 606, sales that include professional services, are generally recognized as the services are performed as opposed to upon completion and acceptance of the promised services. Additionally, when such arrangements also include products, certain products revenue is recognized when the products are delivered as opposed to upon completion and acceptance of the related services. Revenue recognition related to stand-alone product shipments, maintenance services, and certain cloud offerings remains substantially unchanged. In addition to the impacts on revenue recognition, the standard requires incremental contract acquisition costs (primarily sales commissions) to be capitalized and amortized over the term of the related performance obligation as opposed to expensed as incurred. The actual impacts are dependent upon contract-specific terms.
At the beginning of fiscal 2019, the Company’s management proactively aligned its internal key performance indicators and its incentive compensation plans to drive performance under ASC 606. Due to these operational changes, the Company’s results for fiscal 2019 if prepared on an ASC 605 as opposed to an ASC 606 basis (see Note 6, “Revenue Recognition,” to our Consolidated Financial Statements) would not be directly comparable to the Company’s results for fiscal 2018, which are also on an ASC 605 basis. In addition to the impact on revenue, these operational changes also had a corresponding impact on the Company’s cash flow performance, as revenue recognition now precedes customer billing and cash collection in many cases. The Company anticipates that the differences resulting from these operational changes will normalize as services engagements reach completion milestones in subsequent reporting periods.

Fiscal Year Ended September 30, 2019 Results Compared with Fiscal Year Ended September 30, 2018 Combined2020
The section below provides a comparative discussion of our consolidated results of operations between fiscal 20192021 and 2018.2020. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended September 30, 20182020 filed on November 25, 2020 for comparative discussion of our consolidated results of operations between fiscal 2018 (combined)2020 and 2017.2019.
The following table displays our consolidated net (loss) incomeloss for the periods indicated:
Fiscal years ended September 30,
(In millions)20212020
REVENUE
Products$992 $1,073 
Services1,981 1,800 
2,973 2,873 
COSTS
Products:
Costs398 405 
Amortization of technology intangible assets173 174 
Services752 714 
1,323 1,293 
GROSS PROFIT1,650 1,580 
OPERATING EXPENSES
Selling, general and administrative1,053 1,013 
Research and development228 207 
Amortization of intangible assets159 161 
Impairment charges— 624 
Restructuring charges, net30 30 
1,470 2,035 
OPERATING INCOME (LOSS)180 (455)
Interest expense(222)(226)
Other income, net44 63 
INCOME (LOSS) BEFORE INCOME TAXES2 (618)
Provision for income taxes(15)(62)
NET LOSS$(13)$(680)
  Successor  Predecessor Non-GAAP Combined
  Fiscal year ended September 30, 2019 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal year ended September 30, 2018
(In millions)     
REVENUE         
Products $1,222
 $989
  $253
 $1,242
Services 1,665
 1,258
  351
 1,609
  2,887
 2,247
  604
 2,851
COSTS         
Products:         
Costs 442
 372
  84
 456
Amortization of technology intangible assets 174
 135
  3
 138
Services 696
 597
  155
 752
  1,312
 1,104
  242
 1,346
GROSS PROFIT 1,575
 1,143
  362
 1,505
OPERATING EXPENSES         
Selling, general and administrative 1,001
 888
  264
 1,152
Research and development 204
 172
  38
 210
Amortization of intangible assets 162
 127
  10
 137
Impairment charges 659
 —
  —
 —
Restructuring charges, net 22
 81
  14
 95
  2,048
 1,268
  326
 1,594
OPERATING (LOSS) INCOME (473) (125)  36
 (89)
Interest expense (237) (169)  (14) (183)
Other income (expense), net 41
 35
  (2) 33
Reorganization items, net —
 —
  3,416
 3,416
(LOSS) INCOME BEFORE INCOME TAXES (669) (259)  3,436
 3,177
(Provision for) benefit from income taxes (2) 546
  (459) 87
NET (LOSS) INCOME $(671) $287
  $2,977
 $3,264


The following table displays the impact of the fair value adjustments resulting from the Company's application of fresh start accounting upon emergence from bankruptcy, excluding those related to the amortization of intangible assets, on the Company's operating loss for the period indicated:
(In millions) Fiscal year ended September 30, 2019 Period from December 16, 2017
through
September 30, 2018
REVENUE    
Products $(6) $(63)
Services (15) (143)
  (21) (206)
COSTS    
Products 5
 21
Services 11
 37
  16
 58
GROSS PROFIT (37) (264)
OPERATING EXPENSES    
Selling, general and administrative 1
 16
Research and development (4) (11)
  (3) 5
OPERATING LOSS $(40) $(259)
Revenue
Revenue for fiscal 20192021 was $2,887$2,973 million compared to $2,851$2,873 million for fiscal 2018.2020. The increase was primarily driven by a lower impact of applying fresh start accounting upon emergencehigher revenue from bankruptcy,the Company's subscription and OneCloud Private offerings; revenue growth from the Company's Avaya Cloud Office offering which resulted in the recognition of deferred revenue at fair value and lower revenue in subsequent periodslaunched on March 31, 2020; and the favorable impact of adopting ASC 606 ($173 million). The increase wasforeign currency exchange rates, partially offset by lower demand for the Company’s unified communicationsCompany's on-premise product solutions, hardware maintenance and contact center products; lower professionalsoftware support services as customers transition to our subscription and cloud solutions. Revenue for fiscal 2021 also includes a $15 million out-of-period adjustment to record revenue mainly driven by the operational changes implemented in the current year to drivefor certain performance under ASC 606; a decline in maintenance services revenue primarily due to declines in Products & Solutions revenueobligations satisfied in prior periods partially offset by an improvement in maintenance contract renewal rates;periods. See Note 1 "Background and the unfavorable impactBasis of foreign currency exchange rates.Presentation" included within Part II Item 8 of this Annual Report on Form 10-K.
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The following table displays revenue and the percentage of revenue to total sales by operating segment for the periods indicated:
Percentage of Total RevenueYr. to Yr. Percentage ChangeYr. to Yr. Percentage Change, net of Foreign Currency Impact
Fiscal years ended September 30,Fiscal years ended September 30,
(In millions)2021202020212020
Products & Solutions$992 $1,074 33 %37 %(8)%(9)%
Services1,982 1,805 67 %63 %10 %9 %
Unallocated amounts(1)(6)— %— %(1)(1)
Total revenue$2,973 $2,873 100 %100 %3 %2 %
          Percentage of Total Revenue    
 Successor  Predecessor Non-GAAP Combined Successor Non-GAAP Combined   Yr. to Yr. Percentage Change, net of Foreign Currency Impact
(In millions)Fiscal year ended September 30, 2019 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal year ended September 30, 2018 Fiscal year ended September 30, 2019 Fiscal year ended September 30, 2018 Yr. to Yr. Percentage Change 
Products & Solutions$1,228
 $1,052
  $253
 $1,305
 43 % 46 % (6)% (5)%
Services1,680
 1,401
  351
 1,752
 58 % 61 % (4)% (3)%
Unallocated amounts(21) (206)  —
 (206) (1)% (7)% 
(1) 

 
(1) 

Total revenue$2,887
 $2,247
  $604
 $2,851
 100 % 100 % 1 % 2 %
(1)Not meaningful
(1)
Not meaningful
Products & Solutions revenue for fiscal 20192021 was $1,228$992 million compared to $1,305$1,074 million for fiscal 2018.2020. The decrease was primarily attributable to lower unified communicationsdemand for the Company's on-premise product solutions; and contact centerhigher revenue from the fulfillment of certain obligations related to a new government contract in the prior period, partially offset by revenue from the Company's Avaya Cloud Office offering which launched on March 31, 2020; the impact of the out-of-period adjustment described above; and the unfavorablefavorable impact of foreign currency exchange rates.
Services revenue for fiscal 2021 was $1,982 million compared to $1,805 million for fiscal 2020. The increase was primarily driven by higher revenue from the Company's subscription and OneCloud Private offerings; revenue from implementation services related to a government contract signed in fiscal 2020; and the favorable impact of foreign currency exchange rates, partially offset by the favorable impact of adopting ASC 606 ($97 million).
Services revenue for fiscal 2019 was $1,680 million comparedplanned declines in hardware maintenance and software support services which continue to $1,752 million for fiscal 2018. The decrease was primarily due to lower professional services revenue mainlyface headwinds driven by lower new product sales over the operational changes implemented in the current year to drive performance under ASC 606; a decline in maintenance services revenue primarily due to declines in Products & Solutions

revenue in prior periods partially offset by an improvement in maintenance contract renewal rates; and the unfavorable impact of foreign currency exchange rates, partially offset by the favorable impact of adopting ASC 606 ($76 million).past several years.
Unallocated amounts for fiscal 20192021 and 20182020 represent the fair value adjustment to deferred revenue recognized upon emergence from bankruptcy andin December 2017 which is excluded from segment revenue.
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The following table displays revenue and the percentage of revenue to total sales by location for the periods indicated:
        Percentage of Total Revenue   Percentage of Total RevenueYr. to Yr. Percentage ChangeYr. to Yr. Percentage Change, net of Foreign Currency Impact
Successor  Predecessor Non-GAAP Combined Successor Non-GAAP Combined   Yr. to Yr. Percentage Change, net of Foreign Currency ImpactFiscal years ended September 30,Fiscal years ended September 30,
(In millions)Fiscal year ended September 30, 2019 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal year ended September 30, 2018 Fiscal year ended September 30, 2019 Fiscal year ended September 30, 2018 Yr. to Yr. Percentage Change (In millions)2021202020212020
U.S.$1,553
 $1,184
  $331
 $1,515
 54% 53% 3 % 3%U.S.$1,704 $1,640 57 %57 %4 %4 %
International:                International:
Europe, Middle East and Africa753
 603
  166
 769
 26% 27% (2)% —%Europe, Middle East and Africa732 714 25 %25 %3 %— %
Asia Pacific327
 256
  57
 313
 11% 11% 4 % 8%Asia Pacific297 296 10 %10 %— %(2)%
Americas International - Canada and Latin America254
 204
  50
 254
 9% 9% — % 3%Americas International - Canada and Latin America240 223 8 %8 %8 %5 %
Total International1,334
 1,063
  273
 1,336
 46% 47% — % 3%Total International1,269 1,233 43 %43 %3 %— %
Total revenue$2,887
 $2,247
  $604
 $2,851
 100% 100% 1 % 2%Total revenue$2,973 $2,873 100 %100 %3 %2 %
Revenue in the U.S. for fiscal 20192021 was $1,553$1,704 million compared to $1,515$1,640 million for fiscal 2018.2020. The increase in U.S. revenue was mainly driven by higher revenue from the result of a lower impact of applying fresh start accounting upon emergenceCompany's subscription and OneCloud Private offerings; and revenue growth from bankruptcy and the favorable impact of adopting ASC 606 ($89 million). The increase wasCompany's Avaya Cloud Office offering which launched on March 31, 2020, partially offset by lower demand for the Company's unified communicationson-premise product solutions, hardware maintenance and contact center products and a decline in professional and maintenance services revenue. software support services.
Revenue in Europe, Middle East and Africa ("EMEA") for fiscal 20192021 was $753$732 million compared to $769$714 million for fiscal 2018.2020. The decreaseincrease in EMEA was mainly driven by higher revenue was primarily attributable to lower demand for our unified communications products; lower professional services revenue;from the Company's subscription and OneCloud Private offerings; revenue growth from the Company's Avaya Cloud Office offering; and the unfavorablefavorable impact of foreign currency exchange rates, partially offset by a lower impact of fresh start accountingdemand for the Company's on-premise product solutions, hardware maintenance and the favorable impact of adopting ASC 606 ($31 million). software support services.
Revenue in Asia Pacific ("APAC") for fiscal 20192021 was $327$297 million compared to $313$296 million for fiscal 2018.2020. The increase in APAC revenue was primarily attributable to higher revenue from the Company's subscription and OneCloud Private offerings; revenue growth from the Company's Avaya Cloud Office offering; and the favorable impact of adopting ASC 606 ($21 million); a lower impact of fresh start accounting; and higher maintenance services revenue,foreign currency exchange rates, partially offset by lower demand for our unified communicationsthe Company's on-premise product solutions, hardware maintenance and contact center products; lower professional services revenue; and the unfavorable impact of foreign currency exchange rates. software support services.
Revenue in Americas International for fiscal 20192021 was $254$240 million and flat with the prior year period. Incompared to $223 million for fiscal 2020. The increase in Americas International revenue was primarily driven by higher revenue from the favorable impact of adopting ASC 606 ($32 million) and a lower impact of fresh start accounting was offset by lowerCompany's subscription offerings; higher revenue from the Company's professional services revenue; lower demand for our unified communications and contact center products;services; and the unfavorablefavorable impact of foreign currency exchange rates.rates, partially offset by lower demand for the Company's hardware maintenance and software support services.
Gross Profit
The following table sets forth gross profit and gross margin by operating segment for the periods indicated:
          Gross Margin    
 Successor  Predecessor Non-GAAP Combined Successor Non-GAAP Combined Change
(In millions)Fiscal year ended September 30, 2019 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal year ended September 30, 2018 Fiscal year ended September 30, 2019 Fiscal year ended September 30, 2018 Amount Percent
Products & Solutions$791
 $696
  $169
 $865
 64.4% 66.3% $(74) (9)%
Services996
 843
  196
 1,039
 59.3% 59.3% (43) (4)%
Unallocated amounts(212) (396)  (3) (399) 
(1 
) 
 
(1 
) 
 187
 
(1) 

Total$1,575
 $1,143
  $362
 $1,505
 54.6% 52.8% $70
 5 %
(1)
Not meaningful

Gross MarginChange
Fiscal years ended September 30,Fiscal years ended September 30,AmountPercent
(In millions)2021202020212020
Products & Solutions$594 $669 59.9 %62.3 %$(75)(11)%
Services1,230 1,092 62.1 %60.5 %138 13 %
Unallocated amounts(174)(181)(1)(1)7 (1)
Total$1,650 $1,580 55.5 %55.0 %$70 4 %
Gross profit for fiscal 2019 was $1,575 million compared to $1,505 million for fiscal 2018. The increase was primarily driven by the increase in revenue described above, partially offset by amortization of technology intangibles with higher asset values due to the application of fresh start accounting upon emergence from bankruptcy and the unfavorable impact of costs recognized on an accelerated basis under ASC 606 ($44 million).(1)Not meaningful

Products & Solutions gross profit for fiscal 20192021 was $791$594 million compared to $865$669 million for fiscal 2018.2020. The decrease was mainly attributable to the decline in revenue described above. Products & Solutions gross margin decreased from 66.3% to 64.4%62.3% in fiscal 20192020 to 59.9% in fiscal 2021 mainly driven by increase in cloud and partner costs, as well as an unfavorable product mix.mix primarily due to a shift in consumption of higher margin on-premise software from a perpetual license model to a subscription model, which is reflected within our Services segment.
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Services gross profit for fiscal 20192021 was $996$1,230 million compared to $1,039$1,092 million for fiscal 2018.2020. The decreaseincrease was mainly due todriven by the declinegrowth in revenue described above. Services gross margin remained flat at 59.3%increased from 60.5% in both fiscal 2019 and 2018.2020 to 62.1% in fiscal 2021 mainly due to the favorable impact of higher revenue from the Company's subscription offerings, partially offset by higher third party expenses.
Unallocated amounts for fiscal 20192021 and 20182020 include the amortization of technology intangibles and fair value adjustments recognized upon emergence from bankruptcy andwhich are excluded from segment gross profit; the effect of the amortization of technology intangibles; and costs that are not core to the measurement of segment performance, but rather are controlled at the corporate level.profit.
Operating Expenses
The following table sets forth operating expenses and the percentage of operating expenses to total revenue for the periods indicated:
Percentage of Total RevenueChange
Fiscal years ended September 30,Fiscal years ended September 30,AmountPercent
(In millions)2021202020212020
Selling, general and administrative$1,053 $1,013 35.4 %35.3 %$40 4 %
Research and development228 207 7.7 %7.2 %21 10 %
Amortization of intangible assets159 161 5.3 %5.6 %(2)(1)%
Impairment charges— 624 — %21.7 %(624)(100)%
Restructuring charges, net30 30 1.0 %1.0 %— — %
Total operating expenses$1,470 $2,035 49.4 %70.8 %$(565)(28)%
          Percentage of Total Revenue    
 Successor  Predecessor��Non-GAAP Combined Successor Non-GAAP Combined Change
(In millions)Fiscal year ended September 30, 2019 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal year ended September 30, 2018 Fiscal year ended September 30, 2019 Fiscal year ended September 30, 2018 Amount Percent
Selling, general and administrative$1,001
 $888
  $264
 $1,152
 34.7% 40.4% $(151) (13)%
Research and development204
 172
  38
 210
 7.1% 7.4% (6) (3)%
Amortization of intangible assets162
 127
  10
 137
 5.5% 4.8% 25
 18 %
Impairment charges659
 —
  —
 —
 22.8% —% 659
 n/a
Restructuring charges, net22
 81
  14
 95
 0.8% 3.3% (73) (77)%
Total operating expenses$2,048
 $1,268
  $326
 $1,594
 70.9% 55.9% $454
 28 %

Selling, general and administrative expenses for fiscal 20192021 were $1,001$1,053 million compared to $1,152$1,013 million for fiscal 2018.2020. The decreaseincrease was primarily attributable to lower sales commissions and accrued incentivehigher channel compensation; higher share-based compensation due to the Company's revenue performance;expense; higher costs incurred in the prior year in connection with certain legal matters and advisory fees to assist in the assessment of strategic and financial alternatives to improve the Company's capital structure;for employee benefits; and the favorable impact of foreign currency exchange rates. The decrease was partially offset by an increase in non-cash share-based compensation due to a longer amortization period (twelve full months) for Successor Company stock awards included in the current year. Share-based compensation expense related to cancelled Predecessor Company stock awards was recorded within Reorganization items, net during the period from October 1, 2017 through December 15, 2017 (Predecessor).
Research and development expenses for fiscal 2019 were $204 million compared to $210 million for fiscal 2018. The decrease was primarily attributable to lower depreciation expense in the current period due to the impact of applying fresh start accounting in fiscal 2018 and the favorableunfavorable impact of foreign currency exchange rates, partially offset by incremental expensesadvisory fees incurred in prior period associated with executing the Spoken acquisition.strategic partnership with RingCentral; lower expense for expected credit losses; and lower travel and facility related costs as a result of the COVID-19 pandemic.
Research and development expenses for fiscal 2021 were $228 million compared to $207 million for fiscal 2020. The increase was primarily attributable to investments in cloud technology development.
Amortization of intangible assets for fiscal 20192021 was $162$159 million compared to $137$161 million for fiscal 2018. The carrying value of intangible assets was adjusted upon the application of fresh start accounting, which resulted in higher asset values and an increase in amortization during the current year period.2020.
Impairment charges for fiscal 20192020 were $659$624 million. During the third quarter of fiscal 2019,2020, the Company performed an interim impairment test of its goodwill and indefinite-lived intangible assets due to a sustained decrease in(i) the Company’s stock price and lower than planned financial resultsimpact of the COVID-19 pandemic on the macroeconomic environment which led to revisions to the Company's long-term forecast during the third quarter.second quarter of fiscal 2020 and (ii) the sustained decrease in the Company's stock price at the beginning stages of the pandemic which was caused by the resulting volatility in the financial markets. The results of the Company’sCompany's interim goodwill impairment test as of June 30, 2019 indicated that the estimated fair valuesvalue of the Company’s Unified Communications (“UC”), Global SupportCompany's Services (“GSS”), Avaya Professional Services

(“APS”) and Enterprise Cloud and Managed Solutions (“ECMS”) reporting units were greater than theirunit exceeded its carrying amounts, however, theamount. The carrying amount of the Company’s Contact Center (“CC”) reporting unit within theCompany's Products & Solutions segmentreporting unit exceeded its estimated fair value primarily due to a reduction in the Company's long-term forecast.forecast to reflect increased risk from higher market uncertainty and the accelerated reduction of product sales related to the Company's historical on-premises perpetual licenses with a continued shift and acceleration of customers upgrading and acquiring new technology innovation through the utilization of the Company's subscription offering, which is included in the Services reporting unit. As a result, the Company recorded a goodwill impairment charge of $657$624 million representingto write down the amount by which thefull carrying amount of the CC reporting unit exceeded its fair value. As of June 30, 2019, the remaining carrying amount of goodwill for the CC reporting unit was $197 million.Products & Solutions goodwill. The results of the indefinite-lived intangible asset impairment test indicated that no impairment existed. Subsequently, theThe Company performed its annual impairment test for goodwill and indefinite-lived intangible assets impairment test as of July 1, 2019in fiscal 2021 and determined that no impairment existed. As of July 1, 2019, after giving effect to the impairment charges, the fair value of the UC, APS and ECMS reporting units exceeded their carrying amounts by more than 10%, however, the GSS reporting unit had an excess fair value over its carrying value of 7% and the CC reporting unit was at fair value due to the impairment charges described above. The goodwill assigned to GSS and CC as of July 1, 2019 was $1,446 million and $197 million, respectively. An increase in the GSS discount rate of 65 basis points or a decrease in the GSS long-term growth rate of 95 basis points used in the interim goodwill impairment test as of June 30, 2019 would result in an estimated fair value below its carrying value.During fiscal 2019, the Company also elected to abandon an in-process research and development project acquired with Spoken since it no longer aligned with the Company’s technology roadmap. As a result, the Company recorded an impairment charge of $2 million to write down the full carrying amount of the acquired in-process research and development project. To the extent that business conditions deteriorate further or if changes in key assumptions and estimates differ significantly from management’s expectations, it may be necessary to record additional impairment charges in the future. No impairment charges were recorded during fiscal 2018.
Restructuring charges, net, for fiscal 2019 were $22 million compared to $95$30 million for both fiscal 2018.2021 and 2020. Restructuring charges during fiscal 20192021 consisted of employee separation costs of $19 million primarily associated withfor employee severance actions in the U.S., EMEA and Canada and lease obligations of $3$11 million primarily in the U.S. Restructuring charges during fiscal 2018 included employee separationfor facility exit costs of $83 million primarily associated with employee severance actions in EMEA and the U.S. and lease obligations of $12 million, primarily in the U.S. and EMEA. Restructuring charges during fiscal 2020 consisted of $24 million for facility exit costs primarily in the U.S. and $6 million for employee severance actions in EMEA.
Operating LossIncome
Operating lossincome for fiscal 20192021 was $473$180 million compared to $89an operating loss of $455 million for fiscal 2018.2020. Our operating results for fiscal 20192021 as compared to fiscal 20182020 reflect, among other things:things, the following items which are described in more detail above:
•higher revenue and gross profit for fiscal 2019, as described above;2021;
impairment charges of $659 million for fiscal 2019;
46

costs incurred in connection with certain legal matters of $37 million for fiscal 2018;
lower restructuring charges for fiscal 2019;
lower advisory fees incurred to assist in the assessment of strategic•higher selling, general and financial alternatives to improve the Company's capital structure of $10 million;
higher amortization of intangible assets due to the application of fresh start accounting upon emergence from bankruptcy;
the favorable impact of adopting ASC 606 on October 1, 2018;administrative expenses and
lower accrued incentive compensation research and sales commissionsdevelopment costs in fiscal 2019.2021; and
•a $624 million goodwill impairment charge during fiscal 2020 with no comparable charge during fiscal 2021.
Interest Expense
Interest expense for fiscal 20192021 was $237$222 million compared to $183$226 million for fiscal 2018. For the period from October 1, 2017 through December 15, 2017, contractual interest expense of $94 million2020. The decrease was not recorded, as it was not an allowed claim under the Company's bankruptcy filing. The decline in interest expense, when including the contractual interest expense of $94 million not recorded in fiscal 2018, wasmainly driven by lower debt issuance costs and lower average debt balancesprincipal amounts outstanding in fiscal 20192021 compared to fiscal 2020 as a result of the Company's Plan of Reorganization upon emergence from bankruptcy,changes in the Company’s debt portfolio described in the “Liquidity and Capital Resources” section below, partially offset by higher average interest expense associated withrates primarily attributable to the Convertibleissuance of the Company’s Senior 6.125% First Lien Notes issued(the "Senior Notes") in June 2018.September 2020.
Other Income, Net
Other income, net for fiscal 20192021 was $41$44 million as compared to $33$63 million for fiscal 2018. Other income, net for fiscal 2019 consisted of a change in fair value of the Emergence Date Warrants of $29 million; interest income of $14 million; and other pension and post-retirement benefit credits of $7 million, partially offset2020. The decrease was mainly driven by net foreign currency losses of $8 million and other, net of $1 million. Other income, net for fiscal 2018 included net foreign currency gains of $28 million, principally due to the strengthening of the U.S. dollar compared to certain foreign exchange rates on U.S. dollar denominated receivables maintained in non-U.S. locations, mainly Argentina, India and Mexico; income from a transition services agreement entered into in connection with the sale of all the Networking business to Extreme (the "TSA") of $8 million; interest income of $7 million; other

pension and post-retirement benefit credits of $5 million; and other, net of $2 million,Company's RingCentral shares during fiscal 2020, partially offset by a change in fair value ofnon-cash settlement gain recorded during fiscal 2021 related to the Emergence Date Warrants of $17 million.
Reorganization Items, Net
Reorganization items, net for fiscal 2018 were $3,416 millionCompany's other post-retirement plan; and primarily consists of the net gain from the consummationimpact of the Plan of Reorganization and the related settlement of liabilities. Reorganization items, net also represent amounts incurred subsequent to the Bankruptcy Filing as a direct result of the Bankruptcy Filing and are comprised of professional service fees and contract rejection fees.foreign currency gains (losses).
(Provision for) Benefit fromfor Income Taxes
The provision for income taxes was $2$15 million for fiscal 20192021 compared with a benefit from income taxes of $87to $62 million for fiscal 2018.2020.
The Company's effective income tax rate for fiscal 20192021 differed from the U.S. federal tax rate primarily due to: (1) income and losses taxed at different foreign tax rates, (2) losses generated within certain foreign jurisdictionsby 729% or $15 million principally related to deferred taxes (including losses) for which no benefit was recorded because it is more likely than not that the tax benefits would not be realized, (3) non-U.S. withholding taxes on foreign earnings, (4) current period changes to unrecognized tax positions, (5) U.S. staterealized; and local income taxes, (6) the impact of the Tax Cuts and Jobs Act (the "Act"), (7) the goodwill impairment charges recorded in fiscal 2019, (8) current period elections taken in submitted tax filings, and (9) foreign tax credits.certain nondeductible expenses.
The Company’sCompany's effective income tax rate for the period from December 16, 2017 through September 30, 2018 (Successor)fiscal 2020 differed from the U.S. federal tax rate primarily due to: (1) incomeby 31% or $192 million principally related to the goodwill impairment charge recorded in the second quarter of fiscal 2020 and losses taxed at different foreign tax rates, (2) losses generated within certain foreign jurisdictionsdeferred taxes (including losses) for which no benefit was recorded because it is more likely than not that the tax benefits would not be realized, (3) non-U.S. withholding taxes on foreign earnings, (4) current period changes to unrecognized tax positions, (5) U.S. state and local income taxes, (6) an increase in estimated current year tax loss, which is eliminated as part of the attribute reduction related to the cancellation of indebtedness income ("CODI"), and (7) the impact of the Act, which only affects the period from December 16, 2017 through September 30, 2018(Successor).
The Company's effective income tax rate for the period from October 1, 2017 through December 15, 2017 (Predecessor) differed from the U.S. federal tax rate primarily due to: (1) income and losses taxed at different foreign tax rates, (2) losses generated within certain foreign jurisdictions for which no benefit was recorded because it is more likely than not that the tax benefits would not be realized, (3) non-U.S. withholding taxes on foreign earnings, (4) current period changes to unrecognized tax positions, (5) U.S. state and local taxes, and (6) the impact of reorganization and fresh start adjustments.realized.
Net (Loss) IncomeLoss
Net loss was $671$13 million for fiscal 20192021 compared to a net income of $3,264$680 million for fiscal 20182020 as a result of the items discussed above.
Liquidity and Capital Resources
We expect our existing cash balance, cash generated by operations and borrowings available under our ABL Credit Agreement and cash received in connection with the Company's strategic partnership with RingCentral, which closed on October 31, 2019, to be our primary sources of short-term liquidity. Refer to "Recent Developments - Strategic Partnership with RingCentral" and Note 26, "Subsequent Events," included in Part II, Item 8 of this Annual Report on Form 10-K for additional information regarding the strategic partnership with RingCentral. Our ability to meet our cash requirements will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Based on our current level of operations, we believe these sources will be adequate to meet our liquidity needs for at least the next twelve months.

Cash Flow Activity
The following table provides a summary of the statements of cash flows for the periods indicated:
 Successor  Predecessor Non-GAAP CombinedFiscal years ended September 30,
(In millions) Fiscal year ended September 30, 2019 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal year ended September 30, 2018(In millions)20212020
Net cash provided by (used for):         Net cash provided by (used for):
Operating activities $241
 $202
  $(414) $(212)Operating activities$30 $147 
Investing activities (124) (199)  (13) (212)Investing activities(117)314 
Financing activities (61) 273
  (102) 171
Financing activities(142)(489)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (4) (7)  (2) (9)Effect of exchange rate changes on cash, cash equivalents, and restricted cash— 3 
Net increase (decrease) in cash, cash equivalents, and restricted cash 52
 269
  (531) (262)
Net decrease in cash, cash equivalents, and restricted cashNet decrease in cash, cash equivalents, and restricted cash(229)(25)
Cash, cash equivalents, and restricted cash at beginning of period 704
 435
  966
 966
Cash, cash equivalents, and restricted cash at beginning of period731 756 
Cash, cash equivalents, and restricted cash at end of period $756
 $704
  $435
 $704
Cash, cash equivalents, and restricted cash at end of period$502 $731 
Operating Activities
Cash provided by operating activities was $241 million for fiscal 2019, compared to cash used for operating activities of $2122021 and 2020 was $30 million for fiscal 2018.and $147 million, respectively. The change between fiscal 2019 and 2018decrease was primarily due to payments made during fiscal 2018 related to the Company's reorganization and emergence from bankruptcy, which included payments to the Pension Benefit Guaranty Corporation ($340 million), general unsecured creditor claims ($58 million)higher incentive compensation payments; and the Avaya Pension Plan trust ($49 million);timing of customer cash payments as the Company continues its rapid transition to a cloud and subscription model, partially offset by higher advisory fees incurred in the prior
47


year period associated with executing the strategic partnership with RingCentral; the timing of vendor and customer payments; lower restructuring payments; lower pension and other post-retirement benefits; and lower advisory fees to assist in the assessment of strategic and financial alternatives to improve the Company's capital structure. These lower payments were partially offset by higher interest payments in fiscal 2019 due to the cessation of such payments in January 2017 during the bankruptcy process; lower cash earnings; higher income tax payments; and increases in inventory.lower interest payments.
Investing Activities
Cash used for investing activities for fiscal 2019 and 20182021 was $124$117 million and $212compared to cash provided by investing activities of $314 million respectively.for fiscal 2020. The decreasechange was primarily due to cash paid for the Spoken acquisition of $157 million in the prior year period and $17 million of proceeds received in the prior year period from sale-leaseback transactions, mainly related to the sale of equipment usedshares of RingCentral common stock, which were received by the Company upon entry into the strategic partnership in the performance of services under the Company's agreement with HP Enterprise Services, LLC ("HP"). These decreases wereOctober 2019, partially offset by higheran increase in capital expenditures for IT-related projects and the Company's investmentan asset acquisition in a unified communications as a service (“UCaaS”) provider catering to public sector security requirements.fiscal 2021.
Financing Activities
Cash used for financing activities for fiscal 20192021 and 2020 was $61$142 million comparedand $489 million, respectively. The decrease was primarily due to cash providedlower repurchases of shares of common stock under the Company's share repurchase program; lower principal prepayments under the Term Loan Credit Agreement; higher proceeds from the Employee Stock Purchase Plan which was introduced in June 2020; and higher proceeds from the exercise of stock options, partially offset by financing activitiesthe issuance of $171Series A Preferred Stock to RingCentral upon entry into the strategic partnership and higher debt issuance costs in the prior year period as a result of the issuance of the Company's Senior Notes and its Term Loan Credit Agreement refinancing in September 2020 described in more detail below.
Senior Notes Issuance
On September 25, 2020, the Company issued $1,000 million for fiscal 2018.in aggregate principal amount of its Senior Notes. The Senior Notes were issued under an indenture, among the Company, the Company's subsidiaries that guaranteed the Senior Notes on the issuance date and Wilmington Trust, National Association, as trustee and notes collateral agent. The Senior Notes mature on September 15, 2028. The Company used the net proceeds from the issuance of the Senior Notes after debt issuance costs to prepay $981 million in principal amount of certain first lien term loans under its Term Loan Credit Agreement.
Cash used for financing activities for fiscal 2019 included:Term Loan Credit Agreement Refinancing
scheduled debt repaymentsOn September 25, 2020, the Company amended the Term Loan Credit Agreement, pursuant to which the maturity of $800 million in principal amount of the first lien term loans outstanding under the Term Loan Credit Agreement of $29 million;
repayments in connection with financing the use of equipment for the performance of services under our agreement with HP of $12 million;
payment of contingent consideration relatedwas extended from December 2024 to the Spoken acquisition of $9 million; and
December 2027. The amendment also made certain other financing activities, net of $11 million.
Cash provided by financing activities for fiscal 2018 included:
proceeds of $2,896 million fromchanges to the Term Loan Credit Agreement, entered into onincluding with respect to the Emergence Date;change of control provisions.
proceeds of $350 million fromOn February 24, 2021, the issuance of 2.25% Convertible Notes; and

proceeds fromCompany further amended the issuance of call spread warrants (the "Call Spread Warrants") of $58 million;
partially offset by:
repayment of the Company's Term Loan Credit Agreement, of $2,918 million as part of its refinancing inpursuant to which the prior year, net of proceeds received under the refinancing of $2,911 million;
repayments to the Predecessor Company prepaid, replaced and refinanced all first lien debt holders of $2,061 million;
repayment of the Predecessor Company DIP Credit Agreement of $725 million;
adequate protection payments related to the bankruptcy of $111 million;
payment of debt issuance costs of $107 million;
the purchase of a bond hedge of $84 million;
scheduled debt repaymentsterm loans due December 2024 outstanding under the Term Loan Credit Agreement with $100 million in cash and $743 million in principal amount of $22 million;new first lien term loans due December 2027.
repayments in connection with financingABL Credit Agreement Refinancing
On September 25, 2020, the useCompany also amended its ABL Credit Agreement to, among other things, extend its maturity to September 25, 2025, subject to customary adjustments to the extent certain of equipment for the performance of servicesCompany's indebtedness matures prior to such date. The total commitments under our agreement with HP of $13 million; and
other financing activities, net of $3 million.the ABL Credit Agreement were also reduced from $300 million to $200 million, subject to borrowing base availability.
As of September 30, 2019,2021, the Company was in compliance with all covenants and other requirements under its debt agreements.
See Note 12,11, "Financing Arrangements," and Note 13,12, "Derivative Instruments and Hedging Activities," to our Consolidated Financial Statements for further details about our financing arrangements and hedging activities, including summaries of the material provisions of the Company's Term Loan Credit Agreement, ABL Credit Agreement, Senior Notes, Convertible Notes and interest rate swap agreements.
Contractual Obligations and Sources of Liquidity
Contractual Obligations
The following table summarizes the Company's contractual obligations as of September 30, 2019:
  Payments due by period
(In millions) Total Less than
1 year		 1-3
years		 3-5
years		 More than
5 years
Total debt(1)
 $3,224
 $29
 $58
 $408
 $2,729
Interest payments due on debt(2)
 971
 210
 394
 328
 39
Purchase obligations with contract manufacturers and suppliers(3)
 48
 48
 —
 —
 —
Other purchase obligations(4)
 551
 433
 113
 5
 —
Operating lease obligations(5)
 191
 51
 72
 39
 29
Capital lease obligations (6)
 20
 12
 8
 —
 —
Pension benefit obligations(7)
 642
 52
 113
 111
 366
Total $5,647
 $835
 $758
 $891
 $3,163
(1)Represents principal payments only.
(2)The interest payments due on debt give effect to the impact of the Company's interest rate swap agreements. The interest payments for the unhedged portion of the Company's Term Loan Credit Agreement were calculated by applying an applicable margin to a projected LIBOR rate. The interest payments for the Company's 2.25% convertible senior notes were based on the contractual 2.25% coupon rate. An estimated unused facility fee was calculated for the ABL Credit Agreement using the contract rate.
(3)During the normal course of business, in order to manage manufacturing lead times and to help assure adequate component supply, the Company enters into agreements with contract manufacturers and suppliers that allow them to produce and procure inventory based upon forecasted requirements. If the Company does not meet the specified minimum purchase commitments under these agreements, it could be required to purchase the inventory.
(4)Other purchase obligations represent an estimate of contractual obligations in the ordinary course of business, other than commitments with contract manufacturers and suppliers, for which the Company had not received the goods or services as of September 30, 2019. Although contractual obligations are considered enforceable and legally binding, the terms generally allow the Company the option to cancel, reschedule and adjust its requirements based on the Company's business needs prior to the delivery of goods or performance of services.
(5)Contractual obligations for operating leases include future minimum lease payments, net of remaining sublease income of $3 million.
(6)The payments due for capital lease obligations do not include $1 million in future payments for interest.

(7)The Company sponsors non-contributory defined pension and post-retirement plans covering certain employees and retirees. The Company's general funding policy with respect to qualified pension plans is to contribute amounts at least sufficient to satisfy the minimum amount required by applicable law and regulations, or to directly pay benefits where appropriate. Most post-retirement medical benefits are not pre-funded. Consequently, the Company makes payments as these retiree medical benefits are disbursed. The amounts presented represent estimated minimum funding requirements through fiscal 2029.
As of September 30, 2019, the Company's unrecognized tax benefits ("UTBs") associated with uncertain tax positions were $147 million and interest and penalties related to these amounts were an additional $22 million. Those UTBs are not reflected in the table above due to the uncertainty of the timing of payments.
Future Cash Requirements
Our primary future cash requirements will be to fund operations, debt service, restructuring payments, capital expenditures, benefit obligations and share repurchases.restructuring payments. In addition, we may use cash in the future to make strategic acquisitions.acquisitions or investments.
Specifically, we expect our primary cash requirements for fiscal 20202022 to be as follows:
•Debt service—We expect to make payments of approximately $447$185 million to $190 million during fiscal 20202022 in principal and interest associated with the Term Loan Credit Agreement, Senior Notes and interestConvertible Notes, and fees associated with our ABL Credit Agreement and 2.25% Convertible Notes, inclusive of a debt principal paydown of $250 million made by the Company in November 2019.Agreement. In the ordinary course of business, we may from time to time borrow and repay amounts under our ABL Credit Agreement.
•Capital expenditures—We expect to spend approximately $110 million to $115 million for capital expenditures during fiscal 2022.
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Share repurchases—On October 1, 2019, the Board•Benefit obligations—We estimate we will make payments under our pension and post-retirement benefit obligations of Directorsapproximately $37 million during fiscal 2022. These payments include $26 million for our non-U.S. benefit plans, which are predominantly not pre-funded, and $11 million for salaried and represented retiree post-retirement benefits. As a result of the Company approved a stock repurchase program authorizingAmerican Rescue Plan Act, we do not expect to make any contributions to satisfy the Companyminimum statutory funding requirements of our U.S. qualified pension plans during fiscal 2022. See discussion in Note 15, "Benefit Obligations," to repurchase the Company’s Common Stockour Consolidated Financial Statements for an aggregate expenditure of up to $500 million.
further details.
•Restructuring payments—We expect to make payments of approximately $25 million to $30$20 million during fiscal 20202022 for employee separation costs and lease termination obligations associated with restructuring actions we have taken through September 30, 2019.actions. The Company continues to evaluate opportunities to streamline its operations and identify additional cost savings globally.
Capital expenditures—We expect to spend approximately $115 million to $125 million for capital expenditures and capitalized software development costs during fiscal 2020. Environmental costs and accruals are presently not material to our operations, cash flows or financial position, and we do not currently anticipate material capital expenditures for environmental control facilities.
Benefit obligations—We estimate we will make payments under our pension and post-retirement benefit obligations totaling $51 million during fiscal 2020. These payments include $15 million to satisfy the minimum statutory funding requirements of our U.S. qualified pension plans; $23 million for our non-U.S. benefit plans, which are predominantly not pre-funded; and $13 million for represented retiree post-retirement benefits. See discussion in Note 16, "Benefit Obligations," to our Consolidated Financial Statements for further details.
In addition to the matters identified above, in the ordinary course of business, the Company is involved in litigation, claims, government inquiries, investigations and proceedings including but not limited to those identified in Note 23, "Commitments and Contingencies," to our Consolidated Financial Statements, relating to intellectual property, commercial, employment, environmental and regulatory matters, which may require usincluding but not limited to make cash payments. Thesea suit filed by Solaborate Inc. and Solaborate LLC described in Note 22, “Commitments and Contingencies” to our Consolidated Financial Statements. An unfavorable resolution in this or other legal matters could have a material adverse effect on the manner in which the Company does business and the Company's financial position, results of operations,future cash flows and liquidity. During fiscal 2019 (Successor) and the period from December 16, 2017 through September 30, 2018 (Successor), there were no costs incurred in connection with the resolution of legal matters other than those incurred in the ordinary course of business. During the period from October 1, 2017 through December 15, 2017 (Predecessor) and fiscal 2017 (Predecessor), costs incurred in connection with the resolution of certain legal matters were $37 million and $64 million, respectively.requirements.
We and our subsidiaries and affiliates may from time to time seek to retirerepurchase or purchaseprepay our outstanding equity (common stock and warrants) and/or debt (including publicly issued debt)our Term Loans, Senior Notes and Convertible Notes) through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions, tender offers, redemptions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. 
Future Sources of Liquidity
We expect our cash balance, cash generated by operations and borrowings available under our ABL Credit Agreement and cash received in connection with the Company's strategic partnership with RingCentral to be our primary sources of short-term liquidity.

As of September 30, 20192021 and 2018,2020, our cash and cash equivalent balances held outside the U.S. were $176$195 million and $169$227 million, respectively. As of September 30, 2019,2021, the Company’s cash and cash equivalents held outside the U.S. are not requiredexpected to be needed to be repatriated to fund the Company’s operations in the U.S. based on our expected future sources of liquidity.
Under the terms of the ABL Credit Agreement, the Company can issue letters of credit up to $150 million. At September 30, 2019,2021, the Company had issued and outstanding letters of credit and guarantees of $44$37 million under the ABL Credit Agreement and had no other borrowings outstanding under the ABL.outstanding. The aggregate additional principal amount that may be borrowed under the ABL Credit Agreement, based on the borrowing base less $44$37 million of outstanding letters of credit and guarantees, was $142$147 million at September 30, 2019.2021.
We believe that our existing cash and cash equivalents of $752$498 million as of September 30, 2019,2021, expected future cash provided by operating activities and borrowings available under the ABL Credit Agreement and cash received in connection with the Company's strategic partnership with RingCentral will be sufficient to meet our future cash requirements for at least the next twelve months.months from the filing of this annual report on Form 10-K. Our ability to meet these requirements will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We also believe that our financial resources, along with appropriate management of discretionary expenses, will allow us to manage the anticipated impact of COVID-19 on our business operations, and specifically our liquidity, for the foreseeable future.
Off-Balance Sheet Arrangements
See discussion in Note 23,22, "Commitments and Contingencies," to our Consolidated Financial Statements for further details.
Debt Ratings
Our ability to obtain additional external financing and the related cost of borrowing may be affected by our ratings, which are periodically reviewed by the major credit rating agencies. The ratings are subject to change or withdrawal at any time by the respective credit rating agencies.
On June 2, 2021, Standard and Poor's upgraded both the Company's definitive corporate credit rating and the rating applicable to the Company's Senior Notes and the Term Loan Credit Agreement from "B" to "B+" with a stable outlook.
On July 23, 2021, Fitch Ratings Inc. (“Fitch”) upgraded the rating applicable to the Company's Senior Notes and the Term Loan Credit Agreement from "BB-" to "BB." Fitch also affirmed the Company’s definitive corporate credit rating of “B” and upgraded the outlook from stable to positive.
As of September 30, 2019, the Company's debt ratings were as follows:
Moody’s2021, Moody's Investors Service issued a corporate family rating of "B2" with a stable outlook and a rating of "B2" applicable to the 7-year $2,925 million Term Loan Credit Agreement of "B2";
StandardSenior Notes and Poor's issued a definitive corporate credit rating of "B" with a stable outlook and a rating of the Term Loan Credit Agreement of "B"; andAgreement.
Fitch Ratings Inc. issued a Long-Term Issuer Default Rating of "B" with a stable outlook and a rating of the Term Loan Credit Agreement of "BB-".
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Commitments and Contingencies

We are party to several types of agreements, including surety bonds, purchase commitments, product financing arrangements and performance guarantees, which are fully discussed in Note 23, "Commitments and Contingencies," to our Consolidated Financial Statements.
EBITDA and Adjusted EBITDA
We present below the Company's EBITDA and Adjusted EBITDA, each of which is a non-GAAP measure.
EBITDA is defined as net (loss) income before income taxes, interest expense, interest income and depreciation and amortization and excludes the results of discontinued operations. EBITDA provides us with a measure of operating performance that excludes certain non-operating and/or non-cash expenses, which can differ significantly from company to company depending on capital structure, the tax jurisdictions in which companies operate and capital investments.
Adjusted EBITDA is EBITDA as further adjusted by the items noted in the reconciliation table below. We believe Adjusted EBITDA provides a measure of our financial performance based on operational factors that management can impact in the short-term, such as our pricing strategies, volume, costs and expenses of the organization, and therefore presents our financial performance in a way that can be more easily compared to prior quarters or fiscal years. In addition, Adjusted EBITDA serves as a basis for determining certain management and employee compensation. We also present EBITDA and Adjusted EBITDA because we believe analysts and investors utilize these measures in analyzing our results. Under the Company's debt agreements, the ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is tied in part to ratios based on a measure of Adjusted EBITDA.
EBITDA and Adjusted EBITDA have limitations as analytical tools. EBITDA measures do not represent net (loss) income or cash flow from operations as those terms are defined by GAAP and do not necessarily indicate whether cash flows will be sufficient to fund cash needs. While EBITDA measures are frequently used as measures of operations and the ability to meet debt service requirements, these terms are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation. Further, Adjusted EBITDA excludes the impact of earnings or charges resulting from matters that we consider not to be indicative of our ongoing operations but could be substantial.that still affect our net income. In particular, our formulation of Adjusted EBITDA adjusts for certain amounts that are included in calculating net (loss) income as set forth in the following table including, but not limited to, restructuring charges, impairment charges, certain fees payable to

our Predecessor private equity sponsors and other advisors, resolution of certain legal matters and a portion of our pension costs and post-retirement benefits costs, which represents the amortization of pensionprior service costs (credits) and actuarial gain (loss)(gains) losses associated with these benefits. However, these are expenses that may recur, may vary and/or may be difficult to predict.
The unaudited reconciliation of net (loss) income,loss, which is a GAAP measure, to EBITDA and Adjusted EBITDA, which are non-GAAP measures, is presented below for the periods indicated:
Fiscal years ended September 30,
(In millions)20212020
Net loss$(13)$(680)
Interest expense222 226 
Interest income(1)(6)
Provision for income taxes15 62 
Depreciation and amortization425 423 
EBITDA648 25 
Impact of fresh start accounting adjustments(a)
2 1 
Restructuring charges(b)
28 20 
Advisory fees(c)
— 40 
Acquisition-related costs3 — 
Share-based compensation55 30 
Impairment of goodwill— 624 
Pension and post-retirement benefit costs(1)— 
Gain on post-retirement plan settlement(14)— 
Change in fair value of Emergence Date Warrants1 3 
(Gain) loss on foreign currency transactions(3)16 
Gain on investments in equity and debt securities, net(d)
— (49)
Adjusted EBITDA$719 $710 
(a)The impact of fresh start accounting adjustments in connection with the Company's emergence from bankruptcy.
(b)Restructuring charges represent employee separation costs and facility exit costs (excluding the impact of accelerated depreciation expense) related to the Company's restructuring programs, net of sublease income.
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    Successor  Predecessor
(In millions)   Fiscal year ended September 30, 2019 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017
Net (loss) income   $(671) $287
  $2,977
Interest expense (a) 237
 169
  14
Interest income   (14) (5)  (2)
Provision for (benefit from) income taxes   2
 (546)  459
Depreciation and amortization   443
 384
  31
EBITDA   (3) 289
  3,479
Impact of fresh start accounting adjustments (b) 5
 196
  —
Restructuring charges, net   22
 81
  14
Advisory fees (c) 11
 18
  3
Acquisition-related costs 
 9
 15
  —
Reorganization items, net   —
 —
  (3,416)
Non-cash share-based compensation   25
 19
  —
Impairment charges   659
 —
  —
Loss on sale/disposal of long-lived assets, net   —
 4
  1
Resolution of certain legal matters (d) —
 —
  37
Change in fair value of Emergence Date Warrants   (29) 17
  —
Loss (gain) on foreign currency transactions   8
 (28)  —
Pension/OPEB/nonretirement postemployment retirement benefits and long-term disability costs (e) —
 —
  17
Gain on investments   (1) —
  —
Adjusted EBITDA   $706
 $611
  $135
(c)Advisory fees represent costs incurred to assist in the assessment of strategic and financial alternatives to improve the Company's capital structure.
(d)Realized and unrealized gains on investments in equity securities, net of impairment of investments in debt securities.
(a)
Effective January 19, 2017, the Company ceased recording interest expense on outstanding pre-petition debt classified as liabilities subject to compromise. Contractual interest expense represents amounts due under the contractual terms of outstanding debt, including debt subject to compromise. For the periods from October 1, 2017 through December 15, 2017 and January 19, 2017 through September 30, 2017, contractual interest expense related to debt subject to compromise of $94 million and $316 million, respectively, had not been recorded as interest expense, as it was not an allowed claim under the Bankruptcy Filing.
(b)
Reflects the impact of fresh start accounting adjustments in connection with the Company's emergence from bankruptcy.
(c)
Advisory fees primarily represent costs incurred to assist in the assessment of strategic and financial alternatives to improve the Company's capital structure.
(d)
Costs in connection with the resolution of certain legal matters include reserves and settlements, as well as associated legal costs.
(e)
Represents that portion of our pension and post-retirement benefit costs which represent the amortization of prior service costs and net actuarial gain (loss) associated with these benefits.

Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with GAAPaccounting principles generally accepted in the United States of America ("GAAP") requires the Company's management to make judgments, assumptions and estimates that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenue and expenses during the periods reported. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances. Actual results may differ from these estimates and such differences may be material. Note 2, "Summary of Significant Accounting Policies," to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K describes the significant accounting policies and methods used in the preparation of the Company's Consolidated Financial Statements. Management considers the followingThe accounting policies critical because they are important to the portrayal ofand estimates below have been identified by the Company's management as those that are most critical to our financial condition and operating results andstatements as they require management to make significant judgments and estimates about inherently uncertain matters.
Revenue Recognition
The Company derives revenue primarily from the sale of products and services for communications systems and applications. The Company sells directly through its worldwide sales force and indirectly through its global network of channel partners, including distributors, service providers, dealers, value-added resellers, systems integrators and business partners that provide sales and services support.
On October 1, 2018, the Company adopted Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASC 606"). This standard superseded most of the previous The Company’s critical revenue recognition guidance under GAAP andestimate is intended to improve and converge with international standards the financial reporting requirements for revenue recognition. The Company adopted ASC 606 using the modified retrospective transition method. Under the modified retrospective method, results for reporting periods beginning after September 30, 2018 are presented under ASC 606 while prior period financial information is not adjusted and continues to be reported under prior guidance (“ASC 605”). See Note 3, “Recent Accounting Pronouncements - Recently Adopted Accounting Pronouncements,” to our Consolidated Financial Statementsvariable consideration included in Part II, Item 8 of the Annual Report on Form 10-K for additional information on the impact of adopting ASC 606.
In accordance with ASC 606, the Company accountstotal transaction price for a customer contract when both parties have approved the contract and are committed to perform their respective obligations, each party’s rights can be identified, payment terms can be identified, the contract has commercial substance and it is at least probable that the Company will collect the consideration to which it is entitled. The Company accrues a provision for estimated sales returns and other allowances, including promotional marketing programs and other incentives as a reduction of revenue at the time of sale. When estimating returns, the Company considers customary inventory levels held by third-party distributors. Revenue is recognized upon the transfer of control of the promised products and services to customers. Judgment is required in instances where the Company’s contracts include multiple products and services to determine whether each should be accounted for as a separate performance obligation. The Company enters into contracts that include various combinations of products and services, each of which is generally capable of being distinct as well as distinct within the context of the contracts.contract.
The total transaction price for each customer contract is determined based onrepresents the total consideration specified in the contract, including variable consideration such as sales incentives and other discounts. The expected value methodJudgment is generally used whenrequired in estimating variable consideration, which typically reduces the total transaction price due to the nature of the elements to which the variable consideration relates. TheseThe Company’s variable consideration estimates mainly consist of reserves for contractual stock rotation rights to channel partners to support the management of inventory; future credits and sales incentives to distributors and other channel partners based on our contractual arrangements; and reserves for estimated sales returns based on a customer’s right of return. Estimates of variable consideration reflect the Company’s historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying patterns. When estimating returns, the Company considers customary inventory levels held by third-party distributors. The Company excludes from the transaction price all taxes assessed by governmental authorities thatCompany’s variable consideration estimates are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers. Accordingly, such tax amounts are not includedrecorded as a componentreduction of net sales or costrevenue at the time of sales. The expected value method requires judgmentsale and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each performance obligation. Depending on the facts and circumstances, a change in variable consideration estimate will either be accounted for at the contract level or using the portfolio method. Reserves for contractual stock rotation rights to channel partners to support the management of inventory and certain other sales incentives are determined using the portfolio method. The Company also considers the customers’ rights of return in determining the transaction price where applicable.
The Company allocates the transaction price to each performance obligation based on its relative standalone selling price and recognizes revenue as each performance obligation is satisfied. Judgment is required to determine the standalone selling price for each distinct performance obligation. The Company uses a range of selling prices to estimate standalone selling price when each of the products and services is sold separately. The Company typically has more than one standalone selling price for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, the Company may use information such as the size of the customer and geographic region in determining the standalone selling price. In instances where standalone selling price is not directly observable, such as when the Company does

not sell the product or service separately, the Company determines the standalone selling price using information that may include market conditions and other observable inputs.
Contract modifications are accounted for as separate contracts if the additional products and services are distinct and priced at standalone selling prices. If the additional products and services are distinct, but not priced at standalone selling prices, the modification is treated as a termination of the existing contract and the creation of a new contract. Lastly, if the additional products and services are not distinct within the context of the contract, the modification is combined with the original contract and either an increase or decrease in revenue is recognized on the modification date. During fiscal 2019, the Company did not recognize any material revenue for contracts modified during the period that had performance obligations satisfied in prior periods.
Acquisitions and Fresh Start Accounting
The Company accounts for business combinations using the acquisition method, which requires an allocation of the purchase price of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. Goodwill represents the excess of the purchase price over the net tangible and intangible assets acquired. The estimated useful lives of acquired intangible and long-lived assets are based on many factors including assumptions regarding the effects of obsolescence, demand, competition and other economic factors, expectations regarding the future use of the asset, and the Company's historical experience with similar assets. The assumptions used to determine the estimated useful lives could change due to numerous factors including product demand, market conditions, technological developments, economic conditions and competition.
Upon emergence from bankruptcy on December 15, 2017, the Company applied fresh start accounting, which required all assets and liabilities to be remeasured at fair value as of the Emergence Date. See Note 5, "Fresh Start Accounting," to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information.
Goodwill and Indefinite-lived Intangible Assets
Goodwill and indefinite-lived intangible assets are not amortized but are subject to annual testing for impairment each July 1st,1st, or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unitgoodwill or an indefinite-lived intangible asset below its carrying amount. As of September 30, 2021, the Company's goodwill balance is assigned to its Services reporting unit.
Goodwill is tested for impairment at the reporting unit level, which is one level belowlevel. Depending on the facts and circumstances, the impairment test for goodwill can be performed using either a qualitative or quantitative approach. The qualitative approach consists of a weighting of several qualitative factors, including, but not limited to, macroeconomic conditions (including changes in interest rates and discount rates), industry and market considerations, the recent and projected financial performance of the reporting unit, changes in the Company's operating segments. The goodwill impairment assessmentstock price and other relevant factors to determine whether it is conducted by estimating and comparingmore likely than not that the fair value of eachthe reporting unit is less than its carrying amount, including goodwill. This assessment can require significant judgments, including the estimation of future cash flows and an assessment of market and industry dependent risks. If the assessment of all relevant qualitative factors indicates that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, a quantitative goodwill impairment test is not necessary. If the assessment of all relevant qualitative factors indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company will perform a quantitative goodwill impairment test. The Company has the unconditional option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing a quantitative goodwill impairment test.
The quantitative approach consists of a comparison of the Company’sfair value of a reporting units tounit with its carrying value.value, including the goodwill allocated to that reporting unit. If the carrying value of a reporting unit exceeds its fair value, the Company recognizeswill recognize an impairment loss equal to the amount of the excess, limited to the amount of goodwill allocated to that reporting unit. Application of the impairment test requires estimates and judgment including the identification of reporting units, assignment of assets and liabilities to reporting units and the determination ofwhen determining the fair value of eacha reporting unit. TheIn performing the goodwill impairment test, the Company estimates the fair value of each reporting unit using a weighting of fair values derived from an
51


income approach and a market approach.
Under the income approach, the fair value This analysis requires significant judgments, including estimation of a reporting unit is estimated using a discountedfuture cash flows, model. Futurewhich is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows are based on forward-looking information regarding revenue and costs for each reporting unit and are discounted using an appropriate discount rate in a discounted cash flows model. The discounted cash flows model relies on assumptions regarding revenue growth rates, projected gross profit, working capital needs, selling, general and administrative expenses, research and development expenses, business restructuring costs, capital expenditures, income tax rates, discount rates and terminal growth rates. The discount rate the Company uses represents the estimatedwill occur, determination of our weighted average cost of capital which reflects the overall leveland selection and application of inherent risk involved in its reporting unit operations and the rate of return an outside investor would expect to earn. To estimate cash flows beyond the final year of its model, the Company uses a terminal value approach. Under this approach, the Company applies a perpetuity growth assumption to determine the terminal value. The Company incorporates the present value of the resulting terminal value into its estimate of fair value. Forecasted cash flows for each reporting unit consider current economic conditions and trends, estimated future operating results, the Company’s view of growth rates and anticipated future economic conditions. Revenue growth rates inherent in this forecast are based on input from internal and external market intelligence research sources that compare factors such as growth in global economies, regional trends in the telecommunications industry and product evolution from a technological segment basis. Macroeconomic factors such as changes in economies, product evolutions, industry consolidations and other changes beyond the Company’s control could have a positive or negative impact on achieving its forecasts.
The market approach estimates the fair value of a reporting unit by applying multiples of operating performance measures to the reporting unit's operating performance (the "Guideline Public Company Method"). These multiples are derived from comparable publicly-traded companies with similar investment characteristics to the reporting unit. The key estimates and assumptions that are used to determine the fair value under this market approach include using current and forward 12-monthprojected operating performance results, as applicable, and the selection of the relevant multiples to be applied.

results.
Changes in these estimates and assumptions could materially affect the determination of fair value and the goodwill impairment test result for each reporting unit. The Company performed an interim quantitative goodwill impairment test for all of its reporting units during the three months ended June 30, 2019 due to a sustained decrease in the Company’s stock price and lower than planned financial results which led to revisions to the Company's long-term forecast during the three months ended June 30, 2019. As a result, the Company performed an interim quantitative goodwill impairment test as of June 30, 2019 to compare the fair values of its reporting units to their respective carrying amounts, including the goodwill allocated to each reporting unit.result.
The results of the Company’s interim goodwill impairment test as of June 30, 2019 indicated that the estimated fair values of the Company’s Unified Communications (“UC”), Global Support Services (“GSS”), Avaya Professional Services (“APS”) and Enterprise Cloud and Managed Solutions (“ECMS”) reporting units were greater than their carrying amounts, however, the carrying amount of the Company’s Contact Center ("CC") reporting unit within the Products & Solutions segment exceeded its estimated fair value primarily due to a reduction in the Company's long-term forecast. As a result, the Company recorded a goodwill impairment charge of $657 million, representing the amount by which the carrying amount of the CC reporting unit exceeded its fair value.
The Company performed its annual goodwill impairment test on July 1, 2019 and determined that the carrying amounts of each of the Company's reporting units did not exceed their estimated fair values and therefore no impairment existed. At July 1, 2019, the level of excess fair value over carrying value exceeded 10% for each of the Company's reporting units, except for the Global Support Service ("GSS") reporting unit, which had an excess fair value over carrying value of 7%, and for the Contact Center ("CC") reporting unit, which was at fair value due to the impairment charges described above. The goodwill assigned to the GSS and CC reporting units as of July 1, 20192021. As permitted under Accounting Standards Codification ("ASC") 350, the Company performed a qualitative goodwill impairment assessment to determine whether it was $1,446more likely than not that the fair value of its Services reporting unit was less than its carrying amount, including goodwill. After assessing all relevant qualitative factors, the Company determined that it was more likely than not that the fair value of the reporting unit exceeded its carrying amount and $197 million, respectively. An increase in the GSS discount rate of 65 basis points or a decrease in the GSS long-term growth rate of 95 basis points used in the most recentquantitative goodwill impairment test would result in an estimated fair value below its carrying value.was not necessary.
The impairment test of the Company’s indefinite-lived intangible assetsasset, the Avaya Trade Name, consists of a comparison of the estimated fair value of the indefinite-lived intangible assetsasset with theirits carrying amounts.value. The fair value of the Avaya Trade Name is evaluated for impairmentestimated using the relief-from-royalty method.model, a form of the income approach. Under this methodology, the fair value of the trade name is determinedestimated by applying a royalty rate to forecasted net revenues which is then discounted using a risk-adjusted rate of return on capital. Revenue growth rates inherent in the forecast are based on input from internal and external market intelligence research sources that compare factors such as growth in global economies, regional trends in the telecommunications industry and product evolution from a technological segment basis.evolution. The royalty rate is determined using a set of observed market royalty rates.
As a result of the goodwill triggering events, the Company also performed an interim quantitative impairment test for the Avaya Trade Name as of June 30, 2019, and determined that its estimated fair value exceeded its carrying value and no impairment existed. At July 1, 2019,2021, the Company performed its annual impairment test of the Avaya Trade Name and determined that theits estimated fair value of the trade name exceeded its carrying amount by more than 10% and no impairment existed.
DuringThe Company determined that no events occurred or circumstances changed during the fourth quarter of 2019, the Company closely monitored the key variables and other market factors for all ofthree months ended September 30, 2021 that would indicate that it is more likely than not that its reporting units and itsgoodwill or indefinite-lived intangible asset and determined that it was not required to perform an interim impairment test.
were impaired. To the extent that business conditions deteriorate further or if changes in key assumptions and estimates differ significantly from management’smanagement's expectations, it may be necessary to record additional impairment charges in the future.
Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Consolidated Statements of Operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be realized.
Additionally, the accounting for income taxes requires the Company to evaluate and make an assertion as to whether undistributed foreign earnings will be indefinitely reinvested or repatriated.
FASB ASC subtopic 740-10, "Income Taxes-Overall" ("ASC 740-10") prescribes a comprehensive model for the financial statement recognition, measurement, classification and disclosure of uncertain tax positions. ASC 740-10 contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit based on the technical merits of the position. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.

Significant judgment is required in evaluating uncertain tax positions and determining the provision for income taxes. Although the Company believes its reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in the historical income tax provision and accruals. The Company adjusts its estimated liability for uncertain tax positions periodically due to new information discovered from ongoing examinations by, and settlements with, various taxing authorities, as well as changes in tax laws, regulations and interpretations. The Company’s policy is to recognize, when applicable, interest and penalties on uncertain tax positions as part of income tax expense.
As part of the Company’s accounting for business combinations, some of the purchase price is allocated to goodwill and intangible assets. Impairment expenses associated with goodwill are generally not tax deductible and will result in an increased effective income tax rate in the fiscal period any impairment is recorded. The income tax benefit from future releases of the acquisition date valuation allowances or income tax contingencies, if any, are reflected in the income tax provision in the Consolidated Statements of Operations, rather than as an adjustment to the purchase price allocation.
Pension and Post-retirement Benefit Obligations
52


The Company sponsors non-contributory defined benefit pension plans covering a portion of its U.S. employees and retirees, and post-retirement benefit plans covering a portion of its U.S. employees and retirees that include healthcare benefits and life insurance coverage. Certain non-U.S. operations have various retirement benefit programs covering substantially all of their employees.
The Company’s pension and post-retirement benefit costs are developed from actuarial valuations. Inherent in these valuations are key assumptions, including the discount rate, expected long-term rate of return on plan assets, rate of compensation increase and healthcare cost trend rate. Material changes in pension and post-retirement benefit costs may occur in the future due to changes in these assumptions, in the number of plan participants, in the level of benefits provided, in asset levels and in legislation.
The discount rate is subject to change each year, consistent with changes in rates of return on high-quality fixed-income investments currently available and expected to be available during the expected benefit payment period. The Company selects the assumed discount rate for its U.S. pension and post-retirement benefit plans by applying the rates from the Aon AA OnlyAbove Median and Aon AA Only Above MedianBond Universe yield curves to the expected benefit payment streams and develops a rate at which it is believed the benefit obligations could be effectively settled. The Company follows a similar process for its non-U.S. pension plans by applying the Aon Euro AA corporate bond yield curve.curve for the plans based in Europe and relevant country-specific bond indices for other locations.
The market-related value of the Company’s plan assets for the Company’s U.S. and international pension plans and post-retirement medical plans as of the measurement date is developed using a five-year smoothing technique. First, a preliminary market-related value is calculated by adjusting the market-related value at the beginning of the year for payments to and from plan assets and the expected return on assets during the year. The expected return on assets represents the expected long-term rate of return on plan assets adjusted up to plus or minus 2% based on the actual ten-year average rate of return on plan assets. A final market-related value is determined as the preliminary market-related value, plus 20% of the difference between the actual return and expected return for each of the past five years. As a result of the partial settlement of the post-retirement life insurance in fiscal 2021, which is further described within Note 15, “Benefit Obligations,” the market-related value of the Company’s plan assets for other post-retirement life insurance plan is determined using the fair market value technique.
Salary growth and healthcare cost trend assumptions are based on the Company's historical experience and future outlook.
While the Company believes that the assumptions used in these calculations are reasonable, differences in actual experience or changes in assumptions could materially affect the expense and liabilities related to the Company's defined benefit plans. For the U.S. pension; non-U.S. pension; and post-retirement plans combined, a hypothetical 25 basis point increase or decrease in the discount rate would affect expense for fiscal 20192021 by $2$1 million or $(2)$2 million, respectively. A hypothetical 25 basis point increase or decrease in the discount rate would change the projected benefit obligation as of September 30, 20192021 by $(62)$(48) million or $64$50 million, respectively. A hypothetical 25 basis point change in the expected long-term rate of return would affect expense for fiscal 20192021 by approximately $3 million.

Loss Contingencies

In the ordinary course of business, the Company is involved in various litigation, claims, government inquiries, investigations and proceedings, including but not limited to, those relating to intellectual property, commercial, employment, environmental indemnity and regulatory matters. The Company records accruals for loss contingencies to the extent that it has concluded that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, we do not record a liability, but instead disclose the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Due to the inherent uncertainties related to these matters, significant judgment is required in the determination of the risk of loss and whether the loss is reasonably estimable. This assessment is based on our current understanding of relevant facts and circumstances, including but not limited to, the status of the legal or regulatory proceedings, the merits of its defenses and consultations with internal and external counsel to determine whether such accruals should be made or adjusted. Any accruals or revisions in estimates could have a material impact on our results of operations or financial position.

53


Item 7A.Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The Company has exposure to changing interest rates primarily under the Term Loan Credit Agreement and ABL Credit Agreement, each of which bears interest at variable rates based on LIBOR. TheAs of September 30, 2021, the Company had $2,874interest rate swap agreements, which mature on December 15, 2022, to pay a fixed rate of 2.935% on its $1,543 million of variable rate loans outstanding as of September 30, 2019.(the "Swap Agreements").
On May 16, 2018, theThe Company entered intomaintains additional interest rate swap agreements with six counterparties, which fixedto fix a portion of the variable rate interest due underon its Term Loan Credit Agreement (the "Swap"Forward Swap Agreements"). from December 15, 2022 (the maturity date of the Swap Agreements) through December 15, 2024. Under the terms of the Forward Swap Agreements, which mature on December 15, 2022, the Company payswill pay a fixed rate of 2.935%0.7047% and receivesreceive a variable rate of interest based on one-month LIBOR. As of September 30, 2019, theThe Forward Swap Agreements have a total notional amount of the six Swap Agreements was $1,800$1,400 million.
It is management’s intention that the net notional amount of the Swap Agreementsinterest rate swap agreements be less than or equal to the variable rate loans outstanding during the life of the derivatives. For fiscal 20192021, 2020 and the period from December 16, 2017 through September 30, 2018,2019, the Company recognized a loss on its hedge contractsthe Swap Agreements and Forward Swap Agreements (collectively the "Swaps") of $10$51 million, $35 million and $6$10 million, respectively, which is reflected in Interest expense in the Consolidated Statements of Operations. At September 30, 2019,2021, the fair value of the outstanding Swap Agreements wasCompany maintained a $34 million deferred loss of $80 million. Based on the payment dates of the contracts, $23 million and $58 million, including accrued interest, was recorded in Other current liabilities and Other liabilitiesSwaps within Accumulated other comprehensive loss in the Consolidated Balance Sheets, respectively. On an annual basis, a hypothetical one percent changeSheets.
See Note 12, “Derivative Instruments and Hedging Activities," to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information related to the Company's interest rates for the $1,074 million of unhedged variable rate debt as of September 30, 2019 would affect interest expense by approximately $11 million.swap agreements.
Foreign Currency Risk
Foreign currency risk is the potential change in value, income and cash flow arising from adverse changes in foreign currency exchange rates. Each of our non-U.S. ("foreign") operations maintains capital in the currency of the country of its geographic location consistent with local regulatory guidelines. Each foreign operation may conduct business in its local currency, as well as the currency of other countries in which it operates. The primary foreign currency exposures for these foreign operations are Euros, Canadian Dollars, British Pound Sterling, Chinese Renminbi, Indian Rupee, Australian Dollars, Japanese Yen and Brazilian Real and Japanese Yen.Real.
Non-U.S. denominated revenue was $636$642 million for fiscal 2019.2021. We estimate a 10% change in the value of the U.S. dollar relative to all foreign currencies would affecthave affected our revenue for fiscal 20192021 by $64 million.
The Company, from time-to-time, utilizes foreign currency forward contracts primarily to hedge fluctuations associated with certain monetary assets and liabilities including receivables, payables and certain intercompany obligations.balances. These foreign currency forward contracts are not designated for hedge accounting treatment. As a result, changes in the fair value of these contracts are recorded as a component of Other income, (expense), net to offset the change in the value of the underlying assets and liabilities. As of September 30, 2019,2021, the Company maintained open foreign exchange contracts with a total notional value of $400$191 million, primarily hedging the British Pound Sterling, Indian Rupee, Chinese Renminbi, Czech Koruna and Mexican Peso and Australian Dollar.Peso. At September 30, 2019,2021, the fair value of the open foreign exchange contracts was $1an unrealized loss of $2 million andwhich was recorded inwithin Other current assetsliabilities in the Consolidated Balance Sheets.Sheet. In fiscal 2021, 2020 and 2019, the Company's lossgain (loss) on foreign exchange contracts was $5$6 million, $(1) million and $(5) million, respectively, and was recorded within Other income, (expense) on the Consolidated Statement of Operations. The Company did not maintain any foreign currency forward contracts as of September 30, 2018.net.




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Item 8.Financial Statements and Supplementary Data
Avaya Holdings Corp.
Index to Consolidated Financial Statements
 
Page
Page
6756
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations
7158
7259
7360
7461
7562
7663



55


Report of Independent Registered Public Accounting Firm


To the Board of Directors and Stockholders of Avaya Holdings Corp.


Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Avaya Holdings Corp. and its subsidiaries(Successor) (the “Company”) as of September 30, 20192021 and 2018,2020, and the related consolidated statements of operations, of comprehensive income (loss) income,, of changes in stockholders’ equity (deficit) and of cash flows for each of the yearthree years in the period ended September 30, 2019 and the period from December 16, 2017 through September 30, 2018,2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of September 30, 2019,2021, based on criteria established in Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 20192021 and 2018, 2020, and the results of itsoperations and itscash flows for each of the yearthree years in the period ended September 30, 2019 and the period from December 16, 2017 through September 30, 20182021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2019,2021, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.

Basis of Accounting
As discussed in Note 1 to the consolidated financial statements, the United States Bankruptcy Court for the Southern District of New York confirmed the Company's Second Amended Joint Chapter 11 Plan of Reorganization of Avaya Inc. and Its Debtor Affiliates (the "plan") on November 28, 2017. Confirmation of the plan resulted in the discharge of certain claims against the Company that arose before January 19, 2017 and terminates all rights and interests of equity security holders as provided for in the plan. The plan was substantially consummated on December 15, 2017and the Company emerged from bankruptcy. In connection with its emergence from bankruptcy, the Company adopted fresh start accounting as of December 15, 2017.

ChangeChanges in Accounting PrinciplePrinciples
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases as of October 1, 2019 and the manner in which it accounts for revenues from contracts with customers as of October 1, 2018.

Basis for Opinions
The Company's management is responsible for theseconsolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management'sManagement’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidatedfinancial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.


Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
56


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters
The critical audit mattersmatter communicated below are mattersis a matter arising from the current period audit of the consolidated financial statements that werewas communicated or required to be communicated to the audit committee and that (i) relaterelates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing a separate opinionsopinion on the critical audit mattersmatter or on the accounts or disclosures to which they relate.it relates.

Goodwill Impairment AssessmentRevenue Recognition - Subscription-Based Term Software License Arrangements
As described in NotesNote 2 and 8 to the consolidated financial statements, included in Services revenue are subscription-based offerings, which include term software license arrangements. Subscription-based term software license arrangements include multiple performance obligations, where the term licenses are recognized at the point-in-time of transfer of control of the software, with the associated software maintenance revenue recognized ratably over the contract term as the customer consumes the services. Revenue from subscription-based term software license agreements makes up a portion of the Company’s consolidated goodwill balance was $2,103 million astotal Services revenue of September 30, 2019. Furthermore, the Company recognized a goodwill impairment charge of $657$1,981 million for the year ended September 30, 2019 as a result of an interim goodwill impairment assessment performed during the third quarter of fiscal 2019. Goodwill is subject to annual testing for impairment each July 1st, or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The goodwill impairment assessment is conducted by estimating and comparing the fair value of each of the Company’s reporting units to its carrying value. If the carrying value of a reporting unit exceeds its fair value, the Company will recognize an impairment loss equal to the amount of the excess, limited to the amount of goodwill allocated to that reporting unit. Management estimates the fair value of each reporting unit using a weighting of fair values derived from an income approach and a market approach. Under the income approach, the fair value of a reporting unit is estimated using a discounted cash flows model, which relies on assumptions regarding revenue growth rates, projected gross profit, working capital needs, selling, general and administrative expenses, research and development expenses, business restructuring costs, capital expenditures, income tax rates, discount rates and terminal growth rates.2021.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment isrevenue recognition - subscription-based term software license arrangements are a critical audit matter are there was significant judgment by management when estimatingis the fair value of the reporting units. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating audit evidence relatingrelated to significant assumptions used in the discounted cash flows model, including revenue growth rates, projected gross profit, and discount rates. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.recognition for subscription-based term software license agreements.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment,the revenue recognition process, including controls over the estimation of the fair value of the reporting units.subscription-based term software license arrangements. These procedures also included, among others, testing management’s process for estimating the fair value of the reporting units. This included(i) evaluating the appropriatenessrecognition of the valuation methods,revenue for a sample of revenue transactions by obtaining and inspecting source documents, including sales contracts, delivery documents and cash receipts and (ii) testing the completeness, accuracy, and relevancecutoff of data used by management, and evaluating the reasonableness of management’s significant assumptions, including the revenue growth rates, projected gross profit, and the discount rates. Evaluating the reasonableness of management’s assumptions related to revenue growth rates and projected gross profit involved evaluating whether the assumptions were reasonable considering (i) the current and past performance of the reporting units, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s valuation methods and certain significant assumptions, including the discount rates.transactions.



Indefinite-Lived Intangible Asset Impairment Assessment - Trade Name
As described in Notes 2 and 9 to the consolidated financial statements, the Company’s consolidated trade name indefinite-lived intangible asset balance was $333 million as of September 30, 2019. Indefinite-lived intangible assets are subject to annual testing for impairment each July 1st, or more frequently if events occur or circumstances change that indicate an asset may be impaired. The impairment test consists of a comparison of the estimated fair value of the indefinite-lived intangible asset to its carrying value. If the carrying value of the indefinite-lived intangible asset exceeds its estimated fair value, the Company recognizes an impairment loss equal to the amount of the excess. Management estimates the fair value of the trade name using the relief-from-royalty model, a form of the income approach. Under this methodology, the fair value of the trade name is estimated by applying a royalty rate to forecasted net revenues which is then discounted using a risk-adjusted rate of return on capital. Revenue growth rates inherent in the forecast are based on input from internal and external market intelligence research sources that compare factors such as growth in global economies, regional trends in the telecommunications industry and product evolution from a technological segment basis. The royalty rate is determined using a set of observed market royalty rates.
The principal considerations for our determination that performing procedures relating to the trade name indefinite-lived intangible asset impairment assessment is a critical audit matter are there was significant judgment by management when estimating the fair value of the trade name. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating audit evidence relating to management’s forecasted net revenues, the royalty rate, and the risk-adjusted rate of return on capital. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s trade name indefinite-lived intangible asset impairment assessment, including controls over the estimation of the fair value of the trade name. These procedures also included, among others, testing management’s process for estimating the fair value of the Company’s trade name. This included evaluating the appropriateness of the relief-from-royalty model, testing the completeness, accuracy, and relevance of data used by management, and evaluating the reasonableness of management’s significant assumptions, including forecasted net revenues, the royalty rate, and the risk-adjusted rate of return on capital. Evaluating the reasonableness of management’s assumption related to forecasted net revenues involved evaluating whether the assumption was reasonable considering (i) the current and past performance of the Company, (ii) the consistency with external market and industry data, and (iii) whether the assumption was consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s relief-from-royalty model and certain significant assumptions, including the risk-adjusted rate of return on capital and the royalty rate.


/s/ PricewaterhouseCoopers LLP
San Jose, CaliforniaNew York, New York
November 22, 2021
November 29, 2019

We have served as the Company’s auditor since 2000.



57
Report of Independent Registered Public Accounting Firm



To theBoard of Directors and Stockholders of Avaya Holdings Corp.

Opinion on the Financial Statements
We have audited the accompanying consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity (deficit) and cash flows of Avaya Holdings Corp. and its subsidiaries (Predecessor) (the “Company”) for the period from October 1, 2017 through December 15, 2017, and for the year ended September 30, 2017, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the period from October 1, 2017 through December 15, 2017 and for the year ended September 30, 2017 in conformity with accounting principles generally accepted in the United States of America.

Basis of Accounting
As discussed in Note 1 to the consolidated financial statements, the Company filed a petition on January 19, 2017 with the United States Bankruptcy Court for the Southern District of New York for reorganization under the provisions of Chapter 11 of the Bankruptcy Code. The Company’s Second Amended Joint Chapter 11 Plan of Reorganization of Avaya Inc. and Its Debtor Affiliates was substantially consummated on December 15, 2017 and the Company emerged from bankruptcy. In connection with its emergence from bankruptcy, theCompany adopted fresh start accounting.

Change in Accounting Principle
As discussed in Note 3 to the consolidated financial statements, the Company changed the manner in which it accounts for net periodic benefit cost as of October 1, 2017.

Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
San Jose, California
December 21, 2018

We have served as the Company's auditor since 2000.



Avaya Holdings Corp.
Consolidated Statements of Operations
(In millions, except per share amounts)
 
Fiscal years ended September 30,
202120202019
REVENUE
Products$992 $1,073 $1,222 
Services1,981 1,800 1,665 
2,973 2,873 2,887 
COSTS
Products:
Costs398 405 442 
Amortization of technology intangible assets173 174 174 
Services752 714 696 
1,323 1,293 1,312 
GROSS PROFIT1,650 1,580 1,575 
OPERATING EXPENSES
Selling, general and administrative1,053 1,013 1,001 
Research and development228 207 204 
Amortization of intangible assets159 161 162 
Impairment charges— 624 659 
Restructuring charges, net30 30 22 
1,470 2,035 2,048 
OPERATING INCOME (LOSS)180 (455)(473)
Interest expense(222)(226)(237)
Other income, net44 63 41 
INCOME (LOSS) BEFORE INCOME TAXES2 (618)(669)
Provision for income taxes(15)(62)(2)
NET LOSS$(13)$(680)$(671)
LOSS PER SHARE
Basic$(0.20)$(7.45)$(6.06)
Diluted$(0.20)$(7.45)$(6.06)
Weighted average shares outstanding
Basic84.5 92.2 110.8 
Diluted84.5 92.2 110.8 
  Successor  Predecessor
  Fiscal year ended September 30, 2019 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal year ended September 30, 2017

  
REVENUE         
Products $1,222
 $989
  $253
 $1,437
Services 1,665
 1,258
  351
 1,835
  2,887
 2,247
  604
 3,272
COSTS         
Products:         
Costs 442
 372
  84
 499
Amortization of technology intangible assets 174
 135
  3
 20
Services 696
 597
  155
 745
  1,312
 1,104
  242
 1,264
GROSS PROFIT 1,575
 1,143
  362
 2,008
OPERATING EXPENSES         
Selling, general and administrative 1,001
 888
  264
 1,261
Research and development 204
 172
  38
 225
Amortization of intangible assets 162
 127
  10
 204
Impairment charges 659
 —
  —
 117
Restructuring charges, net 22
 81
  14
 30
  2,048
 1,268
  326
 1,837
OPERATING (LOSS) INCOME (473) (125)  36
 171
Interest expense (237) (169)  (14) (246)
Other income (expense), net 41
 35
  (2) (25)
Reorganization items, net —
 —
  3,416
 (98)
(LOSS) INCOME BEFORE INCOME TAXES (669) (259)  3,436
 (198)
(Provision for) benefit from income taxes (2) 546
  (459) 16
NET (LOSS) INCOME $(671) $287
  $2,977
 $(182)
(LOSS) EARNINGS PER SHARE         
Basic $(6.06) $2.61
  $5.19
 $(0.43)
Diluted $(6.06) $2.58
  $5.19
 $(0.43)
Weighted average shares outstanding         
Basic 110.8
 109.9
  497.3
 497.1
Diluted 110.8
 111.1
  497.3
 497.1


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

58


Avaya Holdings Corp.
Consolidated Statements of Comprehensive Income (Loss) Income
(In millions)
  Successor  Predecessor
  Fiscal year ended
September 30, 2019		 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal year ended September 30, 2017
Net (loss) income $(671) $287
  $2,977
 $(182)
Other comprehensive (loss) income:         
Pension, post-retirement and postemployment benefit-related items, net of income taxes of $29 for fiscal 2019; $(19) for the period from December 16, 2017 through September 30, 2018; $(58) for the period from October 1, 2017 through December 15, 2017; and $(19) for fiscal 2017 (157) 51
  655
 252
Cumulative translation adjustment 24
 (31)  3
 (39)
Change in interest rate swaps, net of income taxes of $19 for fiscal 2019 and $1 for the period from December 16, 2017 through September 30, 2018 (58) (2)  —
 —
Other comprehensive (loss) income (191) 18
  658
 213
Elimination of Predecessor Company accumulated other comprehensive loss —
 —
  790
 —
Total comprehensive (loss) income $(862) $305
  $4,425
 $31
Fiscal years ended September 30,
202120202019
Net loss$(13)$(680)$(671)
Other comprehensive income (loss):
Pension, post-retirement and postemployment benefit-related items, net of income taxes of $(4) for fiscal 2021; $0 for fiscal 2020; and and $29 for fiscal 201988 (2)(157)
Cumulative translation adjustment9 (39)24 
Change in interest rate swaps, net of income taxes of $(3) for fiscal 2021; $3 for fiscal 2020; and $19 for fiscal 201957 (31)(58)
Other comprehensive income (loss)154 (72)(191)
Total comprehensive income (loss)$141 $(752)$(862)
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.



59


Avaya Holdings Corp.
Consolidated Balance Sheets
(In millions, except per share and share amounts)
As of September 30,
20212020
ASSETS
Current assets:
Cash and cash equivalents$498 $727 
Accounts receivable, net307 275 
Inventory51 54 
Contract assets, net518 296 
Contract costs117 115 
Other current assets100 112 
TOTAL CURRENT ASSETS1,591 1,579 
Property, plant and equipment, net295 268 
Deferred income taxes, net40 31 
Intangible assets, net2,235 2,556 
Goodwill1,480 1,478 
Operating lease right-of-use assets135 160 
Other assets209 159 
TOTAL ASSETS$5,985 $6,231 
LIABILITIES
Current liabilities:
Accounts payable$295 $242 
Payroll and benefit obligations193 198 
Contract liabilities360 446 
Operating lease liabilities49 49 
Business restructuring reserves19 21 
Other current liabilities181 181 
TOTAL CURRENT LIABILITIES1,097 1,137 
Non-current liabilities:
Long-term debt2,813 2,886 
Pension obligations648 749 
Other post-retirement obligations153 215 
Deferred income taxes, net53 38 
Contract liabilities305 373 
Operating lease liabilities102 129 
Business restructuring reserves25 28 
Other liabilities267 312 
TOTAL NON-CURRENT LIABILITIES4,366 4,730 
TOTAL LIABILITIES5,463 5,867 
Commitments and contingencies (Note 22)
Preferred stock, $0.01 par value; 55,000,000 shares authorized at September 30, 2021 and 2020
Convertible series A preferred stock; 125,000 shares issued and outstanding at September 30, 2021 and 2020130 128 
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value; 550,000,000 shares authorized; 84,115,602 shares issued and outstanding at September 30, 2021; and 83,278,383 shares issued and outstanding at September 30, 20201 1 
Additional paid-in capital1,467 1,449 
Accumulated deficit(985)(969)
Accumulated other comprehensive loss(91)(245)
TOTAL STOCKHOLDERS' EQUITY392 236 
TOTAL LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY$5,985 $6,231 
  September 30,
  2019 2018
ASSETS    
Current assets:    
Cash and cash equivalents $752
 $700
Accounts receivable, net 314
 377
Inventory 63
 81
Contract assets 187
 —
Contract costs 114
 —
Other current assets 115
 170
TOTAL CURRENT ASSETS 1,545
 1,328
Property, plant and equipment, net 255
 250
Deferred income taxes, net 35
 29
Intangible assets, net 2,891
 3,234
Goodwill, net 2,103
 2,764
Other assets 121
 74
TOTAL ASSETS $6,950
 $7,679
LIABILITIES    
Current liabilities:    
Debt maturing within one year $29
 $29
Accounts payable 291
 266
Payroll and benefit obligations 116
 145
Contract liabilities 472
 484
Business restructuring reserves 33
 51
Other current liabilities 158
 148
TOTAL CURRENT LIABILITIES 1,099
 1,123
Non-current liabilities:    
Long-term debt, net of current portion 3,090
 3,097
Pension obligations 759
 671
Other post-retirement obligations 200
 176
Deferred income taxes, net 72
 140
Business restructuring reserves 36
 47
Other liabilities 394
 374
TOTAL NON-CURRENT LIABILITIES 4,551
 4,505
TOTAL LIABILITIES 5,650
 5,628
Commitments and contingencies (Note 23)    
STOCKHOLDERS' EQUITY    
Preferred stock, $0.01 par value; 55,000,000 shares authorized, no shares issued or outstanding at September 30, 2019 and 2018 —
 —
Common stock, $0.01 par value; 550,000,000 shares authorized; 111,046,085 shares issued and 111,033,405 outstanding at September 30, 2019; 110,218,653 shares issued and 110,012,790 shares outstanding at September 30, 2018 1
 1
Additional paid-in capital 1,761
 1,745
(Accumulated deficit) retained earnings (289) 287
Accumulated other comprehensive (loss) income (173) 18
TOTAL STOCKHOLDERS' EQUITY 1,300
 2,051
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,950
 $7,679


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

60


Avaya Holdings Corp.
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
(In millions)
  Common Stock Additional
Paid-In
Capital		 (Accumulated
Deficit) Retained Earnings		 Accumulated
Other
Comprehensive
(Loss) Income		 Total
Stockholders'
Deficit
  Shares Par Value    
Balance as of September 30, 2016 (Predecessor) 494.6
 $—
 $2,410
 $(5,772) $(1,661) $(5,023)
Issuance of common stock, net of shares redeemed and canceled, under employee stock option plan 0.2
   —
     —
Share-based compensation expense     11
     11
Accrued dividends on Series A preferred stock     (9)     (9)
Accrued dividends on Series B preferred stock     (22)     (22)
Reclassifications to equity awards on redeemable shares     (1)     (1)
Net loss       (182)   (182)
Other comprehensive income         213
 213
Balance as of September 30, 2017 (Predecessor) 494.8
 $—
 $2,389
 $(5,954) $(1,448) $(5,013)
Share-based compensation expense     3
     3
Accrued dividends on Series A preferred stock     (2)     (2)
Accrued dividends on Series B preferred stock     (4)     (4)
Reclassifications to equity awards on redeemable shares     1
     1
Net income       2,977
   2,977
Other comprehensive income         658
 658
Balance as of December 15, 2017 (Predecessor) 494.8
 $—
 $2,387
 $(2,977) $(790) $(1,380)
Cancellation of Predecessor equity (494.8) —
 (2,387) 2,977
 790
 1,380
Balance as of December 15, 2017 (Predecessor) —
 $—
 $—
 $—
 $—
 $—
Issuance of Successor common stock            
Common stock issued for Predecessor debt 103.9
 1
 1,575
     1,576
Common stock issued for Pension Benefit Guaranty Corporation 6.1
 —
 92
     92
Balance as of December 15, 2017 (Predecessor) 110.0
 $1
 $1,667
 $—
 $—
 $1,668
             
             
Balance as of December 16, 2017 (Successor) 110.0
 $1
 $1,667
 $—
 $—
 $1,668
Issuance of common stock under the equity incentive plan 0.2
   —
     —
Shares repurchased and retired for tax withholding on vesting of restricted stock units     (2)     (2)
Equity component of convertible notes, net of issuance costs and income taxes     67
     67
Purchase of convertible note bond hedge, net of income taxes     (64)     (64)
Issuance of call spread warrants     58
     58
Share-based compensation expense     19
     19
Net income       287
   287
Other comprehensive income         18
 18
Balance as of September 30, 2018 (Successor) 110.2
 $1
 $1,745
 $287
 $18
 $2,051
Issuance of common stock under the equity incentive plan 1.3
   —
     —
Shares repurchased and retired for tax withholding on vesting of restricted stock units (0.5)   (9)     (9)
Share-based compensation expense     25
     25
Adjustment for adoption of new accounting standard (Note 3)       95
   95
Net loss       (671)   (671)
Other comprehensive loss         (191) (191)
Balance as of September 30, 2019 (Successor) 111.0
 $1
 $1,761
 $(289) $(173) $1,300


Common StockAdditional
Paid-In
Capital		Retained Earnings (Accumulated Deficit)Accumulated
Other
Comprehensive
Income (Loss)		Total
Stockholders'
Equity
SharesPar Value
Balance as of September 30, 2018110.2 $1 $1,745 $287 $18 $2,051 
Issuance of common stock under the equity incentive plan1.3 — 
Shares repurchased and retired for tax withholding on vesting of restricted stock units(0.5)(9)(9)
Share-based compensation expense25 25 
Adjustment for adoption of new accounting standard (Note 2)95 95 
Net loss(671)(671)
Other comprehensive loss(191)(191)
Balance as of September 30, 2019111.0 $1 $1,761 $(289)$(173)$1,300 
Issuance of common stock under the equity incentive plan1.5 — 
Issuance of common stock under the employee stock purchase plan0.2 2 2 
Shares repurchased and retired for tax withholding on vesting of restricted stock units(0.5)(7)(7)
Shares repurchased and retired under share repurchase program(28.9)(330)(330)
Share-based compensation expense30 30 
Accretion of preferred stock to redemption value(4)(4)
Preferred stock dividends accrued(3)(3)
Net loss(680)(680)
Other comprehensive loss(72)(72)
Balance as of September 30, 202083.3 $1 $1,449 $(969)$(245)$236 
Issuance of common stock under the equity incentive plan2.1 8 8 
Issuance of common stock under the employee stock purchase plan0.8 13 13 
Shares repurchased and retired for tax withholding on vesting of restricted stock units(0.6)(12)(12)
Shares repurchased and retired under share repurchase program(1.5)(37)(37)
Share-based compensation expense50 50 
Preferred stock dividends accrued, $2 million, and paid, $2 million(4)(4)
Adjustment for adoption of new accounting standard (Note 3)(3)(3)
Net loss(13)(13)
Other comprehensive income154 154 
Balance as of September 30, 202184.1 $1 $1,467 $(985)$(91)$392 
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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Avaya Holdings Corp.
Consolidated Statements of Cash Flows
(In millions)
  Successor  Predecessor
  Fiscal year ended September 30, 2019 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal year ended September 30, 2017
OPERATING ACTIVITIES:         
Net (loss) income $(671) $287
  $2,977
 $(182)
Adjustments to reconcile net (loss) income to net cash provided by (used for) operating activities:         
Depreciation and amortization 443
 384
  31
 326
Share-based compensation 25
 19
  —
 11
Amortization of debt issuance costs 17
 4
  —
 36
Accretion of debt discount 5
 4
  —
 25
Deferred income taxes, net (54) (588)  455
 (39)
Gain on sale of Networking business —
 —
  —
 (2)
Impairment charges 659
 —
  —
 117
Post-retirement and pension curtailments —
 —
  —
 (8)
Change in fair value of emergence date warrants (29) 17
  —
 —
Unrealized loss (gain) on foreign currency transactions 9
 (36)  —
 (4)
Other non-cash charges, net 7
 3
  —
 4
Reorganization items:         
Net gain on settlement of Liabilities subject to compromise —
 —
  (1,778) —
Payment to PBGC —
 —
  (340) —
Payment to pension trust —
 —
  (49) —
Payment of unsecured claims —
 —
  (58) —
Fresh start adjustments, net —
 —
  (1,697) —
Non-cash and financing related reorganization items, net —
 —
  26
 52
Changes in operating assets and liabilities:         
Accounts receivable 58
 13
  40
 24
Inventory (7) 36
  —
 24
Contract assets (122) —
  —
 —
Contract costs (13) —
  —
 —
Accounts payable 24
 (16)  (40) (27)
Payroll and benefit obligations (73) (71)  16
 (34)
Business restructuring reserves (25) 29
  (7) (51)
Contract liabilities 35
 160
  28
 (44)
Other assets and liabilities (47) (43)  (18) 73
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 241
 202
  (414) 301
INVESTING ACTIVITIES:         
Capital expenditures (113) (61)  (13) (57)
Capitalized software development costs —
 —
  —
 (2)
Acquisition of businesses, net of cash acquired —
 (157)  —
 (4)
Strategic investments (10) —
  —
 —
Proceeds from sale of Networking business —
 —
  —
 70
Proceeds from sale-leaseback transactions —
 17
  —
 —
Other investing activities, net (1) 2
  —
 3
NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES (124) (199)  (13) 10
FINANCING ACTIVITIES:         
Proceeds from Term Loan Credit Agreement —
 —
  2,896
 —
Repayment of debtor-in-possession financing —
 —
  (725) —
Repayment of first lien debt —
 —
  (2,061) —
Proceeds from debtor-in-possession financing —
 —
  —
 712
Repayment of Term Loan Credit Agreement due to refinancing —
 (2,918)  —
 —
Proceeds from Term Loan Credit Agreement due to refinancing —
 2,911
  —
 —
Proceeds from issuance of convertible notes —
 350
  —
 —
Proceeds from issuance of call spread warrants —
 58
  —
 —
Purchase of convertible note bond hedge —
 (84)  —
 —
Repayment of foreign asset-based revolving credit facility —
 —
  —
 (55)
Repayment of domestic asset-based revolving credit facility —
 —
  —
 (77)
Repayment of long-term debt, including adequate protection payments (29) (22)  (111) (223)
Debt issuance costs —
 (10)  (97) (1)
Payment of acquisition-related contingent consideration (9) —
  —
 —
Repayments of borrowings on revolving loans under the senior secured credit agreement —
 —
  —
 (18)
Payments related to sale-leaseback transactions (12) (9)  (4) (19)
Other financing activities, net (11) (3)  —
 (5)
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (61) 273
  (102) 314
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (4) (7)  (2) 5
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 52
 269
  (531) 630
Cash, cash equivalents, and restricted cash at beginning of period 704
 435
  966
 336
Cash, cash equivalents, and restricted cash at end of period $756
 $704
  $435
 $966
Fiscal years ended September 30,
202120202019
OPERATING ACTIVITIES:
Net loss$(13)$(680)$(671)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization425 423 443 
Share-based compensation55 30 25 
Amortization of debt discount and issuance costs26 23 22 
Loss on extinguishment of debt1 7 — 
Deferred income taxes, net(5)(29)(54)
Impairment charges— 624 659 
Gain on post-retirement plan settlement(14)— — 
Change in fair value of emergence date warrants1 3 (29)
Unrealized loss on foreign currency transactions6 24 9 
Impairment of debt securities— 10 — 
Realized gain on sale of equity securities— (59)— 
Other non-cash (credits) charges, net(1)(9)7 
Changes in operating assets and liabilities:
Accounts receivable(29)37 58 
Inventory1 8 (7)
Operating lease right-of-use assets and liabilities(2)13 — 
Contract assets(240)(166)(122)
Contract costs(15)5 (13)
Accounts payable53 (48)24 
Payroll and benefit obligations(56)46 (73)
Business restructuring reserves(5)(19)(25)
Contract liabilities(161)(71)35 
Other assets and liabilities3 (25)(47)
NET CASH PROVIDED BY OPERATING ACTIVITIES30 147 241 
INVESTING ACTIVITIES:
Capital expenditures(106)(98)(113)
Proceeds from sale of marketable securities— 412 — 
Asset acquisition, net of cash received(7)— — 
Investment in debt securities— — (10)
Other investing activities, net(4)— (1)
NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES(117)314 (124)
FINANCING ACTIVITIES:
Shares repurchased under share repurchase program(37)(330)— 
Proceeds from issuance of Series A Preferred Stock, net of issuance costs of $4— 121 — 
Repayment of Term Loan Credit Agreement due to refinancing(743)(1,643)— 
Proceeds from Term Loan Credit Agreement due to refinancing743 1,627 — 
Repayment of Term Loan Credit Agreement(100)(1,231)(29)
Proceeds from issuance of senior notes— 1,000 — 
Debt issuance costs(2)(14)— 
Principal payments for financing leases(11)(10)(14)
Payments for other financing arrangements(2)— — 
Proceeds from other financing arrangements3 — — 
Payment of acquisition-related contingent consideration— (5)(9)
Proceeds from Employee Stock Purchase Plan13 3 — 
Proceeds from exercises of stock options8 — — 
Preferred stock dividends paid(2)— — 
Shares repurchased for tax withholdings on vesting of restricted stock units(12)(7)(9)
NET CASH USED FOR FINANCING ACTIVITIES(142)(489)(61)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash— 3 (4)
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH(229)(25)52 
Cash, cash equivalents, and restricted cash at beginning of period731 756 704 
Cash, cash equivalents, and restricted cash at end of period$502 $731 $756 
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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Avaya Holdings Corp.
Notes to Consolidated Financial Statements
1. Background and Basis of Presentation
Background
Avaya Holdings Corp. (the "Parent" or "Avaya Holdings"), together with its consolidated subsidiaries (collectively, the "Company" or "Avaya"), is a global leader in digital communications products, solutions and services for businesses of all sizes.sizes delivering its technology predominantly through software and services. Avaya builds open, converged and innovative solutions to enhance and simplify communications and collaboration in the cloud, on-premiseson-premise or a hybrid of both. The Company's global team of professionals delivers services from initial planning and design, to implementation and integration, to ongoing managed operations, optimization, training and support. Currently, theThe Company manages its business operations in two2 segments, Products & Solutions and Services. The Company sells directly to customers through its worldwide sales force and indirectly through its global network of channel partners, including distributors, service providers, dealers, value-added resellers, system integrators and business partners that provide sales and services support.
Basis of Presentation
Avaya Holdings has no material assets or standalone operations other than its ownership of direct wholly-owned subsidiary Avaya Inc. and its subsidiaries. The accompanying Consolidated Financial Statements reflect the operating results of Avaya Holdings and its consolidated subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC").
Out-of-period Adjustment
During fiscal 2019,2021, the Company recorded an out-of-period adjustmentidentified errors in its system configuration and interfaces that impacted the recognition of revenue for previously satisfied performance obligations subsequent to correct sales and marketing expense. The impactthe adoption of Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers" ("ASC 606") on October 1, 2018. These errors resulted in a $6an understatement of Revenue by $3 million and $5 million in the Consolidated Statements of Operations for fiscal 2020 and 2019, respectively, an understatement of contract assets of $2 million and an overstatement of contract liabilities of $13 million as of September 30, 2020 and an understatement of opening Retained earnings upon adoption of ASC 606 of $7 million. The Company concluded that the errors were not material to any prior period financial statements and the correction of the errors was not material to the current year financial statements. The cumulative effect of the errors was corrected during fiscal 2021, resulting in an increase to Selling, generalRevenue and administrative expenseProvision for income taxes and a decrease to net incomeNet loss of $4$15 million, in fiscal 2019. Management concluded that$2 million and $13 million, respectively. The errors predominantly impacted the correction was not material to any previously issued Consolidated Financial Statements or to fiscal 2019.Products and Solutions operating segment.
On January 19, 2017 (the "Petition Date"), Avaya Holdings, together with certain of its affiliates, namely Avaya CALA Inc., Avaya EMEA Ltd., Avaya Federal Solutions, Inc., Avaya Holdings LLC, Avaya Holdings Two, LLC, Avaya Inc., Avaya Integrated Cabinet Solutions Inc. (n/k/a Avaya Integrated Cabinet Solutions LLC), Avaya Management Services Inc., Avaya Services Inc., Avaya World Services Inc., Octel Communications LLC, Sierra Asia Pacific Inc., Sierra Communication International LLC, Technology Corporation of America, Inc., Ubiquity Software Corporation, VPNet Technologies, Inc. and Zang, Inc. (n/k/a Avaya Cloud Inc.) (the "Debtors"), filed voluntary petitions for relief (the "Bankruptcy Filing") under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). The cases were jointly administered as Case No. 17-10089 (SMB). The Bankruptcy Court confirmed the Second Amended Joint Chapter 11 Plan of Reorganization of Avaya Inc. and its Debtor Affiliates filed on October 24, 2017 (the "Plan of Reorganization") on November 28, 2017. Confirmation of the Plan of Reorganization resulted in the discharge of certain claims against the Company that arose before the Petition Date and terminated all rights and interests of the pre-filing equity security holders as provided for in the Plan of Reorganization and as further discussed in Note 4, "Emergence from Voluntary Reorganization under Chapter 11 Proceedings." The Debtors operated their businesses as "debtors-in-possession" under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of Chapter 11 of the Bankruptcy Code and the orders of the Bankruptcy Court until the Plan of Reorganization was substantially consummated and they emerged from bankruptcy on December 15, 2017 (the "Emergence Date").
On the Emergence Date, the Company applied fresh start accounting, which resulted in a new basis of accounting and the Company becoming a new entity for financial reporting purposes. As a result of the application of fresh start accounting and the effects of the implementation of the Plan of Reorganization, the Consolidated Financial Statements after the Emergence Date are not comparable with the Consolidated Financial Statements on or before that date. Refer to Note 5, "Fresh Start Accounting," for additional information.
The accompanying Consolidated Financial Statements of the Company have been prepared on a basis that assumes that the Company will continue as a going concern and contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
References to "Successor" or "Successor Company" relate to the financial position and results of operations of the reorganized Avaya Holdings after the Emergence Date. References to "Predecessor" or "Predecessor Company" refer to the financial position and results of operations of Avaya Holdings on or before the Emergence Date.

2. Summary of Significant Accounting Policies
Accounting Policy Changes
The Company emerged from bankruptcy on December 15, 2017 and qualified for fresh start accounting. Fresh start accounting allows a company to set new accounting policies for the successor company independent of those followed by the predecessor company. As such, the Successor Company adopted certain accounting policy changes, which have been detailed in the "Share-based Compensation" and "Foreign Currency Translation" accounting policies below.
Use of Estimates
Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenue and expenses during the periods reported. TheseThe Company uses estimates include assessing the collectability of accounts receivable,to assess expected credit losses on its financial assets, sales returns and allowances, the use and recoverability of inventory, the realization of deferred tax assets, business restructuring reserves, pension and post-retirement benefit costs, the fair value of equity compensation, the fair value of assets and liabilities in connection with fresh start accounting and those acquired in business combinations,annual effective tax rate, the recoverability of long-lived assets, useful lives and impairment of tangible and intangible assets including goodwill, business restructuring reserves, pension and post-retirement benefit costs, the fair value of assets and liabilities in business combinations and the amount of exposure from potential loss contingencies, and fair value measurements, among others. The markets for the Company’s products are characterized by intense competition, rapid technological development and frequent new product introductions, all of which could affect the future recoverability of the Company’s assets. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the Consolidated Financial Statements in the period they are determined to be necessary. Actual results could differ from these estimates. The spread of COVID-19 and the actions required to mitigate its impact have created substantial disruption to the global economy, which may affect management's estimates and assumptions, in particular those that require a projection of our financial results, our cash flows or broader economic conditions. The COVID-19 pandemic did not have a material impact on the Company's operating results during fiscal 2021.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Avaya Holdings Corp. and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year's presentation.
Revenue Recognition
The Company derives revenue primarily from the sale of products and services for communications systems and applications. The Company sells directly through its worldwide sales force and indirectly through its global network of channel partners,
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including distributors, service providers, dealers, value-added resellers, systems integrators and business partners that provide sales and services support.
On October 1, 2018, the Company adopted Accounting Standards Update ("ASU")ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASC 606"). This standard superseded most of the previous revenue recognition guidance under GAAP and is intended to improve and converge with international standards the financial reporting requirements for revenue recognition. The Company adopted ASC 606 using the modified retrospective transition method. Under the modified retrospective method results for reporting periods beginning afterapplied to all open contracts with customers that were not completed as of September 30, 2018. On October 1, 2018, are presented under ASC 606 while prior period financial information is not adjusted and continuesthe Company recorded a net increase to be reported under prior guidance (“ASC 605”). See Note 3, “Recent Accounting Pronouncements - Recently Adopted Accounting Pronouncements,” for additional information on the opening Retained earnings balance of $95 million, net of tax, due to the cumulative impact of adopting ASC 606.
In accordance with ASC 606, theThe Company accounts for a customer contract when both parties have approved the contract and are committed to perform their respective obligations, each party’s rights can be identified, payment terms can be identified, the contract has commercial substance and it is at least probable that the Company will collect the consideration to which it is entitled. The Company accrues a provision for estimated sales returns and other allowances, including promotional marketing programs and other incentives, as a reduction of revenue at the time of sale. When estimating returns, the Company considers customary inventory levels held by third-party distributors. Revenue is recognized upon the transfer of control of the promised products and services to customers. Judgment is required in instances where the Company’s contracts include multiple products and services to determine whether each should be accounted for as a separate performance obligation. The Company enters into contracts that include various combinations of products and services, each of which is generally capable of being distinct as well as distinct within the context of the contracts.
Customer contracts are typically made pursuant to purchase orders and statements of work based on master purchase or partner agreements. Invoicing typically occurs upon customer acceptance or monthly for a series of services. Payment is due based on the Company’s standard payment terms which are typically within 30 to 60 days of invoice issuance. The Company does not typically provide financing arrangements to customers. For certain services and customer types, customers will remit payment before the services are provided. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company determined that contracts do not include a significant financing component. The primary purpose of the invoicing terms is to provide customers with simplified and predictable ways of purchasing products and services, not to receive

financing from or to provide financing to customers. Certain contracts include performance obligations accounted for as a series which also include variable consideration (primarily usage-based fees). For these arrangements, variable consideration is not estimated and allocated to the entire performance obligation, rather the variable fees are recognized in the period in which the usage occurs in accordance with the "right to invoice" practical expedient.
The total transaction price for each contract is determined based on the total consideration specified in the contract, including variable consideration such as sales incentives and other discounts. The expected value method is generally used when estimating variable consideration, which typically reduces the total transaction price due to the nature of the elements to which the variable consideration relates. These estimates reflect the Company’s historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying patterns. The Company excludes from the transaction price all taxes assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers. Accordingly, such tax amounts are not included as a component of net sales or cost of sales. The expected value method requires judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each performance obligation. Depending on the facts and circumstances, a change in variable consideration estimate will either be accounted for at the contract level or using the portfolio method. Reserves for contractual stock rotation rights to channel partners to support the management of inventory and certain other sales incentives are determined using the portfolio method. The Company also considers the customers’ rights of return in determining the transaction price where applicable.
The Company allocates the transaction price to each performance obligation based on its relative standalone selling price and recognizes revenue as each performance obligation is satisfied. Judgment is required to determine the standalone selling price for each distinct performance obligation. The Company uses a range of selling prices to estimate standalone selling price when each of the products and services is sold separately. The Company typically has more than one standalone selling price for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, the Company may use information such as the size of the customer and geographic region in determining the standalone selling price. In instances where standalone selling price is not directly observable, such as when the Company does not sell the product or service separately, the Company determines the standalone selling price using information that may include market conditions and other observable inputs.
Amounts billed to customers for shipping and handling activities are considered contract fulfillment activities and not a separate performance obligation of the contract. Shipping and handling fees are recorded as revenue and the related cost is a cost to fulfill the contract.
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Contract modifications are accounted for as separate contracts if the additional products and services are distinct and priced at standalone selling prices. If the additional products and services are distinct, but not priced at standalone selling prices, the modification is treated as a termination of the existing contract and the creation of a new contract. Lastly, if the additional products and services are not distinct within the context of the contract, the modification is combined with the original contract and either an increase or decrease in revenue is recognized on the modification date. During fiscal 2019, the Company did not recognize any material revenue for contracts modified during the period that had performance obligations satisfied in prior periods.
The Company records a contract asset when revenue is recognized in advance of the right to bill, pursuant to customer contract terms. The contract asset decreases when the Company has the right to bill the customer which is generally triggered by the satisfaction of additional performance obligations or contract milestones. The Company records a contract liability when payment is received from the customer in advance of the Company satisfying a performance obligation and the contract liability is reduced as performance obligations are satisfied and revenue is recognized. The Company records the net contract asset or liability position for each customer contract.
Software
The Company’s software licenses provide users with access to capabilities such as voice, video, conferencing, messaging and collaboration. SoftwareThe Company’s software licenses also add functionality to the Company’s hardware. The Company’s software licenses for on-premise customer software provide the customer with a right to use the software as it exists when it is made available to the customer and are accounted for as distinct performance obligations. The Company’s software licenses are sold through both direct and indirect channels with terms that are either perpetual or time based, both of which provide the end-user with the same functionality. The main difference between perpetual and term licenses is the duration over which the customer benefits from the software. Revenue from on-premise customer software licenses is generally recognized at the point-in-time the software is made available to the customer, via direct sale to the end-user or indirect sale to a channel partner, based on the fixed minimum revenue commitment under the arrangement. However, revenue is not recognized before the beginning of the period during which the customer can use and benefit from the license. In instances where the Company’s software licenses include a usage-based fee, revenue associated with the incremental usage is recognized at the point-in-time the incremental usage occurs.

The Company also sells its software under its subscription-based offerings which mainly consist of term software license arrangements and software as a service ("SaaS") arrangements. Term software licenses include multiple performance obligations where the term licenses are recognized at the point-in-time of transfer of control of the software, with the associated software maintenance revenue recognized ratably over the contract term as the customer consumes the services. SaaS arrangements do not include the right for the customer to take possession of the software during the contractual term of the arrangement, and therefore have one distinct performance obligation which is satisfied over time with revenue recognized ratably over the contract term as the customer consumes the services. Subscription-based offerings typically have terms that range from one to five years.
ACO
Avaya Cloud Office by RingCentral or “ACO” combines RingCentral's UCaaS platform with Avaya technology, services and migration capabilities to create a differentiated UCaaS offering. These services are accounted for as two distinct performance obligations, one being a licensing component that is generally recognized at the point-in-time the software is made available to the customer, and the second being associated support services which represents a stand-ready obligation whereby the revenues are generally recognized ratably over the contract term. The Company’s ACO solution is provided through both direct and indirect channels. Contracts typically have terms that range from one to five years.
Hardware
The Company’s hardware, phones, gateways, and servers, each of which has a stand-alone functionality, are generally considered distinct performance obligations. Hardware is sold through both direct and indirect channels and revenue is recognized at the point-in-time at which control of the product is transferred to the customer, via direct sale to the end-user or indirect sale to a channel partner, generally upon delivery, as defined in the contract.
Global Support Services
The Company’s global support services provide supplemental maintenance options to end-users in support of the Company’s products and solutions, including when and if available upgrade rights and maintenance for hardware. These services are typically accounted for as distinct performance obligations. Given that global support services consist of a series of distinct promises that are satisfied over time in the form of a single performance obligation comprised of a stand-ready obligation, these services are generally recognized ratably over the period during which the services are performed as customers simultaneously consume and receive benefits. Maintenance contracts typically have terms that range from one to five years.
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Professional Services
The Company’s professional services include the design, implementation and development of communication solutions. Professional services are sold through the Company’s direct and indirect channels either on a stand-alone basis or with other hardware, software and services and are generally accounted for as distinct performance obligations. Revenue for professional services is generally recognized over time based on the cost of effort incurred to date relative to the total cost of effort expected to be incurred as customers simultaneously consume and receive benefits. Effort incurred generally represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contracts for professional services typically have terms that range from four to six weeks for simple engagements and from six months to one yearthree years for more complex engagements. Prior to the adoption of ASC 606, revenue for professional services were recognized upon completion and acceptance of the project and when such arrangements included products, product revenue was also recognized upon completion and acceptance of the project. 
Cloud and Managed Services
The Company’s managed services provide additional support options to end-users on top of the Company’s supplemental maintenance services, including hardware support, help-desk routing and system monitoring services. The Company’s managed services are sold either on a stand-alone basis or together with the Company’s hardware, software and other services, and are generally accounted for as distinct performance obligations. The Company’s managed services are provided through both direct and indirect channels. Managed services consist of a series of distinct promises that are satisfied over time in the form of a single performance obligation comprised of a stand-ready obligation. Contracts for managed services typically have terms that range from one to five years.
The Company’s cloud offerings enable customers to take advantage of its technology via the cloud, on-premises, or as a hybrid of both.with its on-premise solutions. The software that enables the core communications functionality is offered both as a sale of perpetual or time based licenses or through a Software as a Service ("SaaS").SaaS arrangement. Cloud offerings can include supplemental maintenance and managed services and are sold through the Company’s direct and indirect channels.
Cloud and managed services offerings often include multiple performance obligations. Each performance obligation can itself include a series of distinct promises that are satisfied over time. Total consideration for a project is allocated to each performance obligation, with revenue recognized ratably over the period during which the services are performed as customers simultaneously consume and receive benefits. Variable consideration from incremental usage above a fixed fee is recognized at the point-in-time at which the usage occurs.
Warranties
The Company offers standard limited warranties that provide the customer with assurance that its products will function in accordance with contract specifications. The Company’s standard limited warranties are not sold separately but are included with each customer purchase. Warranties are not considered separate performance obligations, and therefore, warranty expense is accrued at the time the related revenue is recognized.
Cash and Cash Equivalents
All highly liquid investments with original maturities of three months or less at the date of purchase are classified as cash equivalents.
Concentrations of Risk
The Company’s cash and cash equivalents are maintained with several financial institutions. Deposits held at banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are

maintained with financial institutions with reputable credit and therefore bear minimal credit risk. The Company seeks to mitigate such risks by spreading its risk across multiple counterparties and monitoring the risk profiles of these counterparties.
The Company, from time to time, may enter into derivative financial instruments with high credit quality financial institutions to manage foreign exchange rate and interest rate risk and is exposed to losses in the event of non-performance by the counterparties to these contracts. To date, no counterparty has failed to meet its obligations to the Company.
The Company relies on a limited number of contract manufacturers and suppliers to provide manufacturing services for its products. The inability of a contract manufacturer or supplier to fulfill supply requirements of the Company could materially impact future operating results.
The Company's largest distributor ScanSource Inc., is also its largest customer and represented 11%7% and 8% of the Company's total annual consolidated revenue for fiscal 2019.2021 and 2020, respectively. At September 30, 2021 and 2020, one distributor accounted for approximately 6% and 9% of accounts receivable, respectively.
Accounts Receivable, Contract Assets and Allowance for Doubtful AccountsCredit Losses
The Company recognizes a contract asset when it transfers products and services to a customer in advance of scheduled billings. Contract assets decrease when the Company invoices the customer or the right to receive consideration is unconditional. Accounts receivable are recorded when the customer has been billed or the right to consideration is
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unconditional. Accounts receivable and contract assets are recorded net of reserves for sales returns and allowances and provisions for doubtful accounts.credit losses. The Company performs ongoing credit evaluations of its customers and generally does not require collateral from its customers.
The allowances areCompany estimates an allowance for credit losses using relevant available information from internal and external sources that consider historical experience, current conditions and reasonable and supportable forecasts. A separate allowance is measured for the Company’s accounts receivable, short-term contract asset and long-term contract asset balances. Each allowance is assessed on a collective basis by pooling assets with similar risk characteristics. The Company pools its accounts receivable and short-term contract assets based on analysesaging status and its long-term contract assets by customer credit rating as published by third-party credit agencies. Historical loss experience provides the basis for the estimation of historical trends, agingexpected credit losses for accounts receivables and short-term contract assets. The Company uses probability of accounts receivable balancesdefault rates to estimate expected credit losses for its long-term contract assets based on customer credit ratings. The Company also identifies customer specific credit risks and evaluates each based on the specific facts and circumstances as of the reporting date. The risk of loss is assessed over the contractual life of the assets and the creditworthinessexpected loss amounts are adjusted for current and future conditions based on management’s qualitative considerations. Financial assets are written off in whole, or in part, when no reasonable expectation of customersrecovery exists, although collection efforts may continue. Subsequent recoveries of amounts previously written off are recognized as determined byan adjustment to the allowance for credit checks, analysesloss.
Contract Costs
The Company capitalizes direct and payment history. At September 30, 2019incremental costs incurred to obtain and 2018,to fulfill a contract in advance of revenue recognition, such as sales commissions, business partner incentives and certain labor, third party service and related product costs. These costs are recognized as an asset if the Company expects to recover them. Sales commissions incurred to obtain a contract are amortized using the portfolio approach over the average term of the customer contracts, which corresponds to the period of benefit. Business partner incentives incurred to obtain a contract are recognized consistent with the transfer to the customer of the underlying performance obligations based on the specific contracts to which they relate. Costs incurred to obtain a contract with an amortization period of one distributor accounted for approximately 12% and 13%year or less are expensed as incurred in accordance with the prescribed practical expedient. Contract fulfillment costs are recognized consistent with the transfer to the customer of accounts receivable, respectively and a second distributor accounted for approximately 7% and 11% of accounts receivable, respectively.the underlying performance obligations based on the specific contracts to which they relate.
Inventory
Inventory includes goods awaiting sale (finished goods) and goods to be used in connection with providing maintenance services. Prior to the adoption of ASC 606 on October 1, 2018, inventory also included equipment being installed at customer locations for various installations that were not yet complete which has been reclassified to Contract Costs after the adoption of ASC 606. Inventory is stated at the lower of cost or net realizable value, determined on a first-in, first-out method. Reserves to reduce the inventory cost to net realizable value are based on current inventory levels, assumptions about future demand and product life cycles for the various inventory types.
The Company has outsourced the manufacturing of substantially all of its products and may be obligated to purchase certain excess inventory levels from its outsourced manufacturers if actual sales of product are lower than forecast, in which case additional inventory provisions may need to be recorded in the future.
Contract Assets
After the adoption of ASC 606, the Company recognizes a contract asset when it transfers products and services to a customer in advance of scheduled billings. Contract assets decrease when the Company invoices the customer or the right to receive consideration is unconditional.
Contract Costs
After the adoption of ASC 606, the Company capitalizes direct and incremental costs incurred to obtain and to fulfill a contract, such as sales commissions and products and services, respectively. These costs are recognized as an asset if the Company expects to recover them. Costs to obtain a contract are amortized using the portfolio approach over the average term of the customer contracts, which corresponds to the period of benefit. Costs incurred to obtain a contract with an amortization period of one year or less are expensed as incurred in accordance with the prescribed practical expedient. Contract fulfillment costs are recognized consistent with the transfer to the customer of the underlying performance obligations based on the specific contracts to which they relate.
Research and Development Costs
Research and development costs are charged to expense as incurred. The costs incurred for the development of communications software that will be sold, leased or otherwise marketed, however, are capitalized when technological feasibility has been established in accordance with FASB ASCAccounting Standards Codification ("ASC") Topic 985, "Software" ("ASC 985"). The Company has continued to leverage Agileagile development methodologies, which are characterized by a more dynamic development process with more frequent revisions to a product releases' features and functions as the software is being developed with technological feasibility being met shortly before the product revision is made generally available. As such, no amounts were capitalized for internally developed software costs in the Company's Consolidated Financial Statements during fiscal 2019 (Successor), the period from December 16, 2017 through September 30, 2018 (Successor), the period from October 1, 2017 through December 15, 2017 (Predecessor)2021, 2020 and fiscal 2017 (Predecessor).

Amortization of capitalized software development costs begins when the product is available for general release to customers. Amortization is recognized on a product-by-product basis generally using the straight-line method over a period of up to two years. Unamortized software development costs determined to be in excess of net realizable value of the product are expensed immediately. Unamortized software development costs at September 30, 2019 and 2018 were not material.2019.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is determined using the straight-line method over the estimated useful lives of the assets. Estimated lives range from two2 to ten10 years for machinery and equipment and the remaining lease term for equipment acquired under a capitalfinancing lease. Improvements that extend the useful life of assets are capitalized and maintenance and repairs are charged to expense as incurred. Capitalized improvements to facilities subject to operating leases are depreciated over the lesser of the estimated useful life of the asset or the duration of the lease. Upon retirement or disposal of assets, the cost and related accumulated depreciation are removed from the Consolidated Balance Sheets and any gain or loss is reflected in the Consolidated Statements of Operations.
The Company capitalizes costs associated with software developed or obtained for internal use when the preliminary project stage is completed and it is determined that the software will provide enhanced capabilities. Internal use software is amortized on a straight-line basis generally over fivethe estimated useful lives of the assets, which range from three to seventen years. Costs capitalized include payroll and related benefits, third party development fees and acquired software and licenses. General and
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administrative costs, overhead, maintenance and training, and the cost of the software that does not add functionality to existing systems, are expensed as incurred. The Company had unamortized internal use software costs included in Property, Plant and Equipment, net in the Consolidated Balance Sheets of $83$115 million and $80$91 million as of September 30, 20192021 and 2018,2020, respectively. Depreciation expense related to internal use software recognized in the Consolidated Statements of Operations for fiscal 2021, 2020 and 2019 (Successor), the period from December 16, 2017 through September 30, 2018 (Successor), the period from October 1, 2017 through December 15, 2017 (Predecessor)was $26 million, $27 million and fiscal 2017 (Predecessor) was $39 million, $31 million, $5 millionrespectively.
Cloud Computing Arrangement Implementation Costs
The Company periodically enters into cloud computing arrangements to access and $31 million, respectively.use third-party software in support of its operations. The Company assesses its cloud computing arrangements with vendors to determine whether the contract meets the definition of a service contract or software license. For cloud computing arrangements that meet the definition of a service contract, the Company capitalizes implementation costs incurred during the application development stage as a prepaid expense and amortizes the costs on a straight-line basis over the term of the contract. Costs related to data conversion, training and other maintenance activities are expensed as incurred. Implementation costs for cloud computing arrangements that meet the definition of a software license are accounted for consistent with software developed or obtained for internal use as detailed above.
Acquisition AccountingIncome Taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Consolidated Statements of Operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be realized.
Additionally, the accounting for income taxes requires the Company to evaluate and make an assertion as to whether undistributed foreign earnings will be indefinitely reinvested or repatriated.
FASB ASC subtopic 740-10, "Income Taxes-Overall" ("ASC 740-10") prescribes a comprehensive model for the financial statement recognition, measurement, classification and disclosure of uncertain tax positions. ASC 740-10 contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit based on the technical merits of the position. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.
Significant judgment is required in evaluating uncertain tax positions and determining the provision for income taxes. Although the Company believes its reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in the historical income tax provision and accruals. The Company accountsadjusts its estimated liability for uncertain tax positions periodically due to new information discovered from ongoing examinations by, and settlements with, various taxing authorities, as well as changes in tax laws, regulations and interpretations. The Company’s policy is to recognize, when applicable, interest and penalties on uncertain tax positions as part of income tax expense.
As part of the Company’s accounting for business combinations, using the acquisition method, which requires an allocationsome of the purchase price is allocated to goodwill and intangible assets. Impairment expenses associated with goodwill are generally not tax deductible and will result in an increased effective income tax rate in the fiscal period any impairment is recorded. The income tax benefit from future releases of the acquisition date valuation allowances or income tax contingencies, if any, are reflected in the income tax provision in the Consolidated Statements of Operations, rather than as an acquired entityadjustment to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. Goodwill represents the excess of the purchase price over the net tangible and intangible assets acquired.
Goodwill
Goodwill is not amortized but is subject to periodic testing for impairment in accordance with FASB ASC Topic 350, "Intangibles-Goodwill and Other" ("ASC 350") at the reporting unit level, which is one level below the Company’s operating segments. The goodwill impairment assessment is conducted by estimating and comparing the fair value of each of the Company’s reporting units, as defined in ASC 350, to its carrying value. Goodwill is subject to annual testing for impairment each July 1st or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.
Intangible and Long-lived Assets
Intangible assets include technology and patents, customer relationships and trademarks and trade names. Intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from one to nineteen years. Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable in accordance with FASB ASC Topic 360, "Property, Plant, and Equipment." Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the estimated fair value of the asset. Intangible assets determined to have indefinite useful lives are not amortized but are tested for impairment annually and more frequently if events occur or circumstances change that indicate an asset may be impaired. Long-lived assets to be disposed of are reported at the lower of their carrying amount or estimated fair value less costs to sell. The estimated useful lives of intangible and long-lived assets are based on many factors including assumptions regarding the effects of obsolescence, demand, competition and other economic factors, expectations regarding the future use of the asset, and the Company's historical experience with similar assets. The assumptions used to determine the estimated useful lives could change due to numerous factors including product demand, market conditions, technological developments, economic conditions and competition.
Derivative Financial Instruments
All derivatives are recognized as assets or liabilities and measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. For derivative instruments designated as cash flow hedges under FASB ASC Topic 815, "Derivatives and Hedging" ("ASC 815"), the change in fair value of the derivative is initially recorded in Accumulated other comprehensive (loss) income in the Consolidated Balance Sheets and is

subsequently recognized in earnings when the hedged exposure impacts earnings. For derivative instruments that are not designated as hedges, gains (losses) from changes in fair values are recognized in earnings. The Company does not enter into derivatives for trading or speculative purposes.
Restructuring Programs
The Company accounts for exit or disposal activities in accordance with FASB ASC Topic 420, "Exit or Disposal Cost Obligations" ("ASC 420"). A business restructuring is defined as an exit or disposal activity that includes, but is not limited to, a program that is planned and controlled by management and materially changes either the scope of a business or the manner in which that business is conducted. Business restructuring charges include (i) one-time termination benefits related to employee separations, (ii) contract termination costs and (iii) other related costs associated with exit or disposal activities including, but not limited to, costs for consolidating or closing facilities and relocating employees.
A liability is recognized and measured at its fair value for one-time termination benefits once the plan of termination meets all of the following criteria: (i) management commits to a plan of termination, (ii) the plan identifies the number of employees to be terminated and their job classifications or functions, locations and the expected completion date, (iii) the plan establishes the terms of the benefit arrangement and (iv) it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. Contract termination costs include costs to terminate a contract or costs that will continue to be incurred under the contract without benefit to the Company. A liability is recognized and measured at its fair value when the Company either terminates the contract or ceases using the rights conveyed by the contract. A liability is recognized and measured at its fair value for other related costs in the period in which the liability is incurred.allocation.
Pension and Post-retirement Benefit Obligations
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The Company sponsors non-contributory defined benefit pension plans covering a portion of its U.S. employees and retirees, and post-retirement benefit plans covering a portion of its U.S. employees and retirees that include healthcare benefits and life insurance coverage. Certain non-U.S. operations have various retirement benefit programs covering substantially all of their employees. Some of these programs are considered to be defined benefit pension plans for accounting purposes.
These pension and other post-retirement benefits are accounted for in accordance with FASB ASC Topic 715, "Compensation—Retirement Benefits" ("ASC 715"). ASC 715 requires that plan assets and obligations be measured as of the reporting date and the over-funded, under-funded or unfunded status of plans be recognized as of the reporting date as an asset or liability in the Consolidated Balance Sheets. In addition, ASC 715 requires costs and related obligations and assets arising from pensions and other post-retirement benefit plans to be accounted for based on actuarially determined estimates.
The Company’s pension and post-retirement benefit costs are developed from actuarial valuations. Inherent in these valuations are key assumptions, including the discount rate, and expected long-term rate of return on plan assets.assets, rate of compensation increase and healthcare cost trend rate. Material changes in pension and post-retirement benefit costs may occur in the future due to changes in these assumptions, in the number of plan participants, in the level of benefits provided, in asset levels and in legislation.
The discount rate is subject to change each year, consistent with changes in rates of return on high-quality fixed-income investments currently available and expected to be available during the expected benefit payment period. The Company selects the assumed discount rate for its U.S. pension and post-retirement benefit plans by applying the rates from the Aon AA Above Median and Aon AA Only Bond Universe yield curves to the expected benefit payment streams and develops a rate at which it is believed the benefit obligations could be effectively settled. The Company follows a similar process for its non-U.S. pension plans by applying the Aon Euro AA corporate bond yield curve for the plans based in Europe and relevant country-specific bond indices for other locations.
The market-related value of the Company’s plan assets for the Company’s U.S. and international pension plans and post-retirement medical plans as of the measurement date is developed using a five-year smoothing technique. First, a preliminary market-related value is calculated by adjusting the market-related value at the beginning of the year for payments to and from plan assets and the expected return on assets during the year. The expected return on assets represents the expected long-term rate of return on plan assets adjusted up to plus or minus 2% based on the actual ten-year average rate of return on plan assets. A final market-related value is determined as the preliminary market-related value, plus 20% of the difference between the actual return and expected return for each of the past five years. As a result of the partial settlement of the post-retirement life insurance in fiscal 2021, which is further described within Note 15, “Benefit Obligations,” the market-related value of the Company’s plan assets for other post-retirement life insurance plan is determined using the fair market value technique.
The plans use different factorsSalary growth and healthcare cost trend assumptions are based on plan provisionsthe Company's historical experience and participant census data,future outlook.
While the Company believes that the assumptions used in these calculations are reasonable, differences in actual experience or changes in assumptions could materially affect the expense and liabilities related to the Company's defined benefit plans. For the U.S. pension; non-U.S. pension; and post-retirement plans combined, a hypothetical 25 basis point increase or decrease in the discount rate would affect expense for fiscal 2021 by $1 million or $2 million, respectively. A hypothetical 25 basis point increase or decrease in the discount rate would change the projected benefit obligation as of September 30, 2021 by $(48) million or $50 million, respectively. A hypothetical 25 basis point change in the expected long-term rate of return would affect expense for fiscal 2021 by approximately $3 million.
Loss Contingencies
In the ordinary course of business, the Company is involved in various litigation, claims, government inquiries, investigations and proceedings, including yearsbut not limited to, those relating to intellectual property, commercial, employment, environmental indemnity and regulatory matters. The Company records accruals for loss contingencies to the extent that it has concluded that it is probable that a liability has been incurred and the amount of service, eligible compensationthe loss can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, we do not record a liability, but instead disclose the nature and age,the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Due to the inherent uncertainties related to these matters, significant judgment is required in the determination of the risk of loss and whether the loss is reasonably estimable. This assessment is based on our current understanding of relevant facts and circumstances, including but not limited to, the status of the legal or regulatory proceedings, the merits of its defenses and consultations with internal and external counsel to determine the benefit amount for eligible participants. The Company funds its U.S. pension planswhether such accruals should be made or adjusted. Any accruals or revisions in compliance with applicable laws.estimates could have a material impact on our results of operations or financial position.
Advertising Costs
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Item 7A.Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The Company expenses advertising costs as incurred. Advertising costs were $39has exposure to changing interest rates primarily under the Term Loan Credit Agreement and ABL Credit Agreement, each of which bears interest at variable rates based on LIBOR. As of September 30, 2021, the Company had interest rate swap agreements, which mature on December 15, 2022, to pay a fixed rate of 2.935% on its $1,543 million $27of variable rate loans outstanding (the "Swap Agreements").
The Company maintains additional interest rate swap agreements to fix a portion of the variable rate interest due on its Term Loan Credit Agreement (the "Forward Swap Agreements") from December 15, 2022 (the maturity date of the Swap Agreements) through December 15, 2024. Under the terms of the Forward Swap Agreements, the Company will pay a fixed rate of 0.7047% and receive a variable rate of interest based on one-month LIBOR. The Forward Swap Agreements have a total notional amount of $1,400 million.
It is management’s intention that the net notional amount of interest rate swap agreements be less than or equal to the variable rate loans outstanding during the life of the derivatives. For fiscal 2021, 2020 and 2019, the Company recognized a loss on the Swap Agreements and Forward Swap Agreements (collectively the "Swaps") of $51 million, $9$35 million and $44$10 million, respectively, which is reflected in Interest expense in the Consolidated Statements of Operations. At September 30, 2021, the Company maintained a $34 million deferred loss on the Swaps within Accumulated other comprehensive loss in the Consolidated Balance Sheets.
See Note 12, “Derivative Instruments and Hedging Activities," to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information related to the Company's interest rate swap agreements.
Foreign Currency Risk
Foreign currency risk is the potential change in value, income and cash flow arising from adverse changes in foreign currency exchange rates. Each of our non-U.S. ("foreign") operations maintains capital in the currency of the country of its geographic location consistent with local regulatory guidelines. Each foreign operation may conduct business in its local currency, as well as the currency of other countries in which it operates. The primary foreign currency exposures for these foreign operations are Euros, Canadian Dollars, British Pound Sterling, Chinese Renminbi, Indian Rupee, Australian Dollars, Japanese Yen and Brazilian Real.
Non-U.S. denominated revenue was $642 million for fiscal 2021. We estimate a 10% change in the value of the U.S. dollar relative to all foreign currencies would have affected our revenue for fiscal 2021 by $64 million.
The Company, from time-to-time, utilizes foreign currency forward contracts primarily to hedge fluctuations associated with certain monetary assets and liabilities including receivables, payables and certain intercompany balances. These foreign currency forward contracts are not designated for hedge accounting treatment. As a result, changes in the fair value of these contracts are recorded as a component of Other income, net to offset the change in the value of the underlying assets and liabilities. As of September 30, 2021, the Company maintained open foreign exchange contracts with a total notional value of $191 million, primarily hedging the British Pound Sterling, Indian Rupee, Czech Koruna and Mexican Peso. At September 30, 2021, the fair value of open foreign exchange contracts was an unrealized loss of $2 million which was recorded within Other current liabilities in the Consolidated Balance Sheet. In fiscal 2021, 2020 and 2019, (Successor)the Company's gain (loss) on foreign exchange contracts was $6 million, $(1) million and $(5) million, respectively, and was recorded within Other income, net.

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Item 8.Financial Statements and Supplementary Data
Avaya Holdings Corp.
Index to Consolidated Financial Statements
Page
56
58
59
60
61
62
63

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Avaya Holdings Corp.

Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Avaya Holdings Corp. and its subsidiaries (the “Company”) as of September 30, 2021 and 2020, and the related consolidated statements of operations, of comprehensive income (loss), of changes in stockholders’ equity and of cash flows for each of the three years in the period from December 16, 2017 throughended September 30, 2018 (Successor),2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of September 30, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period fromended September 30, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Changes in Accounting Principles
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases as of October 1, 20172019 and the manner in which it accounts for revenues from contracts with customers as of October 1, 2018.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition - Subscription-Based Term Software License Arrangements
As described in Note 2 to the consolidated financial statements, included in Services revenue are subscription-based offerings, which include term software license arrangements. Subscription-based term software license arrangements include multiple performance obligations, where the term licenses are recognized at the point-in-time of transfer of control of the software, with the associated software maintenance revenue recognized ratably over the contract term as the customer consumes the services. Revenue from subscription-based term software license agreements makes up a portion of the Company’s total Services revenue of $1,981 million for the year ended September 30, 2021.
The principal considerations for our determination that performing procedures relating to revenue recognition - subscription-based term software license arrangements are a critical audit matter is the high degree of auditor effort in performing procedures and evaluating audit evidence related to revenue recognition for subscription-based term software license agreements.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over subscription-based term software license arrangements. These procedures also included, among others, (i) evaluating the recognition of revenue for a sample of revenue transactions by obtaining and inspecting source documents, including sales contracts, delivery documents and cash receipts and (ii) testing the cutoff of revenue transactions.


/s/ PricewaterhouseCoopers LLP
New York, New York
November 22, 2021

We have served as the Company’s auditor since 2000.

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Avaya Holdings Corp.
Consolidated Statements of Operations
(In millions, except per share amounts)
Fiscal years ended September 30,
202120202019
REVENUE
Products$992 $1,073 $1,222 
Services1,981 1,800 1,665 
2,973 2,873 2,887 
COSTS
Products:
Costs398 405 442 
Amortization of technology intangible assets173 174 174 
Services752 714 696 
1,323 1,293 1,312 
GROSS PROFIT1,650 1,580 1,575 
OPERATING EXPENSES
Selling, general and administrative1,053 1,013 1,001 
Research and development228 207 204 
Amortization of intangible assets159 161 162 
Impairment charges— 624 659 
Restructuring charges, net30 30 22 
1,470 2,035 2,048 
OPERATING INCOME (LOSS)180 (455)(473)
Interest expense(222)(226)(237)
Other income, net44 63 41 
INCOME (LOSS) BEFORE INCOME TAXES2 (618)(669)
Provision for income taxes(15)(62)(2)
NET LOSS$(13)$(680)$(671)
LOSS PER SHARE
Basic$(0.20)$(7.45)$(6.06)
Diluted$(0.20)$(7.45)$(6.06)
Weighted average shares outstanding
Basic84.5 92.2 110.8 
Diluted84.5 92.2 110.8 

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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Avaya Holdings Corp.
Consolidated Statements of Comprehensive Income (Loss)
(In millions)
Fiscal years ended September 30,
202120202019
Net loss$(13)$(680)$(671)
Other comprehensive income (loss):
Pension, post-retirement and postemployment benefit-related items, net of income taxes of $(4) for fiscal 2021; $0 for fiscal 2020; and and $29 for fiscal 201988 (2)(157)
Cumulative translation adjustment9 (39)24 
Change in interest rate swaps, net of income taxes of $(3) for fiscal 2021; $3 for fiscal 2020; and $19 for fiscal 201957 (31)(58)
Other comprehensive income (loss)154 (72)(191)
Total comprehensive income (loss)$141 $(752)$(862)
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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Avaya Holdings Corp.
Consolidated Balance Sheets
(In millions, except per share and share amounts)
As of September 30,
20212020
ASSETS
Current assets:
Cash and cash equivalents$498 $727 
Accounts receivable, net307 275 
Inventory51 54 
Contract assets, net518 296 
Contract costs117 115 
Other current assets100 112 
TOTAL CURRENT ASSETS1,591 1,579 
Property, plant and equipment, net295 268 
Deferred income taxes, net40 31 
Intangible assets, net2,235 2,556 
Goodwill1,480 1,478 
Operating lease right-of-use assets135 160 
Other assets209 159 
TOTAL ASSETS$5,985 $6,231 
LIABILITIES
Current liabilities:
Accounts payable$295 $242 
Payroll and benefit obligations193 198 
Contract liabilities360 446 
Operating lease liabilities49 49 
Business restructuring reserves19 21 
Other current liabilities181 181 
TOTAL CURRENT LIABILITIES1,097 1,137 
Non-current liabilities:
Long-term debt2,813 2,886 
Pension obligations648 749 
Other post-retirement obligations153 215 
Deferred income taxes, net53 38 
Contract liabilities305 373 
Operating lease liabilities102 129 
Business restructuring reserves25 28 
Other liabilities267 312 
TOTAL NON-CURRENT LIABILITIES4,366 4,730 
TOTAL LIABILITIES5,463 5,867 
Commitments and contingencies (Note 22)
Preferred stock, $0.01 par value; 55,000,000 shares authorized at September 30, 2021 and 2020
Convertible series A preferred stock; 125,000 shares issued and outstanding at September 30, 2021 and 2020130 128 
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value; 550,000,000 shares authorized; 84,115,602 shares issued and outstanding at September 30, 2021; and 83,278,383 shares issued and outstanding at September 30, 20201 1 
Additional paid-in capital1,467 1,449 
Accumulated deficit(985)(969)
Accumulated other comprehensive loss(91)(245)
TOTAL STOCKHOLDERS' EQUITY392 236 
TOTAL LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY$5,985 $6,231 

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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Avaya Holdings Corp.
Consolidated Statements of Changes in Stockholders' Equity
(In millions)
Common StockAdditional
Paid-In
Capital		Retained Earnings (Accumulated Deficit)Accumulated
Other
Comprehensive
Income (Loss)		Total
Stockholders'
Equity
SharesPar Value
Balance as of September 30, 2018110.2 $1 $1,745 $287 $18 $2,051 
Issuance of common stock under the equity incentive plan1.3 — 
Shares repurchased and retired for tax withholding on vesting of restricted stock units(0.5)(9)(9)
Share-based compensation expense25 25 
Adjustment for adoption of new accounting standard (Note 2)95 95 
Net loss(671)(671)
Other comprehensive loss(191)(191)
Balance as of September 30, 2019111.0 $1 $1,761 $(289)$(173)$1,300 
Issuance of common stock under the equity incentive plan1.5 — 
Issuance of common stock under the employee stock purchase plan0.2 2 2 
Shares repurchased and retired for tax withholding on vesting of restricted stock units(0.5)(7)(7)
Shares repurchased and retired under share repurchase program(28.9)(330)(330)
Share-based compensation expense30 30 
Accretion of preferred stock to redemption value(4)(4)
Preferred stock dividends accrued(3)(3)
Net loss(680)(680)
Other comprehensive loss(72)(72)
Balance as of September 30, 202083.3 $1 $1,449 $(969)$(245)$236 
Issuance of common stock under the equity incentive plan2.1 8 8 
Issuance of common stock under the employee stock purchase plan0.8 13 13 
Shares repurchased and retired for tax withholding on vesting of restricted stock units(0.6)(12)(12)
Shares repurchased and retired under share repurchase program(1.5)(37)(37)
Share-based compensation expense50 50 
Preferred stock dividends accrued, $2 million, and paid, $2 million(4)(4)
Adjustment for adoption of new accounting standard (Note 3)(3)(3)
Net loss(13)(13)
Other comprehensive income154 154 
Balance as of September 30, 202184.1 $1 $1,467 $(985)$(91)$392 
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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Avaya Holdings Corp.
Consolidated Statements of Cash Flows
(In millions)
Fiscal years ended September 30,
202120202019
OPERATING ACTIVITIES:
Net loss$(13)$(680)$(671)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization425 423 443 
Share-based compensation55 30 25 
Amortization of debt discount and issuance costs26 23 22 
Loss on extinguishment of debt1 7 — 
Deferred income taxes, net(5)(29)(54)
Impairment charges— 624 659 
Gain on post-retirement plan settlement(14)— — 
Change in fair value of emergence date warrants1 3 (29)
Unrealized loss on foreign currency transactions6 24 9 
Impairment of debt securities— 10 — 
Realized gain on sale of equity securities— (59)— 
Other non-cash (credits) charges, net(1)(9)7 
Changes in operating assets and liabilities:
Accounts receivable(29)37 58 
Inventory1 8 (7)
Operating lease right-of-use assets and liabilities(2)13 — 
Contract assets(240)(166)(122)
Contract costs(15)5 (13)
Accounts payable53 (48)24 
Payroll and benefit obligations(56)46 (73)
Business restructuring reserves(5)(19)(25)
Contract liabilities(161)(71)35 
Other assets and liabilities3 (25)(47)
NET CASH PROVIDED BY OPERATING ACTIVITIES30 147 241 
INVESTING ACTIVITIES:
Capital expenditures(106)(98)(113)
Proceeds from sale of marketable securities— 412 — 
Asset acquisition, net of cash received(7)— — 
Investment in debt securities— — (10)
Other investing activities, net(4)— (1)
NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES(117)314 (124)
FINANCING ACTIVITIES:
Shares repurchased under share repurchase program(37)(330)— 
Proceeds from issuance of Series A Preferred Stock, net of issuance costs of $4— 121 — 
Repayment of Term Loan Credit Agreement due to refinancing(743)(1,643)— 
Proceeds from Term Loan Credit Agreement due to refinancing743 1,627 — 
Repayment of Term Loan Credit Agreement(100)(1,231)(29)
Proceeds from issuance of senior notes— 1,000 — 
Debt issuance costs(2)(14)— 
Principal payments for financing leases(11)(10)(14)
Payments for other financing arrangements(2)— — 
Proceeds from other financing arrangements3 — — 
Payment of acquisition-related contingent consideration— (5)(9)
Proceeds from Employee Stock Purchase Plan13 3 — 
Proceeds from exercises of stock options8 — — 
Preferred stock dividends paid(2)— — 
Shares repurchased for tax withholdings on vesting of restricted stock units(12)(7)(9)
NET CASH USED FOR FINANCING ACTIVITIES(142)(489)(61)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash— 3 (4)
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH(229)(25)52 
Cash, cash equivalents, and restricted cash at beginning of period731 756 704 
Cash, cash equivalents, and restricted cash at end of period$502 $731 $756 
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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Avaya Holdings Corp.
Notes to Consolidated Financial Statements
1. Background and Basis of Presentation
Background
Avaya Holdings Corp. (the "Parent" or "Avaya Holdings"), together with its consolidated subsidiaries (collectively, the "Company" or "Avaya"), is a global leader in digital communications products, solutions and services for businesses of all sizes delivering its technology predominantly through December 15, 2017 (Predecessor)software and services. Avaya builds open, converged and innovative solutions to enhance and simplify communications and collaboration in the cloud, on-premise or a hybrid of both. The Company's global team of professionals delivers services from initial planning and design, to implementation and integration, to ongoing managed operations, optimization, training and support. The Company manages its business operations in 2 segments, Products & Solutions and Services. The Company sells directly to customers through its worldwide sales force and indirectly through its global network of channel partners, including distributors, service providers, dealers, value-added resellers, system integrators and business partners that provide sales and services support.
Basis of Presentation
Avaya Holdings has no material assets or standalone operations other than its ownership of direct wholly-owned subsidiary Avaya Inc. and its subsidiaries. The accompanying Consolidated Financial Statements reflect the operating results of Avaya Holdings and its consolidated subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC").
Out-of-period Adjustment
During fiscal 2017 (Predecessor),2021, the Company identified errors in its system configuration and interfaces that impacted the recognition of revenue for previously satisfied performance obligations subsequent to the adoption of Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers" ("ASC 606") on October 1, 2018. These errors resulted in an understatement of Revenue by $3 million and $5 million in the Consolidated Statements of Operations for fiscal 2020 and 2019, respectively, an understatement of contract assets of $2 million and an overstatement of contract liabilities of $13 million as of September 30, 2020 and an understatement of opening Retained earnings upon adoption of ASC 606 of $7 million. The Company concluded that the errors were not material to any prior period financial statements and the correction of the errors was not material to the current year financial statements. The cumulative effect of the errors was corrected during fiscal 2021, resulting in an increase to Revenue and Provision for income taxes and a decrease to Net loss of $15 million, $2 million and $13 million, respectively. The errors predominantly impacted the Products and Solutions operating segment.
Share-based Compensation
2. Summary of Significant Accounting Policies
Use of Estimates
Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenue and expenses during the periods reported. The Company uses estimates to assess expected credit losses on its financial assets, sales returns and allowances, the use and recoverability of inventory, the realization of deferred tax assets, annual effective tax rate, the recoverability of long-lived assets, useful lives and impairment of tangible and intangible assets including goodwill, business restructuring reserves, pension and post-retirement benefit costs, the fair value of assets and liabilities in business combinations and the amount of exposure from potential loss contingencies, among others. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the Consolidated Financial Statements in the period they are determined to be necessary. Actual results could differ from these estimates. The spread of COVID-19 and the actions required to mitigate its impact have created substantial disruption to the global economy, which may affect management's estimates and assumptions, in particular those that require a projection of our financial results, our cash flows or broader economic conditions. The COVID-19 pandemic did not have a material impact on the Company's operating results during fiscal 2021.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Avaya Holdings Corp. and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year's presentation.
Revenue Recognition
The Company derives revenue primarily from the sale of products and services for communications systems and applications. The Company sells directly through its worldwide sales force and indirectly through its global network of channel partners,
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including distributors, service providers, dealers, value-added resellers, systems integrators and business partners that provide sales and services support.
On October 1, 2018, the Company adopted ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)". This standard superseded most of the previous revenue recognition guidance under GAAP and is intended to improve and converge with international standards the financial reporting requirements for revenue recognition. The Company adopted ASC 606 using the modified retrospective transition method applied to all open contracts with customers that were not completed as of September 30, 2018. On October 1, 2018, the Company recorded a net increase to the opening Retained earnings balance of $95 million, net of tax, due to the cumulative impact of adopting ASC 606.
The Company accounts for share-based compensationa customer contract when both parties have approved the contract and are committed to perform their respective obligations, each party’s rights can be identified, payment terms can be identified, the contract has commercial substance and it is at least probable that the Company will collect the consideration to which it is entitled. The Company accrues a provision for estimated sales returns and other allowances, including promotional marketing programs and other incentives, as a reduction of revenue at the time of sale. When estimating returns, the Company considers customary inventory levels held by third-party distributors. Revenue is recognized upon the transfer of control of the promised products and services to customers. Judgment is required in instances where the Company’s contracts include multiple products and services to determine whether each should be accounted for as a separate performance obligation. The Company enters into contracts that include various combinations of products and services, each of which is generally capable of being distinct as well as distinct within the context of the contracts.
Customer contracts are typically made pursuant to purchase orders and statements of work based on master purchase or partner agreements. Invoicing typically occurs upon customer acceptance or monthly for a series of services. Payment is due based on the Company’s standard payment terms which are typically within 30 to 60 days of invoice issuance. The Company does not typically provide financing arrangements to customers. For certain services and customer types, customers will remit payment before the services are provided. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company determined that contracts do not include a significant financing component. The primary purpose of the invoicing terms is to provide customers with simplified and predictable ways of purchasing products and services, not to receive financing from or to provide financing to customers. Certain contracts include performance obligations accounted for as a series which also include variable consideration (primarily usage-based fees). For these arrangements, variable consideration is not estimated and allocated to the entire performance obligation, rather the variable fees are recognized in the period in which the usage occurs in accordance with the "right to invoice" practical expedient.
The total transaction price for each contract is determined based on the total consideration specified in the contract, including variable consideration such as sales incentives and other discounts. The expected value method is generally used when estimating variable consideration, which typically reduces the total transaction price due to the nature of the elements to which the variable consideration relates. These estimates reflect the Company’s historical experience, current contractual requirements, specific known market events and trends, industry data and forecasted customer buying patterns. The Company excludes from the transaction price all taxes assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers. Accordingly, such tax amounts are not included as a component of net sales or cost of sales. The expected value method requires judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each performance obligation. Depending on the facts and circumstances, a change in variable consideration estimate will either be accounted for at the contract level or using the portfolio method. Reserves for contractual stock rotation rights to channel partners to support the management of inventory and certain other sales incentives are determined using the portfolio method. The Company also considers the customers’ rights of return in determining the transaction price where applicable.
The Company allocates the transaction price to each performance obligation based on its relative standalone selling price and recognizes revenue as each performance obligation is satisfied. Judgment is required to determine the standalone selling price for each distinct performance obligation. The Company uses a range of selling prices to estimate standalone selling price when each of the products and services is sold separately. The Company typically has more than one standalone selling price for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, the Company may use information such as the size of the customer and geographic region in determining the standalone selling price. In instances where standalone selling price is not directly observable, such as when the Company does not sell the product or service separately, the Company determines the standalone selling price using information that may include market conditions and other observable inputs.
Amounts billed to customers for shipping and handling activities are considered contract fulfillment activities and not a separate performance obligation of the contract. Shipping and handling fees are recorded as revenue and the related cost is a cost to fulfill the contract.
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Contract modifications are accounted for as separate contracts if the additional products and services are distinct and priced at standalone selling prices. If the additional products and services are distinct, but not priced at standalone selling prices, the modification is treated as a termination of the existing contract and the creation of a new contract. Lastly, if the additional products and services are not distinct within the context of the contract, the modification is combined with the original contract and either an increase or decrease in revenue is recognized on the modification date.
The Company records a contract asset when revenue is recognized in advance of the right to bill, pursuant to customer contract terms. The contract asset decreases when the Company has the right to bill the customer which is generally triggered by the satisfaction of additional performance obligations or contract milestones. The Company records a contract liability when payment is received from the customer in advance of the Company satisfying a performance obligation and the contract liability is reduced as performance obligations are satisfied and revenue is recognized. The Company records the net contract asset or liability position for each customer contract.
Software
The Company’s software licenses provide users with access to capabilities such as voice, video, conferencing, messaging and collaboration. The Company’s software licenses also add functionality to the Company’s hardware. The Company’s software licenses for on-premise customer software provide the customer with a right to use the software as it exists when it is made available to the customer and are accounted for as distinct performance obligations. The Company’s software licenses are sold through both direct and indirect channels with terms that are either perpetual or time based, both of which provide the end-user with the same functionality. The main difference between perpetual and term licenses is the duration over which the customer benefits from the software. Revenue from on-premise customer software licenses is generally recognized at the point-in-time the software is made available to the customer, via direct sale to the end-user or indirect sale to a channel partner, based on the fixed minimum revenue commitment under the arrangement. However, revenue is not recognized before the beginning of the period during which the customer can use and benefit from the license. In instances where the Company’s software licenses include a usage-based fee, revenue associated with the incremental usage is recognized at the point-in-time the incremental usage occurs.
The Company also sells its software under its subscription-based offerings which mainly consist of term software license arrangements and software as a service ("SaaS") arrangements. Term software licenses include multiple performance obligations where the term licenses are recognized at the point-in-time of transfer of control of the software, with the associated software maintenance revenue recognized ratably over the contract term as the customer consumes the services. SaaS arrangements do not include the right for the customer to take possession of the software during the contractual term of the arrangement, and therefore have one distinct performance obligation which is satisfied over time with revenue recognized ratably over the contract term as the customer consumes the services. Subscription-based offerings typically have terms that range from one to five years.
ACO
Avaya Cloud Office by RingCentral or “ACO” combines RingCentral's UCaaS platform with Avaya technology, services and migration capabilities to create a differentiated UCaaS offering. These services are accounted for as two distinct performance obligations, one being a licensing component that is generally recognized at the point-in-time the software is made available to the customer, and the second being associated support services which represents a stand-ready obligation whereby the revenues are generally recognized ratably over the contract term. The Company’s ACO solution is provided through both direct and indirect channels. Contracts typically have terms that range from one to five years.
Hardware
The Company’s hardware, phones, gateways, and servers, each of which has a stand-alone functionality, are generally considered distinct performance obligations. Hardware is sold through both direct and indirect channels and revenue is recognized at the point-in-time at which control of the product is transferred to the customer, via direct sale to the end-user or indirect sale to a channel partner, generally upon delivery, as defined in the contract.
Support Services
The Company’s support services provide supplemental maintenance options to end-users in support of the Company’s products and solutions, including when and if available upgrade rights and maintenance for hardware. These services are typically accounted for as distinct performance obligations. Given that support services consist of a series of distinct promises that are satisfied over time in the form of a single performance obligation comprised of a stand-ready obligation, these services are generally recognized ratably over the period during which the services are performed as customers simultaneously consume and receive benefits. Maintenance contracts typically have terms that range from one to five years.
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Professional Services
The Company’s professional services include the design, implementation and development of communication solutions. Professional services are sold through the Company’s direct and indirect channels either on a stand-alone basis or with other hardware, software and services and are generally accounted for as distinct performance obligations. Revenue for professional services is generally recognized over time based on the cost of effort incurred to date relative to the total cost of effort expected to be incurred as customers simultaneously consume and receive benefits. Effort incurred generally represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contracts for professional services typically have terms that range from four to six weeks for simple engagements and from six months to three years for more complex engagements. 
Cloud and Managed Services
The Company’s managed services provide additional support options to end-users on top of the Company’s supplemental maintenance services, including hardware support, help-desk routing and system monitoring services. The Company’s managed services are sold either on a stand-alone basis or together with the Company’s hardware, software and other services, and are generally accounted for as distinct performance obligations. The Company’s managed services are provided through both direct and indirect channels. Managed services consist of a series of distinct promises that are satisfied over time in the form of a single performance obligation comprised of a stand-ready obligation. Contracts for managed services typically have terms that range from one to five years.
The Company’s cloud offerings enable customers to take advantage of its technology via the cloud, or as a hybrid with its on-premise solutions. The software that enables the core communications functionality is offered both as a sale of perpetual or time based licenses or through a SaaS arrangement. Cloud offerings can include supplemental maintenance and managed services and are sold through the Company’s direct and indirect channels.
Cloud and managed services offerings often include multiple performance obligations. Each performance obligation can itself include a series of distinct promises that are satisfied over time. Total consideration for a project is allocated to each performance obligation, with revenue recognized ratably over the period during which the services are performed as customers simultaneously consume and receive benefits. Variable consideration from incremental usage above a fixed fee is recognized at the point-in-time at which the usage occurs.
Warranties
The Company offers standard limited warranties that provide the customer with assurance that its products will function in accordance with contract specifications. The Company’s standard limited warranties are not sold separately but are included with each customer purchase. Warranties are not considered separate performance obligations, and therefore, warranty expense is accrued at the time the related revenue is recognized.
Cash and Cash Equivalents
All highly liquid investments with original maturities of three months or less at the date of purchase are classified as cash equivalents.
Concentrations of Risk
The Company’s cash and cash equivalents are maintained with several financial institutions. Deposits held at banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit and therefore bear minimal credit risk. The Company seeks to mitigate such risks by spreading its risk across multiple counterparties and monitoring the risk profiles of these counterparties.
The Company, from time to time, may enter into derivative financial instruments with high credit quality financial institutions to manage foreign exchange rate and interest rate risk and is exposed to losses in the event of non-performance by the counterparties to these contracts. To date, no counterparty has failed to meet its obligations to the Company.
The Company relies on a limited number of contract manufacturers and suppliers to provide manufacturing services for its products. The inability of a contract manufacturer or supplier to fulfill supply requirements of the Company could materially impact future operating results. The Company's largest distributor is also its largest customer and represented 7% and 8% of the Company's total annual consolidated revenue for fiscal 2021 and 2020, respectively. At September 30, 2021 and 2020, one distributor accounted for approximately 6% and 9% of accounts receivable, respectively.
Accounts Receivable, Contract Assets and Allowance for Credit Losses
The Company recognizes a contract asset when it transfers products and services to a customer in advance of scheduled billings. Contract assets decrease when the Company invoices the customer or the right to receive consideration is unconditional. Accounts receivable are recorded when the customer has been billed or the right to consideration is
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unconditional. Accounts receivable and contract assets are recorded net of allowances and provisions for credit losses. The Company performs ongoing credit evaluations of its customers and generally does not require collateral from its customers.
The Company estimates an allowance for credit losses using relevant available information from internal and external sources that consider historical experience, current conditions and reasonable and supportable forecasts. A separate allowance is measured for the Company’s accounts receivable, short-term contract asset and long-term contract asset balances. Each allowance is assessed on a collective basis by pooling assets with similar risk characteristics. The Company pools its accounts receivable and short-term contract assets based on aging status and its long-term contract assets by customer credit rating as published by third-party credit agencies. Historical loss experience provides the basis for the estimation of expected credit losses for accounts receivables and short-term contract assets. The Company uses probability of default rates to estimate expected credit losses for its long-term contract assets based on customer credit ratings. The Company also identifies customer specific credit risks and evaluates each based on the specific facts and circumstances as of the reporting date. The risk of loss is assessed over the contractual life of the assets and the expected loss amounts are adjusted for current and future conditions based on management’s qualitative considerations. Financial assets are written off in whole, or in part, when no reasonable expectation of recovery exists, although collection efforts may continue. Subsequent recoveries of amounts previously written off are recognized as an adjustment to the allowance for credit loss.
Contract Costs
The Company capitalizes direct and incremental costs incurred to obtain and to fulfill a contract in advance of revenue recognition, such as sales commissions, business partner incentives and certain labor, third party service and related product costs. These costs are recognized as an asset if the Company expects to recover them. Sales commissions incurred to obtain a contract are amortized using the portfolio approach over the average term of the customer contracts, which corresponds to the period of benefit. Business partner incentives incurred to obtain a contract are recognized consistent with the transfer to the customer of the underlying performance obligations based on the specific contracts to which they relate. Costs incurred to obtain a contract with an amortization period of one year or less are expensed as incurred in accordance with the prescribed practical expedient. Contract fulfillment costs are recognized consistent with the transfer to the customer of the underlying performance obligations based on the specific contracts to which they relate.
Inventory
Inventory includes goods awaiting sale (finished goods) and goods to be used in connection with providing maintenance services. Inventory is stated at the lower of cost or net realizable value, determined on a first-in, first-out method. Reserves to reduce the inventory cost to net realizable value are based on current inventory levels, assumptions about future demand and product life cycles for the various inventory types.
The Company has outsourced the manufacturing of substantially all of its products and may be obligated to purchase certain excess inventory levels from its outsourced manufacturers if actual sales of product are lower than forecast, in which case additional inventory provisions may need to be recorded in the future.
Research and Development Costs
Research and development costs are charged to expense as incurred. The costs incurred for the development of communications software that will be sold, leased or otherwise marketed, however, are capitalized when technological feasibility has been established in accordance with FASB Accounting Standards Codification ("ASC") Topic ASC 718, "Compensation-Stock Compensation,"985, "Software". The Company has continued to leverage agile development methodologies, which requiresare characterized by a more dynamic development process with more frequent revisions to a product releases' features and functions as the measurementsoftware is being developed with technological feasibility being met shortly before the product revision is made generally available. As such, no amounts were capitalized for internally developed software costs in the Company's Consolidated Financial Statements during fiscal 2021, 2020 and recognition2019.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is determined using the straight-line method over the estimated useful lives of compensationthe assets. Estimated lives range from 2 to 10 years for machinery and equipment and the remaining lease term for equipment acquired under a financing lease. Improvements that extend the useful life of assets are capitalized and maintenance and repairs are charged to expense as incurred. Capitalized improvements to facilities subject to operating leases are depreciated over the lesser of the estimated useful life of the asset or the duration of the lease. Upon retirement or disposal of assets, the cost and related accumulated depreciation are removed from the Consolidated Balance Sheets and any gain or loss is reflected in the Consolidated Statements of Operations.
The Company capitalizes costs associated with software developed or obtained for all share-based payment awards madeinternal use when the preliminary project stage is completed and it is determined that the software will provide enhanced capabilities. Internal use software is amortized on a straight-line basis over the estimated useful lives of the assets, which range from three to employeesten years. Costs capitalized include payroll and non-employee directors including stock options, restricted stock, restricted stock units, performance awardsrelated benefits, third party development fees and acquired software and licenses. General and
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administrative costs, overhead, maintenance and training, and the cost of the software that does not add functionality to existing systems, are expensed as incurred. The Company had unamortized internal use software costs included in Property, Plant and Equipment, net in the Consolidated Balance Sheets of $115 million and $91 million as of September 30, 2021 and 2020, respectively. Depreciation expense related to internal use software recognized in the Consolidated Statements of Operations for fiscal 2021, 2020 and 2019 was $26 million, $27 million and $39 million, respectively.
Cloud Computing Arrangement Implementation Costs
The Company periodically enters into cloud computing arrangements to access and use third-party software in support of its operations. The Company assesses its cloud computing arrangements with vendors to determine whether the contract meets the definition of a service contract or software license. For cloud computing arrangements that meet the definition of a service contract, the Company capitalizes implementation costs incurred during the application development stage as a prepaid expense and amortizes the costs on a straight-line basis over the term of the contract. Costs related to data conversion, training and other formsmaintenance activities are expensed as incurred. Implementation costs for cloud computing arrangements that meet the definition of awards granteda software license are accounted for consistent with software developed or denominated in shares of the Company’s common stock,obtained for internal use as well as certain cash-based awards. Upon emergence from bankruptcy, the Company changed its accounting policy related to determining the fair value of certain equity awards. Prior to the Emergence Date, the Predecessor Company used the Cox-Ross-Rubenstein ("CRR")detailed above.

binomial option pricing model to determine the grant date fair values of stock options and its Preferred Series A and B Stock warrants. Forfeitures were an input assumption in the valuation model. Subsequent to the Emergence Date, the Successor Company uses the Black-Scholes-Merton option pricing model ("Black-Scholes") to calculate the fair value of stock options and warrants to purchase common stock. In addition to the change in option pricing models, the Successor Company accounts for forfeitures as incurred.
Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Consolidated Statements of Operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be realized.
Additionally, the accounting for income taxes requires the Company to evaluate and make an assertion as to whether undistributed foreign earnings will be indefinitely reinvested or repatriated.
FASB ASC subtopic 740-10, "Income Taxes-Overall" ("ASC 740-10") prescribes a comprehensive model for the financial statement recognition, measurement, classification and disclosure of uncertain tax positions. ASC 740-10 contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit based on the technical merits of the position. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.
Significant judgment is required in evaluating uncertain tax positions and determining the provision for income taxes. Although the Company believes its reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in the historical income tax provision and accruals. The Company adjusts its estimated liability for uncertain tax positions periodically due to new information discovered from ongoing examinations by, and settlements with, various taxing authorities, as well as changes in tax laws, regulations and interpretations. The Company’s policy is to recognize, when applicable, interest and penalties on uncertain tax positions as part of income tax expense.
As part of the Company’s accounting for business combinations, some of the purchase price is allocated to goodwill and intangible assets. Impairment expenses associated with goodwill are generally not tax deductible and will result in an increased effective income tax rate in the fiscal period any impairment is recorded. The income tax benefit from future releases of the acquisition date valuation allowances or income tax contingencies, if any, are reflected in the income tax provision in the Consolidated Statements of Operations, rather than as an adjustment to the purchase price allocation.
Pension and Post-retirement Benefit Obligations
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The Company sponsors non-contributory defined benefit pension plans covering a portion of its U.S. employees and retirees, and post-retirement benefit plans covering a portion of its U.S. employees and retirees that include healthcare benefits and life insurance coverage. Certain non-U.S. operations have various retirement benefit programs covering substantially all of their employees.
The Company’s pension and post-retirement benefit costs are developed from actuarial valuations. Inherent in these valuations are key assumptions, including the discount rate, expected long-term rate of return on plan assets, rate of compensation increase and healthcare cost trend rate. Material changes in pension and post-retirement benefit costs may occur in the future due to changes in these assumptions, in the number of plan participants, in the level of benefits provided, in asset levels and in legislation.
The discount rate is subject to change each year, consistent with changes in rates of return on high-quality fixed-income investments currently available and expected to be available during the expected benefit payment period. The Company selects the assumed discount rate for its U.S. pension and post-retirement benefit plans by applying the rates from the Aon AA Above Median and Aon AA Only Bond Universe yield curves to the expected benefit payment streams and develops a rate at which it is believed the benefit obligations could be effectively settled. The Company follows a similar process for its non-U.S. pension plans by applying the Aon Euro AA corporate bond yield curve for the plans based in Europe and relevant country-specific bond indices for other locations.
The market-related value of the Company’s plan assets for the Company’s U.S. and international pension plans and post-retirement medical plans as of the measurement date is developed using a five-year smoothing technique. First, a preliminary market-related value is calculated by adjusting the market-related value at the beginning of the year for payments to and from plan assets and the expected return on assets during the year. The expected return on assets represents the expected long-term rate of return on plan assets adjusted up to plus or minus 2% based on the actual ten-year average rate of return on plan assets. A final market-related value is determined as the preliminary market-related value, plus 20% of the difference between the actual return and expected return for each of the past five years. As a result of the partial settlement of the post-retirement life insurance in fiscal 2021, which is further described within Note 15, “Benefit Obligations,” the market-related value of the Company’s plan assets for other post-retirement life insurance plan is determined using the fair market value technique.
Salary growth and healthcare cost trend assumptions are based on the Company's historical experience and future outlook.
While the Company believes that the assumptions used in these calculations are reasonable, differences in actual experience or changes in assumptions could materially affect the expense and liabilities related to the Company's defined benefit plans. For the U.S. pension; non-U.S. pension; and post-retirement plans combined, a hypothetical 25 basis point increase or decrease in the discount rate would affect expense for fiscal 2021 by $1 million or $2 million, respectively. A hypothetical 25 basis point increase or decrease in the discount rate would change the projected benefit obligation as of September 30, 2021 by $(48) million or $50 million, respectively. A hypothetical 25 basis point change in the expected long-term rate of return would affect expense for fiscal 2021 by approximately $3 million.
Loss Contingencies
In the ordinary course of business, the Company is involved in various litigation, claims, government inquiries, investigations and proceedings, including but not limited to, those relating to intellectual property, commercial, employment, environmental indemnity and regulatory matters. The Company records accruals for loss contingencies to the extent that it has concluded that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, we do not record a liability, but instead disclose the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Due to the inherent uncertainties related to these matters, significant judgment is required in the determination of the risk of loss and whether the loss is reasonably estimable. This assessment is based on our current understanding of relevant facts and circumstances, including but not limited to, the status of the legal or regulatory proceedings, the merits of its defenses and consultations with internal and external counsel to determine whether such accruals should be made or adjusted. Any accruals or revisions in estimates could have a material impact on our results of operations or financial position.

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Item 7A.Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The Company has exposure to changing interest rates primarily under the Term Loan Credit Agreement and ABL Credit Agreement, each of which bears interest at variable rates based on LIBOR. As of September 30, 2021, the Company had interest rate swap agreements, which mature on December 15, 2022, to pay a fixed rate of 2.935% on its $1,543 million of variable rate loans outstanding (the "Swap Agreements").
The Company maintains additional interest rate swap agreements to fix a portion of the variable rate interest due on its Term Loan Credit Agreement (the "Forward Swap Agreements") from December 15, 2022 (the maturity date of the Swap Agreements) through December 15, 2024. Under the terms of the Forward Swap Agreements, the Company will pay a fixed rate of 0.7047% and receive a variable rate of interest based on one-month LIBOR. The Forward Swap Agreements have a total notional amount of $1,400 million.
It is management’s intention that the net notional amount of interest rate swap agreements be less than or equal to the variable rate loans outstanding during the life of the derivatives. For fiscal 2021, 2020 and 2019, the Company recognized a loss on the Swap Agreements and Forward Swap Agreements (collectively the "Swaps") of $51 million, $35 million and $10 million, respectively, which is reflected in Interest expense in the Consolidated Statements of Operations. At September 30, 2021, the Company maintained a $34 million deferred loss on the Swaps within Accumulated other comprehensive loss in the Consolidated Balance Sheets.
See Note 12, “Derivative Instruments and Hedging Activities," to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information related to the Company's interest rate swap agreements.
Foreign Currency Risk
Foreign currency risk is the potential change in value, income and cash flow arising from adverse changes in foreign currency exchange rates. Each of our non-U.S. ("foreign") operations maintains capital in the currency of the country of its geographic location consistent with local regulatory guidelines. Each foreign operation may conduct business in its local currency, as well as the currency of other countries in which it operates. The primary foreign currency exposures for these foreign operations are Euros, Canadian Dollars, British Pound Sterling, Chinese Renminbi, Indian Rupee, Australian Dollars, Japanese Yen and Brazilian Real.
Non-U.S. denominated revenue was $642 million for fiscal 2021. We estimate a 10% change in the value of the U.S. dollar relative to all foreign currencies would have affected our revenue for fiscal 2021 by $64 million.
The Company, from time-to-time, utilizes foreign currency forward contracts primarily to hedge fluctuations associated with certain monetary assets and liabilities including receivables, payables and certain intercompany balances. These foreign currency forward contracts are not designated for hedge accounting treatment. As a result, changes in the fair value of these contracts are recorded as a component of Other income, net to offset the change in the value of the underlying assets and liabilities. As of September 30, 2021, the Company maintained open foreign exchange contracts with a total notional value of $191 million, primarily hedging the British Pound Sterling, Indian Rupee, Czech Koruna and Mexican Peso. At September 30, 2021, the fair value of open foreign exchange contracts was an unrealized loss of $2 million which was recorded within Other current liabilities in the Consolidated Balance Sheet. In fiscal 2021, 2020 and 2019, the Company's gain (loss) on foreign exchange contracts was $6 million, $(1) million and $(5) million, respectively, and was recorded within Other income, net.

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Item 8.Financial Statements and Supplementary Data
Avaya Holdings Corp.
Index to Consolidated Financial Statements
Page
56
58
59
60
61
62
63

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Avaya Holdings Corp.

Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Avaya Holdings Corp. and its subsidiaries (the “Company”) as of September 30, 2021 and 2020, and the related consolidated statements of operations, of comprehensive income (loss), of changes in stockholders’ equity and of cash flows for each of the three years in the period ended September 30, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of September 30, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Changes in Accounting Principles
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases as of October 1, 2019 and the manner in which it accounts for revenues from contracts with customers as of October 1, 2018.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition - Subscription-Based Term Software License Arrangements
As described in Note 2 to the consolidated financial statements, included in Services revenue are subscription-based offerings, which include term software license arrangements. Subscription-based term software license arrangements include multiple performance obligations, where the term licenses are recognized at the point-in-time of transfer of control of the software, with the associated software maintenance revenue recognized ratably over the contract term as the customer consumes the services. Revenue from subscription-based term software license agreements makes up a portion of the Company’s total Services revenue of $1,981 million for the year ended September 30, 2021.
The principal considerations for our determination that performing procedures relating to revenue recognition - subscription-based term software license arrangements are a critical audit matter is the high degree of auditor effort in performing procedures and evaluating audit evidence related to revenue recognition for subscription-based term software license agreements.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over subscription-based term software license arrangements. These procedures also included, among others, (i) evaluating the recognition of revenue for a sample of revenue transactions by obtaining and inspecting source documents, including sales contracts, delivery documents and cash receipts and (ii) testing the cutoff of revenue transactions.


/s/ PricewaterhouseCoopers LLP
New York, New York
November 22, 2021

We have served as the Company’s auditor since 2000.

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Avaya Holdings Corp.
Consolidated Statements of Operations
(In millions, except per share amounts)
Fiscal years ended September 30,
202120202019
REVENUE
Products$992 $1,073 $1,222 
Services1,981 1,800 1,665 
2,973 2,873 2,887 
COSTS
Products:
Costs398 405 442 
Amortization of technology intangible assets173 174 174 
Services752 714 696 
1,323 1,293 1,312 
GROSS PROFIT1,650 1,580 1,575 
OPERATING EXPENSES
Selling, general and administrative1,053 1,013 1,001 
Research and development228 207 204 
Amortization of intangible assets159 161 162 
Impairment charges— 624 659 
Restructuring charges, net30 30 22 
1,470 2,035 2,048 
OPERATING INCOME (LOSS)180 (455)(473)
Interest expense(222)(226)(237)
Other income, net44 63 41 
INCOME (LOSS) BEFORE INCOME TAXES2 (618)(669)
Provision for income taxes(15)(62)(2)
NET LOSS$(13)$(680)$(671)
LOSS PER SHARE
Basic$(0.20)$(7.45)$(6.06)
Diluted$(0.20)$(7.45)$(6.06)
Weighted average shares outstanding
Basic84.5 92.2 110.8 
Diluted84.5 92.2 110.8 

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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Avaya Holdings Corp.
Consolidated Statements of Comprehensive Income (Loss)
(In millions)
Fiscal years ended September 30,
202120202019
Net loss$(13)$(680)$(671)
Other comprehensive income (loss):
Pension, post-retirement and postemployment benefit-related items, net of income taxes of $(4) for fiscal 2021; $0 for fiscal 2020; and and $29 for fiscal 201988 (2)(157)
Cumulative translation adjustment9 (39)24 
Change in interest rate swaps, net of income taxes of $(3) for fiscal 2021; $3 for fiscal 2020; and $19 for fiscal 201957 (31)(58)
Other comprehensive income (loss)154 (72)(191)
Total comprehensive income (loss)$141 $(752)$(862)
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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Avaya Holdings Corp.
Consolidated Balance Sheets
(In millions, except per share and share amounts)
As of September 30,
20212020
ASSETS
Current assets:
Cash and cash equivalents$498 $727 
Accounts receivable, net307 275 
Inventory51 54 
Contract assets, net518 296 
Contract costs117 115 
Other current assets100 112 
TOTAL CURRENT ASSETS1,591 1,579 
Property, plant and equipment, net295 268 
Deferred income taxes, net40 31 
Intangible assets, net2,235 2,556 
Goodwill1,480 1,478 
Operating lease right-of-use assets135 160 
Other assets209 159 
TOTAL ASSETS$5,985 $6,231 
LIABILITIES
Current liabilities:
Accounts payable$295 $242 
Payroll and benefit obligations193 198 
Contract liabilities360 446 
Operating lease liabilities49 49 
Business restructuring reserves19 21 
Other current liabilities181 181 
TOTAL CURRENT LIABILITIES1,097 1,137 
Non-current liabilities:
Long-term debt2,813 2,886 
Pension obligations648 749 
Other post-retirement obligations153 215 
Deferred income taxes, net53 38 
Contract liabilities305 373 
Operating lease liabilities102 129 
Business restructuring reserves25 28 
Other liabilities267 312 
TOTAL NON-CURRENT LIABILITIES4,366 4,730 
TOTAL LIABILITIES5,463 5,867 
Commitments and contingencies (Note 22)
Preferred stock, $0.01 par value; 55,000,000 shares authorized at September 30, 2021 and 2020
Convertible series A preferred stock; 125,000 shares issued and outstanding at September 30, 2021 and 2020130 128 
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value; 550,000,000 shares authorized; 84,115,602 shares issued and outstanding at September 30, 2021; and 83,278,383 shares issued and outstanding at September 30, 20201 1 
Additional paid-in capital1,467 1,449 
Accumulated deficit(985)(969)
Accumulated other comprehensive loss(91)(245)
TOTAL STOCKHOLDERS' EQUITY392 236 
TOTAL LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY$5,985 $6,231 

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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Avaya Holdings Corp.
Consolidated Statements of Changes in Stockholders' Equity
(In millions)
Common StockAdditional
Paid-In
Capital		Retained Earnings (Accumulated Deficit)Accumulated
Other
Comprehensive
Income (Loss)		Total
Stockholders'
Equity
SharesPar Value
Balance as of September 30, 2018110.2 $1 $1,745 $287 $18 $2,051 
Issuance of common stock under the equity incentive plan1.3 — 
Shares repurchased and retired for tax withholding on vesting of restricted stock units(0.5)(9)(9)
Share-based compensation expense25 25 
Adjustment for adoption of new accounting standard (Note 2)95 95 
Net loss(671)(671)
Other comprehensive loss(191)(191)
Balance as of September 30, 2019111.0 $1 $1,761 $(289)$(173)$1,300 
Issuance of common stock under the equity incentive plan1.5 — 
Issuance of common stock under the employee stock purchase plan0.2 2 2 
Shares repurchased and retired for tax withholding on vesting of restricted stock units(0.5)(7)(7)
Shares repurchased and retired under share repurchase program(28.9)(330)(330)
Share-based compensation expense30 30 
Accretion of preferred stock to redemption value(4)(4)
Preferred stock dividends accrued(3)(3)
Net loss(680)(680)
Other comprehensive loss(72)(72)
Balance as of September 30, 202083.3 $1 $1,449 $(969)$(245)$236 
Issuance of common stock under the equity incentive plan2.1 8 8 
Issuance of common stock under the employee stock purchase plan0.8 13 13 
Shares repurchased and retired for tax withholding on vesting of restricted stock units(0.6)(12)(12)
Shares repurchased and retired under share repurchase program(1.5)(37)(37)
Share-based compensation expense50 50 
Preferred stock dividends accrued, $2 million, and paid, $2 million(4)(4)
Adjustment for adoption of new accounting standard (Note 3)(3)(3)
Net loss(13)(13)
Other comprehensive income154 154 
Balance as of September 30, 202184.1 $1 $1,467 $(985)$(91)$392 
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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Avaya Holdings Corp.
Consolidated Statements of Cash Flows
(In millions)
Fiscal years ended September 30,
202120202019
OPERATING ACTIVITIES:
Net loss$(13)$(680)$(671)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization425 423 443 
Share-based compensation55 30 25 
Amortization of debt discount and issuance costs26 23 22 
Loss on extinguishment of debt1 7 — 
Deferred income taxes, net(5)(29)(54)
Impairment charges— 624 659 
Gain on post-retirement plan settlement(14)— — 
Change in fair value of emergence date warrants1 3 (29)
Unrealized loss on foreign currency transactions6 24 9 
Impairment of debt securities— 10 — 
Realized gain on sale of equity securities— (59)— 
Other non-cash (credits) charges, net(1)(9)7 
Changes in operating assets and liabilities:
Accounts receivable(29)37 58 
Inventory1 8 (7)
Operating lease right-of-use assets and liabilities(2)13 — 
Contract assets(240)(166)(122)
Contract costs(15)5 (13)
Accounts payable53 (48)24 
Payroll and benefit obligations(56)46 (73)
Business restructuring reserves(5)(19)(25)
Contract liabilities(161)(71)35 
Other assets and liabilities3 (25)(47)
NET CASH PROVIDED BY OPERATING ACTIVITIES30 147 241 
INVESTING ACTIVITIES:
Capital expenditures(106)(98)(113)
Proceeds from sale of marketable securities— 412 — 
Asset acquisition, net of cash received(7)— — 
Investment in debt securities— — (10)
Other investing activities, net(4)— (1)
NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES(117)314 (124)
FINANCING ACTIVITIES:
Shares repurchased under share repurchase program(37)(330)— 
Proceeds from issuance of Series A Preferred Stock, net of issuance costs of $4— 121 — 
Repayment of Term Loan Credit Agreement due to refinancing(743)(1,643)— 
Proceeds from Term Loan Credit Agreement due to refinancing743 1,627 — 
Repayment of Term Loan Credit Agreement(100)(1,231)(29)
Proceeds from issuance of senior notes— 1,000 — 
Debt issuance costs(2)(14)— 
Principal payments for financing leases(11)(10)(14)
Payments for other financing arrangements(2)— — 
Proceeds from other financing arrangements3 — — 
Payment of acquisition-related contingent consideration— (5)(9)
Proceeds from Employee Stock Purchase Plan13 3 — 
Proceeds from exercises of stock options8 — — 
Preferred stock dividends paid(2)— — 
Shares repurchased for tax withholdings on vesting of restricted stock units(12)(7)(9)
NET CASH USED FOR FINANCING ACTIVITIES(142)(489)(61)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash— 3 (4)
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH(229)(25)52 
Cash, cash equivalents, and restricted cash at beginning of period731 756 704 
Cash, cash equivalents, and restricted cash at end of period$502 $731 $756 
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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Avaya Holdings Corp.
Notes to Consolidated Financial Statements
1. Background and Basis of Presentation
Background
Avaya Holdings Corp. (the "Parent" or "Avaya Holdings"), together with its consolidated subsidiaries (collectively, the "Company" or "Avaya"), is a global leader in digital communications products, solutions and services for businesses of all sizes delivering its technology predominantly through software and services. Avaya builds open, converged and innovative solutions to enhance and simplify communications and collaboration in the cloud, on-premise or a hybrid of both. The Company's global team of professionals delivers services from initial planning and design, to implementation and integration, to ongoing managed operations, optimization, training and support. The Company manages its business operations in 2 segments, Products & Solutions and Services. The Company sells directly to customers through its worldwide sales force and indirectly through its global network of channel partners, including distributors, service providers, dealers, value-added resellers, system integrators and business partners that provide sales and services support.
Basis of Presentation
Avaya Holdings has no material assets or standalone operations other than its ownership of direct wholly-owned subsidiary Avaya Inc. and its subsidiaries. The accompanying Consolidated Financial Statements reflect the operating results of Avaya Holdings and its consolidated subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC").
Out-of-period Adjustment
During fiscal 2021, the Company identified errors in its system configuration and interfaces that impacted the recognition of revenue for previously satisfied performance obligations subsequent to the adoption of Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers" ("ASC 606") on October 1, 2018. These errors resulted in an understatement of Revenue by $3 million and $5 million in the Consolidated Statements of Operations for fiscal 2020 and 2019, respectively, an understatement of contract assets of $2 million and an overstatement of contract liabilities of $13 million as of September 30, 2020 and an understatement of opening Retained earnings upon adoption of ASC 606 of $7 million. The Company concluded that the errors were not material to any prior period financial statements and the correction of the errors was not material to the current year financial statements. The cumulative effect of the errors was corrected during fiscal 2021, resulting in an increase to Revenue and Provision for income taxes and a decrease to Net loss of $15 million, $2 million and $13 million, respectively. The errors predominantly impacted the Products and Solutions operating segment.
2. Summary of Significant Accounting Policies
Use of Estimates
Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenue and expenses during the periods reported. The Company uses estimates to assess expected credit losses on its financial assets, sales returns and allowances, the use and recoverability of inventory, the realization of deferred tax assets, annual effective tax rate, the recoverability of long-lived assets, useful lives and impairment of tangible and intangible assets including goodwill, business restructuring reserves, pension and post-retirement benefit costs, the fair value of assets and liabilities in business combinations and the amount of exposure from potential loss contingencies, among others. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the Consolidated Financial Statements in the period they are determined to be necessary. Actual results could differ from these estimates. The spread of COVID-19 and the actions required to mitigate its impact have created substantial disruption to the global economy, which may affect management's estimates and assumptions, in particular those that require a projection of our financial results, our cash flows or broader economic conditions. The COVID-19 pandemic did not have a material impact on the Company's operating results during fiscal 2021.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Avaya Holdings Corp. and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year's presentation.
Revenue Recognition
The Company derives revenue primarily from the sale of products and services for communications systems and applications. The Company sells directly through its worldwide sales force and indirectly through its global network of channel partners,
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including distributors, service providers, dealers, value-added resellers, systems integrators and business partners that provide sales and services support.
On October 1, 2018, the Company adopted ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)". This standard superseded most of the previous revenue recognition guidance under GAAP and is intended to improve and converge with international standards the financial reporting requirements for revenue recognition. The Company adopted ASC 606 using the modified retrospective transition method applied to all open contracts with customers that were not completed as of September 30, 2018. On October 1, 2018, the Company recorded a net increase to the opening Retained earnings balance of $95 million, net of tax, due to the cumulative impact of adopting ASC 606.
The Company accounts for a customer contract when both parties have approved the contract and are committed to perform their respective obligations, each party’s rights can be identified, payment terms can be identified, the contract has commercial substance and it is at least probable that the Company will collect the consideration to which it is entitled. The Company accrues a provision for estimated sales returns and other allowances, including promotional marketing programs and other incentives, as a reduction of revenue at the time of sale. When estimating returns, the Company considers customary inventory levels held by third-party distributors. Revenue is recognized upon the transfer of control of the promised products and services to customers. Judgment is required in instances where the Company’s contracts include multiple products and services to determine whether each should be accounted for as a separate performance obligation. The Company enters into contracts that include various combinations of products and services, each of which is generally capable of being distinct as well as distinct within the context of the contracts.
Customer contracts are typically made pursuant to purchase orders and statements of work based on master purchase or partner agreements. Invoicing typically occurs upon customer acceptance or monthly for a series of services. Payment is due based on the Company’s standard payment terms which are typically within 30 to 60 days of invoice issuance. The Company does not typically provide financing arrangements to customers. For certain services and customer types, customers will remit payment before the services are provided. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company determined that contracts do not include a significant financing component. The primary purpose of the invoicing terms is to provide customers with simplified and predictable ways of purchasing products and services, not to receive financing from or to provide financing to customers. Certain contracts include performance obligations accounted for as a series which also include variable consideration (primarily usage-based fees). For these arrangements, variable consideration is not estimated and allocated to the entire performance obligation, rather the variable fees are recognized in the period in which the usage occurs in accordance with the "right to invoice" practical expedient.
The total transaction price for each contract is determined based on the total consideration specified in the contract, including variable consideration such as sales incentives and other discounts. The expected value method is generally used when estimating variable consideration, which typically reduces the total transaction price due to the nature of the elements to which the variable consideration relates. These estimates reflect the Company’s historical experience, current contractual requirements, specific known market events and trends, industry data and forecasted customer buying patterns. The Company excludes from the transaction price all taxes assessed by governmental authorities that are both (i) imposed on and concurrent with a specific revenue-producing transaction and (ii) collected from customers. Accordingly, such tax amounts are not included as a component of net sales or cost of sales. The expected value method requires judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each performance obligation. Depending on the facts and circumstances, a change in variable consideration estimate will either be accounted for at the contract level or using the portfolio method. Reserves for contractual stock rotation rights to channel partners to support the management of inventory and certain other sales incentives are determined using the portfolio method. The Company also considers the customers’ rights of return in determining the transaction price where applicable.
The Company allocates the transaction price to each performance obligation based on its relative standalone selling price and recognizes revenue as each performance obligation is satisfied. Judgment is required to determine the standalone selling price for each distinct performance obligation. The Company uses a range of selling prices to estimate standalone selling price when each of the products and services is sold separately. The Company typically has more than one standalone selling price for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, the Company may use information such as the size of the customer and geographic region in determining the standalone selling price. In instances where standalone selling price is not directly observable, such as when the Company does not sell the product or service separately, the Company determines the standalone selling price using information that may include market conditions and other observable inputs.
Amounts billed to customers for shipping and handling activities are considered contract fulfillment activities and not a separate performance obligation of the contract. Shipping and handling fees are recorded as revenue and the related cost is a cost to fulfill the contract.
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Contract modifications are accounted for as separate contracts if the additional products and services are distinct and priced at standalone selling prices. If the additional products and services are distinct, but not priced at standalone selling prices, the modification is treated as a termination of the existing contract and the creation of a new contract. Lastly, if the additional products and services are not distinct within the context of the contract, the modification is combined with the original contract and either an increase or decrease in revenue is recognized on the modification date.
The Company records a contract asset when revenue is recognized in advance of the right to bill, pursuant to customer contract terms. The contract asset decreases when the Company has the right to bill the customer which is generally triggered by the satisfaction of additional performance obligations or contract milestones. The Company records a contract liability when payment is received from the customer in advance of the Company satisfying a performance obligation and the contract liability is reduced as performance obligations are satisfied and revenue is recognized. The Company records the net contract asset or liability position for each customer contract.
Software
The Company’s software licenses provide users with access to capabilities such as voice, video, conferencing, messaging and collaboration. The Company’s software licenses also add functionality to the Company’s hardware. The Company’s software licenses for on-premise customer software provide the customer with a right to use the software as it exists when it is made available to the customer and are accounted for as distinct performance obligations. The Company’s software licenses are sold through both direct and indirect channels with terms that are either perpetual or time based, both of which provide the end-user with the same functionality. The main difference between perpetual and term licenses is the duration over which the customer benefits from the software. Revenue from on-premise customer software licenses is generally recognized at the point-in-time the software is made available to the customer, via direct sale to the end-user or indirect sale to a channel partner, based on the fixed minimum revenue commitment under the arrangement. However, revenue is not recognized before the beginning of the period during which the customer can use and benefit from the license. In instances where the Company’s software licenses include a usage-based fee, revenue associated with the incremental usage is recognized at the point-in-time the incremental usage occurs.
The Company also sells its software under its subscription-based offerings which mainly consist of term software license arrangements and software as a service ("SaaS") arrangements. Term software licenses include multiple performance obligations where the term licenses are recognized at the point-in-time of transfer of control of the software, with the associated software maintenance revenue recognized ratably over the contract term as the customer consumes the services. SaaS arrangements do not include the right for the customer to take possession of the software during the contractual term of the arrangement, and therefore have one distinct performance obligation which is satisfied over time with revenue recognized ratably over the contract term as the customer consumes the services. Subscription-based offerings typically have terms that range from one to five years.
ACO
Avaya Cloud Office by RingCentral or “ACO” combines RingCentral's UCaaS platform with Avaya technology, services and migration capabilities to create a differentiated UCaaS offering. These services are accounted for as two distinct performance obligations, one being a licensing component that is generally recognized at the point-in-time the software is made available to the customer, and the second being associated support services which represents a stand-ready obligation whereby the revenues are generally recognized ratably over the contract term. The Company’s ACO solution is provided through both direct and indirect channels. Contracts typically have terms that range from one to five years.
Hardware
The Company’s hardware, phones, gateways, and servers, each of which has a stand-alone functionality, are generally considered distinct performance obligations. Hardware is sold through both direct and indirect channels and revenue is recognized at the point-in-time at which control of the product is transferred to the customer, via direct sale to the end-user or indirect sale to a channel partner, generally upon delivery, as defined in the contract.
Support Services
The Company’s support services provide supplemental maintenance options to end-users in support of the Company’s products and solutions, including when and if available upgrade rights and maintenance for hardware. These services are typically accounted for as distinct performance obligations. Given that support services consist of a series of distinct promises that are satisfied over time in the form of a single performance obligation comprised of a stand-ready obligation, these services are generally recognized ratably over the period during which the services are performed as customers simultaneously consume and receive benefits. Maintenance contracts typically have terms that range from one to five years.
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Professional Services
The Company’s professional services include the design, implementation and development of communication solutions. Professional services are sold through the Company’s direct and indirect channels either on a stand-alone basis or with other hardware, software and services and are generally accounted for as distinct performance obligations. Revenue for professional services is generally recognized over time based on the cost of effort incurred to date relative to the total cost of effort expected to be incurred as customers simultaneously consume and receive benefits. Effort incurred generally represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contracts for professional services typically have terms that range from four to six weeks for simple engagements and from six months to three years for more complex engagements. 
Cloud and Managed Services
The Company’s managed services provide additional support options to end-users on top of the Company’s supplemental maintenance services, including hardware support, help-desk routing and system monitoring services. The Company’s managed services are sold either on a stand-alone basis or together with the Company’s hardware, software and other services, and are generally accounted for as distinct performance obligations. The Company’s managed services are provided through both direct and indirect channels. Managed services consist of a series of distinct promises that are satisfied over time in the form of a single performance obligation comprised of a stand-ready obligation. Contracts for managed services typically have terms that range from one to five years.
The Company’s cloud offerings enable customers to take advantage of its technology via the cloud, or as a hybrid with its on-premise solutions. The software that enables the core communications functionality is offered both as a sale of perpetual or time based licenses or through a SaaS arrangement. Cloud offerings can include supplemental maintenance and managed services and are sold through the Company’s direct and indirect channels.
Cloud and managed services offerings often include multiple performance obligations. Each performance obligation can itself include a series of distinct promises that are satisfied over time. Total consideration for a project is allocated to each performance obligation, with revenue recognized ratably over the period during which the services are performed as customers simultaneously consume and receive benefits. Variable consideration from incremental usage above a fixed fee is recognized at the point-in-time at which the usage occurs.
Warranties
The Company offers standard limited warranties that provide the customer with assurance that its products will function in accordance with contract specifications. The Company’s standard limited warranties are not sold separately but are included with each customer purchase. Warranties are not considered separate performance obligations, and therefore, warranty expense is accrued at the time the related revenue is recognized.
Cash and Cash Equivalents
All highly liquid investments with original maturities of three months or less at the date of purchase are classified as cash equivalents.
Concentrations of Risk
The Company’s cash and cash equivalents are maintained with several financial institutions. Deposits held at banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit and therefore bear minimal credit risk. The Company seeks to mitigate such risks by spreading its risk across multiple counterparties and monitoring the risk profiles of these counterparties.
The Company, from time to time, may enter into derivative financial instruments with high credit quality financial institutions to manage foreign exchange rate and interest rate risk and is exposed to losses in the event of non-performance by the counterparties to these contracts. To date, no counterparty has failed to meet its obligations to the Company.
The Company relies on a limited number of contract manufacturers and suppliers to provide manufacturing services for its products. The inability of a contract manufacturer or supplier to fulfill supply requirements of the Company could materially impact future operating results. The Company's largest distributor is also its largest customer and represented 7% and 8% of the Company's total annual consolidated revenue for fiscal 2021 and 2020, respectively. At September 30, 2021 and 2020, one distributor accounted for approximately 6% and 9% of accounts receivable, respectively.
Accounts Receivable, Contract Assets and Allowance for Credit Losses
The Company recognizes a contract asset when it transfers products and services to a customer in advance of scheduled billings. Contract assets decrease when the Company invoices the customer or the right to receive consideration is unconditional. Accounts receivable are recorded when the customer has been billed or the right to consideration is
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unconditional. Accounts receivable and contract assets are recorded net of allowances and provisions for credit losses. The Company performs ongoing credit evaluations of its customers and generally does not require collateral from its customers.
The Company estimates an allowance for credit losses using relevant available information from internal and external sources that consider historical experience, current conditions and reasonable and supportable forecasts. A separate allowance is measured for the Company’s accounts receivable, short-term contract asset and long-term contract asset balances. Each allowance is assessed on a collective basis by pooling assets with similar risk characteristics. The Company pools its accounts receivable and short-term contract assets based on aging status and its long-term contract assets by customer credit rating as published by third-party credit agencies. Historical loss experience provides the basis for the estimation of expected credit losses for accounts receivables and short-term contract assets. The Company uses probability of default rates to estimate expected credit losses for its long-term contract assets based on customer credit ratings. The Company also identifies customer specific credit risks and evaluates each based on the specific facts and circumstances as of the reporting date. The risk of loss is assessed over the contractual life of the assets and the expected loss amounts are adjusted for current and future conditions based on management’s qualitative considerations. Financial assets are written off in whole, or in part, when no reasonable expectation of recovery exists, although collection efforts may continue. Subsequent recoveries of amounts previously written off are recognized as an adjustment to the allowance for credit loss.
Contract Costs
The Company capitalizes direct and incremental costs incurred to obtain and to fulfill a contract in advance of revenue recognition, such as sales commissions, business partner incentives and certain labor, third party service and related product costs. These costs are recognized as an asset if the Company expects to recover them. Sales commissions incurred to obtain a contract are amortized using the portfolio approach over the average term of the customer contracts, which corresponds to the period of benefit. Business partner incentives incurred to obtain a contract are recognized consistent with the transfer to the customer of the underlying performance obligations based on the specific contracts to which they relate. Costs incurred to obtain a contract with an amortization period of one year or less are expensed as incurred in accordance with the prescribed practical expedient. Contract fulfillment costs are recognized consistent with the transfer to the customer of the underlying performance obligations based on the specific contracts to which they relate.
Inventory
Inventory includes goods awaiting sale (finished goods) and goods to be used in connection with providing maintenance services. Inventory is stated at the lower of cost or net realizable value, determined on a first-in, first-out method. Reserves to reduce the inventory cost to net realizable value are based on current inventory levels, assumptions about future demand and product life cycles for the various inventory types.
The Company has outsourced the manufacturing of substantially all of its products and may be obligated to purchase certain excess inventory levels from its outsourced manufacturers if actual sales of product are lower than forecast, in which case additional inventory provisions may need to be recorded in the future.
Research and Development Costs
Research and development costs are charged to expense as incurred. The costs incurred for the development of communications software that will be sold, leased or otherwise marketed, however, are capitalized when technological feasibility has been established in accordance with FASB Accounting Standards Codification ("ASC") Topic 985, "Software". The Company has continued to leverage agile development methodologies, which are characterized by a more dynamic development process with more frequent revisions to a product releases' features and functions as the software is being developed with technological feasibility being met shortly before the product revision is made generally available. As such, no amounts were capitalized for internally developed software costs in the Company's Consolidated Financial Statements during fiscal 2021, 2020 and 2019.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is determined using the straight-line method over the estimated useful lives of the assets. Estimated lives range from 2 to 10 years for machinery and equipment and the remaining lease term for equipment acquired under a financing lease. Improvements that extend the useful life of assets are capitalized and maintenance and repairs are charged to expense as incurred. Capitalized improvements to facilities subject to operating leases are depreciated over the lesser of the estimated useful life of the asset or the duration of the lease. Upon retirement or disposal of assets, the cost and related accumulated depreciation are removed from the Consolidated Balance Sheets and any gain or loss is reflected in the Consolidated Statements of Operations.
The Company capitalizes costs associated with software developed or obtained for internal use when the preliminary project stage is completed and it is determined that the software will provide enhanced capabilities. Internal use software is amortized on a straight-line basis over the estimated useful lives of the assets, which range from three to ten years. Costs capitalized include payroll and related benefits, third party development fees and acquired software and licenses. General and
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administrative costs, overhead, maintenance and training, and the cost of the software that does not add functionality to existing systems, are expensed as incurred. The Company had unamortized internal use software costs included in Property, Plant and Equipment, net in the Consolidated Balance Sheets of $115 million and $91 million as of September 30, 2021 and 2020, respectively. Depreciation expense related to internal use software recognized in the Consolidated Statements of Operations for fiscal 2021, 2020 and 2019 was $26 million, $27 million and $39 million, respectively.
Cloud Computing Arrangement Implementation Costs
The Company periodically enters into cloud computing arrangements to access and use third-party software in support of its operations. The Company assesses its cloud computing arrangements with vendors to determine whether the contract meets the definition of a service contract or software license. For cloud computing arrangements that meet the definition of a service contract, the Company capitalizes implementation costs incurred during the application development stage as a prepaid expense and amortizes the costs on a straight-line basis over the term of the contract. Costs related to data conversion, training and other maintenance activities are expensed as incurred. Implementation costs for cloud computing arrangements that meet the definition of a software license are accounted for consistent with software developed or obtained for internal use as detailed above.
Acquisition Accounting
The Company accounts for business combinations using the acquisition method, which requires an allocation of the purchase price of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. Goodwill represents the excess of the purchase price over the net tangible and intangible assets acquired.
Goodwill
Goodwill is not amortized but is subject to periodic testing for impairment in accordance with FASB ASC Topic 350, "Intangibles-Goodwill and Other" ("ASC 350") at the reporting unit level. The Company's reporting units, which are the same as its operating segments, are subject to impairment testing annually, on July 1st, or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company's goodwill was primarily recorded upon emergence from bankruptcy as a result of applying fresh start accounting.
ASC 350 provides the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. The Company has the unconditional option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing a quantitative goodwill impairment test. If the assessment of all relevant qualitative factors indicates that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, a quantitative goodwill impairment test is not necessary. If the assessment of all relevant qualitative factors indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company will perform a quantitative goodwill impairment test. The quantitative impairment test for goodwill consists of a comparison of the fair value of a reporting unit with its carrying value, including the goodwill allocated to that reporting unit. If the carrying value of a reporting unit exceeds its fair value, the Company will recognize an impairment loss equal to the amount of the excess, limited to the amount of goodwill allocated to that reporting unit. Application of the impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units and the determination of fair value of each reporting unit. In performing the quantitative goodwill impairment test, the Company estimates the fair value of each reporting unit using a weighting of fair values derived from an income approach and a market approach.
Under the income approach, the fair value of a reporting unit is estimated using a discounted cash flows model. Future cash flows are based on forward-looking information regarding revenue and costs for each reporting unit and are discounted using an appropriate discount rate. The discounted cash flows model relies on assumptions regarding revenue growth rates, projected gross profit, working capital needs, selling, general and administrative expenses, research and development expenses, business restructuring costs, capital expenditures, income tax rates, discount rates and terminal growth rates. The discount rates the Company uses represent the estimated weighted average cost of capital, which reflects the overall level of inherent risk involved in its reporting unit operations and the rate of return an outside investor would expect to earn. To estimate cash flows beyond the final year of its model, the Company uses a terminal value approach. Under this approach, the Company applies a perpetuity growth assumption to determine the terminal value. The Company incorporates the present value of the resulting terminal value into its estimate of fair value. Forecasted cash flows for each reporting unit consider current economic conditions and trends, estimated future operating results, the Company's view of growth rates and anticipated future economic conditions. Revenue growth rates inherent in the forecasts are based on input from internal and external market intelligence research sources that compare factors such as growth in global economies, regional trends in the telecommunications industry and product evolution. Macroeconomic factors such as changes in economies, product evolution, industry consolidation and other changes beyond the Company's control could have a positive or negative impact on achieving its targets.
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The market approach estimates the fair value of a reporting unit by applying multiples of operating performance measures to the reporting unit's operating performance (the "Guideline Public Company Method"). These multiples are derived from comparable publicly-traded companies with similar investment characteristics to the reporting unit. The key estimates and assumptions that are used to determine the fair value under the market approach include current and projected 12-month operating performance results, as applicable, and the selection of the relevant multiples that are applied.
Intangible and Long-lived Assets
Intangible assets include technology and patents, customer relationships and trademarks and trade names. Intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from 4 to 19 years.
Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable in accordance with FASB ASC Topic 360, "Property, Plant, and Equipment." Intangible assets determined to have indefinite useful lives are not amortized but are tested for impairment annually, on July 1st, or more frequently if events occur or circumstances change that indicate an asset may be impaired.
The recoverability test of finite-lived assets is based on forecasts of undiscounted cash flows for each asset group. The impairment test of the Company’s indefinite-lived intangible asset, the Avaya Trade Name consists of a comparison of the estimated fair value of the asset with its carrying value. If the carrying value of the Avaya Trade Name exceeds its estimated fair value, the Company will recognize an impairment loss equal to the amount of the excess. The fair value of the Avaya Trade Name is estimated using the relief-from-royalty model, a form of the income approach. Under this methodology, the fair value of the trade name is estimated by applying a royalty rate to forecasted net revenues which is then discounted using a risk-adjusted rate of return on capital. Revenue growth rates inherent in the forecast are based on input from internal and external market intelligence research sources that compare factors such as growth in global economies, regional trends in the telecommunications industry and product evolution. The royalty rate is determined using a set of observed market royalty rates.
The estimated useful lives of intangible and long-lived assets are based on many factors including assumptions regarding the effects of obsolescence, demand, competition and other economic factors, expectations regarding the future use of the asset, and the Company's historical experience with similar assets. The assumptions used to determine the estimated useful lives could change due to numerous factors including product demand, market conditions, technological developments, economic conditions and competition.
Amortizable technology and patents have useful lives that range between 4 and 10 years with a weighted average remaining useful life of 2.3 years. Customer relationships have useful lives that range between 7 and 19 years with a weighted average remaining useful life of 11.0 years. Amortizable product trade names have useful lives of 10 years with a weighted average remaining useful life of 6.2 years. The Avaya Trade Name is expected to generate cash flows indefinitely and, consequently, this asset is classified as an indefinite-lived intangible and is therefore not amortized.
DerivativeFinancial Instruments
All derivatives are recognized as assets or liabilities and measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. For derivative instruments designated as highly effective cash flow hedges under FASB ASC Topic 815, "Derivatives and Hedging" ("ASC 815"), the change in fair value of the derivative is initially recorded in Accumulated other comprehensive loss in the Consolidated Balance Sheets and is subsequently recognized in earnings when the hedged exposure impacts earnings. For derivative instruments that are not designated as highly effective hedges, gains or losses from changes in fair values are recognized in earnings. The Company does not enter into derivatives for trading or speculative purposes.
Leases
On October 1, 2019, the Company adopted ASU No. 2016-02, "Leases (Topic 842)." This standard, along with other guidance subsequently issued by the FASB (collectively "ASC 842"), superseded all lease accounting guidance and requires lessees to recognize lease assets and liabilities for all leases with initial lease terms of more than 12 months. The Company adopted ASC 842 using the modified retrospective transition method as of the beginning of the period of adoption. Therefore, on October 1, 2019, the Company recognized and measured leases without revising the historical comparative period information or disclosures.
The Company enters into various arrangements for office, warehouse and data center facilities, network equipment and vehicles. In accordance with ASC 842, the Company assesses whether an arrangement contains a lease at contract inception. When an arrangement contains a lease, the Company records a right-of-use asset and lease liability. Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make payments for the right to use the asset.
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Right-of-use assets and lease liabilities are recognized at the lease commencement date at the present value of future payments over the lease term. The Company adopted the practical expedient permitting the non-lease components of an arrangement to be included in the right-of-use asset to which they relate. The present value of future payments is discounted using the rate implicit in the lease, when available. However, as most of the Company's leases do not provide an implicit interest rate, the present value is calculated using the Company's incremental borrowing rate, which represents the interest rate the Company would expect to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Options to extend or terminate a lease are included in the calculation of the lease term to the extent that the option is reasonably certain of exercise. For the majority of the Company's leases, the Company has concluded that it is not reasonably certain it would exercise such options, therefore the lease term is generally the non-cancelable period stated within the lease. The Company has elected to not record a right-of-use asset and lease liability for short term leases with an initial lease term of 12 months or less.
Restructuring Programs
A business restructuring is defined as an exit or disposal activity that includes, but is not limited to, a program that is planned and controlled by management and materially changes either the scope of a business or the manner in which that business is conducted. The Company's business restructuring charges include (i) one-time termination benefits related to employee separations, (ii) contract termination costs and (iii) other related costs associated with exit or disposal activities including, but not limited to, costs for consolidating or closing facilities and relocating employees.
The Company accounts for non-facility related exit or disposal activities in accordance with FASB ASC Topic 420, "Exit or Disposal Cost Obligations" ("ASC 420"). A liability is recognized and measured at its fair value for one-time termination benefits once the plan of termination meets all of the following criteria: (i) management commits to a plan of termination, (ii) the plan identifies the number of employees to be terminated and their job classifications or functions, locations and the expected completion date, (iii) the plan establishes the terms of the benefit arrangement and (iv) it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. Contract termination costs include costs to terminate a contract or costs that will continue to be incurred under the contract without benefit to the Company. A liability is recognized and measured at its fair value when the Company either terminates the contract or ceases using the rights conveyed by the contract. A liability is recognized and measured at its fair value for other related costs in the period in which the liability is incurred.
As of October 1, 2019, the Company accounts for facility-related exit or disposal activities in accordance with ASC 842 and no longer records facility-related restructuring charges within the Business restructuring reserve on the Consolidated Balance Sheets. Facility exit costs primarily include lease obligation charges for exited facilities, including the impact of accelerated lease expense for right-of-use assets and accelerated depreciation expense for leasehold improvements with reductions in their estimated useful lives due to exited facilities. The Company’s accounting for such charges is dependent on whether it has the ability and intent to sublease an exited facility. In circumstances in which the Company has the ability and intent to sublease an exited facility, the Company performs an impairment test of the asset group by comparing its fair value to its carrying value on the earlier of the sublease inception date or cease use date. To the extent the carrying value of the asset group is greater than its fair value, an impairment charge is recorded within the Restructuring charges line item in the Company's Consolidated Statements of Operations. If the Company does not have the ability and intent to sublease an exited facility, the Company adjusts the estimated useful life of the facility related assets to end on the cease use date and recognizes accelerated depreciation and amortization within the Restructuring charges line item in the Consolidated Statements of Operations. The amortization of right-of-use assets for exited facilities is recorded within Restructuring charges after the cease use date. Sublease income is recorded within Other income, net in the Consolidated Statements of Operations.
Pension and Post-retirement Benefit Obligations
The Company sponsors non-contributory defined benefit pension plans covering a portion of its U.S. employees and retirees, and post-retirement benefit plans covering a portion of its U.S. employees and retirees that include healthcare benefits and life insurance coverage. Certain non-U.S. operations have various retirement benefit programs covering substantially all of their employees. Some of these programs are considered to be defined benefit pension plans for accounting purposes.
These pension and other post-retirement benefits are accounted for in accordance with FASB ASC Topic 715, "Compensation—Retirement Benefits" ("ASC 715"). ASC 715 requires that plan assets and obligations be measured as of the reporting date and the over-funded, under-funded or unfunded status of plans be recognized as of the reporting date as an asset or liability in the Consolidated Balance Sheets. In addition, ASC 715 requires costs and related obligations and assets arising from pensions and other post-retirement benefit plans to be accounted for based on actuarially determined estimates.
The Company’s pension and post-retirement benefit costs are developed from actuarial valuations. Inherent in these valuations are key assumptions, including the discount rate and expected long-term rate of return on plan assets. Material changes in pension and post-retirement benefit costs may occur in the future due to changes in these assumptions, in the number of plan participants, in the level of benefits provided, in asset levels and in legislation.
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The market-related value of the Company’s plan assets for the Company’s U.S. and international pension plans and post-retirement medical plans is developed using a five-year smoothing technique as of the measurement date. First, a preliminary market-related value is calculated by adjusting the market-related value at the beginning of the year for payments to and from plan assets and the expected return on assets during the year. The expected return on assets represents the expected long-term rate of return on plan assets adjusted up to plus or minus 2% based on the actual ten-year average rate of return on plan assets. A final market-related value is determined as the preliminary market-related value, plus 20% of the difference between the actual return and expected return for each of the past five years. As a result of the partial settlement of the post-retirement life insurance in fiscal 2021, which is further described within Note 15, “Benefit Obligations,” the market-related value of the Company’s plan assets for other post-retirement life insurance plan is determined using the fair market value technique.
The plans use different factors based on plan provisions and participant census data, including years of service, eligible compensation and age, to determine the benefit amount for eligible participants. The Company funds its U.S. pension plans in compliance with applicable laws.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs were $47 million, $42 million and $39 million for fiscal 2021, 2020 and 2019, respectively.
Share-based Compensation
The Company accounts for share-based compensation in accordance with FASB Topic ASC 718, "Compensation-Stock Compensation," which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and non-employee directors including stock options, restricted stock, restricted stock units, performance awards and other forms of awards granted or denominated in shares of the Company’s common stock, as well as certain cash-based awards. The Company uses the Black-Scholes-Merton option pricing model ("Black-Scholes") to calculate the fair value of stock options and warrants to purchase common stock. The Company accounts for forfeitures as incurred.
Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Consolidated Statements of Operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be realized. Additionally, the accounting for income taxes requires the Company to evaluate and make an assertion as to whether undistributed foreign earnings will be indefinitely reinvested or repatriated.
FASB ASC Subtopic 740-10, "Income Taxes—Overall" ("ASC 740-10") prescribes a comprehensive model for the financial statement recognition, measurement, classification, and disclosure of uncertain tax positions. ASC 740-10 contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, based on the technical merits of the position. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.
Significant judgment is required in evaluating uncertain tax positions and determining the provision for income taxes. Although the Company believes its reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in the historical income tax provision and accruals. The Company adjusts its estimated liability for uncertain tax positions periodically due to new information discovered from ongoing examinations by, and settlements with, various taxing authorities, as well as changes in tax laws, regulations and interpretations. The Company's policy is to recognize, when applicable, interest and penalties on uncertain tax positions as part of income tax expense.
As part of the Company's accounting for business combinations, some of the purchase price is allocated to goodwill and intangible assets. Impairment expenses associated with goodwill are generally not tax deductible and will result in an increased effective income tax rate in the fiscal period any impairment is recorded. The income tax benefit from future releases of the acquisition date valuation allowances or income tax contingencies, if any, are reflected in the income tax provision in the Consolidated Statements of Operations, rather than as an adjustment to the purchase price allocation.
The FASB has published guidance (Topic 740, No. 5) for the Global Intangible Low-Taxed Income ("GILTI") provisions included in the Tax Cuts and Jobs Act which states that a company may make a policy decision with respect to the accounting for taxes related to GILTI and whether deferred taxes should be established. The Company's accounting policy is to account for any taxes associated with GILTI as a period cost.
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Earnings (Loss) Per Share
The Company uses the two-class method to calculate basic and diluted earnings (loss) per share as its Series A Preferred Stock are participating securities. Under the two-class method, undistributed earnings are allocated to common stock and participating securities according to their respective participating rights in undistributed earnings, as if all the earnings for the period had been distributed. Basic earnings (loss) per common share is computed by dividing the net income (loss) income attributable to common stockholders by the weighted average number of common shares outstanding during the period. Net (loss) income for the Predecessor Company(loss) attributable to common stockholders was adjusted (increased)is reduced for preferred stock dividends earned and accretion recognized during the period. No allocation of undistributed earnings to preferred shares is performed for periods with net losses as such securities do not have a contractual obligation to share in the losses of the Company. Diluted earnings (loss) per share is computed by dividing the net income (loss) income attributable to common stockholders by the weighted average number of common shares outstanding plus potentially dilutive common shares.
Deferred Financing Costs
Deferred financing costs are amortized using the effective interest method as interest expense over the contractual lives of the related credit facilities. Deferred financing costs related to a debt liability are presented on the Consolidated Balance Sheets as a reduction of the carrying amount of that debt liability and deferred financing costs related to revolving credit facilities are included within other assets.
Foreign Currency Translation
Assets and liabilities of non-U.S. subsidiaries that operate in a local currency environment, where the local currency is the functional currency, are translated from foreign currencies into U.S. dollars at period-end exchange rates.
Upon emergence from bankruptcy, the Company changed its accounting policy related to translating the income and expense of non-U.S. dollar functional currency subsidiaries into U.S. dollars. Prior to the Emergence Date, the Predecessor Company translated the income and expense of non-U.S. dollar functional currency subsidiaries into U.S. dollars at the spot rate for the transaction. Subsequent to the Emergence Date, the SuccessorThe Company translates the income and expense of non-U.S. dollar functional currency subsidiaries into U.S. dollars using an average rate for the period.

Translation gains or losses related to net assets located outside the U.S. are shown as a component of Accumulated other comprehensive income (loss)loss in the Consolidated Statements of Changes in Stockholders' Equity (Deficit).Balance Sheets. Gains and losses resulting from foreign currency transactions, which are denominated in currencies other than the functional currency, are included in Other income, (expense), net in the Consolidated Statements of Operations.
3. Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In January 2017,December 2019, the Financial Accounting Standards Board ("FASB") issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting Standards Update ("ASU") No. 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business.for Income Taxes." This standard clarifiessimplifies the definitionaccounting for income taxes by removing certain exceptions to the general principles in ASC 740. The amendments also improve consistent application of a business with the objectiveand simplify GAAP for other areas of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.ASC 740 by clarifying and amending existing guidance. The Company early adopted this standard as of October 1, 2018 on a prospective basis.2020. The adoption of this standard did not have an impact on the Company's Consolidated Financial Statements, however, the future impact of the standard will depend on the nature of any future acquisitions or dispositions made by the Company.
In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash." This standard requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this standard as of October 1, 2018 applying the retrospective transition method to each period presented. The adoption resulted in a change in Net cash (used for) provided by investing activities from $(134) million to $(199) million for the period from December 16, 2017 through September 30, 2018 (Successor), from $8 million to $(13) million for the period from October 1, 2017 through December 15, 2017 (Predecessor) and from $(70) million to $10 million for fiscal 2017 (Predecessor). The adoption also resulted in an increase in Net cash provided by operating activities from $291 million to $301 million for fiscal 2017 (Predecessor).
In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.” This standard requires recognition of the income tax consequences of intra-entity transfers of assets (other than inventory) at the transaction date. The Company adopted this standard beginning in the first quarter of fiscal 2019 on a modified retrospective basis. The adoption of this standard did not result in a material impact on the Company’s Consolidated Financial Statements. However, the ongoing impact of this standard will be facts and circumstances dependent on any transactions within its scope.
In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments." This standard addresses the appropriate classification of certain cash flows as operating, investing, or financing. The Company adopted this standard as of October 1, 2018 applying the retrospective transition method to each accounting period presented. The adoption of the standard did not have a material impact on the Company's Consolidated Financial Statements.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASC 606"). This standard superseded most of the previous revenue recognition guidance under GAAP and is intended to improve and converge with international standards the financial reporting requirements for revenue recognition. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. New disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required. The Company adopted ASC 606 as of October 1, 2018 using the modified retrospective transition method applied to all open contracts with customers that were not completed as of September 30, 2018.
Upon adoption of ASC 606, sales that include professional services, are generally recognized as the services are performed as opposed to upon completion and acceptance of the project. When such arrangements include products, products revenue is generally recognized when the products are delivered as opposed to upon completion and acceptance of the project. Additionally, for cloud and managed services arrangements pursuant to which the customer purchases and owns the solution and Avaya provides the software as a service ("SaaS"), control of the software generally transfers to the customer and the related revenue is recognized, at the point-in-time the SaaS commences. Revenue recognition related to stand-alone product shipments, maintenance services and certain cloud offerings remains substantially unchanged. In addition to the impacts on revenue recognition, the standard requires incremental contract acquisition costs (primarily sales commissions) to be capitalized and amortized on a systematic basis that is consistent with the transfer of goods or services to which the asset relates. These costs were formerly expensed as incurred. The impact of adopting ASC 606 is dependent upon contract-specific terms and the Company has chosen to use the allowed practical expedient whereby, incremental contract acquisition costs with an amortization period of one year or less are expensed as incurred.

On October 1, 2018, the beginning of the Company's fiscal 2019, the Company recorded a net increase to the opening Retained earnings balance of $92 million, net of tax, due to the cumulative impact of adopting ASC 606. During fiscal 2019, the Company recorded a $3 million adjustment to correct the ASC 606 impact that was recorded to Retained earnings on October 1, 2018. In connection with this adjustment, the Company also recorded an out-of-period adjustment during fiscal 2019 to correct goodwill recognized upon the application of fresh start accounting, which resulted in a $2 million decrease to Contract liabilities and a $2 million decrease to Goodwill. Management concluded that these corrections were not material to previously issued Consolidated Financial Statements and to fiscal 2019.
The revised net increase to Retained earnings due to the cumulative impact of adopting ASC 606 was $95 million, net of tax. The increase to Retained earnings included $97 million for the portion of the transaction price that would have been recognized as revenue under prior guidance (ASC "605"). These amounts will not be recognized as revenue in future periods and are primarily attributable to open contracts that contained professional services, both on a stand-alone basis and when sold together with hardware and software, for which revenue recognition was deferred until project completion under ASC 605.
Recent Standards Not Yet Effective
In August 2018, the FASB issued ASU No. 2018-15, "Intangibles - Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract." This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted this standard is effective foras of October 1, 2020 on a prospective basis. The adoption of this standard did not have a material impact on the Company in the first quarter of fiscal 2021, with early adoption permitted. The Company is currently assessing the impact the new guidance will have on itsCompany's Consolidated Financial Statements.Statements, however, the future impact of the standard will depend on the nature of future transactions within its scope.
In August 2018, the FASB issued ASU No. 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." This standard modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. This updatestandard removes disclosures that are not considered cost beneficial, clarifies certain required disclosures and adds additional disclosures. This standard is effective for the Company beginning in fiscal 2021, with early adoption permitted. The amendments in the standard need to be applied on a retrospective basis. The Company is currently assessingadopted this standard as of October 1, 2020 using the impactretrospective transition method. The adoption of this standard did not result in material changes to the standard on itsCompany’s benefit plan disclosures.
In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." This standard modifies the disclosure requirements on fair value measurements by removing certain disclosures,or modifying certain disclosuresexisting disclosure requirements and adding additional disclosures. This standard is effective for the Company beginning in the first quarter of fiscal 2021. Certain disclosures in the standard need to be applied on a retrospective basis and others on a prospective basis.disclosure requirements. The Company is currently assessing the impactadopted this standard as of the standard on its disclosures.
In February 2018, the FASB issued ASU No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." This standard allows companies to reclassify from accumulated other comprehensive income to retained earnings any stranded tax benefits resulting from the enactment of the Tax Cuts and Jobs Act. This standard is effective for the Company beginning in the first quarter of fiscalOctober 1, 2020. The Company does not expect the adoption of this standard did not result in material changes to have a material impact on its Consolidated Financial Statements.the Company's fair value disclosures.
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In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." This standard, along with other guidance subsequently issued by the FASB, requires entities to estimate all expected credit losses for certain types of financial instruments, including trade receivables and contract assets, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The standard also expands the disclosure requirements to enable users of financial statements to understand the entity’sentity's assumptions, models and methods for estimating expected credit losses. The Company adopted the standard on October 1, 2020 using the modified retrospective transition method. On October 1, 2020, the beginning of the Company’s fiscal 2021, the Company recorded a net increase to the opening Accumulated deficit balance of $3 million, net of tax, due to the cumulative impact of adopting the standard. The impact was primarily related to the Company’s accounts receivable and contract asset balances on the adoption date.
0Recent Standards Not Yet Effective
In August 2020, the FASB issued ASU No. 2020-06, "Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity." This standard simplifies the accounting for convertible instruments and the application of the derivatives scope exception for contracts in an entity's own equity. The standard also amends the accounting for convertible instruments in the diluted earnings per share calculation and requires enhanced disclosures of convertible instruments and contracts in an entity's own equity. This standard is effective for the Company in the first quarter of fiscal 20212023. The adoption may be applied on a modified or fully retrospective basis. An entity may also irrevocably elect the fair value option in accordance with ASC 825 for any financial instrument that is a convertible security upon adoption of this standard. The Company is currently evaluatingassessing the impact that the adoption of this standard maynew guidance will have on its Consolidated Financial Statements.
In February 2016,October 2021, the FASB issued ASU No. 2016-02, "Leases."2021-08, Business Combinations (Topic 805): “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” This standard along with other guidance subsequently issued by the FASB (collectively “ASC 842”), requires lessees to recognize leasecontract assets and contract liabilities for all leasesacquired in a business combination to be recognized in accordance with lease terms of more than 12 months. TheTopic 606 as if the acquirer had originated the contracts. This standard makes similar changes to lessor accounting and aligns key aspects of the lessor accounting model with the revenue recognition standard. Presentation of leases within the statements of operations and statements of cash flows will primarily depend on its classification as a finance or operating lease. ASC 842 is effective for the Company in the first quarter of fiscal 20202024, with early adoption permitted. The Company adopted ASC 842 on October 1, 2019 using the modified retrospective transition method as of the beginning of the period of adoption. Therefore, upon adoption, the Company recognized and measured leases without revising comparative period information or disclosures. The modified retrospective transition method included optional practical expedients which lessened the burden of implementing ASC 842 by not requiring a reassessment of certain conclusions reached under existing lease accounting guidance. The Company elected to apply the

practical expedients to forego a reassessment of (1) whether any expired or existing contracts are or contain leases; (2) the lease classification for any expired or existing leases; (3) the initial direct costs for an existing lease; and (4) whether an existing or expired land easement is or contains a lease if it has not historically been accounted for as a lease. The Company did not elect the practical expedient allowing the use-of-hindsight which would require the Company to reassess the lease term of existing leases based on all facts and circumstances through the effective date. 
The adoption of ASC 842 will have a material impact to the Company’s Consolidated Balance Sheets but no material impact to its Consolidated Statements of Operations or Consolidated Statements of Cash Flows. The most significant impact will be the recognition of right-of-use (“ROU”) assets and lease liabilities for operating leases. The Company has identified and implemented a new system solution to meet the requirements of ASC 842 and has implemented processes and internal controls to meet ASC 842’s reporting and disclosure requirements. The Company is continuing to evaluatecurrently assessing the impact of this standardthe new guidance will have on its Consolidated Financial Statements.
4. Emergence from Voluntary Reorganization under Chapter 11 Proceedings
Plan of Reorganization
On November 28, 2017, the Bankruptcy Court entered an order confirming the Plan of Reorganization. On the Emergence Date, the Plan of Reorganization became effective and the Debtors emerged from bankruptcy.
On or following the Emergence Date and pursuant to the terms of the Plan of Reorganization, the following occurred:
Debtor-in-Possession Credit Agreement. The Company paid in full the debtor-in-possession credit agreement (the "DIP Credit Agreement") in the amount of $725 million;
Predecessor Equity and Indebtedness. The Debtors' obligations under stock certificates, equity interests and/or any other instrument or document directly or indirectly evidencing or creating any indebtedness or obligation of, or ownership interest in, the Debtors or giving rise to any claim or equity interest were canceled, except as provided under the Plan of Reorganization;
Successor Equity. The Company's certificate of incorporation was amended and restated to authorize the issuance of 605.0 million shares of Successor Company stock, consisting of 55.0 million shares of preferred stock, par value $0.01 per share, and 550.0 million shares of common stock, par value $0.01 per share, of which 110.0 million shares of common stock were issued (as discussed below);
Exit Financing. The Successor Company entered into (1) a term loan credit agreement (the "Term Loan Credit Agreement")Contracts with a principal amount of $2,925 million maturing on December 15, 2024, and (2) a $300 million asset-based revolving credit facility (the "ABL Credit Agreement") maturing on December 15, 2022;
First Lien Debt Claims. All of the Predecessor Company's outstanding obligations under the variable rate term B-3, B-4, B-6, and B-7 loans and the 7% and 9% senior secured notes (collectively, the "Predecessor first lien obligations") were canceled, and the holders of claims under the Predecessor first lien obligations received 99.3 million shares of Successor Company common stock. In addition, the holders of the Predecessor first lien obligations received cash in the amount of $2,061 million;
Second Lien Debt Claims. All the Predecessor Company's outstanding obligations under the 10.50% senior secured notes (the "Predecessor second lien obligations") were canceled, and the holders of claims under the Predecessor second lien obligations received 4.4 million shares of Successor Company common stock. In addition, holders of the Predecessor second lien obligations received warrants to purchase 5.6 million shares of Successor Company common stock at an exercise price of $25.55 per warrant (the "Emergence Date Warrants");
Claims of Pension Benefit Guaranty Corporation ("PBGC"). The Predecessor Company's outstanding obligations under the Avaya Inc. Pension Plan for Salaried Employees ("APPSE") were terminated and transferred to the PBGC. The PBGC received 6.1 million shares of Successor Company common stock and $340 million in cash; and
General Unsecured Claims. Holders of the Predecessor Company's general unsecured claims were to receive their pro rata share of the general unsecured recovery pool. A liquidating trust was established in the amount of $58 million (comprised of cash and stock) for the benefit of the general unsecured claims. Included in the 110.0 million Successor Company common stock issued upon emergence were 0.2 million additional shares of common stock that were issued (but were not outstanding) for the benefit of the general unsecured creditors. Any excess cash and/or common stock not distributed to the general unsecured creditors was to be distributed to the holders of the Predecessor first lien obligations.

Section 363 Asset Sale
In July 2017, the Company sold its networking business ("Networking" or the "Networking business") to Extreme Networks, Inc. ("Extreme"). As part of the sale, Extreme paid the Company $70 million, deposited $10 million in an indemnity escrow account and assumed certain liabilities, primarily lease obligations, of $20 million. A $2 million gain was recognized and included in Other income (expense), net in the Consolidated Statements of Operations during fiscal 2017 (Predecessor). The deficit of revenues over direct expenses for the sold business was $4 million for the nine months ended June 30, 2017 (Predecessor). The Networking business provided wired, WLAN and Fabric technology, and included the related customers, personnel, software and technology assets. The Networking business was comprised primarily of certain assets of the Company's Networking segment (which prior to the sale was a separate operating segment), along with the maintenance and professional services of the Networking business, which was part of the Services segment. Under a transition services agreement (the "TSA"), the Company provided administrative services to Extreme for process support, maintenance services and product logistics on a fee basis. As of September 30, 2018, all activities required to be provided under the TSA were completed and the TSA was terminated. The $10 million indemnity escrow was distributed in September 2018, with the Successor Company receiving $7 million and Extreme receiving the remaining $3 million as final settlement. The Company recorded income from the TSA, net of $5 million, $3 million and $3 million for the period from December 16, 2017 through September 30, 2018 (Successor), the period from October 1, 2017 through December 15, 2017 (Predecessor) and fiscal 2017 (Predecessor), respectively.
5. Fresh Start Accounting
In connection with the Company's emergence from bankruptcy and in accordance with FASB ASC 852, "Reorganizations" ("ASC 852"), the Company applied the provisions of fresh start accounting to its Consolidated Financial Statements on the Emergence Date. The Company was required to use fresh start accounting since (i) the holders of existing voting shares of the Predecessor Company received less than 50% of the voting shares of the emerging entity and (ii) the reorganization value of the Company's assets immediately prior to confirmation of the Plan of Reorganization was less than the post-petition liabilities and allowed claims.
ASC 852 prescribes that with the application of fresh start accounting, the Company allocated its reorganization value to its individual assets based on their estimated fair values in conformity with ASC 805, "Business Combinations". The reorganization value represents the fair value of the Successor Company's assets before considering liabilities. The excess reorganization value over the fair value of identified tangible and intangible assets is reported as goodwill. As a result of the application of fresh start accounting and the effects of the implementation of the Plan of Reorganization, the Consolidated Financial Statements after December 15, 2017 are not comparable with the Consolidated Financial Statements as of or prior to that date.
Reorganization Value
As set forth in the Plan of Reorganization, the agreed upon enterprise value of the Company was $5,721 million. This value was within the initial range calculated by the Company of approximately $5,100 million to approximately $7,100 million using an income approach. The $5,721 million enterprise value was selected as it was the transaction price agreed to in the global settlement agreement with the Company’s creditor constituencies, including the PBGC. The reorganization value was then determined by adding liabilities other than interest bearing debt, pension obligations and the deferred tax impact of the reorganization and fresh start adjustments.

The following table reconciles the enterprise value to the estimated fair value of the Successor stockholders' equity as of the Emergence Date:
(In millions, except per share amount)  
Enterprise value $5,721
Plus:  
Cash and cash equivalents 366
Less:  
Minimum cash required for operations (120)
Fair value of Term Loan Credit Agreement(1)
 (2,896)
Fair value of capitalized leases (20)
Fair value of pension and other post-retirement obligations, net of tax(2)
 (856)
Change in net deferred tax liabilities from reorganization (510)
Fair value of Successor Emergence Date Warrants(3) 
 (17)
Fair value of Successor common stock $1,668
Shares issued at December 15, 2017 upon emergence 110.0
Successor common stock value per share $15.16
(1)
The fair value of the Term Loan Credit Agreement was determined based on a market approach utilizing market-clearing data on the valuation date in addition to bid/ask prices and was estimated to be 99% of par value.
(2)
The following assumptions were used when measuring the fair value of the U.S. pension, non-U.S. pension, and post-retirement benefit plans: weighted-average return on assets of 7.75%, 3.80% and 5.90%, and weighted-average discount rate to measure plan obligations of 3.70%, 1.52% and 3.77%, respectively.
(3)
The fair value of the Emergence Date Warrants was estimated using the Black-Scholes pricing model.
The following table reconciles the enterprise value to the estimated reorganization value as of the Emergence Date:
(In millions)  
Enterprise value $5,721
Plus:  
Non-debt current liabilities 955
Non-debt non-current liabilities 2,090
Excess cash and cash equivalents 246
Less:  
Pension and other post-retirement obligations, net of deferred taxes (856)
Capital lease obligations (20)
Change in net deferred tax liabilities from reorganization (510)
Emergence Date Warrants issued (17)
Reorganization value of Successor assets $7,609
Consolidated Balance Sheet
The adjustments set forth in the following consolidated balance sheet as of December 16, 2017 reflect the effect of the consummation of the transactions contemplated by the Plan of Reorganization (reflected in the column "Reorganization Adjustments") as well as fair value adjustments as a result of applying fresh start accounting (reflected in the column "Fresh Start Adjustments"). The explanatory notes highlight methods used to determine fair values or other amounts of the assets and liabilities, as well as significant assumptions or inputs.

(In millions)
Predecessor Company
December 15,
 2017
 Reorganization Adjustments   Fresh Start Adjustments   
Successor Company
December 16,
 2017
ASSETS           
Current assets:           
Cash and cash equivalents$770
 $(404) (1) $—
   $366
Accounts receivable, net497
 —
   (106) (21) 391
Inventory90
 —
   29
 (22) 119
Other current assets374
 (58) (2) (66) (23) 250
TOTAL CURRENT ASSETS1,731
 (462)   (143)   1,126
Property, plant and equipment, net194
 —
   116
 (24) 310
Deferred income taxes, net—
 48
 (3) (17) (25) 31
Intangible assets, net298
 —
   3,137
 (26) 3,435
Goodwill3,541
 —
   (883) (27) 2,658
Other assets70
 6
 (4) (27) (28) 49
TOTAL ASSETS$5,834
 $(408)   $2,183
   $7,609
LIABILITIES           
Current liabilities:           
Debt maturing within one year$725
 $(696) (5) $—
   $29
Accounts payable325
 (49) (6) —
   276
Payroll and benefit obligations123
 23
 (7) —
   146
Deferred revenue627
 50
 (8) (341) (29) 336
Business restructuring reserve35
 3
 (9) —
   38
Other current liabilities97
 65
 (6,10) (3) (30) 159
TOTAL CURRENT LIABILITIES1,932
 (604)   (344)   984
Non-current liabilities:           
Long-term debt, net of current portion—
 2,771
 (11) 96
 (31) 2,867
Pension obligations539
 246
 (12) —
   785
Other post-retirement obligations—
 212
 (13) —
   212
Deferred income taxes, net28
 113
 (14) 548
 (32) 689
Business restructuring reserve26
 4
 (9) 4
 (33) 34
Other liabilities180
 233
 (8,15) (43) (29,34) 370
TOTAL NON-CURRENT LIABILITIES773
 3,579
   605
   4,957
LIABILITIES SUBJECT TO COMPROMISE7,585
 (7,585) (16) —
   —
TOTAL LIABILITIES10,290
 (4,610)   261
   5,941
Commitments and contingencies           
Equity awards on redeemable shares6
 (6) (17) —
   —
Preferred stock:           
Series B397
 (397) (17) —
   —
Series A186
 (186) (17) —
   —
STOCKHOLDERS' (DEFICIT) EQUITY           
Common stock (Successor)—
 1
 (18) —
   1
Additional paid-in capital (Successor)—
 1,667
 (18) —
   1,667
Common stock (Predecessor)—
 —
   —
   —
Additional paid-in capital (Predecessor)2,387
 (2,387) (17) —
   —
(Accumulated deficit) retained earnings(5,978) 4,846
 (19) 1,132
 (36) —
Accumulated other comprehensive (loss) income(1,454) 664
 (20) 790
 (35) —
TOTAL STOCKHOLDERS' (DEFICIT) EQUITY(5,045) 4,791
   1,922
   1,668
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY$5,834
 $(408)   $2,183
   $7,609



Reorganization Adjustments
In accordance with the Plan of Reorganization, the following adjustments were made:
1.Sources and Uses of Cash. The following reflects the net cash payments recorded as of the Emergence Date as a result of implementing the Plan of Reorganization:
(In millions) 
Sources: 
Proceeds from Term Loan Credit Agreement, net of original issue discount$2,896
Release of restricted cash76
Total sources of cash2,972
Uses: 
Repayment of DIP Credit Agreement(725)
Payment of DIP Credit Agreement accrued interest(1)
Cash paid to Predecessor first lien debt-holders(2,061)
Cash paid to PBGC(340)
Payment for professional fees escrow account(56)
Funding payment for Avaya represented employee pension plan(49)
Payment of accrued professional and administrative fees(27)
Costs incurred for Term Loan Credit Agreement and ABL Credit Agreement(59)
Payment for general unsecured claims(58)
Total uses of cash(3,376)
Net uses of cash$(404)
2.
Other Current Assets.
(In millions) 
Release of restricted cash$(76)
Reclassification of prepaid debt issuance costs related to the Term Loan Credit Agreement(42)
Payment of fees related to the ABL Credit Agreement5
Restricted cash for bankruptcy related professional fees55
Total other current assets$(58)
3.
Deferred Income Taxes. The adjustment represents the release of the valuation allowance on deferred tax assets for certain non-U.S. subsidiaries which management believes more likely than not will be realized as a result of the bankruptcy reorganization.
4.
Other Assets. The adjustment represents the re-establishment of foreign prepaid taxes.
5.
Debt Maturing Within One Year. The adjustment represents the net effect of the Company’s repayment of $725 million for the DIP Credit Agreement and Term Loan Credit Agreement principal payments of $29 million due over the next year.
6.
Accounts Payable. The net decrease of $49 million includes $50 million for professional fees that were reclassified to Other current liabilities for accrued bankruptcy related professional fees that will be paid from an escrow account and a payment of $3 million of bankruptcy related professional fees, partially offset by reinstatement of $4 million contract cure costs from liabilities subject to compromise.
7.
Payroll and Benefit Obligations. The Company reinstated $23 million of liabilities subject to compromise related to the post-employment and post-retirement benefit obligations.
8.
Deferred Revenue. The reinstatement of liabilities subject to compromise was $79 million of which $50 million is included in deferred revenue and $29 million in other liabilities.
9.
Business Restructuring Reserve. The reinstatement of liabilities subject to compromise was $7 million, of which $3 million is current and $4 million is non-current.

10.Other Current Liabilities.
(In millions)  
Reclassification of accrued bankruptcy related professional fees $50
Reinstatement of other current liabilities 16
Payment of accrued interest on the DIP Credit Agreement (1)
Total other current liabilities $65
11.Exit Financing. In accordance with the Plan of Reorganization, the Company entered into the Term Loan Credit Agreement with a principal amount of $2,925 million maturing seven years from the date of issuance, and the ABL Credit Agreement, which allows borrowings up to an aggregate principal amount of $300 million, subject to borrowing base availability, maturing five years from the date of issuance.
(In millions)  
Term Loan Credit Agreement $2,925
Less:  
Discount (29)
Upfront and underwriting fees (54)
Cash received upon emergence from bankruptcy 2,842
Reclassification of debt issuance costs incurred prior to emergence from bankruptcy (42)
Current portion of Long-term debt (29)
Long-term debt, net of current portion $2,771
12.
Pension Obligations. In accordance with the Plan of Reorganization, the Company reinstated from liabilities subject to compromise $295 million related to the Avaya Pension Plan for represented employees and also contributed $49 million to the related pension trust.
13.
Other Post-retirement Obligations. Other post-retirement benefit obligations of $212 million were reinstated from liabilities subject to compromise.
14.
Deferred Income Taxes. The adjustment represents the reinstatement of the deferred tax liability that was included in liabilities subject to compromise.
15.
Other Liabilities. The increase of $233 million primarily relates to the reinstatement of employee benefits, tax liabilities and deferred revenue from liabilities subject to compromise. Also included is the value of the Emergence Date Warrants issued to the holders of the Predecessor second lien obligations.
16.Liabilities Subject to Compromise. Liabilities subject to compromise were reinstated or settled as follows in accordance with the Plan of Reorganization:
(In millions)    
Liabilities subject to compromise   $7,585
Less amounts settled per the Plan of Reorganization    
Pre-petition first lien debt   (4,281)
Pre-petition second lien debt   (1,440)
Avaya Pension Plan for Salaried Employees   (620)
Amounts reinstated:    
Accounts payable (4)  
Payroll and benefit obligations (23)  
Deferred revenue (50)  
Business restructuring reserves (7)  
Other current liabilities (16)  
Pension obligations (295)  
Other post-retirement obligations (212)  
Deferred income taxes, net (118)  
Other liabilities (216)  
Total liabilities reinstated at emergence   (941)
General unsecured credit claims(1)
   (303)
Liabilities subject to compromise   $—
(1) In settlement of allowed general unsecured claims, each claimant will receive a pro-rata distribution of $58 million of the general unsecured claims account.

The following table displays the detail on the gain on settlement of liabilities subject to compromise:
(In millions)  
Pre-petition first lien debt $711
Pre-petition second lien debt 1,356
Avaya pension plan for salaried employees (516)
General unsecured creditors' claims 227
Net gain on settlement of Liabilities subject to compromise $1,778
17.
Cancellation of Predecessor Preferred and Common Stock. All common stock, Series A and B preferred stock and all other equity awards of the Predecessor Company were canceled on the Emergence Date without any recovery on account thereof.
18.
Issuance of Successor Common Stock and Emergence Date Warrants. In settlement of the Company's $5,721 million Predecessor first lien obligations and Predecessor second lien obligations, the holders of the Predecessor first lien obligations received a total of 99.3 million shares of common stock (fair value of $1,509 million) and $2,061 million in cash and the holders of the Predecessor second lien obligations received a total of 4.4 million shares of common stock (fair value of $67 million) and 5.6 million Emergence Date Warrants to purchase a like amount of common shares (fair value of $17 million). In addition, as part of the Plan of Reorganization, the Company completed a distressed termination of the APPSE in accordance with a stipulation settlement with the PBGC, the PBGC received $340 million in cash and 6.1 million shares of common stock (fair value of $92 million).
19.Accumulated Deficit.
(In millions)  
Accumulated deficit:  
Net gain on settlement of liabilities subject to compromise $1,778
Expense for certain professional fees (26)
Benefit from income taxes 118
Cancellation of Predecessor equity awards 6
Cancellation of Predecessor Preferred stock Series B 397
Cancellation of Predecessor Preferred stock Series A 186
Cancellation of Predecessor Common stock 2,387
Total $4,846
20.
Accumulated Comprehensive Loss. The changes to Accumulated comprehensive loss relate to the settlement of the APPSE and the Avaya Supplemental Pension Plan ("ASPP") and the associated taxes.
Fresh Start Adjustments
At the Emergence Date, the Company met the requirements under ASC 852 for the adoption of fresh start accounting. These adjustments reflect actual amounts recorded as of the Emergence Date.
21.
Accounts Receivable. This adjustment relates to a change in accounting policy for the way the Company will present uncollected deferred revenue upon emergence from bankruptcy. The Company will offset such deferred revenue against the related account receivable.
22.
Inventory. This adjustment relates to the write-up of inventory to fair value based on estimated selling prices, less costs of disposal.
23.
Other Current Assets. This adjustment reflects the write-off of certain prepaid commissions, deferred installation costs and debt issuance costs that do not meet the definition of an asset upon emergence.
24.
Property, Plant and Equipment. An adjustment of $116 million was recorded to increase the net book value of property, plant and equipment to its estimated fair value based on estimated current acquisition price, plus costs to make the property fully operational.

The following table reflects the components of property, plant and equipment, net as of December 15, 2017:
(In millions)  
Buildings and improvements $82
Machinery and equipment 38
Rental equipment 85
Assets under construction 13
Internal use software 92
Total property, plant and equipment 310
Less: accumulated depreciation and amortization —
Property, plant and equipment, net $310
25.
Deferred Income Tax.The adjustment represents the release of the valuation allowance on deferred tax assets for certain non-U.S. subsidiaries which management believes more likely than not will be realized as a result of future taxable income from the reversal of deferred tax liabilities that were established as part of fresh start accounting.
26.
Intangible Assets. The Company recorded an adjustment to intangible assets for $3,137 million as follows:
  Successor  Predecessor  
(In millions) December 15, 2017 Post-emergence  December 15, 2017 Pre-emergence Difference
Customer relationships and other intangible assets $2,155
  $96
 $2,059
Technology and patents 905
  12
 893
Trademarks and trade names 375
  190
 185
Total $3,435
  $298
 $3,137
The fair value of customer relationships was determined using the excess earnings method, a derivation of the income approach that calculates residual profit attributable to an asset after proper returns are paid to complementary or contributory assets.
The fair value of technology and patents and trademarks and trade names was determined using the royalty savings method, a derivation of the income approach that estimates the royalties saved through ownership of the assets.
27.Goodwill. Predecessor Company goodwill of $3,541 million was eliminated and Successor Company goodwill of $2,658 million was established based on the calculated reorganization value.
(In millions)  
Reorganization value of Successor Company $7,609
Less: Fair value of Successor Company assets (4,951)
Reorganization value of Successor Company assets in excess of fair value - Goodwill $2,658
28.
Other Assets. The $27 million decrease to other assets is related to prepaid commissions that do not meet the definition of an asset upon emergence as there is no future benefit to the Successor Company.
29.
Deferred Revenue. The fair value of deferred revenue, which principally relates to payments on annual maintenance contracts, was determined by deducting selling costs and associated profit from the Predecessor Company deferred revenue balance to arrive at the costs and profit associated with fulfilling the liability. Additionally, the decrease includes the impact of an accounting policy change whereby the Successor Company no longer recognizes deferred revenue relating to sales transactions that have been billed, but for which the related account receivable has not yet been collected.
30.
Other Current Liabilities. The decrease of $3 million to other current liabilities is related to the fair value of real estate leases determined to be above or below market using the income approach based on the difference between the contractual rental rate and the estimated market rental rate, discounted utilizing a risk-related discount rate.
31.
Long-term Debt. The fair value of the Term Loan Credit Agreement was determined based on a market approach utilizing market-clearing data on the valuation date in addition to bid/ask prices.
32.
Deferred Income Taxes. The adjustment represents the establishment of deferred tax liabilities related to book/tax differences created by fresh start accounting adjustments. The amount is net of the release of the valuation allowance on

deferred tax assets, which management believes more likely than not will be realized as a result of future taxable income from the reversal of such deferred tax liabilities.
33.
Business Restructuring Reserve. The Company recorded an increase to its non-current business restructuring reserves based on estimated future cash flows applied to a current discount rate at emergence.
34.
Other Liabilities. A decrease in other liabilities of $43 million relates to deferred revenue and real estate leases as previously discussed.
35.
Accumulated Other Comprehensive Loss. The remaining balance in Accumulated comprehensive loss was reversed to Reorganization expenses, net.
36.
Fresh Start Adjustments. The following table reflects the cumulative impact of the fresh start adjustments as discussed above, the elimination of the Predecessor Company's accumulated other comprehensive loss and the adjustments required to eliminate accumulated deficit:
(In millions)  
Eliminate Predecessor Intangible assets $(298)
Eliminate Predecessor Goodwill (3,541)
Establish Successor Intangible assets 3,435
Establish Successor Goodwill 2,658
Fair value adjustment to Inventory 29
Fair value adjustment to Other current assets (66)
Fair value adjustment to Property, plant and equipment 116
Fair value adjustment to Other assets (27)
Fair value adjustment to Deferred revenue 235
Fair value adjustment to Business restructuring reserves (4)
Fair value adjustment to Other current liabilities 3
Fair value adjustment to Long-term debt (96)
Fair value adjustment to Other liabilities 43
Release Predecessor Accumulated comprehensive loss (790)
Fresh start adjustments included in Reorganization items, net 1,697
Tax impact of fresh start adjustments (565)
Gain on fresh start accounting, net $1,132
6. Revenue Recognition
On October 1, 2018, the Company adopted ASC 606 using the modified retrospective transition method. Accordingly, the impact of adoption was recorded as an adjustment to Retained earnings as of October 1, 2018 and represents the difference between ASC 606 and ASC 605 applied to all open contracts with customers that were not completed as of September 30, 2018. Under the modified retrospective method, results for reporting periods beginning after September 30, 2018 are presented under ASC 606 while prior period financial information is not adjusted and continues to be reported in accordance with ASC 605. The Company elected to use the contract modification practical expedient whereby, all contract modifications for each contract before October 1, 2018 are aggregated and evaluated at the adoption date.

Impact of ASC 606 on Financial Statement Line Items
The impact of the adoption of ASC 606 on the September 30, 2018 Consolidated Balance Sheet was as follows:
(In millions) 
September 30, 2018
As Reported

 Adjustments Upon Adoption of ASC 606
ASSETS      
Accounts receivable, net $377
 $(1) $376
Inventory 81
 (24) 57
Contract assets —
 78
 78
Contract costs —
 109
 109
Other current assets 170
 (66) 104
Property, plant and equipment, net 250
 (1) 249
Deferred income taxes, net 29
 (2) 27
Other assets 74
 16
 90
       
LIABILITIES      
Contract liabilities 484
 (17) 467
Other current liabilities 148
 4
 152
Deferred income taxes, net 140
 29
 169
Other liabilities 374
 (2) 372
       
STOCKHOLDERS' EQUITY      
Retained earnings 287
 95
 382
The impact of the adoption of ASC 606 by financial statement line item within the Consolidated Balance Sheet as of September 30, 2019 is as follows:
  September 30, 2019
(In millions) As Reported Adjustments Without Adoption of ASC 606
ASSETS      
Accounts receivable, net $314
 $(13) $301
Inventory 63
 36
 99
Contract assets 187
 (187) —
Contract costs 114
 (114) —
Other current assets 115
 109
 224
Property, plant and equipment, net 255
 1
 256
Deferred income taxes, net 35
 2
 37
Other assets 121
 (25) 96
       
LIABILITIES      
Accounts payable 291
 (3) 288
Contract liabilities 472
 56
 528
Other current liabilities 158
 (8) 150
Deferred income taxes, net 72
 (22) 50
Other liabilities 394
 5
 399
       
STOCKHOLDERS' EQUITY      
Accumulated deficit (289) (219) (508)

The impact of the adoption of ASC 606 by financial statement line item within the Consolidated Statement of Operations for fiscal 2019 is as follows:
  Fiscal year ended September 30, 2019
(In millions) As Reported Adjustments Without adoption of ASC 606
REVENUE      
Products $1,222
 $(97) $1,125
Services 1,665
 (76) 1,589
  2,887
 (173) 2,714
COSTS      
Products:      
Costs 442
 (19) 423
Amortization of technology intangible assets 174
 —
 174
Services 696
 (25) 671
  1,312
 (44) 1,268
GROSS PROFIT 1,575
 (129) 1,446
OPERATING EXPENSES      
Selling, general and administrative 1,001
 2
 1,003
Research and development 204
 —
 204
Amortization of intangible assets 162
 —
 162
Impairment charges 659
 —
 659
Restructuring charges, net 22
 —
 22
  2,048
 2
 2,050
OPERATING LOSS (473) (131) (604)
Interest expense (237) —
 (237)
Other income, net 41
 —
 41
LOSS BEFORE INCOME TAXES (669) (131) (800)
(Provision for) benefit from income taxes (2) 7
 5
NET LOSS $(671) $(124) $(795)
The adoption of ASC 606 did not impact net cash provided by or used for operating, investing, or financing activities within the Consolidated Statement of Cash Flows for fiscal 2019.Customers
Disaggregation of Revenue
The following tables provide the Company's disaggregated revenue for fiscal 2019:the periods presented:
Fiscal years ended September 30,
(In millions)202120202019
Revenue:
Products & Solutions$992 $1,074 $1,228 
Services1,982 1,805 1,680 
Unallocated Amounts
(1)(6)(21)
Total revenue$2,973 $2,873 $2,887 
Fiscal year ended September 30, 2021
(In millions) Products & Solutions Services UnallocatedTotal
Revenue:
U.S.$492 $1,212 $— $1,704 
International:
Europe, Middle East and Africa309 424 (1)732 
Asia Pacific110 187 — 297 
Americas International - Canada and Latin America81 159 — 240 
Total International500 770 (1)1,269 
Total revenue$992 $1,982 $(1)$2,973 

73


(In millions) Fiscal year ended
September 30, 2019
REVENUE  
Products & Solutions $1,228
Services 1,680
Unallocated Amounts 
 (21)
  $2,887
Fiscal year ended September 30, 2020
(In millions) Products & Solutions Services UnallocatedTotal
Revenue:
U.S.$546 $1,097 $(3)$1,640 
International:
Europe, Middle East and Africa327 389 (2)714 
Asia Pacific122 175 (1)296 
Americas International - Canada and Latin America79 144 — 223 
Total International528 708 (3)1,233 
Total revenue$1,074 $1,805 $(6)$2,873 

 Fiscal year ended September 30, 2019Fiscal year ended September 30, 2019
(In millions)  Products & Solutions  Services  Unallocated Total(In millions) Products & Solutions Services UnallocatedTotal
Revenue:        Revenue:
U.S. $585
 $981
 $(13) $1,553
U.S.$585 $981 $(13)$1,553 
International:        International:
Europe, Middle East and Africa 381
 375
 (3) 753
Europe, Middle East and Africa381 375 (3)753 
Asia Pacific 155
 175
 (3) 327
Asia Pacific155 175 (3)327 
Americas International - Canada and Latin America 107
 149
 (2) 254
Americas International - Canada and Latin America107 149 (2)254 
Total International 643
 699
 (8) 1,334
Total International643 699 (8)1,334 
Total revenue $1,228
 $1,680
 $(21) $2,887
Total revenue$1,228 $1,680 $(21)$2,887 
Unallocated amounts represent the fair value adjustment to deferred revenue recognized upon the Company's emergence from bankruptcy in December 2017 and excluded from segment revenue.
Transaction Price Allocated to the Remaining Performance Obligations
The transaction price allocated to remaining performance obligations that arewere wholly or partially unsatisfied as of September 30, 2019 is $2.72021 was $2.3 billion, of which 59%54% and 26% is expected to be recognized within 12 months and 13-24 months, respectively, with the remaining balance expected to be recognized thereafter. This excludes amounts for remaining performance obligations that are (1) for contracts recognized over time using the "right to invoice" practical expedient, (2) related to sales or usage based royalties promised in exchange for a license of intellectual property and (3) related to variable consideration allocated entirely to a wholly unsatisfied performance obligation.
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Contract Balances
The following table provides information about accounts receivable, contract assets, contract costs and contract liabilities for the periods presented:
As of September 30,
(In millions) September 30, 2019 October 1, 2018 Increase (Decrease)(In millions)20212020Increase (Decrease)
Accounts receivable, net $314
 $376
 $(62)Accounts receivable, net$307 $275 $32 
      
Contract assets:      
Contract assets, net:Contract assets, net:
Current $187
 $78
 $109
Current$518 $296 $222 
Non-current (Other assets) 16
 3
 13
Non-current (Other assets)88 71 17 
 $203
 $81
 $122
$606 $367 $239 
      
Cost of obtaining a contract:      Cost of obtaining a contract:
Current (Contract costs) $89
 $64
 $25
Current (Contract costs)$89 $92 $(3)
Non-current (Other assets) 45
 36
 9
Non-current (Other assets)53 40 13 
 $134
 $100
 $34
$142 $132 $10 
      
Cost to fulfill a contract:      Cost to fulfill a contract:
Current (Contract costs) $25
 $45
 $(20)Current (Contract costs)$28 $23 $5 
      
Contract liabilities:      Contract liabilities:
Current $472
 $467
 $5
Current$360 $446 $(86)
Non-current (Other liabilities) 78
 52
 26
Non-currentNon-current305 373 (68)
 $550
 $519
 $31
$665 $819 $(154)
The changeincrease in contractContract assets was mainly driven by growth in the Company's subscription offerings. The decrease in Contract liabilities was mainly driven by planned declines in hardware maintenance and contract liabilities primarily resultssoftware support services as customers continue to transition to the Company's subscription offerings. The decrease was also driven by revenue earned from the timing difference betweenconsideration advance received in connection with the Company’s satisfaction of a performance obligation and the timing of the payment from the customer.strategic partnership with RingCentral, Inc. ("RingCentral") as discussed in Note 6, "Strategic Partnership." The Company did not record any asset impairment charges related to contract assets during fiscal 2021, 2020 and 2019.
During fiscal 2021, 2020 and 2019, the Company recognized revenue of $552 million, $546 million and $537 million that had been previously recorded as a Contract liability atas of October 1, 2018;2020, 2019 and 2018, respectively. During fiscal 2021 and 2020, the Company recognized $103a net increase (decrease) to revenue of $5 million and $(1) million for performance obligations that were satisfied, or partially satisfied, in prior periods, respectively. In addition, revenue for fiscal 2021 also includes a $15 million out-of-period adjustment to record revenue for certain performance obligations satisfied in prior periods as described in further detail within Note 1 "Background and Basis of Presentation". During fiscal 2019, 0 adjustments were recorded to revenue related to performance obligations that were satisfied in prior periods.
Contract Costs
The following table provides information regarding the location and amount for amortization of costs to obtain and costs to fulfill customer contracts of which $100 million was included in Selling, general and administrative expense and the remaining $3 million was a reduction to Revenue; and recognized $50 million of contract fulfillment costs within Costs.
7. Business Combinations and Strategic Investments
Business Combinations
On March 9, 2018 (the "Acquisition Date"), the Company acquired Intellisist, Inc. ("Spoken"), a United States-based private technology company, which provides cloud-based Contact Center as a Service ("CCaaS") solutions and customer experience management and automation applications. The total purchase price was $172 million, consisting of $157 million in cash, $14 million in contingent consideration and a $1 million settlement of Spoken’s net payable to the Company, which mainly related to services provided by the Company to Spoken under a co-development partnership prior to the acquisition.
Upon the achievement of three specified performance targets ("Earn-outs"), the Company is required to pay up to $16 million of contingent consideration to Spoken's former owners and employees and up to $4 million in discretionary earn-out bonuses ("Earn-out Bonuses") to Spoken employees who have contributed to the achievement of the Earn-outs. The fair value of the Earn-outs at the Acquisition Date was $14 million, which was calculated using a probability-weighted discounted cash flow model and is remeasured to fair value at each subsequent reporting period. The Earn-out Bonuses, which are intended to

incentivize continuing employees to assist in achieving the Earn-outs, are excluded from the acquisition consideration and are recognized as compensation expense in the Company's Consolidated Financial Statements ratably overof Operations for the estimated Earn-out periods. During fiscal 2019,periods presented:
75


Fiscal years ended September 30,
(In millions)202120202019
Costs to obtain customer contracts:
Selling, general and administrative$189 $152 $100 
Revenue11 4 3 
Total Amortization$200 $156 $103 
Costs to fulfill customer contracts:
Costs$29 $48 $50 
Revenue— 4 — 
Total Amortization$29 $52 $50 
Allowance for Credit Losses
The following table presents the Company paid $11 millionchange in the allowance for credit losses by portfolio segment for the period indicated:
Accounts Receivable(1)
Short-term Contract Assets(2)
Long-term Contract Assets(3)
Total
Allowance for credit loss as of September 30, 2020$7 $— $— $7 
Adjustment to retained earnings upon adoption1 1 1 3 
Adjustment to credit loss provision(4)— — (4)
Allowance for credit loss as of September 30, 2021$4 $1 $1 $6 
(1)Recorded within Accounts receivable, net on the Consolidated Balance Sheets.
(2)Recorded within Contract assets, net on the Consolidated Balance Sheets.
(3)Recorded within Other assets on the Consolidated Balance Sheets.
5. Leases
The following table details the components of net lease expense for the periods indicated:
Fiscal years ended September 30,
(In millions)20212020
Operating lease cost (1)
$58 $67 
Short-term lease cost (1)
5 5 
Variable lease cost (1)(2)
14 17 
Finance lease amortization of right-of-use assets (1)
6 4 
Sublease income (3)
(1)(5)
Total lease cost$82 $88 
(1)Allocated between Cost of products and $2 millionservices, and Operating expenses.
(2)Includes real estate taxes and other charges for Earn-outsnon-lease services payable to lessors and Earn-out Bonuses, respectively, related torecognized in the achievementperiod incurred.
(3)Included in Other income, net.

The Company's right-of-use assets and lease liabilities for financing leases are included in the Consolidated Balance Sheets as follows:
As of September 30,
(In millions)20212020
ASSETS
Property, plant and equipment, net$25 $12 
LIABILITIES
Other current liabilities$7 $8 
Other liabilities$19 $9 
76


The following table summarizes the weighted average remaining lease term and weighted average interest rate for the Company's operating and financing leases for the periods indicated:
As of September 30,
20212020
Weighted average remaining lease term
Operating Leases4.1 years4.5 years
Financing Leases3.9 years2.7 years
Weighted average interest rate
Operating Leases5.7 %6.1 %
Financing Leases4.6 %5.4 %
The following table presents the maturities of two oflease payments for the three Earn-out targets. The third Earn-out target was achievedCompany's operating and financing leases as of September 30, 2021 (by fiscal year):
(In millions)Operating LeasesFinancing Leases
2022$56 $8 
202341 7 
202429 6 
202517 4 
202611 3 
2027 and thereafter15 — 
Total lease payments169 28 
Less: imputed interest(18)(2)
Total lease liability$151 $26 

0
6. Strategic Partnership
On October 3, 2019, and the corresponding Earn-out and Earn-out bonus are expected to be paid by the Company duringentered into certain agreements that establish the first quarterframework for the Company's strategic partnership with RingCentral, a leading provider of fiscal 2020. As of September 30, 2019, the fair value of the Earn-out liability was $5 million.
In connection with this acquisition, the Company recorded goodwill of $117 million, which has been assignedglobal enterprise cloud communications, video meetings, collaboration and contact center ("CC") solutions, to the Products & Solutions segment, identifiable intangible assets with a fair value of $64 million and other net liabilities of $9 million. The goodwill recognized is attributable primarily to the potential that the Spoken technology, cloud platform and assembled workforce will accelerate the Company's growth in cloud-based solutions. The goodwill is not deductible for tax purposes.
The acquired intangible assets of $64 million included technology and patents of $56 million with a weighted average useful life of 4.9 years, $5 million of in-process research and development ("IPR&D") activities, which are considered indefinite lived until projects are completed or abandoned, and customer relationships of $3 million with a weighted average useful life of 7.5 years. During fiscal 2019, $3 million oftransition to the acquired IPR&D activities were completed and are being amortized over a weighted average useful life of 4.2 years and $2 million were abandoned and written off (see Note 9).
The Company recorded $3 million of acquisition-related costs, which included investment banking, legal and other third-party costs, and $7 million of compensation expense resulting from the accelerated vesting of certain unvested Spoken stock option awards because post-combination service requirements were eliminated. The acquisition-related costs and the compensation expense were recorded in Selling, general and administrative expense in the Consolidated Statements of Operations.
The Company has finalized its purchase accounting for the Spoken acquisition.
Strategic Investments
On May 20, 2019,cloud. Through this partnership, the Company madeintroduced Avaya Cloud Office by RingCentral ("ACO"), a $10 million investment in anew global unified communications as a service ("UCaaS") provider delivering public sector Federal Risksolution. The transaction closed on October 31, 2019 and Authorization Management Program ("FedRAMP") security requirements (the “Strategic Investment”) throughACO was launched on March 31, 2020.
In connection with the acquisition of a 3-year convertible note (“Promissory Note”). The Strategic Investment offers hosted, cloud-based Voice over Internet Protocol infrastructure servicesstrategic partnership, the Company and a FedRAMP authorized hosting platform. The Strategic Investment will use the proceeds from the issuanceRingCentral entered into an investment agreement, whereby RingCentral purchased 125,000 shares of the PromissoryCompany's Series A 3% Convertible Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock"), for an aggregate purchase price of $125 million. See Note to help fund its working capital.17, "Capital Stock" for additional information on the Series A Preferred Stock.
The Promissory Note has a principal amountAs part of $10 million, bears interest at a rate of 8% per annumthe strategic partnership, the Company and has a maturity date of May 20, 2022. UnderRingCentral also entered into an agreement governing the terms of the Promissory Note,commercial arrangement between the parties (the "Framework Agreement"). In accordance with the Framework Agreement, RingCentral paid Avaya $375 million, predominantly for future fees ("the Consideration Advance"), as well as for certain licensing rights. The $375 million payment consisted of $361 million in shares of RingCentral common stock and $14 million in cash. During fiscal 2020, the Company may, atsold all of its sole discretion, convert its interestshares of RingCentral common stock and recognized a gain of $59 million within Other income (expense), net in the Promissory Note into newly issued Class D unitsConsolidated Statements of Operations.
In accordance with the Strategic Investment representing no less than 27.3% of the Strategic Investment's fully diluted capitalization at the time of the conversion. On or after the Promissory Note’s maturity date, the Company willFramework Agreement, any outstanding Consideration Advance shall be returned to RingCentral in tranches during fiscal 2025. Furthermore, beginning in fiscal 2024, RingCentral shall have the option, at its sole discretion,right, but not the obligation, to demand payment from the Strategic Investment for the unpaid principal and accrued interest on the Promissory Note. In conjunction with the purchase of the Promissory Note, the Company entered intoconvert a separate agreement with the Strategic Investment and its equity holders which provides the Company with an option to purchase from such equity holders any or allportion of the outstanding LLC unitsConsideration Advance, if any, into shares of either the Strategic Investment for prices specified in the relevant agreement. The option is exercisable upon the earlier of December 31, 2021Company’s Series A 3% Convertible Preferred Stock or the Strategic Investment reaching specified milestones.Company’s common stock. The option does not currently convey powerCompany has the intent and ability to the Company as it is not currently exercisable and requires significant economic outlay.repay outstanding amounts, if any, in cash prior to its conversion.
The Promissory Note is classified as an available-for-sale security as of September 30, 2019 with a carrying value and fair value of $10 million and is recorded within Other Assets in the Consolidated Balance Sheets. Although the Company maintains a variable interest in the Strategic Investment, it is not the primary beneficiary as it does not direct the activities that most significantly impact the economic performance of the Strategic Investment through the rights maintained with the Promissory Note or separate agreement. As of September 30, 2019, the Company's maximum exposure to loss as a result of its involvement with the Strategic Investment is limited to the initial investment in the Promissory Note of $10 million.

7. Goodwill
8. Goodwill, net
The changes in the carrying amount of goodwill by segment for the periods indicated were as follows:
77


(In millions) Products & Solutions Services Total(In millions)Products & SolutionsServicesTotal
Balance as of September 30, 2017 (Predecessor)      
Cost $2,669
 $2,501
 $5,170
Accumulated impairment charges (1,576) (52) (1,628)
 1,093
 2,449
 3,542
      
Impact of fresh start accounting 79
 (962) (883)
Adjustments (1) —
 (1)
Balance as of December 15, 2017 (Predecessor)      
Cost 2,747
 1,539
 4,286
Accumulated impairment charges (1,576) (52) (1,628)
 $1,171
 $1,487
 $2,658
      
      
Balance as of December 16, 2017 (Successor)      
Cost $1,171
 $1,487
 $2,658
Accumulated impairment charges —
 —
 —
 1,171
 1,487
 2,658
      
Spoken acquisition 116
 —
 116
Foreign currency fluctuations (4) (6) (10)
Balance as of September 30, 2018 (Successor) 
 
 
Balance as of September 30, 2019Balance as of September 30, 2019
Cost 1,283
 1,481
 2,764
Cost$1,282 $1,478 $2,760 
Accumulated impairment charges —
 —
 —
Accumulated impairment charges(657)— (657)
 1,283
 1,481
 2,764
625 1,478 2,103 
      
Impairment charges (657) —
 (657)Impairment charges(624)— (624)
Foreign currency fluctuations (1) (1) (2)Foreign currency fluctuations(1)1 — 
Other —
 (2) (2)Other— (1)(1)
Balance as of September 30, 2019 (Successor)      
Balance as of September 30, 2020Balance as of September 30, 2020
Cost 1,282
 1,478
 2,760
Cost1,281 1,478 2,759 
Accumulated impairment charges (657) —
 (657)Accumulated impairment charges(1,281)— (1,281)
 $625
 $1,478
 $2,103
— 1,478 1,478 
Foreign currency fluctuationsForeign currency fluctuations— 2 2 
Balance as of September 30, 2021Balance as of September 30, 2021
CostCost1,281 1,480 2,761 
Accumulated impairment chargesAccumulated impairment charges(1,281)— (1,281)
$— $1,480 $1,480 
Goodwill is not amortized but is subject to periodic testing for impairment in accordance with GAAP at the reporting unit level, which is one level below the Company’s operating segments. Fiscal 2021
The Company has five reporting units, all of which are subjectperformed its annual goodwill impairment test on July 1, 2021. As permitted under ASC 350, the Company performed a qualitative goodwill impairment assessment to impairment testing annually or more frequently if events occur or circumstances change that woulddetermine whether it was more likely than not reducethat the fair value of aits Services reporting unit belowwas less than its carrying amount. The Company's goodwillamount, including goodwill. After assessing all relevant qualitative factors, the Company determined that it was primarily recorded upon emergence from bankruptcy as a result of applying fresh start accounting.
The impairment test for goodwill consists of a comparison ofmore likely than not that the fair value of athe reporting unit withexceeded its carrying value, includingamount and a quantitative goodwill impairment test was not necessary.
The Company determined that no events occurred or circumstances changed during the three months ended September 30, 2021 that would indicate that it is more likely than not that its goodwill allocatedwas impaired. To the extent that business conditions deteriorate or if changes in key assumptions and estimates differ significantly from management's expectations, it may be necessary to thatrecord impairment charges in the future.
Fiscal 2020
During the first quarter of fiscal 2020, the Company changed its reporting units to align with changes in its organizational structure. As a result, on October 1, 2019, the Company consolidated its Unified Communication and Collaboration ("UCC") and Contact Center ("CC") reporting units into a Products & Solutions reporting unit and consolidated its Global Support Services ("GSS"), Avaya Professional Services ("APS") and Enterprise Cloud and Managed Services ("ECMS") reporting units into a Services reporting unit. IfAs a result of these changes, the carrying value of aCompany's reporting unit exceedsunits are the same as its fair value, the Company will recognize an impairment loss equaloperating segments which are described in Note 19, "Operating Segments." Due to the amount of the excess, limited to the amount of goodwill allocated to that reporting unit. Application of the impairment test requires judgment, including the identificationconsolidation of reporting units, assignment of assetsthe Company performed an interim goodwill impairment assessment immediately before and liabilities to reporting unitsafter the consolidation on October 1, 2019 by estimating and the determination of the fair value of each reporting unit. The Company estimatescomparing the fair value of each reporting unit using a weightingto its carrying value. The Company determined that the carrying amounts of each of the Company's reporting units did not exceed their estimated fair values derived fromand therefore no impairment existed as of October 1, 2019.
During the second quarter of fiscal 2020, the Company concluded that a triggering event occurred for both of its reporting units due to (i) the impact of the COVID-19 pandemic on the macroeconomic environment which led to revisions to the Company's long-term forecast during the second quarter of fiscal 2020 and (ii) the sustained decrease in the Company's stock price at the beginning stages of the pandemic which was caused by the resulting volatility in the financial markets. As a result, the Company performed an income approach and a market approach.interim quantitative goodwill impairment test as of March 31, 2020 to compare the fair values of its reporting units to their respective carrying amounts, including the goodwill allocated to each reporting unit.
Under
78


The results of the income approach,Company’s interim goodwill impairment test as of March 31, 2020 indicated that the estimated fair value of athe Company’s Services reporting unit is estimated using a discounted cash flows model. Future cash flows are based on forward-looking information regarding revenue and costs for eachexceeded its carrying amount. The carrying amount of the Company's Products & Solutions reporting unit exceeded its estimated fair value primarily due to a reduction in the Company’s long-term forecast to reflect increased risk from higher market uncertainty and are discounted using an appropriate discount ratethe accelerated reduction of product sales related to the Company’s historical on-premises perpetual licenses with a continued shift and acceleration of customers upgrading and acquiring new technology through the utilization of the Company’s subscription offering, which is included in the Services reporting unit. As a discounted cash flows model. The discounted cash flows model relies on assumptions regarding revenue growth rates, projected gross profit, working capital needs, selling, general and administrative expenses,

research and development expenses, business restructuring costs, capital expenditures, income tax rates, discount rates and terminal growth rates. The discount rateresult, the Company uses representsrecorded a goodwill impairment charge of $624 million to write down the estimated weighted average costfull carrying amount of capital, which reflects the overall levelProducts & Solutions goodwill in the Consolidated Statement of inherent risk involved inOperations.
The Company performed its reporting unit operationsannual goodwill impairment test as of July 1, 2020 and determined that the rate of return an outside investor would expect to earn. To estimate cash flows beyond the final yearremaining carrying amount of its model, the Company uses a terminal value approach. Under this approach, the Company applies a perpetuity growth assumption to determine the terminal value. The Company incorporates the present value of the resulting terminal value into its estimate of fair value. Forecasted cash flows for each reporting unit consider current economic conditions and trends, estimated future operating results, the Company’s view of growth rates and anticipated future economic conditions. Revenue growth rates inherent in this forecast are based on input from internal and external market intelligence research sources that compare factors such as growth in global economies, regional trends in the telecommunications industry and product evolution from a technological segment basis. Macroeconomic factors such as changes in economies, product evolutions, industry consolidations and other changes beyond the Company’s control could have a positive or negative impact on achieving its forecasts.
The market approach estimates the fair value of a reporting unit by applying multiples of operating performance measures to the reporting unit's operating performance (the "Guideline Public Company Method"). These multiples are derived from comparable publicly-traded companies with similar investment characteristics to the reporting unit. The key estimates and assumptions that are used to determine the fair value under this market approach include current and forward 12-month operating performance results, as applicable, and the selection of the relevant multiples to be applied.goodwill was not impaired.
Fiscal 2019 (Successor)
TheDuring the third quarter of fiscal 2019, the Company concluded that triggering events occurred for all of its reporting units during the three months ended June 30, 2019 due to a sustained decrease in the Company’sCompany's stock price and lower than planned financial results which led to revisions to the Company's long-term forecast during the third quarter of fiscal 2019. As a result, the Company performed an interim quantitative goodwill impairment test as of June 30, 2019 to compare the fair values of its reporting units to their respective carrying values, including the goodwill allocated to each reporting unit.
The results of the Company’s interim goodwill impairment test as of June 30, 2019 indicated that the estimated fair values of the Company’s Unified Communications (“UC”), Global Support Services (“GSS”), Avaya Professional Services (“APS”)UCC, GSS, APS and Enterprise Cloud and Managed Solutions (“ECMS”)ECMS reporting units were greater than their carrying amounts, however, the carrying amount of the Company’s Contact Center ("CC")CC reporting unit within the Products & Solutions segment exceeded its estimated fair value primarily due to a reduction in the Company's long-term forecast. As a result, the Company recorded a goodwill impairment charge of $657 million in fiscal 2019 in the Impairment charges line item in the Consolidated Statements of Operations representing the amount by which the carrying value of the CC reporting unit exceeded its fair value.
The Company performed its annual goodwill impairment test on July 1, 2019 and determined that the carrying amounts of each of the Company's reporting units did not exceed their estimated fair values and therefore no impairment existed.
8. Intangible Assets, net
The Company's intangible assets consist of the following for the periods indicated:
(In millions)
Technology
and Patents		Customer
Relationships
and Other
Intangibles		Trademarks
and Trade Names		Total
Balance as of September 30, 2021
Finite-lived intangible assets:
Cost$971 $2,154 $42 $3,167 
Accumulated amortization(656)(588)(21)(1,265)
Finite-lived intangible assets, net315 1,566 21 1,902 
Indefinite-lived intangible assets— — 333 333 
Intangible assets, net$315 $1,566 $354 $2,235 
Balance as of September 30, 2020
Finite-lived intangible assets:
Cost$961 $2,153 $42 $3,156 
Accumulated amortization(482)(433)(18)(933)
Finite-lived intangible assets, net479 1,720 24 2,223 
Indefinite-lived intangible assets— — 333 333 
Intangible assets, net$479 $1,720 $357 $2,556 
Amortization expense for fiscal 2021, 2020 and 2019 was $332 million, $335 million and $336 million, respectively.
79


Future amortization expense of intangible assets as of September 30, 2021 for the fiscal years ending September 30, is as follows:
(In millions)
2022$306 
2023289 
2024187 
2025162 
2026 and thereafter958 
Total$1,902 
Fiscal 2021
At July 1, 2019,2021, the level of excess fair value over carrying value exceeded 10% for each of the Company's reporting units, except for the GSS reporting unit, which had an excess fair value over carrying value of 7%, and for the CC reporting unit, which was at fair value due to the impairment charges described above. The goodwill assigned to the GSS and CC reporting units as of July 1, 2019 was $1,446 million and $197 million, respectively. An increase in the GSS discount rate of 65 basis points or a decrease in the GSS long-term growth rate of 95 basis points used in the most recent goodwillCompany performed its annual impairment test would result in anfor its indefinite-lived intangible asset, the Avaya Trade name, and determined that its estimated fair value belowexceeded its carrying value. During the fourth quarter ofvalue and no impairment existed.
The Company determined that no events occurred or circumstances changed during fiscal 2019, the Company closely monitored the key variables and other market factors for all of2021 that would indicate that its reporting units and determinedfinite-lived intangible assets may not be recoverable or that it is more likely than not that its indefinite-lived intangible asset was not required to perform an interim impairment test.
impaired. To the extent that business conditions deteriorate further or if changes in key assumptions and estimates differ significantly from management’smanagement's expectations, it may be necessary to record additional impairment charges in the future.
The Period from December 16, 2017 through September 30, 2018 (Successor) and the Period from October 1, 2017 through December 15, 2017 (Predecessor)
The Company performed its annual goodwill impairment test on July 1, 2018 and determined that the carrying amounts of each of the Company's reporting units did not exceed their estimated fair values and therefore no impairment existed.
Fiscal 2017 (Predecessor)2020
As a result of the sale of certain assets and liabilities of the Company’s Networking business to Extreme, it was determined that the fair value of the Networking services component was less than its carrying value. As a result,goodwill triggering event described in Note 7, "Goodwill", the Company recordedperformed a goodwill impairment chargerecoverability test on all of $52 million during the third quarterits finite-lived asset groups as of fiscal 2017 (Predecessor).
In additionMarch 31, 2020 before proceeding to the goodwill impairment review and concluded that no impairment charge associated withwas necessary. The Company also performed an interim quantitative impairment test for the saleAvaya Trade Name, as of the Company’s Networking business, the Company filed for bankruptcyMarch 31, 2020 and updated its five-year forecast during the nine month period ended June 30, 2017 (Predecessor). As a result of the decline in revenue and the updated forecast, the Company determined that an interim impairment test of its

goodwill and long-lived assets should be performed as of June 30, 2017 (Predecessor). Using the revised five-year forecast, the results of the goodwill impairment test indicated that the respective estimated fair value exceeded its carrying values of each reporting unit did not exceed their respective fair valuesvalue and therefore, no impairment existed.
At July 1, 2017,2020, the Company performed its annual goodwill impairment test and determined that the respective carrying amounts of the Company’s reporting units did not exceed their estimated fair values and therefore no impairment existed.
9. Intangible Assets, net
The Company's intangible assets consist of the following for the periods indicated:
(In millions) 
Technology
and Patents		 Customer
Relationships
and Other
Intangibles		 Trademarks
and Trade Names		 Total
Balance as of September 30, 2019        
Finite-lived intangible assets:        
Cost $960
 $2,154
 $42
 $3,156
Accumulated amortization (308) (279) (11) (598)
Finite-lived intangible assets, net 652
 1,875
 31
 2,558
         
Indefinite-lived intangible assets:        
Cost 2
 —
 333
 335
Accumulated impairment (2) —
 —
 (2)
Indefinite-lived intangible assets, net —
 —
 333
 $333
Intangible assets, net $652
 $1,875
 $364
 $2,891
         
Balance as of September 30, 2018        
Finite-lived intangible assets:        
Cost $959
 $2,157
 $43
 $3,159
Accumulated amortization (135) (124) (3) (262)
Finite-lived intangible assets, net 824
 2,033
 40
 2,897
Indefinite-lived intangible assets 5
 —
 332
 337
Intangible assets, net $829
 $2,033
 $372
 $3,234
Intangible assets include technology and patents, customer relationships, and trademarks and trade names. Intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets. Intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Intangible assets determined to have indefinite useful lives are not amortized but are tested for impairment annually and more frequently if events occur or circumstances change that indicate an asset may be impaired.
The impairment test of indefinite-lived intangible assets, of which the Avaya Trade Name represented the full $333 million carrying value as of September 30, 2019, consists of a comparison of the estimated fair value of the indefinite-lived intangible asset with its carrying value. If the carrying value of the indefinite-lived intangible asset exceeds its estimated fair value, the Company recognizes an impairment loss equal to the amount of the excess. Management estimates the fair value of the Avaya Trade Name using the relief-from-royalty model, a form of the income approach. Under this methodology, theand determined that its estimated fair value of the trade name is estimated by applying a royalty rate to forecasted net revenues which is then discounted using a risk-adjusted rate of return on capital. Revenue growth rates inherent in the forecast are based on input from internalexceeded its carrying amount and external market intelligence research sources that compare factors such as growth in global economies, regional trends in the telecommunications industry and product evolution from a technological segment basis. The royalty rate is determined using a set of observed market royalty rates.
Amortizable technology and patents have useful lives that range between 1 year and 10 years with a weighted average remaining useful life of 4.2 years. IPR&D activities are considered indefinite-lived until projects are completed or abandoned. Customer relationships have useful lives that range between 1 year and 19 years with a weighted average remaining useful life of 13.1 years. Amortizable product trade names have useful lives of 10 years with a weighted average remaining useful life of 7.6 years. The Avaya trade name is expected to generate cash flows indefinitely and, consequently, this asset is classified as an indefinite-lived intangible and is therefore not amortized.

Amortization expense for fiscal 2019 (Successor), the period from December 16, 2017 through September 30, 2018 (Successor), the period from October 1, 2017 through December 15, 2017 (Predecessor) and fiscal 2017 (Predecessor), was $336 million, $262 million, $13 million and $224 million, respectively.
Future amortization expense of intangible assets as of September 30, 2019 for the fiscal years ending September 30, is as follows:
(In millions)  
2020 $335
2021 331
2022 304
2023 287
2024 and thereafter 1,301
Total $2,558
no impairment existed.
Fiscal 2019 (Successor)
During fiscal 2019, the Company elected to abandon an in-process research and development project acquired with Spoken (see Note 7) since itthat no longer aligned with the Company’sCompany's technology roadmap. As a result, the Company recorded an impairment charge of $2 million to write down the full carrying amount of the project within the Impairment charges line item in the Consolidated Statements of Operations.
As a result of the goodwill triggering events (see Note 8)event described in "Note 7, Goodwill", the Company performed a recoverability test on all of its finite-lived asset groups as of June 30, 2019 before proceeding to the goodwill impairment review and concluded that no impairment charge was necessary. The recoverability test of finite-lived assets was based on forecasts of undiscounted cash flows for each asset group. The Company also performed an interim quantitative impairment test for its indefinite-lived intangible asset, the Avaya Trade Name as of June 30, 2019 and determined that its estimated fair value exceeded its carrying value and no impairment existed.
At July 1, 2019, the Company performed its annual impairment test of its indefinite-lived intangible asset, the Avaya Trade Name and determined that theits estimated fair value of the trade name exceeded its carrying amount by more than 10% and no impairment existed. The Company assessed whether there were any triggering events that would indicate a potential impairment of its finite-lived intangible assets and did not identify any such triggering events or impairment indicators.
During the fourth quarter of fiscal 2019, the Company closely monitored the key variables and other market factors for the Avaya Trade Name and determined that an interim impairment test was not required. To the extent that business conditions deteriorate further or if changes in key assumptions and estimates differ significantly from management’s expectations, it may be necessary to record additional impairment charges in the future.
80
The Period from December 16, 2017 through September 30, 2018 (Successor) and the Period from October 1, 2017 through December 15, 2017 (Predecessor)

At July 1, 2018, the Company performed its annual impairment test of indefinite-lived intangible assets. The Company determined that the respective carrying amounts of the indefinite-lived intangible assets did not exceed their estimated fair values and therefore no impairment existed.
Fiscal 2017 (Predecessor)
Prior to the goodwill impairment testing on June 30, 2017, the Company performed an impairment test of indefinite-lived intangible assets and other long-lived assets as of June 30, 2017. As a result of the impairment test, the Company estimated the fair value of its trademarks and trade names to be $190 million as compared to a carrying amount of $255 million and recorded an impairment charge of $65 million.
At July 1, 2017, the Company performed its annual test of impairment of indefinite-lived intangible assets. The Company determined that the respective carrying amounts of the indefinite-lived intangible assets did not exceed their estimated fair values and therefore no impairment existed.

10.9. Supplementary Financial Information
Consolidated Statements of Operations Information
The following table presents a summary of depreciation and amortization and Other income, (expense), net for the periods indicated:
 Successor  PredecessorFiscal years ended September 30,
(In millions) Fiscal year ended September 30, 2019 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal year ended September 30, 2017(In millions)202120202019
DEPRECIATION AND AMORTIZATION         DEPRECIATION AND AMORTIZATION
Amortization of software development costs (included in Costs) $—
 $—
  $—
 $1
Amortization of intangible assets (included in Costs and Operating expenses) 336
 262
  13
 224
Amortization of intangible assets (included in Costs and Operating expenses)$332 $335 $336 
Depreciation and amortization of property, plant and equipment and internal use software (included in Costs and Operating expenses) 107
 122
  18
 101
Depreciation and amortization of property, plant and equipment and internal use software (included in Costs and Operating expenses)93 88 107 
Total depreciation and amortization $443
 $384
  $31
 $326
Total depreciation and amortization$425 $423 $443 
         
OTHER INCOME (EXPENSE), NET         
OTHER INCOME, NETOTHER INCOME, NET
Interest income $14
 $5
  $2
 $4
Interest income$1 $6 $14 
Foreign currency (losses) gains, net (8) 28
  —
 2
Income from transition services agreement, net —
 5
  3
 3
Gain on sale of Networking business —
 —
  —
 2
Other pension and post-retirement benefit credits (costs), net 7
 13
  (8) (34)
Foreign currency gains (losses), netForeign currency gains (losses), net3 (16)(8)
Gain on investments in equity and debt securities, netGain on investments in equity and debt securities, net— 49 — 
Gain on post-retirement plan settlementGain on post-retirement plan settlement14 — — 
Other pension and post-retirement benefit credits, netOther pension and post-retirement benefit credits, net29 22 7 
Change in fair value of Emergence Date Warrants 29
 (17)  —
 —
Change in fair value of Emergence Date Warrants(1)(3)29 
Gain on sale of long-lived assets —
 1
  —
 —
Sublease incomeSublease income1 5 — 
Other, net (1) —
  1
 (2)Other, net(3)— (1)
Total other income (expense), net $41
 $35
  $(2) $(25)
Total other income, netTotal other income, net$44 $63 $41 
The Foreign currency gains,gain on investments in equity and debt securities, net for fiscal 2020 includes a gain on shares of RingCentral common stock of $59 million. See Note 6, “Strategic Partnership” for additional details. The gain is partially offset by a $10 million impairment of debt securities mainly driven by a decline in the period from December 16, 2017 through September 30, 2018 (Successor) was principallymacroeconomic environment due to the strengthening ofCOVID-19 pandemic and a decline in the U.S. dollar compared to certain foreign exchange rates on U.S. dollar denominated receivables maintained in non-U.S. locations, mainly Argentina, Indiaexpected operating results and Mexico. As of July 1, 2018, we concluded that Argentina represents a hyperinflationary economy as its projected three-year cumulative inflation rate exceeds 100%. As a result, we changed the local functional currency for our Argentinian operations from the Argentine Peso to the U.S. Dollar effective July 1, 2018 and remeasured the financial statements for those operations to the U.S. Dollar as of July 1, 2018 in accordance with ASC 830 "Foreign Currency Matters." Although the remeasurement on July 1, 2018 did not have an impact on our Consolidated Financial Statements, foreign exchange transaction gains and losses recognized on or after July 1, 2018 are based on our Argentina operation's new U.S. dollar functional currency.

A summary of Reorganization items, netcash flows for the periods indicatedinvestment company.
The gain on post-retirement plan settlement for fiscal 2021 is presentedfurther described in the following table:
  Successor  Predecessor
(In millions) Fiscal Year Ended September 30, 2019 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal Year Ended September 30, 2017
REORGANIZATION ITEMS, NET         
Net gain on settlement of Liabilities subject to compromise $—
 $—
  $1,778
 $—
Net gain on fresh start adjustments —
 —
  1,697
 —
Bankruptcy-related professional fees —
 —
  (56) (66)
Contract rejection fees / lease terminations —
 —
  —
 (18)
DIP Credit Agreement financing costs —
 —
  —
 (14)
Other items, net —
 —
  (3) —
Reorganization items, net $—
 $—
  $3,416
 $(98)
Cash payments for reorganization items $—
 $1
  $2,524
 $47
Costs directly attributable to the implementation of the Plan of Reorganization were reported as Reorganization items, net. The cash payments for reorganization items for the period from October 1, 2017 through DecemberNote 15, 2017 (Predecessor) included $2,468 million of claims paid related to Liabilities subject to compromise and $56 million for bankruptcy-related professional fees, including emergence and success fees paid on the Emergence Date."Benefit Obligations."
Consolidated Balance Sheet Information
Fiscal years ended September 30,
(In millions)202120202019
VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts Receivable:
Balance at beginning of period(1)$4 $2 
Increase in expense(1)5 2 
Reductions(1)(2)— 
Balance at end of period$7 $4 
Deferred Tax Asset Valuation Allowance:
Balance at beginning of period$1,053 $928 $919 
Increase in expense19 58 43 
Additions (reductions)(54)67 (34)
Balance at end of period$1,018 $1,053 $928 
(1)On October 1, 2020, the Company adopted ASU No. 2016-13, "Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" which requires the Company to record an estimate of expected credit losses for certain types of financial instruments, including accounts receivable. As a result, the Company no longer records an allowance for doubtful accounts receivable. See Note 4, "Contracts with Customers" for a roll forward of the Company's allowance for credit losses for fiscal 2021.
81


  Successor  Predecessor
(In millions) Fiscal year ended September 30, 2019 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal Year Ended September 30, 2017
VALUATION AND QUALIFYING ACCOUNTS         
Allowance for Doubtful Accounts Receivable:         
Balance at beginning of period $2
 $—
  $13
 $16
Increase (decrease) in expense 2
 2
  1
 (3)
Reductions —
 —
  (1) —
Impact of fresh start accounting —
 —
  (13) —
Balance at end of period $4
 $2
  $—
 $13
Deferred Tax Asset Valuation Allowance:         
Balance at beginning of period $919
 $836
  $2,152
 $2,256
Increase (decrease) in expense 43
 105
  (452) (65)
Reductions (34) (22)  (393) (39)
Impact of fresh start accounting —
 —
  (471) —
Balance at end of period $928
 $919
  $836
 $2,152


 As of September 30,
As of September 30,
(In millions) 2019 2018(In millions)20212020
PROPERTY, PLANT AND EQUIPMENT, NET    PROPERTY, PLANT AND EQUIPMENT, NET
Leasehold improvements $101
 $105
Leasehold improvements$88 $97 
Machinery and equipment 221
 190
Machinery and equipment309 265 
Assets under construction 30
 14
Assets under construction25 30 
Internal use software 154
 112
Internal use software237 188 
Total property, plant and equipment 506
 421
Total property, plant and equipment659 580 
Less: Accumulated depreciation and amortization (251) (171)Less: Accumulated depreciation and amortization(364)(312)
Property, plant and equipment, net $255
 $250
Property, plant and equipment, net$295 $268 
As of September 30, 2019,2021, Machinery and equipment and Accumulated depreciation and amortization include $17$37 million and $(12) million, respectively, for assets acquired under capitalfinancing leases. As of September 30, 2018,2020, Machinery and equipment and Accumulated depreciation and amortization include $23$27 million and $(10)$(15) million, respectively, for assets acquired under capitalfinancing leases.
Supplemental Cash Flow Information
Fiscal years ended September 30,
(In millions)202120202019
OTHER PAYMENTS
Interest payments$187 $197 $206 
Income tax payments27 101 56 
NON-CASH INVESTING ACTIVITIES
Acquisition of equipment under finance leases$19 $9 $3 
(Decrease) in Accounts payable, Other current liabilities and Other liabilities for Capital expenditures— (4)6 
  Successor  Predecessor
(In millions) Fiscal year ended September 30, 2019 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal year ended September 30, 2017
OTHER PAYMENTS         
Interest payments $206
 $149
  $15
 $138
Income tax payments 56
 22
  7
 33
          
NON-CASH INVESTING ACTIVITIES         
Acquisition of equipment under capital lease $3
 $2
  $—
 $—
Increase (decrease) in Accounts payable, Other current liabilities and Other liabilities for Capital expenditures 6
 1
  —
 (1)
During fiscal 2021 and 2020, the Company made payments for operating lease liabilities of $63 million and $66 million, respectively, and recorded non-cash additions for operating lease right-of-use assets of $22 million and $35 million, respectively.
The following table presents a reconciliation of cash, cash equivalents, and restricted cash that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows for the periods presented:
As of September 30,
(In millions)202120202019
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
Cash and cash equivalents$498 $727 $752 
Restricted cash included in other assets4 4 4 
Total cash, cash equivalents, and restricted cash$502 $731 $756 
  Successor  Predecessor
(In millions) September 30, 2019 September 30, 2018  December 15, 2017 September 30, 2017
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH         
Cash and cash equivalents $752
 $700
  $366
 $876
Restricted cash included in other current assets —
 —
  65
 85
Restricted cash included in other assets 4
 4
  4
 5
Total cash, cash equivalents, and restricted cash $756
 $704
  $435
 $966
As of December 15, 2017 (Predecessor), restricted cash in other current assets consisted primarily of funds held for bankruptcy-related professional fees. As of September 30, 2017 (Predecessor), restricted cash in other current assets consisted primarily of cash that was drawn from term loans under the Debtor-in-Possession credit agreement to cash collateralize existing letters of credit.
11.10. Business Restructuring Reserves and Programs
During fiscal 2019 (Successor),The following table summarizes the period from December 16, 2017 through September 30, 2018 (Successor), the period from October 1, 2017 through December 15, 2017 (Predecessor) and fiscal 2017 (Predecessor), the Company recognized restructuring charges by activity for the periods presented:
Fiscal years ended September 30,
(In millions)202120202019
Employee separation costs$19 $6 $19 
Facility exit costs11 24 3 
Total restructuring charges$30 $30 $22 
The Company's employee separation costs generally consist of $22 million, $81 million, $14 millionseverance charges which include, but are not limited to, termination payments, pension fund payments, and $30 million, respectively.health care and unemployment insurance costs to be paid to, or on behalf of,
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the affected employees. Facility exit costs primarily consist of lease obligation charges for exited facilities, including the impact of accelerated lease expense for right-of-use assets and accelerated depreciation expense for leasehold improvements with reductions in their estimated useful lives due to exited facilities. The restructuring charges include changes in estimates for increases and decreases in costs or changes in the timing of payments related to the restructuring programs of prior fiscal years. The Company's restructuring charges generally include separation charges which include, but are

not limited to, termination payments, pension fund payments, and health care and unemployment insurance costs to be paid to, or on behalf of, the affected employees; and lease obligation charges. As the Company continues to evaluate opportunities to streamline its operations, it may identify cost savings globally and take additional restructuring actions in the future and the costs of those actions could be material. The Company does not allocate restructuring reserves to its operating segments.
Fiscal 2019 Restructuring Program
Recognized restructuring charges for the fiscal 2019 restructuring program included employee separation costs associated with employee severance actions primarily in the U.S. and Europe, Middle East and Africa ("EMEA"), for which the related payments are expected to be completed by fiscal 2026.
The following table summarizes the activity for each component of the fiscal 2019 restructuring program during fiscal 2019:
(In millions) Employee Separation Costs Lease Obligations Total
Restructuring charges $20
 $2
 $22
Cash payments (8) (1) (9)
Impact of foreign currency fluctuations (1) —
 (1)
Accrual balance as of September 30, 2019 (Successor) $11
 $1
 $12
Fiscal 2018 Restructuring Program
Fiscal 2018 restructuring program obligations include employee separation costs associated with employee severance actions primarily in EMEA, for whichrecognized under the related payments are expected to be completed by fiscal 2026.
The following table summarizes the activity for each component of the fiscal 2018Company's restructuring programprograms for the periods indicated:presented:
(In millions)
Fiscal 2021 Restructuring Program (2)
Fiscal 2020 Restructuring Program (3)
Fiscal 2019 Restructuring Program (3)
Fiscal 2018 and prior Restructuring Programs (3)
Total
Accrual balance as of September 30, 2018$— $— $— $92 $92 
Cash payments— — (8)(35)(43)
Restructuring charges— — 20 — 20 
Adjustments (1)
— — — (1)(1)
Impact of foreign currency fluctuations— — (1)(3)(4)
Accrual balance as of September 30, 2019— — 11 53 64 
Cash payments— (1)(5)(20)(26)
Restructuring charges— 8 — — 8 
Adjustments (1)
— — — (2)(2)
Impact of foreign currency fluctuations— 1 1 3 5 
Accrual balance as of September 30, 2020— 8 7 34 49 
Cash payments(4)(2)(3)(14)(23)
Restructuring charges19 — — — 19 
Adjustments (1)
— — 1 (1)— 
Impact of foreign currency fluctuations(1)— — — (1)
Accrual balance as of September 30, 2021$14 $6 $5 $19 $44 
(In millions) Employee Separation Costs Lease Obligations Total
Restructuring charges $12
 $—
 $12
Cash payments (3) —
 (3)
Accrual balance as of December 15, 2017 (Predecessor) $9
 $—
 $9
       
       
Accrual balance as of December 16, 2017 (Successor) $9
 $—
 $9
Restructuring charges 70
 10
 80
Cash payments (23) (10) (33)
Impact of foreign currency fluctuations (2) —
 (2)
Accrual balance as of September 30, 2018 (Successor) 54
 —
 54
Adjustments(1)
 (2) —
 (2)
Cash payments (19) —
 (19)
Impact of foreign currency fluctuations (2) —
 (2)
Accrual balance as of September 30, 2019 (Successor) $31
 $—
 $31
(1)Includes changes in estimates for increases and decreases in costs related to the fiscal 2018Company's restructuring program,programs, which are recorded in Restructuring charges, net in the Consolidated Statements of Operations in the period of the adjustment.
Fiscal 2017 Restructuring Program
These obligations are primarily for employee separation costs associated with employee severance actions in(2)Payments related to the U.S. and EMEA, for which the related paymentsfiscal 2021 restructuring program are expected to be completed in fiscal 2024.2027.

The following table summarizes the activity for each component of the fiscal 2017 restructuring program for the periods indicated:
(In millions) Employee Separation Costs Lease Obligations Total
Restructuring charges $18
 $1
 $19
Cash payments (14) —
 (14)
Accrual balance as of September 30, 2017 (Predecessor) 4
 1
 5
Cash payments (1) (1) (2)
Accrual balance as of December 15, 2017 (Predecessor) $3
 $—
 $3
       
       
Accrual balance as of December 16, 2017 (Successor) $3
 $—
 $3
Cash payments (1) —
 (1)
Impact of foreign currency fluctuations (1) —
 (1)
Accrual balance as of September 30, 2018 (Successor) 1
 —
 1
Accrual balance as of September 30, 2019 (Successor) $1
 $—
 $1
Fiscal 2008 through 2016 Restructuring Programs
These obligations are primarily for costs associated with eliminating employee positions and exiting facilities. The payments(3)Payments related to the headcount reductions identified in thesefiscal 2020, 2019 and 2018 and prior restructuring programs are expected to be substantially completed byin fiscal 2025. Future rental payments, net of estimated sublease income, related to operating lease obligations for unused space in connection with the closing or consolidation of facilities are expected to continue through fiscal 2022.2026.
The following table aggregates the activity for the components of the fiscal 2008 through 2016 restructuring programs for the periods indicated:
(In millions) Employee Separation Costs Lease Obligations Total
Accrual balance as of September 30, 2016 (Predecessor) 93
 41
 134
Cash payments (47) (16) (63)
Adjustments(1)(2)
 3
 (1) 2
Impact of foreign currency fluctuations 2
 —
 2
Accrual balance as of September 30, 2017 (Predecessor) 51
 24
 75
Restructuring charges 1
 1
 2
Cash payments (3) (17) (20)
Adjustments - reorganization items 4
 (1) 3
Accrual balance as of December 15, 2017 (Predecessor) $53
 $7
 $60
       
       
Accrual balance as of December 16, 2017 (Successor) $53
 $7
 $60
Restructuring charges —
 1
 1
Cash payments (16) (2) (18)
Accrual balance as of September 30, 2018 (Successor) 37
 6
 43
Adjustments(1)
 1
 1
 2
Cash payments (16) (3) (19)
Impact of foreign currency fluctuations (1) —
 (1)
Accrual balance as of September 30, 2019 (Successor) $21
 $4
 $25
(1)
Includes changes in estimates for increases and decreases in costs related to the fiscal 2008 through 2016 restructuring programs, which are recorded in Restructuring charges, net in the Consolidated Statements of Operations in the period of the adjustment.
(2)
Includes a reserve transfer of $6 million associated with the sale of the Networking business in July 2017 related to lease obligations.

12.11. Financing Arrangements
The following table reflects principal amounts of debt and debt net of discounts and issuance costs for the periods presented:
  
 September 30, 2019 September 30, 2018
(In millions) Principal amount Net of discounts and issuance costs Principal amount Net of discounts and issuance costs
Term Loan Credit Agreement due December 15, 2024 $2,874
 $2,846
 $2,903
 $2,870
Convertible 2.25% senior notes due June 15, 2023 350
 273
 350
 256
Total debt $3,224
 3,119
 $3,253
 3,126
Debt maturing within one year   (29)   (29)
Long-term debt, net of current portion   $3,090
   $3,097
  
September 30, 2021September 30, 2020
(In millions)Principal amountNet of discounts and issuance costsPrincipal amountNet of discounts and issuance costs
Senior 6.125% Notes due September 15, 2028$1,000 $986 $1,000 $984 
Tranche B Term Loans due December 15, 2024— — 843 835 
Tranche B-1 Term Loans due December 15, 2027800 780 800 776 
Tranche B-2 Term Loans due December 15, 2027743 736 — — 
Convertible 2.25% Senior Notes due June 15, 2023350 311 350 291 
Total Long-term debt$2,893 2,813 $2,993 2,886 
Term Loan and ABL Credit Agreements
On December 15, 2017, Avaya Inc. entered into (i) the Term Loan Credit Agreement among Avaya Inc., as borrower, Avaya Holdings, the lending institutions from time to time party thereto, and Goldman Sachs Bank USA, as administrative agent and collateral agent, which provided a $2,925 million term loan facility maturing on December 15, 2024 (the "Term Loan Credit Agreement") and (ii) the ABL Credit Agreement maturing on December 15, 2022, among Avaya Inc., as borrower, Avaya Holdings, the several other borrowers party thereto, the several lenders from time to time party thereto, and Citibank, N.A., as administrative agent and collateral agent, which provided a revolving credit facility consisting of a U.S. tranche and a foreign
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tranche allowing for borrowings of up to an aggregate principal amount of $300 million from time to time, subject to borrowing base availability (the "ABL Credit Agreement" and, together with the Term Loan Credit Agreement, the "Credit Agreements"). 
On June 18, 2018, the Company amended the Term Loan Credit Agreement ("Amendment No.1") to reduce interest rates and to reduce the London Inter-bank Offered Rate ("LIBOR") floor that existed under the original agreement from 1.00% to 0.00%.floor. After the amendment,Amendment No.1, the Term Loan Credit Agreement (a) in the case of alternative base rate ("ABR") Loans, bearsbore interest at a rate per annum equal to 3.25% plus the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the U.S. prime rate as publicly announced in the Wall Street Journal and (iii) the LIBOR Rate for an interest period of one month and (b) in the case of LIBOR Loans, bearsbore interest at a rate per annum equal to 4.25% plus the applicable LIBOR rate, subject to a 0.00% floor. Prior to the amendment, the Term Loan Credit Agreement, in the case of ABR Loans, bore interest at a rate per annum equal to 3.75% plus the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the U.S. prime rate as publicly announced in the Wall Street Journal and (iii) the LIBOR Rate for an interest period of one month and in the case of LIBOR Loans, bore interest at a rate per annum equal to 4.75% plus the applicable LIBOR rate, subject to a 1.00% floor. As a result of the amendment,Amendment No.1, outstanding loan balances under the original Term Loan Credit Agreement were paid in full and new debt was issued for the same outstanding principal amount.
On September 25, 2020, the Company closed a private offering of $1,000 million aggregate principal amount of its Senior 6.125% First Lien Notes due September 15, 2028 (the “Senior Notes,” which are described in more detail below). On September 25, 2020, the Company also amended the Term Loan Credit Agreement (“Amendment No. 2”), pursuant to which the maturity of $800 million in principal amount of the first lien term loans outstanding under the Term Loan Credit Agreement was extended from December 2024 to December 2027. Amendment No. 2 also made certain other changes to the Term Loan Credit Agreement, including with respect to the change of control provisions. Concurrently with Amendment No. 2, the Company used the net proceeds from the issuance of its Senior Notes after debt issuance costs to repurchase and prepay $981 million of certain first lien term loans under the Term Loan Credit Agreement whose maturity was not extended pursuant to Amendment No. 2.
The amendmentCompany evaluated the issuance of the Senior Notes, the $981 million principal prepayment on the Term Loan Credit Agreement and Amendment No. 2 (collectively the “Debt Transactions”) under the loan modification and extinguishment guidance within ASC 470. The Debt Transactions were accounted for as a partial modification, partial extinguishment and new debt issuance at the syndicated lender level. Based on the application of the loan modification and extinguishment guidance within ASC 470 to the Debt Transactions, the Company capitalized $32 million of new debt issuance costs and underwriting discounts as a reduction to Long-term debt on the Consolidated Balance Sheets; recorded $9 million of new debt issuance costs and underwriting discounts within Interest Expense in the Consolidated Statements of Operations; and wrote-off a portion of the original underwriting discount on the Term Loan Credit Agreement of $5 million to Interest expense.
On February 24, 2021, the Company again amended the Term Loan Credit Agreement (“Amendment No. 3”). Prior to February 24, 2021, the Term Loan Credit Agreement matured in two tranches, with a principal amount of $843 million maturing on December 15, 2024 (the “Tranche B Term Loans”) and a principal amount of $800 million maturing on December 15, 2027 (the “Tranche B-1 Term Loans”). Pursuant to Amendment No. 3 the Company prepaid, replaced and refinanced the Tranche B Term Loans outstanding with $100 million in cash and $743 million in principal amount of new first lien term loans due December 2027 (the “Tranche B-2 Term Loans”). The Tranche B-2 Term Loans bear interest at a rate with applicable margin of 3.00% per annum with respect to base rate borrowings and 4.00% per annum with respect to LIBOR borrowings. Amendment No. 3 was primarily accounted for as a loan modification underat the syndicated lender level. Based on the application of the loan modification guidance within ASC 470, "Debt".the Company recorded $3 million of new debt issuance costs within Interest expense in the Consolidated Statements of Operations. Lenders who exited their positions in the Tranche B Term Loans as a result of Amendment No. 3 were accounted for as a loan extinguishment. Accordingly, the Company wrote-off a portion of the original underwriting discount of $1 million within Interest expense.
For fiscal 20192021 and the period from December 16, 2017 through September 30, 2018,2020, the Company recognized interest expense of $200$77 million and $154$161 million, respectively, related to the Term Loan Credit Agreement, including the expenses associated with the refinancing transactions described above and the amortization of discountsthe underwriting discount and issuance costs. For fiscal 2019, the Company recognized interest expense of $200 million related to the Term Loan Credit Agreement, including the amortization of the underwriting discount.
On September 25, 2020, the Company also amended the ABL Credit Agreement to, among other things, extend its maturity to September 25, 2025, subject to customary adjustments to the extent certain indebtedness matures prior to such date. The total commitments under the ABL Credit Agreement were also reduced from $300 million to $200 million, subject to borrowing base availability. As a result of the amendment, the Company capitalized $2 million of issuance costs within Other assets on the Consolidated Balance Sheets in accordance with ASC 470.
Prior to the effectiveness of the September 25, 2020 amendment, the ABL Credit Agreement bore interest at the following rates:
1.In the case of Base Rate Loans denominated in U.S. dollars, at a rate per annum equal to 0.75% (subject to a 0.25% step-up or step-down based on availability) plus the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the U.S. prime rate as publicly announced by Citibank, N.A. and (iii) the LIBOR Rate for an interest period of one month;    
2.In the case of LIBOR Rate Loans denominated in U.S. dollars, at a rate per annum equal to 1.75% (subject to a 0.25% step-up or step-down based on availability) plus the applicable LIBOR Rate;
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3.In the case of Canadian Prime Rate Loans denominated in Canadian dollars, at a rate per annum equal to 0.75% (subject to a 0.25% step-up or step-down based on availability) plus the highest of (i) the "Base Rate" as publicly announced by Citibank, N.A., Canadian branch and (ii) the rate of interest per annum equal to the average rate applicable to Canadian Dollar Bankers Rate ("CDOR Rate") for an interest period of 30 days;
4.In the case of CDOR Rate Loans denominated in Canadian dollars, at a rate per annum equal to 1.75% (subject to a 0.25% step-up or step-down based on availability) plus the applicable CDOR Rate;
5.In the case of LIBOR Rate Loans denominated in Sterling, at a rate per annum equal to 1.75% (subject to a 0.25% step-up or step-down based on availability) plus the applicable LIBOR Rate;
6.In the case of Euro Interbank Offered Rate ("EURIBOR Rate") Loans denominated in Euro, at a rate per annum equal to 1.75% (subject to a 0.25% step-up or step-down based on availability) plus the applicable LIBOR Rate; and
7.In the case of Overnight LIBOR Rate Loans, at a rate per annum equal to 1.75% (subject to a 0.25% step-up or step-down based on availability) plus the applicable Overnight LIBOR Rate.
Subsequent to the effectiveness of the September 25, 2020 amendment, the ABL Credit Agreement bears interest:interest at the following rates:
1.In the case of Base Rate Loans denominated in U.S. dollars, at a rate per annum equal to 0.75% (subject to a 0.25% step-up or step-down based on availability) plus the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the U.S. prime rate as publicly announced by Citibank, N.A. and (iii) the LIBOR Rate for an interest period of one month;    
2.In the case of LIBOR Rate Loans denominated in U.S. dollars, at a rate per annum equal to 1.75% (subject to a 0.25% step-up or step-down based on availability) plus the applicable LIBOR Rate;
3.In the case of Canadian Prime Rate Loans denominated in Canadian dollars, at a rate per annum equal to 0.75% (subject to a 0.25% step-up or step-down based on availability) plus the highest of (i) the "Base Rate" as publicly announced by Citibank, N.A., Canadian branch and (ii) the rate of interest per annum equal to the average rate applicable to Canadian Dollar Bankers Rate ("CDOR Rate") for an interest period of 30 days;
4.In the case of CDOR Rate Loans denominated in Canadian dollars, at a rate per annum equal to 1.75% (subject to a 0.25% step-up or step-down based on availability) plus the applicable CDOR Rate;
5.In the case of LIBOR Rate Loans denominated in Sterling, at a rate per annum equal to 1.75% (subject to a 0.25% step-up or step-down based on availability) plus the applicable LIBOR Rate;

1.In the case of Base Rate Loans denominated in U.S. dollars, at a rate per annum equal to 1.00% (subject to a 0.25% step-up or step-down based on availability) plus the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the U.S. prime rate as publicly announced by Citibank, N.A. and (iii) the LIBOR Rate for an interest period of one month;
6.In the case of Euro Interbank Offered Rate ("EURIBOR Rate") Loans denominated in Euro, at a rate per annum equal to 1.75% (subject to a 0.25% step-up or step-down based on availability) plus the applicable LIBOR Rate; and
7.In the case of Overnight LIBOR Rate Loans, at a rate per annum equal to 1.75% (subject to a 0.25% step-up or step-down based on availability) plus the applicable Overnight LIBOR Rate.
2.In the case of LIBOR Rate Loans denominated in U.S. dollars, at a rate per annum equal to 2.00% (subject to a 0.25% step-up or step-down based on availability) plus the applicable LIBOR Rate;
3.In the case of Canadian Prime Rate Loans denominated in Canadian dollars, at a rate per annum equal to 1.00% (subject to a 0.25% step-up or step-down based on availability) plus the highest of (i) the "Base Rate" as publicly announced by Citibank, N.A., Canadian branch and (ii) the rate of interest per annum equal to the average rate applicable to Canadian Dollar Bankers Rate ("CDOR Rate") for an interest period of 30 days;
4.In the case of CDOR Rate Loans denominated in Canadian dollars, at a rate per annum equal to 2.00% (subject to a 0.25% step-up or step-down based on availability) plus the applicable CDOR Rate;
5.In the case of LIBOR Rate Loans denominated in Sterling, at a rate per annum equal to 2.00% (subject to a 0.25% step-up or step-down based on availability) plus the applicable LIBOR Rate;
6.In the case of Euro Interbank Offered Rate ("EURIBOR Rate") Loans denominated in Euro, at a rate per annum equal to 2.00% (subject to a 0.25% step-up or step-down based on availability) plus the applicable LIBOR Rate; and
7.In the case of Overnight LIBOR Rate Loans, at a rate per annum equal to 2.00% (subject to a 0.25% step-up or step-down based on availability) plus the applicable Overnight LIBOR Rate.
The Credit Agreements limit, among other things, the ability of Avaya Inc. and certain of its subsidiaries to (i) incur indebtedness, (ii) incur liens, (iii) dispose of assets, (iv) make investments, (v) make dividends, or conduct redemptions and repurchases of capital stock, (vi) prepay junior indebtedness or amend junior indebtedness documents, (vii) enter into restricted agreements, (viii) enter into transactions with affiliates and (ix) modify the terms of any of their organizational documents. The Credit Agreements also contain customary representations, warranties and events of default.
The Term Loan Credit Agreement does not contain any financial covenants. The ABL Credit Agreement does not contain any financial covenants other than a requirement to maintain a minimum fixed charge coverage ratio of 1:1 that becomes applicable only in the event that the net borrowing availability under the ABL Credit Agreement is less than the greater of $25$16 million and 10% of the lesser of the total borrowing base and the ABL commitments (commonly known as the "line cap").
As of September 30, 2019, the Company was not in default under any of its debt agreements.
Under the terms of the ABL Credit Agreement, the Company can issue letters of credit up to $150 million. At September 30, 2019,2021, the Company had issued and outstanding letters of credit and guarantees of $44$37 million under the ABL Credit Agreement. As of September 30, 2019,2021, the Company had no borrowings outstanding under the ABL.ABL Credit Agreement. The aggregate additional principal amount that may be borrowed under the ABL Credit Agreement, based on the borrowing base less $44$37 million of outstanding letters of credit and guarantees, was $142$147 million at September 30, 2019.2021. For botheach of fiscal 20192021, 2020 and the period from December 16, 2017 through September 30, 2018,2019, the Company recognized interest expense of $1 million related to the ABL Credit Agreement, primarily resulting from the unused commitment fee.
Senior Notes
As noted above, on September 25, 2020, the Company’s Senior Notes were issued pursuant to an indenture, among the Company, the Company's subsidiaries that are guarantors of the Senior Notes and party thereto (the “Guarantors”) and
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Wilmington Trust, National Association, as trustee and notes collateral agent. Interest is payable on the Senior Notes at a rate of 6.125% per annum on March 15 and September 15 of each year, commencing on March 15, 2021 until their maturity date of September 15, 2028.
The Senior Notes are guaranteed on a senior secured basis by Avaya and each of the Company’s other wholly-owned domestic subsidiaries that guarantee the Company’s term loan credit facility (the “Term Loan Facility”) under the Company’s Term Loan Credit Agreement and asset-based revolving credit facility (the “ABL Facility”) under the Company’s ABL Credit Agreement. The Senior Notes and related guarantees are secured on a first lien basis by substantially all assets of the Company and the Guarantors (other than any excluded collateral as defined in the indenture or ABL Priority Collateral (as defined below)) which assets also secure the Company’s and each Guarantor’s obligations under the Term Loan Facility ratably on a pari passu basis, subject to permitted liens. The Senior Notes and related guarantees are also secured on a second-lien basis ratably on a pari passu basis with the Term Loan Facility, subject to permitted liens, by certain of the assets of the Company and the Guarantors that secure obligations under the ABL Facility on a first-lien basis (the “ABL Priority Collateral”).
The Senior Notes contain covenants that, among other things, limit the Company’s ability and the ability of its restricted subsidiaries to: incur or guarantee additional indebtedness or issue disqualified stock or certain preferred stock; pay dividends and make other distributions or repurchase stock; make certain investments; create or incur liens; sell assets; enter into restrictions affecting the ability of restricted subsidiaries to make distributions, loans or advances or transfer assets to the Company or the Guarantors; enter into certain transactions with the Company’s affiliates; designate restricted subsidiaries as unrestricted subsidiaries; and merge, consolidate or transfer or sell all or substantially all of the Company’s or the Guarantors’ assets. These covenants are subject to a number of important exceptions and qualifications.
The Company may redeem the Senior Notes at any time, in whole or in part, at any time prior to maturity. The redemption price for Senior Notes that are redeemed before September 15, 2023 will be equal to 100% of the principal amount of the Senior Notes to be redeemed, plus accrued and unpaid interest, if any, plus an applicable make-whole premium. The redemption price for Senior Notes that are redeemed on or after September 15, 2023 will be equal to redemption prices as set forth in the indenture, together with any accrued and unpaid interest. In addition, the Company may redeem up to 40% of the Senior Notes using the proceeds of certain equity offerings completed before September 15, 2023.
During fiscal 2021 and 2020, the Company recognized interest expense of $63 million and $1 million, respectively, related to the Senior Notes, including the amortization of debt issuance costs.
Convertible Notes
On June 11, 2018, the Company issued its 2.25% Convertible Notes inwith an aggregate principal amount of $350 million (including notes issued in connection with the underwriters’ exercise in full of an over-allotment option of $50 million), which mature on June 15, 2023 (the "Convertible Notes"). The Convertible Notes were issued under an indenture (the "Indenture"), by and between the Company and the Bank of New York Mellon Trust Company N.A., as Trustee. The Company received net proceeds from the offering of $314 million after giving effect to debt issuance costs, including the underwriting discount, the net cash used to purchase a bond hedge and the proceeds from the issuance of warrants, which are discussed below.
The Convertible Notes accrue interest at a rate of 2.25% per annum, payable semi-annually on June 15 and December 15 of each year. On or after March 15, 2023, and until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert the Convertible Notes at the holders' option.
Holders may convert the Convertible Notes, at the holders' option, prior to March 15, 2023 only under the following circumstances:
•during any calendar quarter, if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
•during the five business day period after any five consecutive trading day period (the "Measurement Period") in which the trading price per $1,000 principal amount of the Convertible Notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sales price of the Company's common stock and the conversion rate on each such trading day; or
•upon the occurrence of specified corporate events.
The Convertible Notes are convertible at an initial rate of 36.0295 shares per $1,000 of principal (equivalent to an initial conversion price of $27.76 per share of the Company's common stock). The conversion rate is subject to customary adjustments for certain events as described in the Indenture. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock, or a combination of cash and shares of its common stock, at the Company's election. It is the Company’s current intent to settle conversions of the Convertible Notes through combination settlement, which involves
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repayment of the principal portion in cash and any excess of the conversion value over the principal amount in shares of its common stock.
Holders may convert the Convertible Notes, at the holders' option, prior to March 15, 2023 only under the following circumstances:
during any calendar quarter, if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
during the five business day period after any five consecutive trading day period (the "Measurement Period") in which the trading price per $1,000 principal amount of the Convertible Notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sales price of the Company's common stock and the conversion rate on each such trading day; or
upon the occurrence of specified corporate events.
The Company may not redeem the Convertible Notes prior to their maturity date, and no sinking fund is provided for them. If the Company undergoes a fundamental change, as described in the Indenture, subject to certain conditions, holders may require the Company to repurchase for cash all or any portion of the Convertible Notes. The fundamental change repurchase price is equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest up to, but excluding, the fundamental change repurchase date. If holders elect to convert the Convertible Notes in connection with a

make-whole fundamental change, as described in the Indenture, the Company will, to the extent provided in the Indenture, increase the conversion rate applicable to the Convertible Notes.
The Indenture does not contain any financial or operating covenants or restrictions on the payment of dividends, the incurrence of indebtedness, or the issuance or repurchase of securities by the Company or any of its subsidiaries. The Indenture contains customary events of default with respect to the Convertible Notes.
In accounting for the issuance of the Convertible Notes, the Company separated the Convertible Notes into liability and equity components. The Company allocated $258 million of the Convertible Notes to the liability component, and $92 million to the equity component. The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component, which represents the conversion option and does not meet the criteria for separate accounting as a derivative as it is indexed to the Company's own stock, was determined by deducting the fair value of the liability component from the par value of the Convertible Notes. The excess of the principal amount of the liability component over its carrying amount represents a debt discount, which was recorded as a direct deduction from the related debt liability in the Consolidated Balance Sheets and is amortized to interest expense over the term of the Convertible Notes using the effective interest method. The equity component is included in Additional paid-in capital in the Consolidated Balance Sheets and will not be remeasured as long as it continues to meet the conditions for equity classification.
The Company incurred issuance costs of $10 million related to the Convertible Notes. Issuance costs were allocated to the liability and equity components based on the same proportion used to allocate the proceeds. Issuance costs attributable to the liability component of $7 million are being amortized to interest expense over the term of the Convertible Notes, and issuance costs attributable to the equity component of $3 million are included along with the equity component in stockholders' equity.
For fiscal 20192021, 2020 and the period from December 16, 2017 through September 30, 2018,2019, the Company recognized interest expense of $25$28 million, $26 million and $7$25 million related to the Convertible Notes, which includes $17$20 million, $18 million and $4$17 million of amortization of the underwriting discount and issuance costs, respectively.
The net carrying amount of the Convertible Notes for the periods indicated was as follows:
As of September 30,
(In millions) September 30, 2019 September 30, 2018(In millions)20212020
Principal $350
 $350
Principal$350 $350 
Less:    Less:
Unamortized debt discount (72) (87)Unamortized debt discount(36)(55)
Unamortized issuance costs (5) (7)Unamortized issuance costs(3)(4)
Net carrying amount $273
 $256
Net carrying amount$311 $291 


Bond Hedge and Call Spread Warrants
In connection with the issuance of the Convertible Notes, the Company also entered into privately negotiated transactions to purchase hedge instruments ("Bond Hedge"), covering 12.6 million shares of its common stock at a cost of $84 million. The Bond Hedge is subject to anti-dilution provisions substantially similar to those of the Convertible Notes, has a strike price of $27.76 per share, is exercisable by the Company upon any conversion underof the Convertible Notes, and expires on June 15, 2023. The cost of the Bond Hedge was recorded as a reduction of Additional paid-in capital in the accompanying Consolidated Balance Sheets.
The Company also sold warrants for the purchase of up to 12.6 million shares of its common stock for aggregate proceeds of $58 million ("Call Spread Warrants"). The Call Spread Warrants have a strike price of $37.3625 per share and are subject to customary anti-dilution provisions. The Call Spread Warrants will expire in ratable portions on a series of expiration dates commencing on September 15, 2023. The proceeds from the issuance of the Call Spread Warrants were recorded as an increase to Additional paid-in capital.
The Bond Hedge and Call Spread Warrants are intended to reduce the potential dilution with respect to the Company’s common stock and/or reduce the Company’s exposure to potential cash payments that the Company may be required to make upon conversion of the Convertible Notes by, in effect, increasing the conversion price, from the Company’s economic standpoint, to $37.3625 per share. However, the Call Spread Warrants could have a dilutive effect with respect to the Company's common stock or, if the Company so elects, obligate the Company to make cash payments to the extent that the market price of common stock exceeds $37.3625 per share on any date upon which the Call Spread Warrants are exercised.

87


Debt Maturity
The stated annual maturity of total debt for the fiscal years ended September 30, consist of:
(In millions)  (In millions)
2020 $29
2021 29
2022 29
2022$— 
2023 379
2023350 
2024 and thereafter 2,758
20242024— 
20252025— 
2026 and thereafter2026 and thereafter2,543 
Total $3,224
Total$2,893 
The weighted average contractual interest rate of the Company’s outstanding debt was 6.5%, as of both September 30, 20192021 and 2018 was 6.3%2020, respectively, including adjustments related to the Company’s interest rate swap agreements (see Note 12, “Derivative Instruments and 6.4%, respectively.Hedging Activities"). The effective interest rate for the Term Loan Credit Agreement as of September 30, 20192021 and 20182020 was not materially different than its contractual interest rate including adjustments related to hedging.interest rate swap agreements designated as highly effective cash flow hedges. The effective interest rate for the Senior Notes as of September 30, 2021 and 2020 was not materially different than its contractual interest rate. The effective interest rate for the Convertible Notes as of both September 30, 20192021 and 20182020 was 9.2% reflecting the separation of the conversion feature in equity. The effective interest rates include interest on the debt and amortization of discounts and issuance costs.
In fiscal 2017 (Predecessor), the Company recorded non-cash interest expense of $61 million related to the accelerated amortization of debt issuance costs and accretion of debt discount related to the Company’s Bankruptcy Filing. In addition, effective January 19, 2017, the Company ceased recording interest expense on outstanding pre-petition debt classified as liabilities subject to compromise. Contractual interest expense represented amounts due under the contractual terms of outstanding debt, including debt subject to compromise. For the period from October 1, 2017 through December 15, 2017 (Predecessor) and the period from January 19, 2017 through September 30, 2017 (Predecessor), contractual interest expense of $94 million and $316 million was not recorded as interest expense, as it was not an allowed claim under the Bankruptcy Filing.
Capital Lease Obligations
The Company's capital lease obligations, net of imputed interest as of September 30, 2019 and 2018 were $19 million and $31 million, respectively. The capital lease obligation as of September 30, 2019 and 2018 included $11 million and $16 million, respectively, within Other current liabilities and $8 million and $15 million, respectively, within Other liabilities.
The Company outsources certain delivery services associated with its Enterprise Cloud and Managed Services, which include the sale of specified assets owned by the Company that are leased-back by the Company and accounted for as a capital lease. As of September 30, 2019 and 2018, capital lease obligations associated with this agreement were $13 million and $26 million, respectively.2021, the Company was not in default under any of its debt agreements.
13.12. Derivative Instruments and Hedging Activities
The Company accounts for derivative financial instruments in accordance with FASB ASC Topic 815 "Derivatives and Hedging," ("ASC 815") and does not enter into derivatives for trading or speculative purposes.
Interest Rate Contracts
The Company, from time-to-time,time to time, enters into interest rate swap contracts as a hedge against changes in interest rates on its outstanding variable rate loans outstanding.loans.
On May 16, 2018, the Company entered into interest rate swap agreements with six6 counterparties, which fixedfix a portion of the variable interest due under its Term Loan Credit Agreement (the "Swap"Original Swap Agreements"). Under the terms of the Original Swap Agreements, which mature on December 15, 2022, the Company pays a fixed rate of 2.935% and receives a variable rate of interest based on one-month LIBOR. As ofThrough September 30, 2019,23, 2020, the total $1,800 million notional amount of the sixOriginal Swap Agreements was $1,800 million.
The Swap Agreements arewere designated as cash flow hedges as they areand deemed highly effective as defined under ASC 815.
On September 23, 2020, the Company entered into an interest rate swap agreement for a notional amount of $257 million (the “Offsetting Swap Agreement”). Under the terms of the Offsetting Swap Agreement, which matures on December 15, 2022, the Company pays a variable rate of interest based on one-month LIBOR and receives a fixed rate of 0.1745%. The Company entered into the Offsetting Swap Agreement to maintain a net notional amount less than the amount of the Company’s variable rate loans outstanding. The Offsetting Swap Agreement was not designated for hedge accounting treatment. On September 23, 2020, Original Swap Agreements with a notional amount of $257 million were also de-designated from hedge accounting treatment. As of September 30, 2021, Original Swap Agreements with a result,notional amount of $1,543 million continue to be designated as cash flow hedges and deemed highly effective as defined under ASC 815.
On July 1, 2020, the unrealized gains or lossesCompany entered into interest rate swap agreements with 4 counterparties, which fix a portion of the variable interest due on these contracts areits Term Loan Credit Agreement (the "Forward Swap Agreements") from December 15, 2022 (the maturity date of the Original Swap Agreements) through December 15, 2024. Under the terms of the Forward Swap Agreements, the Company will pay a fixed rate of 0.7047% and receive a variable rate of interest based on one-month LIBOR. The total notional amount of the Forward Swap Agreements is $1,400 million. Since their execution, the Forward Swap Agreements have been designated as cash flow hedges and deemed highly effective as defined by ASC 815.
The Company records changes in the fair value of interest rate swap agreements designated as cash flow hedges initially recorded inwithin Accumulated other comprehensive (loss) incomeloss in the Consolidated Balance Sheets. As interest expense is recognized on the Term Loan Credit Agreement, the corresponding deferred gain or loss on the Swap Agreementscash flow hedge is reclassified from Accumulated other comprehensive (loss) incomeloss to Interest expense in the Consolidated Statements of Operations. The Company records changes in the fair value of interest rate swap agreements not designated for hedge accounting within Interest expense. On September 23, 2020, the Company froze a $15 million deferred loss within Accumulated other comprehensive loss for the de-designated Original Swap Agreements, which is reclassified to Interest expense over the term of the Original Swap Agreements.
88


Based on the amount in Accumulated other comprehensive (loss) incomeloss at September 30, 2019,2021, approximately $23$50 million would be reclassified into net incometo Interest expense in the next twelve months as interest expense.

months.
It is management's intention that the net notional amount of the interest rate swapsswap agreements be less than or equal to the variable rate loans outstanding during the life of the derivatives.
Foreign Currency Forward Contracts
The Company, from time to time, utilizes foreign currency forward contracts primarily to hedge fluctuations associated with certain monetary assets and liabilities including receivables, payables and certain intercompany obligations.balances. These foreign currency forward contracts are not designated for hedge accounting treatment. As a result, changes in the fair value of these contracts are recorded as a component of Other income, (expense), net to offset the change in the value of the hedged assets and liabilities. As of September 30, 2019,2021, the Company maintained open foreign currency forward contracts with a total notional value of $400$191 million, primarily hedging the British Pound Sterling, Indian Rupee, Chinese Renminbi, Czech Koruna and Mexican Peso and Australian Dollar. ThePeso. As of September 30, 2020, the Company did not maintain anymaintained open foreign currency forward contracts aswith a total notional value of September 30, 2018.$375 million, primarily hedging the British Pound Sterling, Euro, Chinese Renminbi and Indian Rupee.
Emergence Date Warrants
In accordance with the Planbankruptcy plan of Reorganization,reorganization adopted in connection with the Company's emergence from bankruptcy on December 15, 2017 (the "Plan of Reorganization"), the Company issued warrants to purchase 5,645,200 shares of Companythe Company's common stock to the holders of the Predecessor second lien obligations extinguished pursuant to a warrant agreement ("Emergencethe Plan of Reorganization (the "Emergence Date Warrants"). Each Emergence Date Warrant has an exercise price of $25.55 per share and expires on December 15, 2022. The Emergence Date Warrants contain certain derivative features that require them to be classified as a liability and for changes in the fair value of the liability to be recognized in earnings each reporting period. On November 14, 2018, the Company's Board of Directors approved a warrant repurchase program, authorizing the Company to repurchase up to $15 million worth of the Emergence Date Warrants. None of the Emergence Date Warrants have been exercised or repurchased as of September 30, 2019.2021.
The fair value of the Emergence Date Warrants was determined using a probability weighted Black-Scholes option pricing model. This model requires certain input assumptions including risk-free interest rates, volatility, expected life and dividend rates. Selection of these inputs involves significant judgment. The fair value of the Emergence Date Warrants as of September 30, 20192021 and 20182020 was determined using the input assumptions summarized below:
As of September 30,
20212020
Expected volatility49.63 %68.53 %
Risk-free interest rates0.13 %0.14 %
Contractual remaining life (in years)1.212.21
Price per share of common stock$19.79$15.20
89
  September 30, 2019 September 30, 2018
Expected volatility 56.89% 50.14%
Risk-free interest rates 1.55% 2.90%
Contractual remaining life (in years) 3.21
 4.21
Price per share of common stock $10.23 $22.14


In determining the fair value of the Emergence Date Warrants, the dividend yield was assumed to be zero as the Company does not anticipate paying dividends.dividends on its common stock throughout the term of the warrants.
Financial Statement Information Related to Derivative Instruments
The following table summarizes the fair value of the Company's derivatives on a gross basis, including accrued interest, segregated between those that are designated as hedging instruments and those that are not designated as hedging instruments:
 September 30, 2019 September 30, 2018September 30, 2021September 30, 2020
(In millions) Balance Sheet Caption Asset Liability Asset Liability(In millions)Balance Sheet CaptionAssetLiabilityAssetLiability
Derivatives Designated as Hedging Instruments:        Derivatives Designated as Hedging Instruments:
Interest rate contracts Other assets $—
 $—
 $3
 $—
Interest rate contractsOther assets$6 $— $— $— 
Interest rate contracts Other current liabilities —
 23
 —
 7
Interest rate contractsOther current liabilities— 43 — 43 
Interest rate contracts Other liabilities —
 58
 —
 —
Interest rate contractsOther liabilities— 10 — 58 
 —
 81
 3
 7
6 53 — 101 
Derivatives Not Designated as Hedging Instruments:        Derivatives Not Designated as Hedging Instruments:
Interest rate contractsInterest rate contractsOther current liabilities— 7 — 7 
Interest rate contractsInterest rate contractsOther liabilities— 2 — 9 
Foreign exchange contractsForeign exchange contractsOther current assets— — 1 — 
Foreign exchange contracts Other current assets 1
 —
 —
 —
Foreign exchange contractsOther current liabilities— 2 — 2 
Emergence Date Warrants Other liabilities —
 5
 —
 34
Emergence Date WarrantsOther liabilities— 9 — 8 
 1
 5
 —
 34
— 20 1 26 
Total derivative fair value $1
 $86
 $3
 $41
Total derivative fair value$6 $73 $1 $127 
The following table provides information regarding the location and amount of pre-tax gains (losses) gains for derivativesinterest rate swaps designated as cash flow hedges:
Fiscal years ended September 30,
202120202019
(In millions)Interest ExpenseOther Comprehensive (Loss) IncomeInterest ExpenseOther Comprehensive (Loss) IncomeInterest ExpenseOther Comprehensive (Loss) Income
Financial Statement Line Item in which Cash Flow Hedges are Recorded$(222)$154 $(226)$(72)$(237)$(191)
Impact of cash flow hedging relationships:
Gain (loss) recognized in AOCI on interest rate swaps— 9 — (69)— (87)
Interest expense reclassified from AOCI(51)51 (35)35 (10)10 
  Successor  Predecessor
  Fiscal year ended
September 30, 2019		 Period from
December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017
(In millions) Interest Expense Other Comprehensive (Loss) Income Interest Expense Other Comprehensive (Loss) Income  Interest Expense Other Comprehensive (Loss) Income
Financial Statement Line Item in which Cash Flow Hedges are Recorded $(237) $(191) $(169) $18
  $(14) $658
Impact of cash flow hedging relationships:             
Loss recognized in AOCI - on interest rate swaps —
 (87) —
 (9)  —
 —
Interest expense reclassified from AOCI (10) 10
 (6) 6
  —
 —
The following table provides information regarding the pre-tax gains (losses) for derivatives not designated as hedging instruments on the Consolidated Statements of Operations:
Fiscal years ended September 30,
(In millions)Location of Derivative Pre-tax Gain (Loss)202120202019
Emergence Date WarrantsOther income (expense), net(1)$(3)$29 
Foreign exchange contractsOther income (expense), net6 (1)(5)
90


    Successor  Predecessor
(In millions) Location of Derivative Pre-tax Gain (Loss) Fiscal year ended September 30, 2019 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal year ended September 30, 2017
Emergence Date Warrants Other income (expense), net $29
 $(17)  $—
 $—
Foreign exchange contracts Other income (expense), net (5) —
  —
 —
The Company records its derivatives on a gross basis in the Consolidated Balance Sheets. The Company has master netting agreements with several of its financial institution counterparties. The following table provides information on the Company's derivative positions as if those subject to master netting arrangements were presented on a net basis, allowing for the right to offset by counterparty per the master netting agreements:
September 30, 2021September 30, 2020
(In millions)AssetLiabilityAssetLiability
Gross amounts recognized in the Consolidated Balance Sheets$6 $73 $1 $127 
Gross amount subject to offset in master netting arrangements not offset in the Consolidated Balance Sheets(6)(6)(1)(1)
Net amounts$— $67 $— $126 
  September 30, 2019 September 30, 2018
(In millions) Asset Liability Asset Liability
Gross amounts recognized in the Consolidated Balance Sheet $1
 $86
 $3
 $41
Gross amount subject to offset in master netting arrangements not offset in the Consolidated Balance Sheet (1) (1) (3) (3)
Net amounts $—
 $85
 $—
 $38
14.13. Fair Value Measurements
Pursuant to the accounting guidance for fair value measurements, fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability. Considerable judgment was required in developing certain of the estimates of fair value including the consideration of the COVID-19 pandemic and accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
Emergence Date Warrants
In accordance with the bankruptcy plan of reorganization adopted in connection with the Company's emergence from bankruptcy on December 15, 2017 (the "Plan of Reorganization"), the Company issued warrants to purchase 5,645,200 shares of the Company's common stock to the holders of the second lien obligations extinguished pursuant to the Plan of Reorganization (the "Emergence Date Warrants"). Each Emergence Date Warrant has an exercise price of $25.55 per share and expires on December 15, 2022. The Emergence Date Warrants contain certain derivative features that require them to be classified as a liability and for changes in the fair value of the liability to be recognized in earnings each reporting period. On November 14, 2018, the Company's Board of Directors approved a warrant repurchase program, authorizing the Company to repurchase up to $15 million worth of the Emergence Date Warrants. None of the Emergence Date Warrants have been exercised or repurchased as of September 30, 2021.
The fair value of the Emergence Date Warrants was determined using a probability weighted Black-Scholes option pricing model. This model requires certain input assumptions including risk-free interest rates, volatility, expected life and dividend rates. Selection of these inputs involves significant judgment. The fair value of the Emergence Date Warrants as of September 30, 2021 and 2020 was determined using the input assumptions summarized below:
As of September 30,
20212020
Expected volatility49.63 %68.53 %
Risk-free interest rates0.13 %0.14 %
Contractual remaining life (in years)1.212.21
Price per share of common stock$19.79$15.20
89


In determining the fair value of the Emergence Date Warrants, the dividend yield was assumed to be zero as the Company does not anticipate paying dividends on its common stock throughout the term of the warrants.
Financial Statement Information Related to Derivative Instruments
The following table summarizes the fair value of the Company's derivatives on a gross basis, including accrued interest, segregated between those that are designated as hedging instruments and those that are not designated as hedging instruments:
September 30, 2021September 30, 2020
(In millions)Balance Sheet CaptionAssetLiabilityAssetLiability
Derivatives Designated as Hedging Instruments:
Interest rate contractsOther assets$6 $— $— $— 
Interest rate contractsOther current liabilities— 43 — 43 
Interest rate contractsOther liabilities— 10 — 58 
6 53 — 101 
Derivatives Not Designated as Hedging Instruments:
Interest rate contractsOther current liabilities— 7 — 7 
Interest rate contractsOther liabilities— 2 — 9 
Foreign exchange contractsOther current assets— — 1 — 
Foreign exchange contractsOther current liabilities— 2 — 2 
Emergence Date WarrantsOther liabilities— 9 — 8 
— 20 1 26 
Total derivative fair value$6 $73 $1 $127 
The following table provides information regarding the location and amount of pre-tax gains (losses) for interest rate swaps designated as cash flow hedges:
Fiscal years ended September 30,
202120202019
(In millions)Interest ExpenseOther Comprehensive (Loss) IncomeInterest ExpenseOther Comprehensive (Loss) IncomeInterest ExpenseOther Comprehensive (Loss) Income
Financial Statement Line Item in which Cash Flow Hedges are Recorded$(222)$154 $(226)$(72)$(237)$(191)
Impact of cash flow hedging relationships:
Gain (loss) recognized in AOCI on interest rate swaps— 9 — (69)— (87)
Interest expense reclassified from AOCI(51)51 (35)35 (10)10 
The following table provides information regarding the pre-tax gains (losses) for derivatives not designated as hedging instruments on the Consolidated Statements of Operations:
Fiscal years ended September 30,
(In millions)Location of Derivative Pre-tax Gain (Loss)202120202019
Emergence Date WarrantsOther income (expense), net(1)$(3)$29 
Foreign exchange contractsOther income (expense), net6 (1)(5)
90


The Company records its derivatives on a gross basis in the Consolidated Balance Sheets. The Company has master netting agreements with several of its financial institution counterparties. The following table provides information on the Company's derivative positions as if those subject to master netting arrangements were presented on a net basis, allowing for the right to offset by counterparty per the master netting agreements:
September 30, 2021September 30, 2020
(In millions)AssetLiabilityAssetLiability
Gross amounts recognized in the Consolidated Balance Sheets$6 $73 $1 $127 
Gross amount subject to offset in master netting arrangements not offset in the Consolidated Balance Sheets(6)(6)(1)(1)
Net amounts$— $67 $— $126 
13. Fair Value HierarchyMeasurements
ThePursuant to the accounting guidance for fair value measurements, also requiresfair value is defined as the price that would be received from selling an entityasset or paid to maximizetransfer a liability in an orderly transaction between market participants at the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization withinmeasurement date. When determining the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The inputs are prioritized into three levels that may be used to measure fair value:
Level 1: Inputs that reflect quoted pricesmeasurements for identical assets or liabilities in active markets that are observable.

Level 2: Inputs that reflect quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3: Inputs that are unobservable to the extent that observable inputs are not available for the asset or liability at the measurement date.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Assets and liabilities measuredrequired or permitted to be recorded at fair value, on a recurring basis as of September 30, 2019the Company considers the principal or most advantageous market in which it would transact and 2018 were as follows:
  September 30, 2019 September 30, 2018
  Fair Value Measurements Using Fair Value Measurements Using
(In millions) Total 

Level 1
 Level 2 Level 3 Total 
Level 1		 Level 2 Level 3
Assets:                
Strategic investments $10
 $—
 $—
 $10
 $—
 $—
 $—
 $—
Other investments —
 —
 —
 —
 2
 2
 —
 —
Interest rate contracts —
 —
 —
 —
 3
 —
 3
 —
Foreign exchange contracts 1
 —
 1
 —
 —
 —
 —
 —
Total assets $11
 $—
 $1
 $10
 $5
 $2
 $3
 $—
                 
Liabilities:                
Interest rate contracts $81
 $—
 $81
 $—
 $7
 $—
 $7
 $—
Spoken acquisition Earn-outs 5
 —
 —
 5
 15
 —
 —
 15
Emergence Date Warrants 5
 —
 —
 5
 34
 —
 —
 34
Total liabilities $91
 $—
 $81
 $10
 $56
 $—
 $7
 $49
Strategic investments
The Strategic Investment is valued using a discounted cash flow model which includes various unobservable inputs including cash flow projections, long-term growth rates, discount rates and market comparable companies. The Strategic Investment is recorded in Other assets in the Consolidated Balance Sheets.
Other investments
Other investments classified as Level 1 assets are priced using quoted market prices for identical assets in active marketsit considers assumptions that are observable. Other investments are recorded in Other assets in the Consolidated Balance Sheets.
Interest rate and foreign exchange contracts
Interest rate and foreign exchange contracts classified as Level 2 assets and liabilities are not actively traded and are valued using pricing models that use observable inputs.
Spoken acquisition Earn-outs
The Spoken acquisition Earn-outs classified as Level 3 liabilities are measured using a probability-weighted discounted cash flow model. Significant unobservable inputs, which included probability of the achievement of the earn out targets and discount rate assumption, reflected the assumptions market participants would use when pricing the asset or liability. Considerable judgment was required in valuing these liabilities.developing certain of the estimates of fair value including the consideration of the COVID-19 pandemic and accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
Emergence Date Warrants
In accordance with the bankruptcy plan of reorganization adopted in connection with the Company's emergence from bankruptcy on December 15, 2017 (the "Plan of Reorganization"), the Company issued warrants to purchase 5,645,200 shares of the Company's common stock to the holders of the second lien obligations extinguished pursuant to the Plan of Reorganization (the "Emergence Date Warrants"). Each Emergence Date Warrant has an exercise price of $25.55 per share and expires on December 15, 2022. The Emergence Date Warrants contain certain derivative features that require them to be classified as a liability and for changes in the fair value of the liability to be recognized in earnings each reporting period. On November 14, 2018, the Company's Board of Directors approved a warrant repurchase program, authorizing the Company to repurchase up to $15 million worth of the Emergence Date Warrants. None of the Emergence Date Warrants have been exercised or repurchased as of September 30, 2021.
The fair value of the Emergence Date Warrants was determined using a probability weighted Black-Scholes option pricing model. This model requires certain input assumptions including risk-free interest rates, volatility, expected life and dividend rates. Selection of these inputs involves significant judgment. The fair value of the Emergence Date Warrants as of September 30, 2021 and 2020 was determined using the input assumptions summarized below:
As of September 30,
20212020
Expected volatility49.63 %68.53 %
Risk-free interest rates0.13 %0.14 %
Contractual remaining life (in years)1.212.21
Price per share of common stock$19.79$15.20
89


In determining the fair value of the Emergence Date Warrants, the dividend yield was assumed to be zero as the Company does not anticipate paying dividends on its common stock throughout the term of the warrants.
Financial Statement Information Related to Derivative Instruments
The following table summarizes the fair value of the Company's derivatives on a gross basis, including accrued interest, segregated between those that are designated as hedging instruments and those that are not designated as hedging instruments:
September 30, 2021September 30, 2020
(In millions)Balance Sheet CaptionAssetLiabilityAssetLiability
Derivatives Designated as Hedging Instruments:
Interest rate contractsOther assets$6 $— $— $— 
Interest rate contractsOther current liabilities— 43 — 43 
Interest rate contractsOther liabilities— 10 — 58 
6 53 — 101 
Derivatives Not Designated as Hedging Instruments:
Interest rate contractsOther current liabilities— 7 — 7 
Interest rate contractsOther liabilities— 2 — 9 
Foreign exchange contractsOther current assets— — 1 — 
Foreign exchange contractsOther current liabilities— 2 — 2 
Emergence Date WarrantsOther liabilities— 9 — 8 
— 20 1 26 
Total derivative fair value$6 $73 $1 $127 
The following table provides information regarding the location and amount of pre-tax gains (losses) for interest rate swaps designated as cash flow hedges:
Fiscal years ended September 30,
202120202019
(In millions)Interest ExpenseOther Comprehensive (Loss) IncomeInterest ExpenseOther Comprehensive (Loss) IncomeInterest ExpenseOther Comprehensive (Loss) Income
Financial Statement Line Item in which Cash Flow Hedges are Recorded$(222)$154 $(226)$(72)$(237)$(191)
Impact of cash flow hedging relationships:
Gain (loss) recognized in AOCI on interest rate swaps— 9 — (69)— (87)
Interest expense reclassified from AOCI(51)51 (35)35 (10)10 
The following table provides information regarding the pre-tax gains (losses) for derivatives not designated as hedging instruments on the Consolidated Statements of Operations:
Fiscal years ended September 30,
(In millions)Location of Derivative Pre-tax Gain (Loss)202120202019
Emergence Date WarrantsOther income (expense), net(1)$(3)$29 
Foreign exchange contractsOther income (expense), net6 (1)(5)
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The Company records its derivatives on a gross basis in the Consolidated Balance Sheets. The Company has master netting agreements with several of its financial institution counterparties. The following table provides information on the Company's derivative positions as if those subject to master netting arrangements were presented on a net basis, allowing for the right to offset by counterparty per the master netting agreements:
September 30, 2021September 30, 2020
(In millions)AssetLiabilityAssetLiability
Gross amounts recognized in the Consolidated Balance Sheets$6 $73 $1 $127 
Gross amount subject to offset in master netting arrangements not offset in the Consolidated Balance Sheets(6)(6)(1)(1)
Net amounts$— $67 $— $126 
13. Fair Value Measurements
Pursuant to the accounting guidance for fair value measurements, fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability. Considerable judgment was required in developing certain of the estimates of fair value including the consideration of the COVID-19 pandemic and accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
Fair Value Hierarchy
The accounting guidance for fair value measurements also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The inputs are prioritized into three levels that may be used to measure fair value:
Level 1: Inputs that reflect quoted prices for identical assets or liabilities in active markets that are observable.
Level 2: Inputs that reflect quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3: Inputs that are unobservable to the extent that observable inputs are not available for the asset or liability at the measurement date.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis as of September 30, 2021 and 2020 were as follows:
 September 30, 2021September 30, 2020
 Fair Value Measurements UsingFair Value Measurements Using
(In millions)Total
Level 1		Level 2Level 3Total
Level 1		Level 2Level 3
Assets:
Interest rate contracts$6 $— $6 $— $— $— $— $— 
Foreign exchange contracts— — — — 1 — 1 — 
Total assets$6 $— $6 $— $1 $— $1 $— 
Liabilities:
Interest rate contracts$62 $— $62 $— $117 $— $117 $— 
Foreign exchange contracts2 — 2 — 2 — 2 — 
Emergence Date Warrants9 — — 9 8 — — 8 
Total liabilities$73 $— $64 $9 $127 $— $119 $8 
Interest rate and foreign exchange contracts classified as Level 2 assets and liabilities are not actively traded and are valued using pricing models that use observable inputs.
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Emergence Date Warrants classified as Level 3 liabilities are pricedvalued using thea probability weighted Black-Scholes option pricing model.model which is further described in Note 12, "Derivative Instruments and Hedging Activities."
During fiscal 2019 (Successor), the period from December 16, 2017 through September 30, 2018 (Successor), the period from October 1, 2017 through December 15, 2017 (Predecessor)2021, 2020 and fiscal 2017 (Predecessor),2019 there were no transfers between Level 1 and Level 2,into or into and out of Level 3.

The following table summarizes the activity forrelated to the Company's Level 3 assets and liabilities measured at fair value on a recurring basis:
(In millions) Emergence Date Warrants Spoken Acquisition Earn-outs Strategic Investments
Balance as of September 30, 2017 (Predecessor) $—
 $—
 $—
Issuance of Emergence Date Warrants 17
 —
 —
Balance as of December 15, 2017 (Predecessor) $17
 $—
 $—
       
       
Balance as of December 16, 2017 (Successor) $17
 $—
 $—
Contingent consideration —
 14
 —
Accretion of interest(1)
 —
 1
 —
Change in fair value(1)
 17
 —
 —
Balance as of September 30, 2018 (Successor) $34
 $15
 $—
Strategic investments —
 —
 10
Change in fair value(1)
 (29) 1
 —
Settlement —
 (11) —
Balance as of September 30, 2019 (Successor) $5
 $5
 $10
(1) Changes in fair value ofliability, the Emergence Date Warrants, and accretion of interest on the Spoken acquisition earn-outs are includedrelates to a change in fair value which was recorded in Other income, (expense), net. Changes in fair value of the Spoken acquisition Earn-outs are included in Selling, general and administrative expense.
Fair Value of Financial Instruments
The estimated fair values of the Company’s Senior Notes, Term Loans and Convertible Notes at September 30, 2021 and 2020 were as follows:
September 30, 2021September 30, 2020
(In millions)Principal amountFair valuePrincipal amountFair value
Senior 6.125% Notes due September 15, 2028$1,000 $1,053 $1,000 $1,022 
Tranche B Term Loans due December 15, 2024— — 843 838 
Tranche B-1 Term Loans due December 15, 2027800 802 800 786 
Tranche B-2 Term Loans due December 15, 2027743 745 — — 
Convertible 2.25% Senior Notes due June 15, 2023350 368 350 331 
Total$2,893 $2,968 $2,993 $2,977 
The estimated fair value of the Company's Senior Notes and Term Loans was determined using Level 2 inputs based on a market approach utilizing market-clearing data on the valuation date in addition to bid/ask prices.The estimated fair value of the Convertible Notes was determined based on the quoted price of the Convertible Notes in an inactive market on the last trading day of the reporting period and has been classified as Level 2.
The fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, to the extent the underlying liability will be settled in cash, approximate their carrying values because of the short-term nature of these instruments.
As of September 30, 2019 and 2018, the estimated fair value of the Convertible Notes was determined based on the quoted price of the Convertible Notes in an inactive market on the last trading day of the reporting period and has been classified as Level 2.
The estimated fair values of amounts borrowed under the Company's other financing arrangements at September 30, 2019 and 2018 were estimated based on a Level 2 input based on a market approach utilizing market-clearing data on the valuation date in addition to bid/ask prices.
The estimated fair values of the amounts borrowed under the Company’s financing agreements at September 30, 2019 and 2018 are as follows:
  September 30, 2019 September 30, 2018
(In millions) Principal amount Fair value Principal amount Fair value
Term Loan Credit Agreement due December 15, 2024 $2,874
 $2,739
 $2,903
 $2,932
Convertible 2.25% senior notes due June 15, 2023 350
 298
 350
 357
Total debt $3,224
 $3,037
 $3,253
 $3,289
15.14. Income Taxes
During the year ended September 30, 2018, under the Plan of Reorganization, a substantial amount of the Company’s debt was extinguished. Absent an exception, a debtor recognizes the cancellation of indebtedness income ("CODI") upon discharge of its outstanding indebtednessThe provision for an amount of consideration that is less than its adjusted issue price. The Company's U.S. federal net operating loss ("NOL") and tax credits not utilized during the taxable year ended September 30, 2018 were eliminated in the prior year due to the recognition of CODI. Prior to December 15, 2017, a full valuation allowance was established in any jurisdiction that had a net deferred tax asset. A portion of the U.S. valuation allowance in the amount of $787 million was reversed as part of the reorganization adjustments as it was previously established against (i) the NOL and tax credits that as of December 15, 2017 were estimated to be eliminated as a result of the CODI rules and (ii) other deferred tax assets that were previously established for liabilities that were discharged in the Plan or Reorganization and eliminated as part of the reorganization adjustments. The valuation allowance in the amount of $47 million was reversed in certain non-U.S.

jurisdictions as part of the reorganization adjustments as management concluded it is more likely than not that the related deferred tax assets will be realized. The remaining U.S. valuation allowance in the amount of $460 million was reversed as part of the fresh start adjustments because management concluded it is more likely than not that the deferred tax assets will be realized primarily due to future sources of taxable income that will be generated by the reversal of deferred tax liabilities established as a result of fresh start.
During the fourth quarter of 2018, the Company centralized the management and ownership of certain intellectual property in a U.S. limited partnership. This action resulted in the utilization and recognition of previously unrecognized NOLs, the reversal of deferred tax liabilities established as part of fresh start accounting and the recognition of a deferred tax asset, cumulatively in the amount of $366 million.
On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was signed into law. The Act lowered the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018. Corporations with a fiscal year-end that is not a calendar year but included January 1, 2018 were subject to a blended tax rate based on the number of days in the fiscal year before and after January 1, 2018. The Company has a September 30th tax year-end and therefore the U.S. federal tax rate for the fiscal year ending September 30, 2018 was 24.5%.
The SEC issued Staff Accounting Bulletin No. 118 ("SAB 118") on December 22, 2017, which provided guidance to registrants on the accounting for tax related impacts under the Act. The guidance provides a measurement period of up to one year after the enactment date for companies to complete the tax accounting implications of the Act. As a fiscal year-end tax filer, the Company was subject to various provisions under the Act for the period from December 16, 2017 through September 30, 2018 (Successor), including the change to the U.S. federal statutory tax rate and the mandatory deemed repatriation of unremitted foreign earnings. In the year ended September 30, 2018, the Company recorded adjustments related to the Act, including a revaluation of its deferred taxes. The amount of the reduction to the net deferred tax liability as a result of the Act was $245 million and had been recorded as an income tax benefit in the period from December 16, 2017 through September 30, 2018 (Successor).
During the year ended September 30, 2019, various U.S. tax provisions that were introduced or updated as part of the Act have become effective for the Company, including provisions that result in the current U.S. taxation of certain income earned by the Company’s foreign subsidiaries. The FASB has published guidance (Topic 740, No. 5) regarding how to account for the Global Intangible Low-Taxed Income ("GILTI") provisions included in the Act. The guidance states that a company may make a policy decision with respect to the accounting for taxes related to GILTI and whether deferred taxes should be established. The Company has generated income that will be taxed as GILTI in fiscal 2019. The Company has determined that it will account for any taxes associated with GILTI as a period cost.
The Company previously established a deferred tax liability for non-U.S. withholding taxes to be incurred upon the remittance of foreign earnings. As of September 30, 2019, the Company has an outside basis difference of $104 million with a deferred tax liability of $20 million. The Company is permanently reinvested on the remaining basis difference and estimates the unrecorded deferred tax liability to be $25 million.

The (provision for) benefit from income taxes is comprised of U.S. federal, state and foreign income taxes. The following table presents the U.S. and foreign components of income (loss) income before income taxes and the (provision for) benefit fromprovision for income taxes for the periods indicated:
Fiscal years ended September 30,
(In millions)202120202019
INCOME (LOSS) BEFORE INCOME TAXES:
U.S.$(28)$(639)$(510)
Foreign30 21 (159)
Income (Loss) before income taxes$2 $(618)$(669)
PROVISION FOR INCOME TAXES:
CURRENT
Federal$(4)$(58)$(20)
State and local(4)(10)(7)
Foreign(12)(23)(29)
(20)(91)(56)
DEFERRED
Federal— 30 47 
State and local— 3 10 
Foreign5 (4)(3)
5 29 54 
Provision for income taxes$(15)$(62)$(2)
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  Successor  Predecessor
(In millions) Fiscal year ended
September 30, 2019		 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal year ended September 30, 2017
(LOSS) INCOME BEFORE INCOME TAXES:         
U.S. $(510) $(165)  $3,353
 $(275)
Foreign (159) (94)  83
 77
(Loss) income before income taxes $(669) $(259)  $3,436
 $(198)
(PROVISION FOR) BENEFIT FROM INCOME TAXES:         
CURRENT         
Federal $(20) $—
  $—
 $2
State and local (7) 4
  —
 1
Foreign (29) (40)  (4) (27)
  (56) (36)  (4) (24)
DEFERRED         
Federal 47
 530
  (453) 34
State and local 10
 34
  (19) 5
Foreign (3) 18
  17
 1
  54
 582
  (455) 40
(Provision for) benefit from income taxes $(2) $546
  $(459) $16
Deferred income taxes are provided for the effects of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of the periods indicated were as follows:
 As of September 30,As of September 30,
(In millions) 2019 2018(In millions)20212020
DEFERRED INCOME TAX ASSETS:    DEFERRED INCOME TAX ASSETS:
Benefit obligations $225
 $205
Benefit obligations$173 $218 
Net operating losses/credit carryforwards 918
 951
Net operating losses/credit carryforwards988 981 
Property, plant and equipment 15
 21
Property, plant and equipment1 8 
Other/accrued liabilitiesOther/accrued liabilities— 13 
Valuation allowance (928) (919)Valuation allowance(1,018)(1,053)
Gross deferred income tax assets 230
 258
Gross deferred income tax assets144 167 
DEFERRED INCOME TAX LIABILITIES:    DEFERRED INCOME TAX LIABILITIES:
Goodwill and intangible assets (213) (290)Goodwill and intangible assets(145)(174)
Other/accrued liabilities (54) (79)Other/accrued liabilities(12)— 
Gross deferred income tax liabilities (267) (369)Gross deferred income tax liabilities(157)(174)
Net deferred income tax liabilities $(37) $(111)Net deferred income tax liabilities$(13)$(7)

A reconciliation of the Company’s lossincome (loss) before income taxes at the U.S. federal statutory rate to the benefit from (provision for)provision for income taxes is as follows:
 Successor  PredecessorFiscal years ended September 30,
(In millions) Fiscal year ended
September 30, 2019		 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal year ended September 30, 2017(In millions)202120202019
Income tax benefit (provision) computed at the U.S. Federal statutory rate $140
 $64
  $(1,203) $69
Income tax benefit computed at the U.S. Federal statutory rateIncome tax benefit computed at the U.S. Federal statutory rate$— $130 $140 
State and local income taxes, net of federal income tax effect 11
 (12)  10
 6
State and local income taxes, net of federal income tax effect1 2 11 
Tax differentials on foreign earnings (11) (12)  182
 12
Tax differentials on foreign earnings2 — (11)
Loss on foreign subsidiaries 29
 43
  —
 7
Loss on foreign subsidiaries1 28 29 
Taxes on unremitted foreign earnings and profits (4) 4
  7
 7
Taxes on unremitted foreign earnings and profits1 (8)(4)
Non-deductible portion of goodwill (123) —
  —
 (17)Non-deductible portion of goodwill— (125)(123)
Non-deductible loss on sale of Networking business —
 —
  —
 (12)
Non-deductible reorganization items —
 —
  (11) (18)
Adjustment to deferred taxes 16
 4
  (1) 5
Adjustment to deferred taxes2 (14)16 
Audit settlements and accruals 5
 (48)  (6) (5)Audit settlements and accruals5 3 1 
Credits and other taxes 4
 (5)  (1) (11)Credits and other taxes2 (2)4 
Impact of Tax Cuts and Jobs Act 1
 245
  —
 —
Impact of Tax Cuts and Jobs Act(2)(3)1 
NOL recognition / intellectual property —
 366
  —
 —
Warrants 6
 (4)  —
 —
Warrants— (1)6 
Debt refinancing —
 (8)  —
 —
Non-deductible impact of fresh start accounting —
 —
  (555) —
Non-taxable cancellation of debt income —
 —
  313
 —
Attribute reduction —
 —
  (452) —
Rate changes (19) (3)  —
 (68)Rate changes(1)(3)(19)
U.S. tax on foreign source income —
 (10)  (2) (2)
Non-deductible expensesNon-deductible expenses(7)(7)(8)
Valuation allowance (43) (85)  1,199
 45
Valuation allowance(19)(58)(43)
Other differences—net (14) 7
  61
 (2)Other differences—net— (4)(2)
(Provision for) benefit from income taxes $(2) $546
  $(459) $16
Provision for income taxesProvision for income taxes$(15)$(62)$(2)
In fiscal 2020 and 2019, the Company recognized goodwill impairment charges of $624 million and $657 million, to Goodwill.respectively. See Note 8, "Goodwill,"7, "Goodwill" for further discussion. A portion of the impairment charges were allocated to tax jurisdictions where there would not be any taxable benefit and therefore non-deductible.
In assessing the realization of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has considered a range of positive and negative evidence, including whether there has been a cumulative loss in the past three years and the scheduled reversal of deferred tax assets and liabilities, projected future taxable income and certain tax planning strategies in assessing the realization of its deferred tax assets. Based on this assessment, the Company determined that it is more likely than not that the deferred tax assets in certain significant jurisdictions, including Ireland,the U.S., Germany, Luxembourg and France,Luxembourg, will not be realized to the extent they exceed the scheduled reversal of deferred tax liabilities.
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During fiscal 2019, the period from December 16, 2017 through September 30, 20182021, 2020 and the period from October 1, 2017 through December 15, 2017,2019, the Company's valuation allowance (decreased) increased (decreased) by $9$(35) million, $82$125 million and $(1,316)$9 million, respectively, primarily due to valuation allowances established for additional NOLs anddriven by changes in the deferred tax effects related to movements in other comprehensive income.income and changes in NOLs. At September 30, 2019,2021, the valuation allowance of $928$1,018 million is comprised of $17$51 million, $329$334 million, $522$590 million and $61$43 million related to the U.S., Germany, Luxembourg, and other foreign subsidiaries, respectively. The recognition of valuation allowances will continue to adversely affect the Company's effective income tax rate.
As of September 30, 2019,2021, the Company had tax-effected NOLs and credits of $948$1,013 million, comprised of $16$24 million for U.S. state and local taxes and $932$989 million for foreign taxes, including $253$262 million and $613$674 million in Germany and Luxembourg, respectively.

The U.S. state NOLs expire through the year 2037,fiscal 2041, with the majority expiring in excess of 10 years. The majority of foreign NOLs have no expiration.
The Company has established a deferred tax liability for U.S. taxes and non-U.S. withholding taxes to be incurred upon the remittance of foreign earnings which was $31 million as of September 30, 2021. The Company has a taxable difference of $79 million as of September 30, 2021 which was permanently reinvested. The Company estimates the unrecorded deferred tax liability on the outside basis difference to be $19 million.
As of September 30, 2019,2021, there were $147$134 million of unrecognized tax benefits ("UTBs") associated with uncertain tax positions and an additional $22$27 million of accrued interest and penalties related to these amounts. The Company estimates $89$85 million of UTBs would affect the effective tax rate if recognized. The reduction in the balance during the fiscal 2019 period2021 is primarily related to U.S. tax positions that were effectively settled as well as the tax effectsexpiration of any appropriately submitted tax elections.relevant statute of limitations. At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments in connection with these tax liabilities. The Company’s policy is to include interest and penalties related to its uncertain tax positions within the benefit from (provision for)provision for income taxes. Included in the benefit from (provision for)provision for income taxes in fiscal 2021, 2020 and 2019 the period from December 16, 2017 through September 30, 2018 and the period from October 1, 2017 through December 15, 2017 was a net interest (expense) benefitexpense of $(4)$2 million, $0$3 million and $1$4 million, respectively. The Company files corporate income tax returns with the federal government in the U.S. and with multiple U.S. state and local jurisdictions and foreign tax jurisdictions. In the ordinary course of business these income tax returns will be examined by the tax authorities. Various foreign income tax returns, such as Brazil, Italy, Germany, India, Ireland, Israel, Italy, and NetherlandsSaudi Arabia are under examination by taxing authorities for tax years ranging from 2001 through 2018.2020. It is reasonably possible that the total amount of UTB will decrease by an estimated $8$3 million in the next 12 months as a result of these examinations and by an estimated $8$9 million as a result of the expiration of the statute of limitations.
The following table summarizes the activity for the Company's gross UTB balance:
(In millions)
Gross UTB balance at September 30, 2018$174
Additions based on tax positions relating to the period10 
Changes based on tax positions relating to prior periods(32)
Statute of limitations expirations(5)
Gross UTB balance at September 30, 2019$147
Additions based on tax positions relating to the period4 
Changes based on tax positions relating to prior periods(1)
Settlements(2)
Statute of limitations expirations(8)
Gross UTB balance at September 30, 2020$140
Additions based on tax positions relating to the period4 
Settlements(1)
Statute of limitations expirations(9)
Gross UTB balance at September 30, 2021$134
(In millions)  
Gross UTB balance at September 30, 2016 (Predecessor) $263
Additions based on tax positions relating to the period 23
Change to tax positions relating to prior periods (10)
Statute of limitations expirations (8)
Gross UTB balance at September 30, 2017 (Predecessor) 268
Additions based on tax positions relating to the period 4
Gross UTB balance at December 15, 2017 (Predecessor) $272
   
   
Gross UTB balance at December 16, 2017 (Successor) $272
Additions based on tax positions relating to the period 57
Changes based on tax positions relating to prior periods (143)
Statute of limitations expirations (12)
Gross UTB balance at September 30, 2018 (Successor) 174
Additions based on tax positions relating to the period 10
Changes based on tax positions relating to prior periods (32)
Statute of limitations expirations (5)
Gross UTB balance at September 30, 2019 (Successor) $147
16.15. Benefit Obligations
Pension, Post-retirement and Postemployment Benefits
The Company sponsors non-contributory defined benefit pension plans covering a portion of its U.S. employees and retirees, and post-retirement benefit plans covering a portion of its U.S. employees and retirees that include healthcare benefits and life insurance coverage. Certain non-U.S. operations have various retirement benefit programs covering substantially all of their employees. Some of these programs are considered to be defined benefit pension plans for accounting purposes. The Company
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froze benefit accruals and additional participation in the pension and post-retirement benefit plans for its U.S. management employees effective December 31, 2003.
In September 2015, the Company amended the post-retirement medical plan for represented retirees effective January 1, 2017, to replace medical coverage through the Company’s group plan for represented retirees who are retired as of October 15, 2015 and their eligible dependents, with medical coverage through the private and public insurance marketplace. The change allows the existing retirees to choose insurance from the marketplace and receive financial support from the Company toward the cost of coverage through a Health Reimbursement Arrangement. In June 2019, the Company announced a change in medical benefits under the post-retirement medical plan for represented retirees effective January 1, 2020, to replace medical coverage through the Company's group plan for represented retirees who are retired as of April 30, 2019 and their eligible dependents, with medical

coverage through the private and public insurance marketplace. As a result of the plan amendment, the Company recognized a $7 million reduction in the accumulated benefit obligation with an offset to Accumulated other comprehensive (loss) income withinloss in the Consolidated Balance Sheets.Sheet during fiscal 2019.
OnIn December 15, 2017,2020, the APPSE,post-retirement medical plan coverage provided through the Company's group plan for retirees who retired after April 30, 2019 and their eligible dependents and future represented retirees and their eligible dependents was replaced with coverage through the private and public insurance marketplace. As a qualified pensionresult, the U.S. represented post-retirement plan was settledremeasured, which resulted in the recognition of a $12 million reduction to the accumulated benefit obligation with an offset to the PBGC. At that time,Accumulated other comprehensive loss in the Consolidated Balance Sheet during fiscal 2021. The decrease was mainly driven by the change in medical coverage, partially offset by changes in actuarial assumptions.
In March 2021, the Company entered into an irrevocable buy-out agreement with an insurance company to settle $209 million of its post-retirement life insurance projected benefit obligations related to certain salaried and the PBGC executedrepresented retirees and their beneficiaries who were retired as of March 26, 2021. The transaction was funded with post-retirement life insurance plan assets with a termination and trusteeship agreement to terminate the APPSE and to appoint the PBGC as the statutory trustee of the plan. The Company paid settlement consideration to the PBGC consisting of $340 million in cash and 6.1 million shares of Successor Company common stock (fair value of $92 million). With this payment, any accrued but unpaid minimum funding contributions due were deemed to have been paid in full.$190 million. As a result of the plan termination on December 15, 2017, the Company's projected benefit obligation and pension trust assets were reduced by $2,192 million and $1,573 million, respectively. Including the settlement consideration and $703 million of Accumulated other comprehensive loss recorded in the Consolidated Balance Sheets,this transaction, a settlement lossgain of $516$14 million was recorded in Reorganization items,recognized within Other income, net in the Consolidated Statements of Operations for the period from October 1, 2017 through December 15, 2017 (Predecessor).during fiscal 2021.
On December 15, 2017, the unfunded ASPP, a non-qualified excess benefit plan, was also terminated and settled. Benefit liabilities for ASPP participants were included as allowed claims in the general unsecured recovery pool. Settlement considerationAs of $17 million in the form of allowed claims payable to ASPP participants was estimated based upon claims data as of the Emergence Date as amounts due to individual general unsecured creditors had not been finalized and paid. As a result of the termination, the Company's projected benefit obligation was reduced by $88 million. Including the settlement consideration and $18 million of Accumulated other comprehensive loss recorded in the Consolidated Balance Sheet, a settlement gain of $53 million was recorded in Reorganization items, net in the Consolidated Statements of Operations for the period from October 1, 2017 through December 15, 2017 (Predecessor).
Remeasurement as a result of fresh start accounting increased the APP and other post-retirement benefit plan obligations by $3 million on December 15, 2017.
Effective September 9, 2019,February 2021, the Company and the Communications Workers of America ("CWA") and the International Brotherhood of Electrical Workers ("IBEW"), agreed to extend the 2009 Collective Bargaining Agreement ("CBA") until June 19, 2021.24, 2023. The contract extensions did not affect the Company’s obligation for pension and post-retirement benefits available to U.S. employees of the Company who are represented by the CWA or IBEW ("represented employees").
A reconciliation of the changes in the benefit obligations and fair value of assets of the defined benefit pension and post-retirement plans, the funded status of the plans and the amounts recognized in the Consolidated Balance Sheets are provided in the tables below:
Fiscal years ended September 30,
(In millions)20212020
Pension Benefits - U.S.
Change in benefit obligation
Projected benefit obligation at beginning of period$1,145 $1,134 
Service cost3 4 
Interest cost20 29 
Actuarial (gain) loss(14)55 
Benefits paid(73)(77)
Projected benefit obligation at end of period$1,081 $1,145 
Change in plan assets
Fair value of plan assets at beginning of period$927 $915 
Actual return on plan assets67 79 
Employer contributions11 10 
Benefits paid(73)(77)
Fair value of plan assets at end of period$932 $927 
Funded status at end of period$(149)$(218)
Amount recognized in the Consolidated Balance Sheets consists of:
Accrued benefit liability, noncurrent$(149)$(218)
Net amount recognized$(149)$(218)
Amount recognized in Accumulated other comprehensive loss (pre-tax) consists of:
Net actuarial loss81 110 
Net amount recognized$81 $110 
Weighted average assumptions used to determine benefit obligations
Discount rate2.70 %2.50 %
Rate of compensation increase3.00 %3.00 %
95


Fiscal years ended September 30,
(In millions)20212020
Pension Benefits - Non-U.S.
Change in benefit obligation
Projected benefit obligation at beginning of period$573 $573 
Service cost7 7 
Interest cost5 5 
Actuarial gain(16)(34)
Benefits paid(22)(21)
Foreign currency exchange rate changes(6)42 
Other— 1 
Projected benefit obligation at end of period$541 $573 
Change in plan assets
Fair value of plan assets at beginning of period$18 $15 
Actual return on plan assets1 — 
Employer contributions22 22 
Benefits paid(22)(21)
Foreign currency exchange rate changes1 2 
Fair value of plan assets at end of period$20 $18 
Funded status at end of period$(521)$(555)
Amount recognized in the Consolidated Balance Sheets consists of:
Noncurrent assets$2 $1 
Accrued benefit liability, current(24)(25)
Accrued benefit liability, noncurrent(499)(531)
Net amount recognized$(521)$(555)
Amount recognized in Accumulated other comprehensive loss (pre-tax) consists of:
Net actuarial loss$6 $22 
Net amount recognized$6 $22 
Weighted average assumptions used to determine benefit obligations
Discount rate1.09 %0.86 %
Rate of compensation increase2.62 %2.60 %
96


Fiscal years ended September 30,
(In millions)20212020
Post-retirement Benefits - U.S.
Change in benefit obligation
Benefit obligation at beginning of period$431 $404 
Service cost1 1 
Interest cost6 11 
Actuarial (gain) loss(22)30 
Benefits paid(13)(15)
Plan amendments(15)— 
Settlements(209)— 
Benefit obligation at end of period$179 $431 
Change in plan assets
Fair value of plan assets at beginning of period$206 $191 
Actual return on plan assets8 20 
Employer contributions10 10 
Benefits paid(13)(15)
Settlements(190)— 
Fair value of plan assets at end of period$21 $206 
Funded status at end of period$(158)$(225)
Amount recognized in the Consolidated Balance Sheets consists of:
Asset, noncurrent$6 $— 
Accrued benefit liability, current(11)(10)
Accrued benefit liability, noncurrent(153)(215)
Net amount recognized$(158)$(225)
Amount recognized in Accumulated other comprehensive loss (pre-tax) consists of:
Net prior service credit$(16)$(6)
Net actuarial (gain) loss(9)23 
Net amount recognized$(25)$17 
Weighted average assumptions used to determine benefit obligations
Discount rate2.74 %2.69 %
Rate of compensation increase3.00 %3.00 %
As of September 30, 2021, the change in the projected benefit obligation for U.S. pension and non-U.S. pension benefit plans were mainly driven by higher discount rates. The change in the other post-retirement benefit plans was driven by a higher discount rate as well as the settlement and plan amendment described in more detail above.
As of September 30, 2020, the change in the projected benefit obligation for U.S. pension and U.S. post-retirement benefit plans were driven by declines in the discount rates. The change in the projected benefit obligation for non-U.S. pension plans was driven by a lower expected rate of payment increases, offset by the impact of foreign currency exchange rates.
97


The discount rate is subject to change each year, consistent with changes in rates of return on high-quality fixed-income investments currently available and expected to be available during the expected benefit payment period. The Company selects the assumed discount rate for its U.S. pension and post-retirement benefit plans by applying the rates from the Aon AA Above Median and Aon AA Only Bond Universe yield curves to the expected benefit payment streams and develops a rate at which it is believed the benefit obligations could be effectively settled. The Company follows a similar process for its non-U.S. pension plans by applying the Aon Euro AA corporate bond yield curve for the plans based in Europe and relevant country-specific bond indices for other locations.
Based on the published rates as of September 30, 2021, the Company used a weighted average discount rate of 2.70% for the U.S. pension plans, 1.09% for the non-U.S. pension plans and 2.74% for the post-retirement plans, an increase of 20 basis points, 23 basis points and 5 basis points from the prior year for the U.S. pension plans, the non-U.S. pension plans and the post-retirement benefit plans, respectively. As of September 30, 2021, this had the effect of decreasing the projected U.S. pension, non-U.S. pension and post-retirement benefit obligations by $25 million, $16 million and $17 million, respectively. For fiscal 2022, this will have a minimal effect on the U.S. pension and post-retirement service cost.
The Company uses the White-Collar PRI-2012 Private Retirement Plans Mortality Tables to reflect its estimate of future mortality for its salaried post-retirement benefit plans. For the U.S. pension and represented post-retirement benefit plans, the Company continued to use the PRI-2012 Private Retirement Plans Mortality Tables. The Company's mortality rate assumptions use the projected mortality improvement scale, Mortality Projection-2020, as published by the Society of Actuaries. As of September 30, 2021, the mortality rate assumptions did not materially impact the projected U.S. pension and post-retirement obligations.
The following table provides the accumulated benefit obligation for all defined benefit pension plans and information for pension plans with a projected benefit obligation and an accumulated benefit obligation in excess of plan assets:
Pension Benefits - U.S.Pension Benefits - Non-U.S.
(In millions)September 30, 2021September 30, 2020September 30, 2021September 30, 2020
Accumulated benefit obligation for all plans$1,080 $1,145 $521 $555 
Plans with accumulated and projected benefit obligations in excess of plan assets
Projected benefit obligation$1,081 $1,145 $535 $567 
Accumulated benefit obligation$1,080 $1,145 $517 $549 
Fair value of plan assets$932 $927 $12 $12 
The following table provides the accumulated benefit obligation for all post-retirement benefit plans and information for post-retirement benefit plans with an accumulated benefit obligation in excess of plan assets:
Post-retirement Benefits - U.S.
(In millions)September 30, 2021September 30, 2020
Accumulated benefit obligation for all plans$179 $431 
Plans with accumulated benefit obligations in excess of plan assets
Accumulated benefit obligation$164 $431 
Fair value of plan assets$— $206 
Estimated future benefits expected to be paid in each of the next five fiscal years, and in aggregate for the five fiscal years thereafter, are presented below:
 Pension BenefitsPost-retirement
Benefits
(In millions)U.S.Non-U.S.
2022$74 $25 $11 
202373 23 11 
202472 23 11 
202571 24 11 
202670 24 11 
2027 - 2031331 138 54 
Total$691 $257 $109 
98


The components of the pension and post-retirement net periodic benefit credit for the periods indicated are provided in the table below:
Fiscal years ended September 30,
(In millions)202120202019
Pension Benefits - U.S.
Components of net periodic benefit credit
Service cost$3 $4 $3 
Interest cost20 29 40 
Expected return on plan assets(53)(55)(60)
Amortization of actuarial loss2 — — 
Net periodic benefit credit$(28)$(22)$(17)
Weighted average assumptions used to determine net periodic benefit cost
Discount rate1.96 %2.84 %3.94 %
Expected return on plan assets6.00 %6.40 %7.00 %
Rate of compensation increase3.00 %3.00 %4.00 %
Pension Benefits - Non-U.S.
Components of net periodic benefit cost
Service cost$7 $7 $6 
Interest cost5 5 10 
Expected return on plan assets(1)(1)(1)
Net periodic benefit cost$11 $11 $15 
Weighted average assumptions used to determine net periodic benefit cost
Discount rate0.86 %0.87 %1.92 %
Expected return on plan assets3.97 %3.72 %3.67 %
Rate of compensation increase2.60 %2.59 %2.58 %
Post-retirement Benefits - U.S.
Components of net periodic benefit (credit) cost
Service cost$1 $1 $1 
Interest cost6 11 14 
Expected return on plan assets(5)(10)(9)
Amortization of prior service credit(4)(1)— 
Amortization of actuarial loss (gain)1 — (1)
Settlement gain(14)— — 
Net periodic benefit (credit) cost$(15)$1 $5 
Weighted average assumptions used to determine net periodic benefit (credit) cost
Discount rate2.19 %2.18 %4.02 %
Expected return on plan assets4.39 %5.50 %5.50 %
Rate of compensation increase3.00 %3.00 %4.00 %
The service components of net periodic benefit (credit) cost were recorded similar to compensation expense, while all other components were recorded in Other income (expense), net.
The Company's general funding policy with respect to its U.S. qualified pension plans is to contribute amounts at least sufficient to satisfy the minimum amount required by applicable law and regulations, or to directly pay benefits where appropriate. In March 2020, the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was signed into law, providing limited relief for pension funding and retirement plan distributions. Under the CARES Act, employers were permitted to delay contributions for single employer defined benefit pension plans until January 2021. Contributions to U.S. pension plans were $11 million, $10 million and $27 million for fiscal 2021, 2020 and 2019, respectively. In March 2021, the American Rescue Plan Act (the "ARP Act") was signed into law, providing limited interest-rate relief provisions and an extended shortfall
99


amortization period for pension funding and retirement plan distributions. As a result, the Company does not expect to make any contributions to the U.S. pension plans in fiscal 2022.
Contributions to the non-U.S. pension plans were $22 million for both fiscal 2021 and 2020. For fiscal 2019, contributions to the non-U.S. pension plans were $23 million. In fiscal 2022, the Company estimates that it will make contributions totaling $26 million for non-U.S. plans.
Most post-retirement medical benefits are not pre-funded. Consequently, the Company makes payments directly to the claims administrator as retiree medical benefit claims are disbursed. These payments are funded by the Company up to the maximum contribution amounts specified in the plan documents and contract with the CWA and IBEW, and contributions from the participants, if required. As a result,The Company made payments for retiree medical and dental benefits were $12of $10 million, $7 million, $2$10 million and $15$12 million for fiscal 2021, 2020 and 2019, (Successor), the period from December 16, 2017 through September 30, 2018 (Successor), the period from October 1, 2017 through December 15, 2017 (Predecessor) and fiscal 2017 (Predecessor), respectively. In fiscal 2019, the Companyrespectively, which were net of reimbursements received a $3 million reimbursement from the represented employees' post-retirement health trust of $2 million in fiscal 2021 and $3 million in fiscal 2020 and 2019 related to payments in prior periods. The Company estimates it will make payments for retiree medical and dental benefits totaling $13$11 million during fiscal 2020.2022.

A reconciliation of the changes in the benefit obligations and fair value of assets of the defined benefit pension and post-retirement plans, the funded status of the plans and the amounts recognized in the Consolidated Balance Sheets are provided in the tables below:
  Successor  Predecessor
(In millions) Fiscal year ended
September 30, 2019		 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017
Pension Benefits - U.S.       
Change in benefit obligation       
Projected benefit obligation at beginning of period $1,050
 $1,136
  $3,415
Service cost 3
 3
  1
Interest cost 40
 28
  22
Actuarial loss (gain) 131
 (56)  19
Benefits paid (90) (61)  (39)
Reorganization adjustments —
 —
  (2,282)
Projected benefit obligation at end of period $1,134
 $1,050
  $1,136
Change in plan assets       
Fair value of plan assets at beginning of period $881
 $889
  $2,395
Actual return on plan assets 97
 10
  57
Employer contributions 27
 43
  49
Benefits paid (90) (61)  (39)
Reorganization adjustments —
 —
  (1,573)
Fair value of plan assets at end of period $915
 $881
  $889
Underfunded status at end of period $(219) $(169)  $(247)
Amount recognized in the Consolidated Balance Sheets consists of:       
Accrued benefit liability, current $—
 $—
  $(9)
Accrued benefit liability, noncurrent (219) (169)  (238)
Net amount recognized $(219) $(169)  $(247)
Amount recognized in Accumulated other comprehensive loss (pre-tax) consists of:       
Net actuarial loss (gain) 79
 (15)  —
Net amount recognized $79
 $(15)  $—
Weighted average assumptions used to determine benefit obligations       
Discount rate 3.09% 4.22%  3.70%
Rate of compensation increase 3.00% 4.00%  4.00%

  Successor  Predecessor
(In millions) Fiscal year ended
September 30, 2019		 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017
Pension Benefits - Non-U.S.       
Change in benefit obligation       
Projected benefit obligation at beginning of period $536
 $575
  $551
Service cost 6
 5
  2
Interest cost 10
 7
  3
Actuarial loss (gain) 76
 (19)  (2)
Benefits paid (22) (22)  (3)
Foreign currency exchange rate changes (32) (10)  —
Curtailments, settlements and other (1) —
  —
Reorganization adjustments —
 —
  24
Projected benefit obligation at end of period $573
 $536
  $575
        
Change in plan assets       
Fair value of plan assets at beginning of period $15
 $15
  $15
Actual return on plan assets 1
 —
  —
Employer contributions 23
 22
  3
Benefits paid (22) (22)  (3)
Foreign currency exchange rate changes (1) —
  —
Settlements (1) —
  —
Fair value of plan assets at end of period $15
 $15
  $15
Underfunded status at end of period $(558) $(521)  $(560)
        
Amount recognized in the Consolidated Balance Sheets consists of:       
Noncurrent assets $1
 $1
  $1
Accrued benefit liability, current (19) (20)  (23)
Accrued benefit liability, noncurrent (540) (502)  (538)
Net amount recognized $(558) $(521)  $(560)
        
Amount recognized in Accumulated other comprehensive loss (pre-tax) consists of:       
Net actuarial loss (gain) $55
 $(19)  $—
Net amount recognized $55
 $(19)  $—
        
Weighted average assumptions used to determine benefit obligations       
Discount rate 0.87% 1.92%  1.92%
Rate of compensation increase 2.59% 4.46%  3.66%

  Successor  Predecessor
(In millions) Fiscal year ended
September 30, 2019		 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017
Post-retirement Benefits - U.S.       
Change in benefit obligation       
Benefit obligation at beginning of period $368
 $407
  $404
Service cost 1
 1
  —
Interest cost 14
 11
  3
Actuarial loss (gain) 44
 (40)  4
Benefits paid (16) (11)  (3)
Plan amendments (7) —
  —
Reorganization adjustments —
 —
  (1)
Projected benefit obligation at end of period $404
 $368
  $407
        
Change in plan assets       
Fair value of plan assets at beginning of period $178
 $180
  $178
Actual return on plan assets 17
 2
  3
Employer contributions 12
 7
  2
Benefits paid (16) (11)  (3)
Fair value of plan assets at end of period $191
 $178
  $180
Underfunded status at end of period $(213) $(190)  $(227)
        
Amount recognized in the Consolidated Balance Sheets consists of:       
Accrued benefit liability, current $(13) $(14)  $(12)
Accrued benefit liability, noncurrent (200) (176)  (215)
Net amount recognized $(213) $(190)  $(227)
        
Amount recognized in Accumulated other comprehensive loss (pre-tax) consists of:       
Net prior service credit $(7) $—
  $—
Net actuarial loss (gain) $3
 $(34)  $—
Net amount recognized $(4) $(34)  $—
        
Weighted average assumptions used to determine benefit obligations       
Discount rate 3.17% 4.26%  3.77%
Rate of compensation increase 3.00% 4.00%  4.00%
Effective September 30, 2019, to reflect its best estimate of future mortality for its U.S. pension and post-retirement benefit plans, the Company updated its base mortality table projections to the PRI-2012 Private Retirement Plans Mortality Tables. The Company also updated its mortality rate assumptions to use the projected mortality improvement scale, Mortality Projection-2019, as published by the Society of Actuaries. The changes resulted in an $11 million decrease in the Company’s U.S. pension benefit obligation and an increase in the Company's U.S. post-retirement benefit obligation of less than $1 million as of September 30, 2019.

The following table provides the accumulated benefit obligation for all defined benefit pension plans and information for pension plans with an accumulated benefit obligation in excess of plan assets:
  Pension Benefits - U.S. Pension Benefits - Non-U.S.
(In millions) September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018
Accumulated benefit obligation for all plans $1,134
 $1,050
 $555
 $521
Plans with accumulated benefit obligation in excess of plan assets        
Projected benefit obligation $1,134
 $1,050
 $568
 $531
Accumulated benefit obligation $1,134
 $1,050
 $550
 $516
Fair value of plan assets $915
 $881
 $9
 $9
Estimated future benefits expected to be paid in each of the next five fiscal years, and in aggregate for the five fiscal years thereafter, are presented below:
  Pension Benefits 
Post-retirement
Benefits
(In millions) U.S. Non-U.S. 
2020 $74
 $23
 $19
2021 73
 22
 20
2022 72
 25
 20
2023 72
 23
 20
2024 71
 23
 21
2025 - 2029 340
 132
 107
Total $702
 $248
 $207

The components of the pension and post-retirement net periodic benefit cost (credit) for the periods indicated are provided in the table below:
  Successor  Predecessor
(In millions) Fiscal year ended
September 30, 2019		 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal year ended September 30, 2017
Pension Benefits - U.S.         
Components of net periodic benefit (credit) cost         
Service cost $3
 $3
  $1
 $4
Interest cost 40
 28
  22
 98
Expected return on plan assets (60) (51)  (38) (179)
Amortization of prior service cost —
 —
  —
 1
Amortization of actuarial loss —
 —
  20
 102
Net periodic benefit (credit) cost $(17) $(20)  $5
 $26
Weighted average assumptions used to determine net periodic benefit cost         
Discount rate 3.94% 3.29%  3.19% 2.86%
Expected return on plan assets 7.00% 7.65%  7.75% 7.75%
Rate of compensation increase 4.00% 4.00%  4.00% 4.00%
          
Pension Benefits - Non-U.S.         
Components of net periodic benefit cost (credit)         
Service cost $6
 $5
  $2
 $7
Interest cost 10
 7
  3
 8
Expected return on plan assets (1) —
  (1) (1)
Amortization of actuarial loss —
 —
  2
 16
Curtailment, settlement gain —
 —
  —
 (4)
Net periodic benefit cost $15
 $12
  $6
 $26
Weighted average assumptions used to determine net periodic benefit cost         
Discount rate 1.92% 1.92%  1.22% 1.22%
Expected return on plan assets 3.67% 3.68%  1.82% 1.82%
Rate of compensation increase 2.58% 3.62%  3.45% 3.45%
          
Post-retirement Benefits - U.S.         
Components of net periodic benefit cost (credit)         
Service cost $1
 $1
  $—
 $2
Interest cost 14
 11
  3
 13
Expected return on plan assets (9) (8)  (2) (10)
Amortization of prior service cost —
 —
  (3) (18)
Amortization of actuarial (gain) loss (1) —
  2
 12
Curtailment, settlement gain(1)
 —
 —
  —
 (4)
Net periodic benefit cost (credit) $5
 $4
  $—
 $(5)
Weighted average assumptions used to determine net periodic benefit cost         
Discount rate 4.02% 3.39%  3.37% 3.11%
Expected return on plan assets 5.50% 5.50%  5.90% 5.90%
Rate of compensation increase 4.00% 4.00%  4.00% 4.00%
(1) Excludes Plan of Reorganization related settlements that were recorded in Reorganization items, net in the Consolidated Statements of Operations.

The service components of net periodic benefit cost (credit) were recorded similar to compensation expense, while all other components were recorded in Other income (expense), net.
The Company's general funding policy with respect to its U.S. qualified pension plans is to contribute amounts at least sufficient to satisfy the minimum amount required by applicable law and regulations, or to directly pay benefits where appropriate. As a result of the Bankruptcy Filing on January 19, 2017, there was an automatic stay on the Company's contributions to the U.S. pension plans during fiscal 2017 (Predecessor). Therefore, the minimum funding requirements for the U.S. pension plans were not met for fiscal 2017 (Predecessor). As part of the Plan of Reorganization, on December 15, 2017, the Company paid the aggregate unpaid required minimum funding for the APP of $49 million. Contributions to U.S. pension plans were $27 million, $43 million, $49 million and $23 million for fiscal 2019 (Successor), the period from December 16, 2017 through September 30, 2018 (Successor), the period from October 1, 2017 through December 15, 2017 (Predecessor) and fiscal 2017 (Predecessor), respectively. The contributions to the U.S. pension plans included $0 million, $0 million, $0 million and $3 million for fiscal 2019 (Successor), the period from December 16, 2017 through September 30, 2018 (Successor), the period from October 1, 2017 through December 15, 2017 (Predecessor) and fiscal 2017 (Predecessor), respectively, for certain pension benefits that were not pre-funded, and included $27 million, $43 million, $49 million and $20 million for fiscal 2019 (Successor), the period from December 16, 2017 through September 30, 2018 (Successor), the period from October 1, 2017 through December 15, 2017 (Predecessor) and fiscal 2017 (Predecessor), respectively, toward minimum funding requirements. Contributions to the non-U.S. pension plans were $23 million, $22 million, $3 million and $25 million for fiscal 2019 (Successor), the period from December 16, 2017 through September 30, 2018 (Successor), the period from October 1, 2017 through December 15, 2017 (Predecessor) and fiscal 2017 (Predecessor), respectively. In fiscal 2020, the Company estimates that it will make contributions totaling $15 million to satisfy the minimum statutory funding requirements in the U.S. and contributions totaling $23 million for non-U.S. plans.
In fiscal 2017 (Predecessor), the Company terminated its contract with Nationale Nederlanden, which insured pension benefits for the Company's defined benefit pension plan in the Netherlands. In compliance with the termination clause in the contract, Nationale Nederlanden assumed responsibility for the pension benefit obligation accrued under the plan and the assets set aside for the plan. As a result of the settlement, the Company recognized a $4 million gain.
As a result of restructuring initiatives during fiscal 2016 (Predecessor), the Company's U.S. post-retirement plan experienced a curtailment that resulted in a $6 million gain, of which $4 million was recognized in fiscal 2017 (Predecessor) based on the timing of when the terminations occurred.

Other changes in plan assets and benefit obligations recognized in other comprehensive (loss) income are provided in the tables below:
  Successor  Predecessor
(In millions) Fiscal year ended
September 30, 2019		 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal year ended September 30, 2017
Pension Benefits - U.S.         
Net loss (gain) $94
 $(15)  $—
 $(68)
Amortization of prior service cost —
 —
  —
 (1)
Amortization of actuarial loss —
 —
  (20) (102)
Reorganization adjustments —
 —
  (1,147) —
Total recognized in Other comprehensive (loss) income $94
 $(15)  $(1,167) $(171)
Total recognized in net periodic benefit cost and Other comprehensive (loss) income(1)
 $77
 $(35)  $(722) $(145)
          
Pension Benefits - Non-U.S.         
Net loss (gain) $76
 $(19)  $22
 $(68)
Foreign exchange rate loss (2) —
  —
 —
Amortization of actuarial loss —
 —
  (2) (16)
Net gain recognition due to settlement —
 —
  —
 4
Reorganization adjustments —
 —
  (163) —
Total recognized in Other comprehensive (loss) income $74
 $(19)  $(143) $(80)
Total recognized in net periodic benefit cost and Other comprehensive (loss) income(1)
 $89
 $(7)  $(137) $(54)
          
Post-retirement Benefits - U.S.         
Net loss (gain) $36
 $(34)  $—
 $(28)
Prior service credit (7) —
  —
 —
Amortization of prior service credit —
 —
  3
 18
Amortization of actuarial gain (loss) 1
 —
  (2) (12)
Net gain recognition due to curtailment —
 —
  —
 4
Reorganization adjustments —
 —
  (40) —
Total recognized in Other comprehensive (loss) income $30
 $(34)  $(39) $(18)
Total recognized in net periodic benefit cost and Other comprehensive (loss) income(1)
 $35
 $(30)  $2
 $(23)
Fiscal years ended September 30,
(In millions)202120202019
Pension Benefits - U.S.
Net gain (loss)$28 $(31)$(94)
Amortization of actuarial loss2 — — 
Total recognized in Other comprehensive income (loss)$30 $(31)$(94)
Total recognized in net periodic benefit credit and Other comprehensive income (loss)$58 $(9)$(77)
Pension Benefits - Non-U.S.
Net gain (loss)$16 $33 $(76)
Foreign exchange rate loss— — 2 
Total recognized in Other comprehensive income (loss)$16 $33 $(74)
Total recognized in net periodic benefit cost and Other comprehensive income (loss)$5 $22 $(89)
Post-retirement Benefits - U.S.
Net gain (loss)$45 $(20)$(36)
Prior service credit15 — 7 
Amortization of prior service credit(4)(1)— 
Amortization of actuarial loss (gain)1 — (1)
Settlement gain(14)— — 
Total recognized in Other comprehensive income (loss)$43 $(21)$(30)
Total recognized in net periodic benefit cost and Other comprehensive income (loss)$58 $(22)$(35)
(1)For the period from October 1, 2017 through December 15, 2017, the U.S.; non-U.S.; and other Post-retirement benefits include Plan of Reorganization settlements that were recorded in Reorganization items, net in the Consolidated Statements of Operations of $(440) million, $0 million and $(43) million, respectively.
The estimated amount to be amortized from Accumulated other comprehensive (loss) income as a net periodic cost during fiscal 2020 is $0 million, consisting of a $1 million benefit from the recognition of prior service credit for U.S. post-retirement benefit plans offset by the recognition of a $1 million net actuarial expense for non-U.S. pension plans.
The discount rate is subject to change each year, consistent with changes in rates of return on high-quality fixed-income investments currently available and expected to be available during the expected benefit payment period. The Company selects the assumed discount rate for its U.S. pension and post-retirement benefit plans by applying the rates from the Aon AA Only and Aon AA Only Above Median yield curves to the expected benefit payment streams and develops a rate at which it is believed the benefit obligations could be effectively settled. The Company follows a similar process for its non-U.S. pension plans by applying the Aon Euro AA corporate bond yield curve. Based on the published rates as of September 30, 2019, the Company used a weighted average discount rate of 3.09% for the U.S. pension plans, 0.87% for the non-U.S. pension plans and 3.17% for the post-retirement plans, a decrease of 113 basis points, 105 basis points and 109 basis points from the prior year for the U.S. pension plans, the non-U.S. pension plans and the post-retirement benefit plans, respectively. As of September 30,

2019 (Successor), this had the effect of increasing the projected U.S. pension, non-U.S. pension and the post-retirement benefit obligations by $126 million, $83 million and $50 million, respectively. For fiscal 2020, this will have a minimal effect on the U.S. pension and post-retirement service cost.
The expected long-term rate of return on U.S. pension and post-retirement benefit plan assets is selected by applying forward-looking capital market assumptions to the strategic asset allocation approved by the governing body for each plan. The forward-looking capital market assumptions are developed by an investment adviser and reviewed by the Company for reasonableness. The return and risk assumptions consider such factors as anticipated long-term performance of individual asset classes, risk premium for active management based on qualitative and quantitative analysis, and correlations of the asset classes that comprise the asset portfolio.
The Company’s cost for post-retirement healthcare claims is capped and the projected post-retirement healthcare claims exceed the cap. Therefore, a one-percentage-point increase or decrease in the Company’s healthcare cost trend rates will not impact the post-retirement benefit obligation and the service and interest cost components of net periodic benefit cost.
The weighted average asset allocation of the pension and post-retirement plans by asset category and target allocation is as follows:
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As of September 30,
Asset Category September 30, 2019
 September 30, 2018
 Long-term TargetAsset Category20212020Long-term Target
Pension Benefits - U.S.      Pension Benefits - U.S.
Debt SecuritiesDebt Securities53 %52 %57 %
Equity Securities 29% 37% 34%Equity Securities32 %29 %33 %
Debt Securities 52% 39% 50%
Hedge Funds 7% 8% 6%Hedge Funds5 %6 %5 %
Private Equity —% 1% —%
Real Estate 6% 6% 6%Real Estate6 %5 %5 %
Commodities 2% 2% 2%Commodities— %2 %— %
Other(1)
 4% 7% 2%
Other(1)
4 %6 %— %
Total 100% 100% 100%Total100 %100 %100 %
      
Pension Benefits - Non-U.S.      Pension Benefits - Non-U.S.
Debt Securities 27% 27%  Debt Securities10 %22 %
Asset Allocation Fund 13% 13%  Asset Allocation Fund27 %11 %
Insurance Contracts 60% 60%  Insurance Contracts63 %67 %
Total 100% 100%  Total100 %100 %
      
Post-retirement Benefits - U.S.      Post-retirement Benefits - U.S.
Equity Securities 40% 40% 40%Equity Securities15 %34 %15 %
Debt Securities 60% 60% 60%Debt Securities85 %66 %85 %
Total 100% 100% 100%Total100 %100 %100 %
(1)
(1)Other includes cash/cash equivalents, derivative financial instruments and payables/receivables for pending transactions.
Other includes cash/cash equivalents, derivative financial instruments and payables/receivables for pending transactions.
The Company’s asset management strategy focuses on the dual objectives of improving the funded status of the pension plans and reducing the impact of changes in interest rates on the funded status. To improve the funded status of the pension plans, assets are invested in a diversified mix of asset classes designed to generate higher returns over time, than the pension benefit obligation discount rate assumption. To reduce the impact of interest rate changes on the funded status of the pension plans, assets are invested in a mix of fixed income investments (including long-term debt) that are selected based on the characteristics of the benefit obligation of the pension plans. Strategic asset allocation is the principal method for achieving the Company’s investment objectives, which are determined in the course of periodic asset-liability studies. The most recent asset-liability study was completed in 2019 for the pension plans.
As part of the Company’s asset management strategy, investments are professionally managed and diversified across multiple asset classes and investment styles to minimize exposure to any one specific investment. Derivative instruments (such as forwards, futures, swaptions and swaps) may be held as part of the Company’s asset management strategy. However, the use of derivative financial instruments for speculative purposes is prohibited by the Company’s investment policy. Also, as part of the Company’s investment strategy, the U.S. pension plans invest in hedge funds, real estate funds, private equity and commodities to provide additional uncorrelated returns.

The fair value of plan assets is determined by the trustee and reviewed by the Company, in accordance with the accounting guidance for fair value measurements and the fair value hierarchy discussed in Note 14,13, "Fair Value Measurements." Because of the inherent uncertainty of valuation, estimated fair values may differ significantly from the fair values that would have been used had quoted prices in an active market existed.
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The following table summarizes the fair value measurements of the U.S. pension plan assets by asset class:
  As of September 30, 2019 As of September 30, 2018
(In millions) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
U.S. Government debt securities (a)
 $—
 $125
 $—
 $125
 $—
 $93
 $—
 $93
Derivative instruments (b)
 (2) —
 —
 (2) (2) —
 —
 (2)
Total assets in the fair value hierarchy (2) 125
 —
 123
 (2) 93
 —
 91
                 
Investments measured at net asset value: (c)
                
Real estate (d)
       55
       49
Private equity (e)
       4
       7
Multi-strategy hedge funds (f)
       65
       73
Investment funds: (g)
                
Cash equivalents       37
       62
Long duration fixed income       328
       231
High-yield debt       19
       26
U.S. equity       144
       179
Non-U.S. equity       92
       112
Emerging market equity       29
       35
Commodities       14
       15
Total investments measured at net asset value       787
       789
Other plan assets, net       5
       1
Total plan assets at fair value $(2) $125
 $—
 $915
 $(2) $93
 $—
 $881
(a)
Includes U.S. Treasury STRIPS, which are generally valued using institutional bid evaluations from various contracted pricing vendors. Institutional bid evaluations are estimated prices that represent the price a dealer would pay for a security. Pricing inputs to the institutional bid evaluation vary by security and include benchmark yields, reported trades, unadjusted broker/dealer quotes, issuer spreads, bids, offers or other observable market data.
(b)
Includes future contracts that are generally valued using the last trade price at which a specific contract/security was last traded on the primary exchange, which is provided by a contracted vendor. If pricing is not available from the contracted vendor, then pricing is obtained from other sources such as Bloomberg, broker bid, ask/offer quotes or the investment manager.
(c)
These investments are measured at fair value using the net asset value per share or its equivalent ("NAV") and have therefore not been classified in the fair value hierarchy.
(d)
Includes open ended real estate commingled funds, close ended real estate limited partnerships, and insurance company separate accounts that invest primarily in U.S. office, lodging, retail and residential real estate. The insurance company separate accounts and the commingled funds account for their portfolio of assets at fair value and calculate the NAV on either a monthly or quarterly basis. Shares can be redeemed at the NAV on a quarterly basis, provided a written redemption request is received in advance (generally 45-91 days) of the redemption date. Therefore, the undiscounted NAV is used as the fair value measurement. For limited partnerships, the fair value of the underlying assets and the capital account for each investor is determined by the General Partner ("GP"). The valuation techniques used by the GP generally consist of unobservable inputs such as discounted cash flow analysis, analysis of recent comparable sales transactions, actual sale negotiations and bona fide purchase offers received from third parties. The partnerships are typically funded over time as capital is needed to fund asset purchases, and distributions from the partnerships are received as the partnerships liquidate their underlying asset holdings. Therefore, the life cycle for a typical investment in a real estate limited partnership is expected to be approximately 10 years from initial funding.
(e)
Includes limited partner interests in various limited partnerships ("LPs") that invest primarily in U.S. and non-U.S. investments either directly, or through other partnerships or funds with a focus on venture capital, buyouts, expansion

As of September 30, 2021As of September 30, 2020
(In millions)Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
U.S. Government debt securities (a)
$— $114 $— $114 $— $132 $— $132 
Total assets in the fair value hierarchy— 114 — 114 — 132 — 132 
Investments measured at net asset value: (b)
Real estate (c)
51 50 
Private equity (d)
1 2 
Multi-strategy hedge funds (e)
50 56 
Investment funds: (f)
Cash equivalents35 46 
Long duration fixed income383 327 
High-yield debt— 19 
U.S. equity172 154 
Non-U.S. equity89 83 
Emerging market equity34 33 
Commodities— 20 
Total investments measured at net asset value815 790 
Other plan assets, net3 5 
Total plan assets at fair value$— $114 $— $932 $— $132 $— $927 
(a)Includes U.S. Treasury STRIPS, which are generally valued using institutional bid evaluations from various contracted pricing vendors. Institutional bid evaluations are estimated prices that represent the price a dealer would pay for a security. Pricing inputs to the institutional bid evaluation vary by security and include benchmark yields, reported trades, unadjusted broker/dealer quotes, issuer spreads, bids, offers or other observable market data.
(b)These investments are measured at fair value using the net asset value per share or its equivalent ("NAV") and have therefore not been classified in the fair value hierarchy.
(c)Includes open ended real estate commingled funds, close ended real estate limited partnerships, and insurance company separate accounts that invest primarily in U.S. office, lodging, retail and residential real estate. The insurance company separate accounts and the commingled funds account for their portfolio of assets at fair value and calculate the NAV on either a monthly or quarterly basis. Shares can be redeemed at the NAV on a quarterly basis, provided a written redemption request is received in advance (generally 45-91 days) of the redemption date. Therefore, the undiscounted NAV is used as the fair value measurement. For limited partnerships, the fair value of the underlying assets and the capital account for each investor is determined by the General Partner ("GP"). The valuation techniques used by the GP generally consist of unobservable inputs such as discounted cash flow analysis, analysis of recent comparable sales transactions, actual sale negotiations and bona fide purchase offers received from third parties. The partnerships are typically funded over time as capital is needed to fund asset purchases, and distributions from the partnerships are received as the partnerships liquidate their underlying asset holdings. Therefore, the life cycle for a typical investment in a real estate limited partnership is expected to be approximately 10 years from initial funding.
(d)Includes limited partner interests in various limited partnerships ("LPs") that invest primarily in U.S. and non-U.S. investments either directly, or through other partnerships or funds with a focus on venture capital, buyouts, expansion capital, or companies undergoing financial distress or significant restructuring. The NAV of the LPs and of the capital account of each investor is determined by the GP of each LP. Marketable securities held by the LPs are valued based on the closing price on the valuation date on the exchange where they are principally traded and may be adjusted for legal restrictions, if any. Investments without a public market are valued based on assumptions made and valuation techniques used by the GP, which consist of unobservable inputs. Such valuation techniques may include discounted cash flow analysis, analysis of recent comparable sales transactions, actual sale negotiations and bona fide purchase offers received from third parties. The LPs are typically funded over time as capital is needed to fund purchases and distributions are received as the partnerships liquidate their underlying asset holdings.
(e)Includes hedge funds and funds of funds that pursue multiple strategies to diversify risks and reduce volatility. The funds
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account for their portfolio of assets at fair value and calculate the NAV of their fund on a monthly basis. The funds limit the frequency of redemptions to manage liquidity and protect the interests of the funds and its shareholders.
(f)Includes open-end funds and unit investment trusts that invest in various asset classes including: U.S. and non-U.S. corporate debt, U.S. government debt, municipal bonds, U.S. equity, non-U.S. developed and emerging markets equity, and commodities. The funds account for their portfolio of assets at fair value and calculate the NAV of the funds on a daily basis, and shares can be redeemed at the NAV. Therefore, the undiscounted NAV as reported by the funds is used as the fair value measurement.
(f)
Includes hedge funds and funds of funds that pursue multiple strategies to diversify risks and reduce volatility. The funds account for their portfolio of assets at fair value and calculate the NAV of their fund on a monthly basis. The funds limit the frequency of redemptions to manage liquidity and protect the interests of the funds and its shareholders.
(g)
Includes open-end funds and unit investment trusts that invest in various asset classes including: U.S. and non-U.S. corporate debt, U.S. government debt, municipal bonds, U.S. equity, non-U.S. developed and emerging markets equity, and commodities. The funds account for their portfolio of assets at fair value and calculate the NAV of the funds on a daily basis, and shares can be redeemed at the NAV. Therefore, the undiscounted NAV as reported by the funds is used as the fair value measurement.
The following table summarizes the fair value of the non-U.S. pension plan assets by asset class:
As of September 30,
(In millions) September 30, 2019
 September 30, 2018
(In millions)20212020
Investments measured at net asset value: (a)
    
Investments measured at net asset value: (a)
Investment funds: (b)
    
Investment funds: (b)
Debt securities $4
 $4
Debt securities$2 $4 
Asset allocation 2
 2
Asset allocation5 2 
Insurance contracts (c)
 9
 9
Insurance contracts (c)
13 12 
Total plan assets at fair value $15
 $15
Total plan assets at fair value$20 $18 
(a)    These investments are measured at fair value using the NAV and have therefore not been classified in the fair value hierarchy.
(b)    Includes collective investment funds that invest in various asset classes including U.S. and non-U.S. corporate debt and equity, and derivatives. The funds account for their portfolio of assets at fair value and calculate the NAV of the funds on a daily basis, and shares can be redeemed at the NAV. Therefore, the undiscounted NAV as reported by the funds is used as the fair value measurement.
(c)    Most non-U.S. pension plans are funded through insurance contracts, which provide for a guaranteed interest credit and a profit-sharing adjustment based on the actual performance of the underlying investment assets of the insurer. The fair value of the contract is determined by the insurer based on the premiums paid by the Company plus interest credits plus the profit-sharing adjustment less benefit payments. The underlying assets of the insurer are invested in compliance with local rules or law, which tend to require a high allocation to fixed income securities.
(a)
These investments are measured at fair value using the NAV and have therefore not been classified in the fair value hierarchy.
(b)
Includes collective investment funds that invest in various asset classes including U.S. and non-U.S. corporate debt and equity, and derivatives. The funds account for their portfolio of assets at fair value and calculate the NAV of the funds on a daily basis, and shares can be redeemed at the NAV. Therefore, the undiscounted NAV as reported by the funds is used as the fair value measurement.
(c)
Most non-U.S. pension plans are funded through insurance contracts, which provide for a guaranteed interest credit and a profit-sharing adjustment based on the actual performance of the underlying investment assets of the insurer. The fair value of the contract is determined by the insurer based on the premiums paid by the Company plus interest credits plus the profit-sharing adjustment less benefit payments. The underlying assets of the insurer are invested in compliance with local rules or law, which tend to require a high allocation to fixed income securities.
The following table summarizes the fair value of the post-retirement plan assets by asset class:
As of September 30,
(In millions) September 30, 2019 September 30, 2018(In millions)20212020
Investments measured at net asset value: (a)
    
Investments measured at net asset value: (a)
Group life insurance contract measured at net asset value (b)
 $191
 $178
Group life insurance contract measured at net asset value (b)
$21 $206 
Total plan assets at fair value $191
 $178
Total plan assets at fair value$21 $206 
(a)
(a)    These investments are measured at fair value using the NAV and have therefore not been classified in the fair value hierarchy.
(b)    The group life insurance contracts are held in a reserve of an insurance company that provides for investment of pre-funding amounts in a family of pooled separate accounts. The fair value of each group life insurance contract is primarily determined by the value of the units it owns in the pooled separate accounts that back the policy. Each of the pooled separate accounts provides a unit NAV on a daily basis, which is based on the fair value of the underlying assets owned by the account. The post-retirement benefit plans can transact daily at the unit NAV without restriction. As of September 30, 2021, the asset allocation of the pooled separate accounts in which the contracts invest was approximately 85% fixed income securities, 9% U.S. equity securities and 6% non-U.S. equity securities.
These investments are measured at fair value using the NAV and have therefore not been classified in the fair value hierarchy.
(b)
The group life insurance contracts are held in a reserve of an insurance company that provides for investment of pre-funding amounts in a family of pooled separate accounts. The fair value of each group life insurance contract is primarily determined by the value of the units it owns in the pooled separate accounts that back the policy. Each of the pooled separate accounts provides a unit NAV on a daily basis, which is based on the fair value of the underlying assets owned by the account. The post-retirement benefit plans can transact daily at the unit NAV without restriction. As of September 30, 2019, the asset allocation of the pooled separate accounts in which the contracts invest was approximately 60% fixed income securities, 22% U.S. equity securities and 18% non-U.S. equity securities.

Savings Plans
Substantially all of the Company’s U.S. employees are eligible to participate in savings plans sponsored by the Company. The plans allow employees to contribute a portion of their compensation on a pre-tax and after-tax basis in accordance with specified guidelines. The Company matches a percentage of employee contributions up to certain limits. The Company’sCompany's expense related to these savings plans was $8 million, $7 million, $0 million, and $6$9 million for fiscal 2019 (Successor), the period from December 16, 2017 through September 30, 2018 (Successor), the period from October 1, 2017 through December 15, 2017 (Predecessor)2021 and 2017 (Predecessor), respectively.$8 million for both fiscal 2020 and 2019.
17.16. Share-based Compensation
The Predecessor Company's common and preferred stock were canceled and new common stock was issued on
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2019 Equity Incentive Plan
As of March 4, 2020, the Emergence Date. Accordingly, the Predecessor Company's then existing share-based compensation awards were also canceled, which resulted in the recognitionBoard of any previously unamortized expense on the date of cancellation. As a result, share-based compensation for the Successor and Predecessor periods are not comparable.
Successor
Pursuant to termsDirectors of the PlanCompany (the "Board") and the stockholders of Reorganization,the Company approved the Avaya Holdings Corp. 20172019 Equity Incentive Plan ("2017 Equity Incentive(the "2019 Plan") became effective onunder which non-employee directors, employees of the Emergence Date.
Company or any of its affiliates, and certain consultants and advisors may be granted stock options, restricted stock, restricted stock units ("RSU's"), performance awards ("PRSU's") and other forms of awards granted or denominated in shares of the Company's common stock, as well as certain cash-based awards. As of March 4, 2020, no additional awards were permitted to be granted under any of the Company's prior equity incentive plans. The Company's Board of Directors or any committee duly authorized thereby will administeradministers the 2017 Equity Incentive2019 Plan.The administrator has broad authority to, among other things: (i) select participants; (ii) determine the types of awards that participants are to receive and the number of shares that are to be granted under such awards; and (iii) establish the terms and conditions of awards, including the price to be paid for the shares or the awards.
Persons eligible to receive awards under the 2017 Equity IncentiveThe 2019 Plan include non-employee directors, employeesprovides an initial pool of the Company or any of its affiliates, and certain consultants and advisors to the Company. The types of awards that may be granted include stock options, restricted stock, restricted stock units ("RSUs"), performance awards ("PRSUs") and other forms of awards granted or denominated in shares of the Company's common stock, as well as certain cash-based awards.
The maximum number of18,800,000 shares of common stock (the "Initial Pool") that may be issued or granted, which can be adjusted for shares that become available from existing awards issued under the 2017 Equity Incentive Plan is 7,381,609 shares. Company's prior equity incentive plans in accordance with the terms of the 2019 Plan. The Initial Pool will be reduced by one share of common stock for every option granted and 1.7 shares for any awards granted other than options. As of September 30, 20192021, there were 1,002,13110,750,733 shares available to be granted under the 2017 Equity Incentive2019 Plan. If any option or other stock-based awardawards granted under the 2017 Equity Incentive2019 Plan expires, terminatesexpire, terminate or isare canceled or forfeited for any reason without having been exercised in full, the number of shares of common stock underlying any unexercised award will again be available for the purpose of awardsissuance under the 2017 Equity Incentive Plan. If any shares of restricted stock, performance awards or other stock-based awards denominated in shares of common stock awarded under the 2017 Equity Incentive Plan to a participant are forfeited for any reason, the number of forfeited shares of restricted stock, performance awards or other stock-based awards denominated in shares of common stock will again be available for purposes of awards under the 2017 Equity Incentive2019 Plan. Any award under the 2017 Equity Incentive2019 Plan settled in cash will not be counted against the foregoing maximum share limitations. Shares withheld by the Company in satisfaction of the applicable exercise price or withholding taxes upon the issuance, vesting or settlement of awards, shares reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of options, in each case, shall not be available for future issuance under the 2017 Equity Incentive2019 Plan.
Stock options and RSUs granted to employees generally vest ratably over a period of three years. PRSUs granted to certain senior executive employees vest at the end of thea three year service period of three years.period. Awards granted to non-employee directors during fiscal 2019 vest immediately, while those granted during the period from December 16, 2017 through September 30, 2018 vested ratably over one year.immediately. The aggregate grant date fair value of all awards granted to anyany non-employee director during any calendarfiscal year (excluding awards made pursuant to deferred compensation arrangements made in lieu of all or a portion of cash retainers and any dividends payable in respect of outstanding awards) may not exceed $750,000. As of the Emergence Date, forfeitures are accounted for as incurred.
Pre-tax share-based compensation expense for fiscal 2021, 2020 and 2019 was $55 million, $30 million and $25 million, respectively, and the period from December 16, 2017 through September 30, 2018 was $25 million and $19 million and the total income tax benefit recognized in the Consolidated StatementStatements of Operations for share-based compensation arrangements was $6 million, $2 million and $1$2 million, respectively.
Stock Options
On the Emergence Date, the Company granted 1,146,835 non-qualified stock options to executives and other employees. The fair value of the stock options granted on the Emergence Date was determined using a lattice option pricing model as they were premium priced options. The Black-Scholes option pricing model is used to value all options granted after the Emergence Date. The valuation assumptions include the following: (1) expected term based on the vesting terms of the option and a contractual life of ten years; (2) volatility based on a blend of peer group companies (adjusted for the Company's leverage) and the Company's historical volatility since the Emergence Date; (3) risk-free interest rate based on U.S. Treasury yields with a term

equal to the expected option term; and (4) dividend yield assumed to be zero as the Company does not anticipate paying dividends.
The weighted average grant date assumptions used in calculating the fair value of options granted on the Emergence Date and thereafter were as follows:
  Period from December 16, 2017
through
September 30, 2018		 Emergence Date Grants
Exercise price $21.66
 $19.46
Expected volatility(1)
 49.67% 56.59%
Expected life (in years)(2) 
 5.86
 6.65
Risk-free interest rate(3)
 2.72% 2.35%
Dividend yield(4)
 —% —%
(1) Expected volatility based on peer group companies adjusted for the Company's leverage.
(2) Expected life based on the vesting terms of the option and a contractual life of ten years.
(3) Risk-free interest rate based on U.S. Treasury yields with a term equal to the expected option term.
(4) Dividend yield was assumed to be zero as the Company does not anticipate paying dividends.
There were no options granted during fiscal 2019. The weighted average grant date fair value of options granted for the period from the Emergence Date through September 30, 2018 was $8.18.
A summary of option activity for fiscal 2019 is presented below:
  Options (In thousands) Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (In thousands)
Outstanding at September 30, 2018 1,118
 $19.64
    
Forfeited or expired (193) $19.89
    
Outstanding at September 30, 2019 925
 $19.59
 8.1 $—
         
Exercisable at September 30, 2019 541
 $19.58
 8.0 $—

The intrinsic value is the difference between the Company's common stock price and the option exercise price. There were no stock options exercised during fiscal 2019. The total pretax intrinsic value of stock options exercised for the period from the Emergence Date through September 30, 2018 was not material. As of September 30, 2019, there was $3 million of unrecognized Pre-tax share-based compensation expense for fiscal 2021 includes $5 million related to stock options, which is expected to be recognized over a period up to 1.9 years, or 1.3 years on a weighted average basis. The total grant date fair value of stock options vested during fiscal 2019 and the period from the Emergence Date through September 30, 2018 was $4 million and $1 million, respectively.Stock Bonus Program described in more detail below.
Restricted Stock Units
On the Emergence Date, the Company granted 3,440,528 RSUs to executives and other employees. Compensation cost for RSUs granted to employees and non-employee directors is generally measured by using the closing market price of the Company's common stock at the date of grant. The Emergence Date awards were measured using the fair value of the common stock upon emergence from bankruptcy and application of fresh start accounting.
A summary of RSU activity for fiscal 2019 is presented below:
  Restricted Stock Units (In thousands)Weighted Average Grant-Date Fair Value
Non-vested at September 30, 2018 3,243
$16.08
Granted 1,833
15.29
Vested (1,737)15.60
Forfeited (542)17.42
Non-vested at September 30, 2019 2,797
$15.60
As of September 30, 2019, there was $38 million of unrecognized share-based compensation expense related to RSUs, which is expected to be recognized over a period up to 2.9 years, or 1.9 years on a weighted average basis. The weighted average grant

date fair value for RSUs granted during fiscal 2019 and the period from the Emergence Date through September 30, 2018 was $15.29 and $16.11 respectively. The total grant date fair value of RSUs vested during fiscal 2019 and the period from the Emergence Date through September 30, 2018 was $27 million and $6 million, respectively.
Performance Restricted Stock Units
In February 2019, the Company granted 274,223 PRSUs with a grant date fair value of $11.18 per PRSU. These PRSUs will become eligible to vest if prior to the vesting date of February 11, 2022, the average closing price of one share of the Company’s Common Stock for sixty consecutive days equals or exceeds $23.50. The grant date fair value of the award was estimated using a Monte Carlo simulation model that incorporated multiple valuation assumptions, including the probability of achieving the specified market condition. Additional assumptions used in the valuation included an expected volatility of 53.76% based on a blend of Company and peer group company historical data adjusted for the Company’s leverage, and a risk-free interest rate of 2.45% based on U.S. Treasury yields with a term equal to the vesting period. The grant date fair value of these PRSUs will be recognized as expense ratably over the vesting period and will not be adjusted in future periods for the success or failure to achieve the specified market condition.
In February 2019, the Company also granted 182,020 PRSUs which will vest based on the attainment of specified performance metrics for each of the next three separate fiscal years (collectively the "Performance Period"), and the Company's total shareholder return over the Performance Period as compared to the total shareholder return for a specified index of companies over the same period. The grant date fair value of the awards was estimated using a Monte Carlo simulation model that incorporated multiple valuation assumptions, including the probability of achieving the total shareholder return market condition. Other key assumptions used in the valuation included an expected volatility of 53.00% based on a blend of Company and peer group company historical data adjusted for the Company’s leverage, and a risk free interest rate of 2.46% based on U.S. Treasury yields with a term equal to the remaining Performance Period as of the grant date. During the Performance Period, the Company will adjust compensation expense for the awards based on its best estimate of attainment of the specified annual performance metrics. The cumulative effect on current and prior periods of a change in the estimated number of PRSUs that are expected to be earned during the Performance Period will be recognized as an adjustment to earnings in the period of the revision.
A summary of PRSU activity for fiscal 2019 is presented below:
  Performance Restricted Stock Units (In thousands)Weighted Average Grant-Date Fair Value
Granted 456
$13.67
Change in shares due to performance (177)17.42
Vested —
—
Forfeited (5)17.42
Non-vested at September 30, 2019 274
$11.18
As of September 30, 2019, there was $2 million of unrecognized share-based compensation expense related to PRSUs, which is expected to be recognized over a period of 2.4 years.
Predecessor
Prior to the Emergence Date, the Predecessor Company had granted share-based awards that were canceled upon emergence from bankruptcy. In conjunction with the cancellation, the Predecessor Company accelerated the unrecognized share-based compensation expense and recorded $3 million of compensation expense in the period from October 1, 2017 through December 15, 2017, principally reflected in Reorganization costs, net. Share-based compensation expense for fiscal 2017 was $11 million. No income tax benefit was recognized in the income statement for share-based compensation arrangements for the period from October 1, 2017 through December 15, 2017 and for fiscal 2017.
The Avaya Holdings Corp.’s Second Amended and Restated 2007 Equity Incentive Plan (the "2007 Plan") governed the issuance of equity awards, including RSUs and stock options, to eligible plan participants. Key employees, directors, and consultants of the Company were eligible to receive awards under the 2007 Plan. Each stock option, when vested and exercised, and each RSU, when vested, entitled the holder to receive one share of Predecessor common stock, subject to certain restrictions on their transfer and sale as defined in the 2007 Plan and related award agreements.
Option Awards
Under the 2007 Plan, stock options could not be granted with an exercise price of less than the fair market value of the underlying stock on the date of grant. Share-based compensation expense recognized in the Consolidated Statements of Operations was based on awards ultimately expected to vest. Forfeitures were estimated at the time of grant and revised, if

necessary, in subsequent periods if actual forfeitures differed from those estimates in accordance with the authoritative guidance. All options awarded under the 2007 Plan expired the earlier of ten years from the date of grant or upon cessation of employment, in which event there were limited exercise provisions allowed for vested options.
Subsequent to October 1, 2012, the Company granted time-based options to purchase Predecessor common stock. Time-based options vested over their performance periods and were payable in shares of common stock upon vesting and exercise. The performance period for time-based options was generally three to four years. Compensation expense equal to the fair value of the option measured on the grant date was recognized utilizing graded attribution over the requisite service period.
As of September 30, 2017 (Predecessor), the Company had 19,842,268 options outstanding with a weighted average exercise price of $2.76. During the period from October 1, 2017 through December 15, 2017 (Predecessor) and fiscal 2017 (Predecessor), there were no options granted or exercised and the 19,842,268 options outstanding were canceled upon the Company’s emergence from bankruptcy.
Restricted Stock Units
Avaya Holdings had issuedCompensation cost for RSUs each of which representedgranted to employees and non-employee directors is generally measured by using the right to receive one share of its Predecessor common stock when fully vested. The fair valueclosing market price of the Company's common stock underlying the RSUs was estimated by the Compensation Committee of Avaya Holdings’ Board of Directors at the date of grant.
A summary of RSU activity for fiscal 2021 is presented below:
Restricted Stock Units
(In thousands)		Weighted Average Grant-Date Fair Value
Non-vested at September 30, 20202,694 $13.32 
Granted1,878 21.62 
Vested(1,524)14.25 
Forfeited(390)16.66 
Non-vested at September 30, 20212,658 $18.16 
As of September 30, 2017 (Predecessor), the Company had 369,584 unvested2021, there was $33 million of unrecognized share-based compensation expense related to RSUs, withwhich is expected to be recognized over a period up to 2.9 years, or 1.7 years on a weighted average basis. The weighted average grant date fair value of $1.83. During the period from October 1, 2017 through December 15, 2017 (Predecessor), there were nofor RSUs granted or vestedduring fiscal 2021, 2020 and the 369,584 unvested RSUs were canceled upon the Company’s emergence from bankruptcy.2019 was $21.62, $12.42 and $15.29, respectively. The total grant date fair value of RSUs vested during fiscal 2021, 2020 and 2019 was $22 million, $23 million and $27 million, respectively.
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Performance Restricted Stock Units
The Company grants PRSUs which vest based on the attainment of specified performance metrics for each of the next three separate fiscal years (collectively the "Performance Period"), as well as the achievement of total shareholder return over the Performance Period for the Company as compared to the total shareholder return for a specified index of companies over the same period (the "Performance PRSUs"). During the Performance Period, the Company will adjust compensation expense for the Performance PRSUs based on its best estimate of attainment of the specified annual performance metrics. The cumulative effect on current and prior periods of a change in the estimated number of Performance PRSUs that are expected to be earned during the Performance Period will be recognized as an adjustment to earnings in the period of the revision.
The weighted average grant date fair value for Performance PRSUs granted during fiscal 2021, 2020 and 2019 was $22.27, $13.69 and $17.39, respectively.The grant date fair value of the Performance PRSUs was determined using a Monte Carlo simulation model that incorporated multiple valuation assumptions, including the probability of achieving the total shareholder return market condition and the following assumptions presented on a weighted-average basis:
Fiscal years ended September 30,
202120202019
Expected volatility(1)
63.56 %55.75 %53.00 %
Risk-free interest rate(2)
0.20 %1.61 %2.46 %
Dividend yield(3)
— %— %— %
(1) Expected volatility was based on the Company's historical data for awards granted in fiscal 20172021. Expected volatility was based on a blend of Company and peer group company historical data adjusted for the Company's leverage for awards granted in fiscal 2020 and 2019.
(2) Risk-free interest rate based on U.S. Treasury yields with a term equal to the remaining Performance Period as of the grant date.
(3) Dividend yield was assumed to be zero as the Company does not anticipate paying dividends on its common stock.
The Company has also granted PRSUs which become eligible to vest if prior to the vesting date the average closing price of one share of the Company’s Common Stock for sixty consecutive days equals or exceeds a specified price (the “Market PRSUs”). The grant date fair value of the Market PRSUs is recognized as expense ratably over the vesting period and is not adjusted in future periods for the success or failure to achieve the specified market condition.
The grant date fair value of Market PRSUs granted during fiscal 2019 was $11.18. There were 0 Market PRSUs granted during fiscal 2021 or 2020. The grant date fair value of Market PRSUs was determined using a Monte Carlo simulation model that incorporated multiple valuation assumptions, including the probability of achieving the specified market condition and the following assumptions:
Fiscal year ended September 30, 2019
Expected volatility(1)
53.76 %
Risk-free interest rate(2)
2.45 %
Dividend yield(3)
— %
(1) Expected volatility based on a blend of Company and peer group company historical data adjusted for the Company's leverage.
(2) Risk-free interest rate based on U.S. Treasury yields with a term equal to the remaining Performance Period as of the grant date.
(3)Dividend yield was assumed to be zero as the Company does not anticipate paying dividends on its common stock.
A summary of total PRSU activity for fiscal 2021 is presented below:
Performance Restricted Stock Units
(In thousands)
Weighted Average Grant-Date Fair Value (1)
Non-vested at September 30, 2020588 $12.53 
Granted621 22.27 
Change in shares due to performance189 18.19 
Forfeited(95)17.84 
Non-vested at September 30, 20211,303 $17.60 
(1) The weighted average grant date fair value of the PRSUs is calculated using the grant date fair value of each award at the target level of attainment which may differ from the grant date fair value associated with the probable outcome of each award at the reporting date.
As of September 30, 2021, there was $6 million of unrecognized share-based compensation expense related to PRSUs, which is expected to be recognized over a period of 2.2 years or 1.8 years on a weighted average basis.
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Stock Bonus Program
In fiscal 2021, the Company adopted the Avaya Holdings Corp. Fiscal 2021 Stock Bonus Program (“Stock Bonus Program”) under which certain employees were able to select to receive a specified percentage of their fiscal 2021 earned annual incentive bonus in the form of fully vested shares of the Company’s common stock in lieu of cash. A maximum number of 250,000 shares can be issued under the Stock Bonus Program. The number of shares issuable under the Stock Bonus Program will be determined based on the attainment of specified annual performance targets and the weighted average closing price of the Company's common stock over a specified 5-trading day period. The Stock Bonus Program is classified as a liability. The Company records compensation cost over the fiscal year for the expected dollar value of the award and will adjust compensation expense for the awards based on its best estimate of attainment of its performance conditions. The cumulative effect of a change in the estimated value of the award will be recognized as an adjustment to earnings in the period of the revision.
Stock Options
The Black-Scholes option pricing model was used to value all options granted in fiscal 2020. The weighted average grant date fair value of options granted in fiscal 2020 was $6.11. There were 0 options granted during fiscal 2021 or 2019. The weighted average grant date assumptions used in calculating the fair value of options granted in fiscal 2020 were as follows:
Fiscal year ended September 30, 2020
Exercise price$11.38 
Expected volatility(1)
56.76 %
Expected life (in years)(2)
5.97
Risk-free interest rate(3)
1.71 %
Dividend yield(4)
— %
(1) Expected volatility based on peer group companies adjusted for the Company's leverage.
(2) Expected life based on the vesting terms of the option and a contractual life of ten years.
(3) Risk-free interest rate based on U.S. Treasury yields with a term equal to the expected option term.
(4) Dividend yield was assumed to be zero as the Company does not anticipate paying dividends on its common stock.
A summary of option activity for fiscal 2021 is presented below:
Options
(In thousands)		Weighted Average Exercise PriceWeighted Average Remaining Contractual Term (in years)Aggregate Intrinsic Value
(In thousands)
Outstanding at September 30, 2020942 $18.13 
Exercised(409)19.53 
Forfeited or expired(102)13.25 
Outstanding at September 30, 2021431 $17.95 5.0$802 
Exercisable at September 30, 2021431 $17.95 5.0$802 
The intrinsic value is the difference between the Company's common stock price and the option exercise price. During fiscal 2021, there were 408,990 stock options exercised with a weighted average exercise price of $19.53. There were 0 stock options exercised during fiscal 2020 and 2019. The total pretax intrinsic value of stock options exercised during fiscal 2021 was $5 million. The total grant date fair value of stock options vested during fiscal 2021, 2020 and 2019 was $1 million.million, $2 million and $4 million, respectively.
Employee Stock Purchase Plan
18.On January 8, 2020, the Board approved the Avaya Holdings Corp. 2020 Employee Stock Purchase Plan ("ESPP"). A maximum of 5,500,000 shares of the Company's common stock has been reserved for issuance under the ESPP. Under the ESPP, eligible employees may purchase the Company's common stock through payroll deductions at a discount not to exceed 15% of the lower of the fair market values of the Company's common stock as of the beginning or end of each 3-month offering period. Payroll deductions are limited to 10% of the employee's eligible compensation and a maximum of 6,250 shares of the Company's common stock may be purchased by an employee each offering period. During fiscal 2021, the Company withheld $13 million of eligible employee compensation for purchases of common stock and issued 760,701 shares of common stock
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under the ESPP. As of September 30, 2021, 4,534,854 shares of common stock were available for future issuance under the ESPP.
The grant date fair value for shares issued under the ESPP is measured on the date that each offering period commences. The average grant date fair value for the offering periods that commenced during fiscal 2021 and 2020 was $6.08 and $4.99 per share, respectively. The grant date fair value was determined using a Black-Scholes option pricing model with the following average grant date assumptions:
Fiscal years ended September 30,
20212020
Expected volatility(1)
49.15 %93.51 %
Risk-free interest rate(2)
0.05 %0.13 %
Dividend yield(3)
— %— %
(1) Expected volatility based on the Company's historical data.
(2)Risk-free interest rate based on U.S. Treasury yields with a term equal to the length of the offering period.
(3) Dividend yield was assumed to be zero as the Company does not anticipate paying dividends on its common stock.
As of September 30, 2021, there was $0.4 million of unrecognized share-based compensation expense related to the ESPP, which is expected to be recognized over a period of 0.2 years.
17. Capital Stock
Successor
Preferred Stock
The Successor Company's certificate of incorporation authorizes it to issue up to 55,000,000 shares of preferred stock with a par value of $0.01 per share.
On October 31, 2019, the Company issued 125,000 shares of its 3% Series A Convertible Preferred Stock, par value $0.01 per share ("Series A Preferred Stock"), to RingCentral for an aggregate purchase price of $125 million. The Series A Preferred Stock is convertible into shares of the Company's common stock at an initial conversion price of $16.00 per share, which represents an approximately 9% interest in the Company's common stock on an as-converted basis as of September 30, 2021, assuming no holders of options, warrants, convertible notes or similar instruments exercise their exercise or conversion rights. The holders of the Series A Preferred Stock are entitled to vote, on an as-converted basis, together with holders of the Company's common stock on all matters submitted to a vote of the holders of the common stock. Holders of the Series A Preferred Stock are entitled to receive dividends, in preference and priority to holders of the Company's common stock, which accrue on a daily basis at the rate of 3% per annum of the stated value of the Series A Preferred Stock. The stated value of the Series A Preferred Stock was initially $1,000 per share and will be increased by the sum of any dividends on such shares not paid in cash. These dividends are cumulative and compound quarterly. The holders of the Series A Preferred Stock participate in any dividends the Company pays on its common stock, equal to the dividend which holders would have received if their Series A Preferred Stock had been converted into common stock on the date such common stock dividend was determined. In the event the Company is liquidated or dissolved, the holders of the Series A Preferred Stock are entitled to receive an amount equal to the liquidation preference (which equals the then stated value plus any accrued and unpaid dividends) for each share of Series A Preferred Stock before any distribution is made to holders of the Company's common stock.
The Series A Preferred Stock are redeemable at the Company's election upon the termination of the Framework Agreement. In addition, the holders of the Series A Preferred Stock have certain rights to require the Company to redeem or put rights to require the Company to repurchase all or any portion of the Series A Preferred Stock. The holders can exercise such redemption rights, upon at least 21 days' notice, after the termination of the Framework Agreement or upon the occurrence of certain events. If and to the extent the redemption right is exercised, the Company would be required to purchase each share of Series A Preferred Stock at the per share price equal to the stated value of the Series A Preferred Stock which will be increased by the sum of any dividends on such shares that have accrued and have been paid in kind, plus all accrued but unpaid dividends. Given that the holders of the Series A Preferred Stock may require the Company to redeem all or a portion of its shares, the Series A Preferred Stock is classified in the mezzanine section of the Consolidated Balance Sheets between Total liabilities and Stockholders' equity. During fiscal 2021 and 2020, the carrying value of the Series A Preferred Stock increased $2 million and $3 million due to accreted dividends paid in kind, respectively. As of September 30, 20192021, the carrying value of the Series A Preferred Stock was $130 million, which includes $5 million of accreted dividends paid in kind.
In connection with the issuance of the Series A Preferred Stock, the Company granted RingCentral certain customary consent rights with respect to certain actions by the Company, including amending the Company's organizational documents in a manner that would have an adverse effect on the Series A Preferred Stock and 2018,issuing securities that are senior to, or equal in priority with, the Series A Preferred Stock. In addition, pursuant to an investor rights agreement, until such time when RingCentral and its affiliates hold or beneficially own less than 4,759,339 shares of the Company's common stock (on an as-
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converted basis), RingCentral has the right to nominate one person for election to the Company's Board of Directors. The director designated by RingCentral has the option (i) to serve on the Company's Audit and Nominating and Corporate Governance Committees or (ii) to attend (but not vote at) all of the Company's Board of Directors' committee meetings. On November 6, 2020, Robert Theis was elected to join the Company's Board of Directors as RingCentral's designee.
As of September 30, 2021 and 2020, there were no125,000 shares of preferred shares issued orstock outstanding.
Common Stock
The Successor Company's certificate of incorporation authorizes it to issue up to 550,000,000 shares of common stock with a par value of $0.01 per share. As of September 30, 2019,2021 and 2020, there were 111,046,08584,115,602 and 83,278,383 shares issued and 111,033,405 shares outstanding, with the remaining 12,680 shares distributable in accordance with the Plan of Reorganization. As of September 30, 2018, there were 110,218,653 shares issued and 110,012,790 shares outstanding with the remaining 205,863 shares distributable in accordance with the Plan of Reorganization.respectively.
On November 14, 2018, the Company's Board of Directors approvedThe Company maintains a warrant repurchase program authorizingthat authorizes the Company to repurchase Emergence Date Warrants for an aggregate expenditure of up to $15 million. The repurchases may be made from time to time in the open market, through block trades or in privately negotiated transactions. The Company may adopt one or more purchase plans pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, in order to implement the warrant repurchase program. The warrant repurchase program does not obligate the Company to purchase any warrants and may be terminated, increased or decreased by the Board of Directors in its discretion at any time. As of September 30, 2019,2021, there were no warrant repurchases under the program.
On October 1, 2019, the Company's Board of Directors approvedThe Company maintains a stockshare repurchase program authorizing the Company to repurchase the Company’s Common Stock. See Note 26, "Subsequent Events,"Company's common stock for additional information.
Predecessor
In connection with the Successor Company's Planan aggregate expenditure of Reorganization and emergenceup to $500 million. The repurchases may be made from bankruptcy, all equity intereststime to time in the Predecessoropen market, through block trades or in privately negotiated transactions. The Company were canceled, including preferred andadopted purchase plans pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, to implement the share repurchase program. The share repurchase program does not obligate the Company to purchase any common stock warrants and equity-based awards.
Capital Stock
The certificatemay be terminated, increased or decreased by the Board of incorporation, as amendedDirectors in its discretion at any time. All shares that are repurchased under the program are retired by the Company. During fiscal 2021 and restated, authorized Avaya Holdings to issue up to 750,000,0002020, the Company repurchased 1,472,536 and 28,923,664 shares of its common stock, withrespectively, at a par value of $0.001weighted average price per share of $25.48 and 250,000 shares of preferred stock with a par value of $0.001 per share.
Preferred Series A Stock
On December 19, 2009, Avaya Holdings issued 125,000 shares of Series A preferred stock (“preferred series A”) with detachable warrants to purchase up to 38,500,000 common shares at a price of $3.25 per share, which would have expired December 18, 2019. The preferred series A shares were non-voting, redeemable at the Company’s election and had a

liquidation preference of $1,000 per share plus cumulative, compounded quarterly, accrued unpaid dividends at a rate of 5% per annum in cash.
Funds affiliated with Silver Lake and TPG provided an aggregate of $78 million of the cash proceeds from the issuance of the preferred series A shares and the warrants, with each sponsor-affiliated group providing $39 million of the cash proceeds. Based on their contributed cash, the Silver Lake and TPG funds each received $38,865 preferred series A shares and warrants to purchase up to 11,958,192 common shares. Under the terms of the preferred stock agreement, the preferred series A shares were redeemable at the Company’s election only; however, because affiliates of Silver Lake and TPG controlled the board of directors and held a substantial portion of the preferred series A shares, they could have triggered a demand for redemption at their discretion.
$11.41, respectively, including transaction costs. As of September 30, 2017 (Predecessor),2021, the carrying value of the preferred series Aremaining authorized amount for share repurchases under this program was $184 million, which included $59 million of accumulated and unpaid dividends as well as $57 million of discount accretion. During fiscal 2017, the carrying value of the preferred series A shares increased $9 million due to an increase in accumulated unpaid dividends in the period. The carrying value was adjusted to $0 during the period from October 1, 2017 through December 15, 2017 in connection with the Company’s emergence from bankruptcy.$132 million.
Preferred Series B Stock
On May 29, 2012, Avaya Holdings issued 48,922 shares of Series B preferred stock ("preferred series B") with detachable warrants to purchase up to 24,500,000 common shares at a price of $4.00 per share, which would have expired May 29, 2022. The preferred series B shares were non-voting and earned cumulative dividends at a rate of 8% per annum, compounded annually, whether or not declared, and were payable in cash or additional shares of preferred series B at the Company’s option. Preferred series B dividends had to be paid prior to dividends on any other series or classes of Avaya Holdings’ stock. Additionally, holders of preferred series B participated in any dividends payable on shares of Avaya Holdings’ common stock on an as converted basis.
The preferred series B were issued to funds affiliated with Silver Lake and TPG. Because the preferred series B shares were redeemable at the Company’s election at any time and affiliates of Silver Lake and TPG controlled the board of directors, the holders of the preferred series B could have triggered a demand for redemption. In addition, the preferred series B was redeemable at the option of the holders in certain cases.
As of September 30, 2017 (Predecessor), the carrying value of the preferred series B was $393 million, which included $99 million of accumulated and unpaid dividends, $98 million of accretion to the Redemption Price, as well as $33 million of discount accretion at the date of issuance. During fiscal 2017, the carrying value of the preferred series B shares increased $22 million due to an increase in accumulated unpaid dividends. The carrying value was adjusted to $0 during the period from October 1, 2017 through December 15, 2017 in connection with the Company’s emergence from bankruptcy.
Warrants
The Company had outstanding warrants to purchase 124,500,000 shares of its Predecessor common stock, of which 100,000,000 had an exercise price of $3.25 per share and would have expired on December 18, 2019. The remaining 24,500,000 warrants had an exercise price of $4.00 per share and would have expired on May 29, 2022. All of the warrants had a cashless exercise feature, contained customary adjustment provisions for stock splits, capital reorganizations and certain other distributions and were outstanding as of September 30, 2017 (Predecessor).
19. (Loss) Earnings18. Loss Per Common Share
Basic earnings (loss) earnings per share is calculated by dividing net (loss) incomeloss attributable to common stockholders by the weighted average number of common shares outstanding. Diluted earnings (loss) per share reflects the potential dilution that would occur if equity awards granted under the Company's various share-based compensation plans were vested or exercised; if the Company’s Series A Preferred Stock were converted into shares of the Company’s common stock; if the Company's Convertible Notes or the warrants the Company sold to purchase up to 12.6 million shares of its common stock in connection with the issuance of Convertible Notes ("Call Spread Warrants") were exercised; and/or if the Emergence Date Warrants were exercised, resulting in the issuance of common shares that would participate in the earnings of the Company. In periods with net losses, no incremental shares are reflected as their effect would be anti-dilutive.

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The following table sets forth the calculation of net (loss) incomeloss attributable to common shareholdersstockholders and the computation of basic and diluted (loss) earningsloss per share for the periods indicated:
Fiscal years ended September 30,
(In millions, except per share amounts)202120202019
Loss per share:
Numerator
Net loss$(13)$(680)$(671)
Dividends and accretion to preferred stockholders(4)(7)— 
Undistributed loss(17)(687)(671)
Percentage allocated to common stockholders(1)
100.0 %100.0 %100.0 %
Numerator for basic and diluted loss per common share$(17)$(687)$(671)
Denominator for basic and diluted loss per weighted average common shares84.5 92.2 110.8 
  Loss per common share
 Basic$(0.20)$(7.45)$(6.06)
 Diluted$(0.20)$(7.45)$(6.06)
(1) Basic weighted average common stock outstanding
84.5 92.2 110.8 
 Basic weighted average common stock and common stock equivalents (preferred shares)84.5 92.2 110.8 
  Percentage allocated to common stockholders100.0 %100.0 %100.0 %
  Successor  Predecessor
(In millions, except per share amounts) Fiscal year ended September 30, 2019 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal year ended September 30, 2017
(Loss) Earnings per share:         
Numerator         
Net (loss) income $(671) $287
  $2,977
 $(182)
Dividends and accretion to preferred stockholders —
 —
  (6) (31)
Undistributed (loss) income (671) 287
  2,971
 (213)
Percentage allocated to common stockholders(1)
 100.0% 100.0%  86.9% 100.0%
Numerator for basic and diluted (loss) earnings per common share $(671) $287
  $2,582
 $(213)
          
Denominator         
Denominator for basic (loss) earnings per weighted average common shares 110.8
 109.9
  497.3
 497.1
Effect of dilutive securities         
Restricted stock units —
 1.2
  —
 —
Denominator for diluted (loss) earnings per weighted average common shares 110.8
 111.1
  497.3
 497.1
          
(Loss) earnings per common share         
Basic $(6.06) $2.61
  $5.19
 $(0.43)
Diluted $(6.06) $2.58
  $5.19
 $(0.43)
          
(1) Basic weighted average common stock outstanding
 110.8
 109.9
  497.3
 497.1
 Basic weighted average common stock and common stock equivalents (preferred shares) 110.8
 109.9
  572.4
 497.1
  Percentage allocated to common stockholders 100.0% 100.0%  86.9% 100.0%
The Company's Series A Preferred Stock are participating securities, which requires the application of the two-class method to calculate basic and diluted earnings per share. Under the two-class method, undistributed earnings are allocated to common stock and participating securities according to their respective participating rights in undistributed earnings, as if all the earnings for the period had been distributed. Basic loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Net loss attributable to common stockholders is reduced for preferred stock dividends earned and accretion recognized during the period. No allocation of undistributed earnings to participating securities was performed for periods with net losses as such securities do not have a contractual obligation to share in the losses of the Company.
For fiscal 2021, the Company excluded 2.7 million RSUs, 0.4 million stock options, 0.2 million shares issuable under the ESPP, 5.6 million Emergence Date Warrants, and 0.1 million shares of Series A Preferred Stock from the diluted loss per share calculation as their effect would have been anti-dilutive. The Company also excluded 1.5 million PRSUs from the diluted loss per share calculation as their performance metrics have not been attained or their effect would have been anti-dilutive. For fiscal 2020, the Company excluded 2.7 million RSUs, 0.9 million stock options, 0.2 million shares issuable under the ESPP, 5.6 million Emergence Date Warrants, and 0.1 million shares of Series A Preferred Stock from the diluted loss per share calculation as their effect would have been anti-dilutive. The Company also excluded 1.0 million PRSUs from the diluted loss per share calculation as their performance metrics have not been attained or their effect would have been anti-dilutive. For fiscal 2019, the Company excluded 2.8 million RSUs, 0.9 million stock options, 2.8 million RSUs and 5.6 million Emergence Date Warrants from the diluted loss per share calculation as their effect would have been anti-dilutive. The Company also excluded 0.5 million PRSUs from the diluted loss per share calculation as their performance metrics have not yet been attained. During the period from December 16, 2017 through September 30, 2018, the Company excluded 1.1 million stock options, 0.2 million restricted stock units and 5.6 million Emergence Date Warrants to purchase common shares from the diluted earnings per share calculation as their effect would have been anti-dilutive.
The Company’sCompany's Convertible Notes and Call Spread Warrants were also excluded from the diluted loss per share calculation for fiscal 2021, 2020, and 2019 and the period from December 16, 2017 through September 30, 2018 (Successor) as discussed in more detail below.
their effect would have been anti-dilutive. For purposes of considering the Convertible Notes in determining diluted (loss) earningsloss per share, the Company has the ability and current intent to settle conversions of the Convertible Notes through combination settlement by repaying the principal portion in cash and any excess of the conversion value over the principal amount (the "Conversion Premium") in shares of the Company's common stock. Therefore, if it would have a dilutive impact, only the impact of the Conversion Premium will be included in diluted weighted average shares outstanding using the treasury stock method. Since the Convertible Notes were out of the money and anti-dilutive as of September 30, 2019 and 2018 (Successor), they were excluded from the diluted (loss) earnings per share calculation for fiscal 2019 and the period from December 16, 2017 through September 30, 2018 (Successor). The Call Spread Warrants will not be considered in calculating diluted weighted average shares outstanding until the price per share of the Company’s common stock exceeds the strike price of $37.3625 per share. When the price per share of the Company’s common stock exceeds the strike price per share of the Call Spread Warrants, the effect of the additional shares that may be issued upon exercise of the Call Spread Warrants will be included in diluted weighted average shares outstanding using the treasury stock method.

109
The Predecessor Company’s preferred stock and unvested restricted stock units were participating securities, which required the application of the two-class method to calculate basic and diluted earnings per share. Under the two-class method, undistributed earnings are allocated to common stock and the participating securities according to their respective participating rights in undistributed earnings, as if all the earnings for the period had been distributed. Basic (loss) earnings per common share is computed by dividing the net (loss) income attributable to common stockholders by the weighted average number of common shares outstanding during the period. Net (loss) income attributable to common stockholders is increased for preferred stock dividends earned during the period. No allocation of undistributed earnings to participating securities was performed for periods with net losses as such securities do not have a contractual obligation to share in the losses of the Company.


20.19. Operating Segments
The Products & Solutions segment primarily develops, markets, and sells unified communications and collaboration and contact center solutions, offered on premises,on-premise, in the cloud, or as a hybrid solution. These integrate multiple forms of communications, including telephony, email, instant messaging and video. The Services segment develops, markets and sells comprehensive end-to-end global service offerings that enable customers to evaluate, plan, design, implement, monitor, manage and optimize complex enterprise communications networks. The Networking segment portfolio of softwareRevenue from customers who upgrade and hardware products offered integrated networking products. On July 14, 2017,acquire new technology through the Company sold its Networking business to Extreme. Prior toCompany's subscription offerings is reported within the sale, the Company had three separate operating segments. After the sale, the Company has two operating segments, Products & Solutions and Services.Services segment.
The Company’s chief operating decision maker makes financial decisions and allocates resources based on segment profit information obtained from the Company’s internal management systems. Management does not include in its segment measures of profitability selling, general and administrative expenses, research and development expenses, amortization of intangible assets, and certain discrete items, such as fair value adjustments recognized upon emergence from bankruptcy, charges relating to restructuring actions, and impairment charges and merger-related costs as these costs are not core to the measurement of segment performance, but rather are controlled at the corporate level.

Summarized financial information relating to the Company's operating segments is shown in the following table for the periods indicated:
Fiscal years ended September 30,
(In millions)202120202019
REVENUE
Products & Solutions$992 $1,074 $1,228 
Services1,982 1,805 1,680 
Unallocated Amounts (1)
(1)(6)(21)
$2,973 $2,873 $2,887 
GROSS PROFIT
Products & Solutions$594 $669 $791 
Services1,230 1,092 996 
Unallocated Amounts (2)
(174)(181)(212)
1,650 1,580 1,575 
OPERATING EXPENSES
Selling, general and administrative1,053 1,013 1,001 
Research and development228 207 204 
Amortization of intangible assets159 161 162 
Impairment charges— 624 659 
Restructuring charges, net30 30 22 
1,470 2,035 2,048 
OPERATING INCOME (LOSS)180 (455)(473)
INTEREST EXPENSE AND OTHER INCOME, NET(178)(163)(196)
INCOME (LOSS) BEFORE INCOME TAXES$2 $(618)$(669)
(1)     Unallocated amounts in Revenue represent the fair value adjustment to deferred revenue recognized upon emergence from bankruptcy and excluded from segment revenue.
(2)     Unallocated amounts in Gross Profit mainly include the effect of the amortization of technology intangibles and the fair value adjustments recognized upon emergence from bankruptcy which are excluded from segment gross profit.
110


  Successor  Predecessor
(In millions) Fiscal year ended September 30, 2019 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal year ended September 30, 2017
REVENUE         
Products & Solutions $1,228
 $1,052
  $253
 $1,297
Services 1,680
 1,401
  351
 1,835
Avaya Networking (1)
 —
 —
  —
 140
Unallocated Amounts (2)
 (21) (206)  —
 —
  $2,887
 $2,247
  $604
 $3,272
GROSS PROFIT         
Products & Solutions $791
 $696
  $169
 $890
Services 996
 843
  196
 1,091
Avaya Networking (1)
 —
 —
  —
 48
Unallocated Amounts (3)
 (212) (396)  (3) (21)
  1,575
 1,143
  362
 2,008
OPERATING EXPENSES         
Selling, general and administrative 1,001
 888
  264
 1,261
Research and development 204
 172
  38
 225
Amortization of intangible assets 162
 127
  10
 204
Impairment charges 659
 —
  —
 117
Restructuring charges, net 22
 81
  14
 30
  2,048
 1,268
  326
 1,837
OPERATING (LOSS) INCOME (473) (125)  36
 171
INTEREST EXPENSE, OTHER INCOME (EXPENSE), NET AND REORGANIZATION ITEMS, NET (196) (134)  3,400
 (369)
(LOSS) INCOME BEFORE INCOME TAXES $(669) $(259)  $3,436
 $(198)
(1)
The Networking business was sold on July 14, 2017.
(2)
Unallocated amounts in Revenue represent the fair value adjustment to deferred revenue recognized upon emergence from bankruptcy and excluded from segment revenue.
(3)
Unallocated amounts in Gross Profit include the fair value adjustments recognized upon emergence from bankruptcy and excluded from segment gross profit; the effect of the amortization of technology intangibles; and costs that are not core to the measurement of segment management’s performance, but rather are controlled at the corporate level.
As of September 30,
(In millions)20212020
ASSETS:
Products & Solutions$32 $31 
Services1,499 1,501 
Unallocated Assets (1)
4,454 4,699 
Total$5,985 $6,231 
(In millions) September 30, 2019 September 30, 2018
ASSETS:    
Products & Solutions $662
 $1,336
Services 1,504
 1,509
Unallocated Assets (1)
 4,784
 4,834
Total $6,950
 $7,679
(1)
Unallocated Assets consist of cash and cash equivalents, accounts receivable, contract assets, contract costs, deferred income tax assets, property, plant and equipment, acquired intangible assets and other assets. Unallocated Assets are managed at the corporate level and are not identified with a specific segment.

(1)Unallocated Assets consist of cash and cash equivalents, accounts receivable, contract assets, contract costs, deferred income tax assets, property, plant and equipment, operating lease right-of-use assets, acquired intangible assets and other assets. Unallocated Assets are managed at the corporate level and are not identified with a specific segment.
Geographic Information
Financial information relating to the Company’s revenue and long-lived assets by geographic area is as follows:
As of September 30,
(In millions)20212020
LONG-LIVED ASSETS(1)
U.S.$209 $191 
International:
EMEA60 57 
APAC—Asia Pacific19 13 
Americas International—Canada and Latin America7 7 
Total International86 77 
Total$295 $268 
(1)Represents property, plant and equipment, net.
See Note 4, "Contracts with customers" for financial information relating to the Company's revenue by geographic area.
20.     Accumulated Other Comprehensive Income (Loss)
  Successor  Predecessor
(In millions) Fiscal year ended September 30, 2019 Period from
December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal year ended September 30, 2017
REVENUE(1):
         
U.S. $1,553
 $1,184
  $331
 $1,798
International:         
 EMEA 753
 603
  166
 834
APAC—Asia Pacific 327
 256
  57
 334
Americas International—Canada and Latin America 254
 204
  50
 306
Total International 1,334
 1,063
  273
 1,474
Total $2,887
 $2,247
  $604
 $3,272
(In millions) September 30, 2019 September 30, 2018
LONG-LIVED ASSETS(2)
    
U.S. $184
 $169
International:    
EMEA 54
 61
APAC—Asia Pacific 10
 12
Americas International—Canada and Latin America 7
 8
Total International 71
 81
Total $255
 $250
(1)
Revenue is attributed to geographic areas based on the location of customers.
(2)
Represents property, plant and equipment, net.

21.Accumulated Other Comprehensive (Loss) Income
The components of Accumulated other comprehensive income (loss) income for the periods indicated were as follows:
(In millions)Change in Unamortized Pension, Post-retirement and Postemployment Benefit-related Items Foreign Currency Translation Unrealized Loss on Term Loan Interest Rate Swap Other Accumulated Other Comprehensive (Loss) Income
Balance as of September 30, 2016 (Predecessor)$(1,627) $(33) $—
 $(1) $(1,661)
Other comprehensive income (loss) before reclassifications181
 (39) —
 —
 142
Amounts reclassified to earnings90
 —
 —
 —
 90
Provision for income taxes(19) —
 —
 —
 (19)
Balance as of September 30, 2017 (Predecessor)(1,375) (72) —
 (1) (1,448)
Other comprehensive (loss) income before reclassifications(24) 3
 —
 —
 (21)
Amounts reclassified to earnings16
 —
 —
 —
 16
Pension settlement721
 —
 —
 —
 721
Provision for income taxes(58) —
 —
 —
 (58)
Balance as of December 15, 2017 (Predecessor)(720) (69) —
 (1) (790)
Elimination of Predecessor Company Accumulated other comprehensive loss720
 69
 —
 1
 790
Balance as of December 15, 2017 (Predecessor)$—
 $—
 $—
 $—
 $—
          
          
Balance as of December 16, 2017 (Successor)$—
 $—
 $—
 $—
 $—
Other comprehensive income (loss) before reclassifications70
 (31) (3) —
 36
(Provision for) benefit from income taxes(19) —
 1
 —
 (18)
Balance as of September 30, 2018 (Successor)51
 (31) (2) —
 18
Other comprehensive (loss) income before reclassifications(186) 24
 (87) —
 (249)
Amounts reclassified to earnings—
 —
 10
 —
 10
Benefit from income taxes29
 —
 19
 
 48
Balance as of September 30, 2019 (Successor)$(106) $(7) $(60) $—
 $(173)
(In millions)Change in Unamortized Pension, Post-retirement and Postemployment Benefit-related ItemsForeign Currency TranslationUnrealized Loss on Interest Rate SwapsAccumulated Other Comprehensive Income (Loss)
Balance as of September 30, 2018$51 $(31)$(2)$18 
Other comprehensive (loss) income before reclassifications(186)24 (87)(249)
Amounts reclassified to earnings— — 10 10 
Benefit from income taxes29 — 19 48 
Balance as of September 30, 2019$(106)$(7)$(60)$(173)
Other comprehensive loss before reclassifications(2)(66)(69)(137)
Amounts reclassified to earnings— 27 35 62 
Benefit from income taxes— — 3 3 
Balance as of September 30, 2020$(108)$(46)$(91)$(245)
Other comprehensive income before reclassifications110 9 9 128 
Amounts reclassified to earnings(18)— 51 33 
Provision for income taxes(4)— (3)(7)
Balance as of September 30, 2021$(20)$(37)$(34)$(91)
Reclassifications from Accumulated other comprehensive income (loss) income related to changes in unamortized pension, post-retirement and postemploymentpost-employment benefit-related items were $0 million, $0 million, $16 million, and $90 million during fiscal 2019 (Successor), the period from December 16, 2017 through September 30, 2018 (Successor), the period from October 1, 2017 through December 15, 2017 (Predecessor) and fiscal 2017 (Predecessor), respectively, and wereare recorded in Other income, (expense), net. Reclassifications from Accumulated other comprehensive income (loss) income related to the unrealized loss on term loan interest rate swap agreements were $10 million during fiscal 2019 (Successor) and wereare recorded in Interest expense.
111

22.
expense. Reclassifications from Accumulated other comprehensive income (loss) related to foreign currency translation reflect the impact of certain liquidated entities and are recorded in Other income, net.
21. Related Party Transactions
Successor
TheAs of September 30, 2021, the Company's Board of Directors iswas comprised of seven8 directors, including the Company's Chief Executive Officer, James M. Chirico, Jr., and six7 non-employee directors, William D. Watkins, Stephan Scholl, Susan L. Spradley, Stanley J. Sutula III, Robert Theis, Scott D. Vogel and Jacqueline E. Yeaney. Ms. Yeaney joinedRobert Theis, who is an independent director of RingCentral, attends the Company's Board of Directors on March 18, 2019, fillingAudit Committee, the vacancy caused byCompensation Committee and the resignation of Ronald A. Rittenmeyer effectiveNominating and Corporate Governance Committee as of April 30, 2018.a non-voting member.
Specific Arrangements Involving the Successor Company’s Current Directors and Executive Officers
William D. Watkins isDuring fiscal 2020, Stephan Scholl assumed the role of Chief Executive Officer of Alight Solutions LLC ("Alight"), a Directorprovider of integrated benefits, payroll and Chair of the Board of Directors of Avaya Holdingscloud solutions, and he also serves on theits board of directors of Flex Ltd., an electronics design manufacturer. Fordirectors. During fiscal 2019 (Successor), the period from December 16, 2017 through September 30, 2018 (Successor), the period from October 1, 2017 through December 15, 2017 (Predecessor)2021 and fiscal 2017 (Predecessor),2020, the Company purchased goods and services from subsidiaries of Flex Ltd.Alight of $29 million, $19 million, $6

$4 million and $38$5 million, respectively. As of September 30, 2019 and 2018,2021, outstanding accounts payable due to Alight were not material. As of September 30, 2020, the Company had outstanding accounts payable due to Flex Ltd. of $6 million and $4 million, respectively.
Specific Arrangements Involving the Successor Company’s Former Directors and Executive Officers
Laurent Philonenko was a Senior Vice President of Avaya Holdings through February 15, 2019. While he was a Senior Vice President of Avaya Holdings, Mr. Philonenko served as an Advisor to Koopid, Inc., a software development company specializing in mobile communications, a position he had held until January 2018. For the period from December 16, 2017 through September 30, 2018 (Successor), the Company purchased goods and services from Koopid, Inc.Alight of $1 million. For the period from October 1, 2017 through December 15, 2017 (Predecessor) and fiscal 2017 (Predecessor), purchased goods and services from Koopid were not material.
Ronald A. Rittenmeyer was a Director of Avaya Holdings through April 29, 2018. While he was a Director of Avaya Holdings, Mr. Rittenmeyer served on the board of directors of Tenet Healthcare Corporation ("Tenet Healthcare"), a healthcare services company, and also served on the board of directors of American International Group, Inc. ("AIG"), a global insurance organization. For the period from December 16, 2017 through September 30, 2018 (Successor) and fiscal 2017 (Predecessor), sales of the Company’s products and services to Tenet Healthcare were $1 million for both periods. For the period from October 1, 2017 through December 15, 2017 (Predecessor), sales of the Company's products and services to Tenet Healthcare were not material. For the period from December 16, 2017 through September 30, 2018 (Successor), the period from October 1, 2017 through December 15, 2017 (Predecessor) and fiscal 2017 (Predecessor), sales of the Company’s products and services to AIG were $5 million, $2 million and $10 million, respectively.
Predecessor
In connection with the acquisition of Avaya Inc., through Avaya Holdings by Silver Lake Partners ("Silver Lake"), TPG Capital ("TPG") and their respective affiliates (collectively, the "Predecessor Sponsors"), in a transaction that was completed on October 26, 2007 (the "Merger"), Avaya Holdings entered into certain stockholder agreements and registration rights agreements with the Predecessor Sponsors and various co-investors. In addition, Avaya Holdings entered into a management services agreement with affiliates of the Predecessor Sponsors and, from time to time, Avaya Holdings entered into various other contracts with companies affiliated with the Predecessor Sponsors. These arrangements terminated upon emergence from bankruptcy. In addition, all Predecessor Company equity held by the Predecessor Sponsors was canceled. No fees were paid to the Predecessor Sponsors in the period from October 1, 2017 through December 15, 2017 (Predecessor).
Stockholders’ Agreement
In connection with the Merger, Avaya Holdings entered into a stockholders’ agreement with the Predecessor Sponsors and certain of their affiliates. The stockholders’ agreement was amended and restated in connection with the financing of certain acquisitions. The stockholders’ agreement contained certain restrictions on the Predecessor Sponsors’ and their affiliates’ transfer of Avaya Holdings’ equity securities, contained provisions regarding participation rights, contained standard tag-along and drag-along provisions, provided for the election of Avaya Holdings’ directors, mandated board of directors approval of certain matters to include the consent of each Predecessor Sponsor and generally set forth the respective rights and obligations of the stockholders who were parties to that agreement. None of Avaya Holdings’ officers or directors were parties to the agreement, although certain of Avaya Holdings' non-employee directors may have had an indirect interest in the agreement to the extent of their affiliations with the Predecessor Sponsors. This agreement was terminated upon emergence from bankruptcy.
Registration Rights Agreement
In addition, in connection with the Merger, Avaya Holdings entered into a registration rights agreement with the Predecessor Sponsors and certain of their affiliates, which was amended and restated in connection with the financing of certain acquisitions. Pursuant to the registration rights agreement, as amended, Avaya Holdings would provide the Predecessor Sponsors and certain of their affiliates party thereto with certain demand registration rights. In addition, in the event that Avaya Holdings registered shares of common stock for sale to the public, Avaya Holdings would be required to give notice of such registration to the Predecessor Sponsors and their affiliates party to the agreement of its intention to effect such a registration, and, subject to certain limitations, the Predecessor Sponsors and such holders would have piggyback registration rights providing them with the right to require Avaya Holdings to include shares of common stock held by them in such registration. Avaya Holdings would have been required to bear the registration expenses, other than underwriting discounts and commissions and transfer taxes, if any, associated with any registration of shares by the Predecessor Sponsors or other holders described above. Avaya Holdings had agreed to indemnify each holder of its common stock covered by the registration rights agreement for violations of federal or state securities laws by it in connection with any registration statement, prospectus or any preliminary prospectus. Each holder of such securities had in turn agreed to indemnify Avaya Holdings for federal or state securities law violations that occur in reliance upon written information the holder provided to Avaya Holdings in connection with any registration statement in which a holder of such securities was participating. None of Avaya Holdings’ officers or directors were a party to this agreement, although certain of Avaya Holdings’ non-employee directors may have had an indirect

interest in the agreement to the extent of their affiliations with the Predecessor Sponsors. This agreement was terminated upon emergence from bankruptcy.
Management Services Agreement and Consulting Services
Both Avaya Holdings and Avaya Inc. were party to a Management Services Agreement with Silver Lake Management Company, L.L.C., an affiliate of Silver Lake, and TPG Capital Management, L.P., an affiliate of TPG, collectively "the Managers," pursuant to which the Managers provided management and financial advisory services to the Company. Pursuant to the Management Services Agreement, the Managers received a monitoring fee of $7 million per annum and reimbursement on demand for out-of-pocket expenses incurred in connection with the provision of such services. In the event of a financing, acquisition, disposition or change of control transaction involving the Company during the term of the Management Services Agreement, the Managers had the right to require the Company to pay a fee equal to customary fees charged by internationally-recognized investment banks for serving as a financial advisor in similar transactions. The Management Services Agreement could have been terminated at any time by the Managers, but otherwise had an initial term ending on December 31, 2017 that automatically extended each December 31st for an additional year unless terminated earlier by the Company or the Managers. The term had been automatically extended nine times since the execution of the agreement such that the term was through December 31, 2026. In the event that the Management Services Agreement was terminated, the Company was required to pay a termination fee equal to the net present value of the monitoring fees that would have been payable during the remaining term of the Management Services Agreement. Therefore, if the Management Services Agreement was terminated at September 30, 2017, the termination fee would have been calculated using the term ending December 31, 2026. In accordance with the Management Services Agreement, the Company recorded $0 million and $2 million of monitoring fees for the period from October 1, 2017 through December 15, 2017 and fiscal 2017, respectively.
In December 2013, the Company and TPG Capital Management, L.P. executed a letter agreement reducing the portion of the monitoring fees owed to TPG Capital Management, L.P. by $1,325,000 for fiscal 2014 and thereafter on an annual basis by $800,000. The Company agreed to pay Messrs. Mohebbi and Rittenmeyer in aggregate $800,000 annually.
In fiscal 2016, the Company agreed to terms with Silver Lake and TPG to suspend payments under the Management Services Agreement. Although the management services fees continued to accrue, payments to Messrs. Mohebbi and Rittenmeyer were made in fiscal 2017.
This Management Services Agreement and consulting services were terminated upon emergence from bankruptcy.
Transactions with Other Predecessor Sponsor Portfolio Companies
The Predecessor Sponsors were private equity firms that had investments in companies that did business with the Company. For the period from October 1, 2017 through December 15, 2017 and fiscal 2017, the Company recorded $10 million and $29 million, respectively, associated with sales of the Company’s products and services to companies in which one or both of the Predecessor Sponsors had investments. For the period from October 1, 2017 through December 15, 2017 and fiscal 2017, the Company purchased goods and services of $15 million and $10 million, respectively, from companies in which one or both of the Predecessor Sponsors had investments. In September 2015, a company in which a Predecessor Sponsor had an investment merged with a commercial real estate services firm that began providing management services associated with the Company’s leased properties. Included in the above purchased goods and services amounts was $5 million incurred by the Company for management services provided by the commercial real estate services firm for both the periods from October 1, 2017 through December 15, 2017 and fiscal 2017.
Arrangements Involving the Predecessor Company’s Directors and Executive Officers
In connection with the Merger, Avaya Holdings entered into a senior manager registration and preemptive rights agreement with certain members of its senior management who owned shares of Avaya Holdings’ common stock and options and RSUs convertible into shares of Avaya Holdings’ common stock. Pursuant to the senior manager registration and preemptive rights agreement, the senior managers party thereto that held registrable securities thereunder were provided with certain registration rights upon either (a) the exercise of the Predecessor Sponsors or their affiliates of demand registration rights under the Predecessor Sponsors’ registration rights agreement discussed above or (b) any request by the Predecessor Sponsors to file a shelf registration statement for the resale of such shares, as well as certain notification and piggyback registration rights. Avaya Holdings was required to bear the registration expenses, other than underwriting discounts and commissions and transfer taxes, if any, associated with any registration of stock by the senior managers as described above. Avaya Holdings had agreed to indemnify each holder of registrable securities covered by the agreement for violations of federal or state securities laws by Avaya Holdings in connection with any registration statement, prospectus or any preliminary prospectus. Each holder of such registrable securities had in turn agreed to indemnify Avaya Holdings for federal or state securities law violations that occurred in reliance upon written information the holder provided to Avaya Holdings in connection with any registration statement in which a holder of such registrable securities was participating.

In addition, pursuant to the senior manager registration and preemptive rights agreement, the Company agreed to provide each senior manager party thereto with certain preemptive rights to participate in any future issuance of shares of Avaya Holdings’ common stock to the Predecessor Sponsors or their affiliates.
In connection with the Merger, Avaya Holdings also entered into a management stockholders’ agreement with certain management stockholders. The stockholders’ agreement contained certain restrictions on such stockholders’ transfer of Avaya Holdings equity securities, contained rights of first refusal upon disposition of shares, contained standard tag-along and drag-along provisions, and generally set forth the respective rights and obligations of the stockholders who were parties to the agreement.
The senior manager registration and preemptive rights agreement and the management stockholders’ agreement terminated upon emergence from bankruptcy.
Specific Arrangements Involving Certain Former Directors and Executive Officers
Charles Giancarlo was a Director of Avaya Holdings and Avaya Inc. and served in these capacities as a director designated by Silver Lake. Mr. Giancarlo served as a Director of Accenture, Plc ("Accenture"), a management consulting business. In fiscal 2017, sales of the Company’s products and services to Accenture were $1 million. Sales of the Company's products and services to Accenture for the period from October 1, 2017 through December 15, 2017 were not material.
John W. Marren was a Director of Avaya Holdings and Avaya Inc. and served in these capacities as a director designated by TPG. He held the position of Partner of TPG until January 2016 and served on the board of directors of Sungard Data Systems, Inc. (“Sungard”), a software and technology services company until December 2015. In fiscal 2017, sales of the Company’s products and services to Sungard were $1 million. Sales of the Company's products and services to Sungard for the period from October 1, 2017 through December 15, 2017 were not material.
Afshin Mohebbi was a Director of Avaya Holdings and Avaya Inc. and held the position of Senior Advisor of TPG.
Greg Mondre was a Director of Avaya Holdings and Avaya Inc. and served in these capacities as a director designated by Silver Lake. He held the positions of Managing Partner and Managing Director of Silver Lake. Mr. Mondre was related to the former Vice Chairman and Co-Chief Executive Officer of C3/Customer Contact Channels Holdings L.P. ("C3 Holdings"), a provider of outsourced customer management solutions. In fiscal 2017, sales of the Company’s products and services to C3 Holdings were $1 million. Sales of the Company's products and services to C3 Holdings for the period from October 1, 2017 through December 15, 2017 were not material.
Marc Randall was the Senior Vice President and General Manager of Avaya Holdings and Avaya Inc. and until January 2016 served on the board of directors of Xirrus, Inc. (“Xirrus”), a provider of wireless access network solutions. In March 2014, the Company entered a strategic partnership with Xirrus whereby the Company owned less than 6% of the outstanding voting securities of Xirrus on a fully diluted basis. In fiscal 2017, the Company purchased goods and services from Xirrus of $12 million. Purchased goods and services from Xirrus for the period from October 1, 2017 through December 15, 2017 were not material. 
Gary B. Smith was a Director of Avaya Holdings and Avaya Inc. and also served as President, Chief Executive Officer and director of Ciena Corporation ("Ciena"), a network infrastructure company. In fiscal 2017, sales of the Company's products and services to Ciena were $1 million. Sales of the Company's products and services to Ciena for the period from October 1, 2017 through December 15, 2017 were not material.
23.22. Commitments and Contingencies
Legal Proceedings
General
In the ordinary course of business, the Company is involved in litigation, claims, government inquiries, investigations and proceedings, including but not limited to, those relating to intellectual property, commercial, employment, environmental indemnity and regulatory matters. The Company records accruals for legal contingencies to the extent that it has concluded that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. NoWhen a material loss contingency is reasonably possible but not probable, we do not record a liability, but instead disclose the nature and the amount of the claim, and an estimate of the possible loss or range of loss, in excess of amounts accrued, if any,such an estimate can be made at this time regarding the matters specificallymade.
Other than as described below, because the inherently unpredictable nature of legal proceedings may be exacerbated by various factors, including: (i) the damages sought in the proceedings are unsubstantiated or indeterminate; (ii) discovery is not complete; (iii) the proceeding is in its early stages; (iv) the matters present legal uncertainties; (v) there are significant facts in dispute; (vi) there are a large number of parties (including where it is uncertain how liability, if any, will be shared among multiple defendants); or (vii) there is a wide range of potential outcomes.
In the ordinary course of business, the Company is involved in litigation, claims, government inquiries, investigations and proceedings, including, but not limited to, those identified below, relating to intellectual property, commercial, employment, environmental and regulatory matters.

Based on the Company's experience, management believes that the damages amounts claimed in a case are not a meaningful indicator of the potential liability. Claims, suits, investigations and proceedings are inherently uncertain and it is not possible to predict the ultimate outcome of cases. The Company believes that it has meritorious defenses in connection with its current lawsuits and material claims and disputes.
In the opinion of the Company's management, based upon information currently available to the Company, while the outcome of these lawsuits, claims and disputesmatters is uncertain, the likely results of these lawsuits, claims and disputesmatters are not expected, either individually or in the aggregate, to have a material adverse effect on the Company's financial position, results of operations or cash flows, although the effectflows. However, an unfavorable resolution could be material to the Company's consolidated results of operations or consolidated cash flows for any interim reporting period.
During fiscal 2019 (Successor) and the period from December 16, 2017 through September 30, 2018 (Successor), there were no costs incurred in connection with the resolution of legal matters other than those incurred in the ordinary course of business. During the period from October 1, 2017 through December 15, 2017 (Predecessor) and fiscal 2017 (Predecessor), costs incurred in connection with the resolution of certain legal matters were $37 million and $64 million, respectively.
Intellectual Property and Commercial Disputes
In January 2010, SAE Power Incorporated and SAE Power Company (collectively "SAE") filed a complaint in the New Jersey Superior Court asserting various claims including breach of contract, unjust enrichment, promissory estoppel, and breach of the covenant of good faith and fair dealing arising out of Avaya’s relationship with SAE as a supplier of various power supply products. SAE subsequently asserted additional claims against Avaya for fraud, negligent misrepresentation, misappropriation of trade secrets, and civil conspiracy. SAE sought to recover for alleged losses stemming from Avaya’s termination of its power supply purchases from SAE, including for Avaya’s alleged disclosure of SAE’s alleged trade secret and/or confidential information to another power supply vendor. On July 19, 2016, the Court entered an order granting Avaya’s motion for partial summary judgment, dismissing certain of SAE’s claims regarding the alleged disclosure of trade secrets. In January 2017, the Company filed a Notice of Suggestion of Pendency of Bankruptcy in the state court proceeding, which informed the Court of the Company’s voluntary bankruptcy petition filing and stay of proceedings. SAE filed a proof of claim in the Bankruptcy Court. On September 28, 2017, the Company filed a motion in the Bankruptcy Court seeking to estimate SAE’s claim, and the estimation hearing took place on February 15, 2018. On June 12, 2018, the Bankruptcy Court entered an Order estimating SAE’s pre-petition misappropriation claim in the amount of $1 million plus interest, its fraud claim at $0 million and declined to estimate SAE’s breach of contract claim, leaving it to be resolved through the bankruptcy claims allowance process. On June 22, 2018, SAE filed a Notice of Appeal challenging the estimation Order, which was denied by the United States District Court on May 6, 2019. In July 2019, the Company and SAE reached a settlement of the dispute. SAE will receive an allowed unsecured claim and distribution in accordance with the general unsecured claims procedure in the Company's Plan of Reorganization, and Avaya was dismissed from the state court action.
In the ordinary course of business, the Company is involved in litigation alleging it has infringed upon third parties’ intellectual property rights, including patents and copyrights; some litigation may involve claims for infringement against customers, distributors and resellers by third parties relating to the use of Avaya’s products, as to which the Company may provide indemnifications of varying scope to certain parties. The Company is also involved in litigation pertaining to general commercial disputes with customers, suppliers, vendors and other third parties including royalty disputes. These matters are ongoing and the outcomes are subject to inherent uncertainties. As a result, the Company cannot be assured that any such matter will not have a material adverse effect on itsthe Company's financial position, results of operations or cash flows.flows in the periods in which the matters are ultimately resolved, or in the periods in which more information is obtained that changes management's opinion of the ultimate disposition.
On January 14, 2020, Solaborate Inc. and Solaborate LLC (collectively, “Solaborate”) filed suit against the Company in California Superior Court in San Bernardino County. The dispute concerns activities related to the Company’s development of the CU360 collaboration unit. Solaborate alleges breach of contract, trade secret misappropriation, and unfair business practices, among other causes of action. The Company has cross-claimed, alleging promissory fraud and negligent misrepresentation by Solaborate. As of September 30, 2021, the suit remains in the discovery phase and a trial is scheduled for April 11, 2022. Solaborate has not yet disclosed the amount of damages it seeks, which may include actual and punitive damages and equitable relief. While the Company intends to vigorously defend its interests and pursue the Company’s claims against Solaborate, at this time an outcome cannot be predicted as (i) discovery is not yet complete; (ii) the matter presents legal uncertainties; (iii) there are significant facts in dispute; and (iv) there is a wide range of potential outcomes. As a result, the Company is not able to reasonably estimate the possible loss, or range of loss.
Product Warranties
The Company recognizes a liability for the estimated costs that may be incurred to remedy certain deficiencies of quality or performance of the Company’s products. These product warranties extend over a specified period of time, generally ranging up to two years from the date of sale depending upon the product subject to the warranty. The Company accrues a provision for estimated future warranty costs based upon the historical relationship of warranty claims to sales. The Company periodically reviews the adequacy of its product warranties and adjusts, if necessary, the warranty percentage and accrued warranty reserve, which is included in other current and non-current liabilities in the Consolidated Balance Sheets, for actual experience. As of both September 30, 20192021 and 2018 (Successor),2020, the amount reserved for product warranties was $2 million. For fiscal 2019 (Successor), the period from December 16, 2017 through September 30, 2018 (Successor), the period from October 1, 2017 through December 15, 2017 (Predecessor)2021, 2020 and fiscal 2017 (Predecessor),2019, product warranty expense recorded in the Consolidated Statements of Operations was $3$4 million, $2 million, $1$4 million and $5$3 million, respectively.
Guarantees of Indebtedness and Other Off-Balance Sheet Arrangements
Letters of Credit and Guarantees
The Company provides guarantees, letters of credit and surety bonds to various parties as required for certain transactions initiated during the ordinary course of business to guarantee the Company's performance in accordance with contractual or legal

112

legal
obligations. As of September 30, 2019,2021, the maximum potential payment obligation with regards to letters of credit, guarantees and surety bonds was $65$64 million. The outstanding letters of credit are collateralized by restricted cash of $4 million which is included in Other assets on the Consolidated Balance Sheets as of September 30, 2019.2021.
Purchase Commitments and Termination Fees
The Company purchases components from a variety of suppliers and uses several contract manufacturers to provide manufacturing services for its products. During the normal course of business, to manage manufacturing lead times and to help assure adequate component supply, the Company enters into agreements with contract manufacturers and suppliers that allow them to produce and procure inventory based upon forecasted requirements provided by the Company. If the Company does not meet these specified purchase commitments, it could be required to purchase the inventory, or in the case of certain agreements, pay an early termination fee. Historically, the Company has not been required to pay a charge for not meeting its designated purchase commitments with these suppliers, but has been obligated to purchase certain excess inventory levels from its outsourced manufacturers due to actual sales of product varying from forecast and due to transition of manufacturing from one vendor to another.
The Company’s outsourcing agreements with its most significant contract manufacturers automatically renew in July and September for successive periods of twelve months each, subject to specific termination rights for the Company and the contract manufacturers. All manufacturing of the Company’s products is performed in accordance with either detailed requirements or specifications and product designs furnished by the Company and is subject to quality control standards.
Transactions with Nokia
Pursuant to the Contribution and Distribution Agreement effective October 1, 2000 (the "Contribution and Distribution Agreement"), Nokia Corporation ("Nokia", formerly known as Lucent Technologies, Inc. (now Nokia)("Lucent")) contributed to the Company substantially all of the assets, liabilities and operations associated with its enterprise networking businesses (the "Company’s"Contributed Businesses") and distributed the Company’s stock pro-rata to the shareholders of Lucent ("distribution"). The Contribution and Distribution Agreement, among other things, provides that, in general, the Company will indemnify Nokia for all liabilities including certain pre-distribution tax obligations of Nokia relating to the Company’sContributed Businesses and all contingent liabilities primarily relating to the Company’sContributed Businesses or otherwise assigned to the Company. In addition, the Contribution and Distribution Agreement provides that certain contingent liabilities not allocated to one of the parties will be shared by Nokia and the Company in prescribed percentages. The Contribution and Distribution Agreement also provides that each party will share specified portions of contingent liabilities based upon agreed percentages related to the business of the other party that exceed $50 million. The Company is unable to determine the maximum potential amount of other future payments, if any, that it could be required to make under this agreement.
In addition, in connection with the distribution, the Company and Lucent entered into a Tax Sharing Agreement effective October 1, 2000 (the "Tax Sharing Agreement") that governs Nokia’s and the Company’s respective rights, responsibilities and obligations after the distribution with respect to taxes for the periods ending on or before the distribution. Generally, pre-distribution taxes or benefits that are clearly attributable to the business of one party will be borne solely by that party and other pre-distribution taxes or benefits will be shared by the parties based on a formula set forth in the Tax Sharing Agreement. The Company may be subject to additional taxes or benefits pursuant to the Tax Sharing Agreement related to future settlements of audits by state and local and foreign taxing authorities for the periods prior to the Company’s separation from Nokia.
Leases
The Company leases land, buildings and equipment under agreements that expire in various years through 2029. Rental expense under operating leases, excluding any lease termination costs incurred related to the Company’s restructuring programs, was $68 million, $55 million, $16 million and $84 million for fiscal 2019 (Successor), the period from December 16, 2017 through September 30, 2018 (Successor), the period from October 1, 2017 through December 15, 2017 (Predecessor) and fiscal 2017 (Predecessor), respectively, net of sublease income of $5 million, $4 million, $1 million and $11 million, respectively.

The table below sets forth future minimum lease payments, net of sublease income of $3 million, due under non-cancelable operating leases, of which $6 million of such payments relate to restructuring and exit activities accrued for as of September 30, 2019 (Successor):
(In millions) 
2020$51
202139
202233
202322
202417
2025 and thereafter29
Future minimum lease payments$191
The table below sets forth future minimum lease payments, due under non-cancelable capitalized leases as of September 30, 2019 (Successor):
(In millions) 
2020$12
20216
20222
Future minimum lease payments$20
Less: Imputed interest(1)
Present value of net minimum lease payments$19
24. Quarterly Financial Data (Unaudited)
The following tables present unaudited quarterly financial data. This information has been derived from the Company’s unaudited financial statements and has been prepared on the same basis as the audited Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K.
  Successor
(In millions, except per share amounts) Fourth
Quarter		 Third
Quarter		 Second
Quarter		 First
Quarter
Fiscal year ended September 30, 2019        
Revenue $723
 $717
 $709
 $738
Gross profit 392
 390
 386
 407
Operating income (loss) 52
 (613) 38
 50
(Provision for) benefit from income taxes (32) 27
 6
 (3)
Net (loss) income (34) (633) (13) 9
Net (loss) income attributable to common stockholders (34) (633) (13) 9
Earnings (loss) per common share - basic $(0.31) $(5.70) $(0.12) $0.08
Earnings (loss) per common share - diluted $(0.31) $(5.70) $(0.12) $0.08

  Successor  Predecessor
(In millions, except per share amounts) Fourth
Quarter		 Third
Quarter		 Second
Quarter		 Period from December 16, 2017 through December 31, 2017  Period from October 1, 2017 through December 15, 2017
Fiscal year ended September 30, 2018           
Revenue $735
 $692
 $672
 $148
  $604
Gross profit 390
 352
 323
 78
  362
Operating income (loss) 11
 (49) (89) 2
  36
Benefit from (provision for) income taxes 311
 (20) 9
 246
  (459)
Net income (loss) 268
 (88) (130) 237
  2,977
Net income (loss) attributable to common stockholders 268
 (88) (130) 237
  2,582
Earnings (loss) per common share - basic $2.44
 $(0.80) $(1.18) $2.16
  $5.19
Earnings (loss) per common share - diluted $2.41
 $(0.80) $(1.18) $2.15
  $5.19
25.23. Condensed Financial Information of Parent Company
Avaya Holdings has no material assets or stand-alone operations other than its ownership in Avaya Inc. and its subsidiaries.
These condensed financial statements have been presented on a "Parent Company only" basis. Under a Parent Company only basis of presentation, the Company's investments in its consolidated subsidiaries are presented using the equity method of accounting. These Parent Company only condensed financial statements should be read in conjunction with the Company's Consolidated Financial Statements.
The following presents:
(1)the Successor Company, Parent Company only, statements of financial position as of September 30, 2019 and 2018, the statements of operations, comprehensive (loss) income and cash flows for the fiscal year ended September 30, 2019 and the period from December 16, 2017 through September 30, 2018, and;
(2)the Predecessor Company, Parent Company only, statements of operations, comprehensive (loss) income and cash flows for the period from October 1, 2017 through December 15, 2017 and for the fiscal year ended September 30, 2017.

(1)the Parent Company only statements of financial position as of September 30, 2021 and 2020, and;
(2)the statements of operations, comprehensive income (loss) and cash flows for the fiscal years ended September 30, 2021, 2020 and 2019.

113



Avaya Holdings Corp.
Parent Company Only
Condensed Balance SheetsStatements of Financial Position
(In millions)
As of September 30,
20212020
ASSETS
Investment in Avaya Inc.$1,060 $888 
TOTAL ASSETS$1,060 $888 
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Long-term debt$311 $291 
Other liabilities227 233 
TOTAL LIABILITIES538 524 
Commitments and contingencies00
Convertible series A preferred stock; 125,000 shares issued and outstanding at September 30, 2021 and 2020130 128 
TOTAL STOCKHOLDERS' EQUITY392 236 
TOTAL LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY$1,060 $888 
114
  September 30, 2019 September 30, 2018
ASSETS    
Investment in Avaya Inc. $1,604
 $2,344
TOTAL ASSETS $1,604
 $2,344
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
LIABILITIES    
Long-term debt $273
 $256
Other liabilities 31
 37
TOTAL LIABILITIES 304
 293
Commitments and contingencies   
TOTAL STOCKHOLDERS' EQUITY 1,300
 2,051
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,604
 $2,344



Avaya Holdings Corp.
Parent Company Only
Condensed Statements of Operations
(In millions, except per share amounts)
Fiscal years ended September 30,
202120202019
Equity in net income (loss) of Avaya Inc.$19 $(616)$(672)
Selling, general and administrative(3)(35)(3)
Interest expense(28)(26)(25)
Other (expense) income, net(1)(3)29 
LOSS BEFORE INCOME TAXES(13)(680)(671)
Provision for income taxes— — — 
NET LOSS(13)(680)(671)
Less: Dividends and accretion on Series A preferred stock(4)(7)— 
Undistributed loss(17)(687)(671)
Percentage allocated to common stockholders100.0 %100.0 %100.0 %
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS$(17)$(687)$(671)
LOSS PER SHARE AVAILABLE TO COMMON STOCKHOLDERS
Basic$(0.20)$(7.45)$(6.06)
Diluted$(0.20)$(7.45)$(6.06)
Weighted average shares outstanding
Basic84.5 92.2 110.8 
Diluted84.5 92.2 110.8 
  Successor  Predecessor
  Fiscal year ended September 30, 2019 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal year ended September 30, 2017
Equity in net (loss) income of Avaya Inc. $(672) $311
  $2,977
 $(182)
Selling, general and administrative (3) —
  —
 —
Interest expense (25) (3)  —
 —
Other income (expense), net 29
 (21)  —
 —
(LOSS) INCOME BEFORE INCOME TAXES (671) 287
  2,977
 (182)
Provision for income taxes —
 —
  —
 —
NET (LOSS) INCOME (671) 287
  2,977
 (182)
Less: Accretion and accrued dividends on Series A and Series B preferred stock —
 —
  —
 (31)
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS $(671) $287
  $2,977
 $(213)
          
(LOSS) EARNINGS PER SHARE AVAILABLE TO COMMON STOCKHOLDERS         
Basic $(6.06) $2.61
  $5.19
 $(0.43)
Diluted $(6.06) $2.58
  $5.19
 $(0.43)
Weighted average shares outstanding         
Basic 110.8
 109.9
  497.3
 497.1
Diluted 110.8
 111.1
  497.3
 497.1


Avaya Holdings Corp.
Parent Company Only
Condensed Statements of Comprehensive Income (Loss) Income
(In millions)
Fiscal years ended September 30,
202120202019
Net loss$(13)$(680)$(671)
    Equity in other comprehensive income (loss) of Avaya Inc.154 (72)(191)
Comprehensive income (loss)$141 $(752)$(862)

115
  Successor  Predecessor
  Fiscal year ended September 30, 2019 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal year ended September 30, 2017
Net (loss) income $(671) $287
  $2,977
 $(182)
Equity in other comprehensive (loss) income of Avaya Inc. (191) 18
  658
 213
Elimination of Predecessor Company accumulated other comprehensive loss —
 —
  790
 —
Comprehensive (loss) income $(862) $305
  $4,425
 $31




Avaya Holdings Corp.
Parent Company Only
Condensed Statements of Cash Flows
(In millions)
Fiscal years ended September 30,
202120202019
OPERATING ACTIVITIES:
Net loss$(13)$(680)$(671)
Adjustments to reconcile net loss to net cash used for operating activities:
Equity in net (income) loss of Avaya Inc.(19)616 672 
Share-based compensation2 2 2 
Amortization of debt issuance costs20 18 17 
Change in fair value of emergence date warrants1 3 (29)
Changes in operating assets and liabilities— — 9 
Net cash used for operating activities(9)(41)— 
INVESTING ACTIVITIES:
Net cash used for investing activities— — — 
FINANCING ACTIVITIES:
Proceeds from intercompany borrowings48 371 — 
Repayment of intercompany borrowings— (121)— 
Proceeds from issuance of Series A Preferred Stock, net of issuance costs of $4— 121 — 
Shares repurchased under the share repurchase program(37)(330)— 
Preferred stock dividends paid(2)— — 
Net cash provided by financing activities9 41 — 
Net increase (decrease) in cash and cash equivalents— — — 
Cash and cash equivalents at beginning of period— — — 
Cash and cash equivalents at end of period$— $— $— 
116
  Successor  Predecessor
  Fiscal year ended September 30, 2019 Period from December 16, 2017
through
September 30, 2018		  Period from
October 1, 2017
through
December 15, 2017		 Fiscal year ended September 30, 2017
Net (loss) income $(671) $287
  $2,977
 $(182)
Adjustments to reconcile net (loss) income to net cash used for operating activities:         
Equity in net loss (income) of Avaya Inc. 672
 (311)  (2,977) 182
Share-based compensation 2
 —
  —
 —
Amortization of debt issuance costs 17
 4
  —
 —
Change in fair value of emergence date warrants (29) 17
  —
 —
Changes in operating assets and liabilities 9
 3
  —
 —
Net cash used for operating activities —
 —
  —
 —
Net cash used for investing activities —
 (314)  —
 —
Net cash provided by financing activities —
 314
  —
 —
Net increase (decrease) in cash and cash equivalents —
 —
  —
 —
Cash and cash equivalents at beginning of period —
 —
  —
 —
Cash and cash equivalents at end of period $—
 $—
  $—
 $—


26. Subsequent Events
On October 1, 2019, the Board of Directors of the Company approved a stock repurchase program authorizing the Company to repurchase the Company’s Common Stock for an aggregate expenditure of up to $500 million. The repurchases may be made from time to time in the open market, through block trades or in privately negotiated transactions. The Company may adopt one or more purchase plans pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, in order to implement the stock repurchase program. The stock repurchase program does not obligate the Company to purchase any Common Stock and may be terminated, increased or decreased by the Board in its discretion at any time.
On October 3, 2019, the Company entered into certain agreements regarding a strategic partnership with RingCentral, Inc. (“RingCentral”). In connection with the strategic partnership, the Company and RingCentral entered into an investment agreement, whereby RingCentral purchased 125,000 shares of the Company’s Series A 3% Convertible Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”), for an aggregate purchase price of $125 million. The Series A Preferred Stock is convertible into shares of the Company’s Common Stock at an initial conversion price of $16.00 per share, which represents an approximately 6% interest in the Company's common stock on an as-converted basis assuming no holders of warrants, convertible notes or similar instruments exercise their exercise or conversion rights.
In connection with the strategic partnership, the Company and RingCentral also entered into an agreement governing the terms of the commercial arrangement between the parties (the “Framework Agreement”). Under the Framework Agreement, the parties entered into a Super Master Agent Agreement, pursuant to which Avaya will act as an agent to Avaya’s channel partners with respect to the sale of Avaya Cloud Office (“ACO”) and make direct sales of ACO. RingCentral will pay a commission to Avaya, including for the benefit of its channel partners, for each such sale. In addition, for each unit of ACO sold during the term of the Framework Agreement, RingCentral will pay Avaya certain fees. Among other things, the Framework Agreement requires Avaya to (subject to certain exceptions) market and sell ACO as its exclusive UCaaS solution (as defined in the Framework Agreement). Further, RingCentral will pay Avaya an advance of $375 million, predominantly for future fees, as well as for certain licensing rights, which will be paid primarily in RingCentral stock. The Framework Agreement has a multiyear term and can be terminated early by either party in the event (i) the other party fails to cure a material breach or (ii) the other party undergoes a change in control. In connection with the Framework Agreement, the Company has agreed to issue Series A Preferred Stock or Common Stock, as applicable, to RingCentral in satisfaction of certain of the Company’s obligations under the Framework Agreement. On October 25, 2019, the Company and RingCentral received notice from the U.S. Federal Trade Commission that it had granted early termination, effective immediately, of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act") for the transaction, and the transaction closed on October 31, 2019. The Company is currently in the process of evaluating the impact of the arrangement on its Consolidated Financial Statements.
In November 2019, the Company made a debt principal paydown of $250 million.


Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.Controls and Procedures
Disclosure Controls and Procedures
As of September 30, 2019,2021, the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Chief Financial Officer, that evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 20192021 to ensureprovide reasonable assurance that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and (ii) accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management's Report on Internal Control Over Financial Reporting
The Company’s management, including the CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the criteria set forth in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on that evaluation, management has concluded that its internal control over financial reporting was effective as of September 30, 20192021 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. The Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, has issued an audit report on the Company’s internal control over financial reporting, which appears in Part II, Item 8 of this Form 10-K.
Remediation of Previously Reported Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.
The Company identified a material weakness in connection with the preparation of the Company's Consolidated Financial Statements for the quarter ended March 31, 2018 related to the reconciliation of cash and accounts receivable upon the adoption of fresh start accounting. Specifically, the Company's internal controls with respect to the mid-month reconciliation of cash receipts and accounts receivable, which were required in connection with the adoption of fresh start accounting in accordance with GAAP, did not operate effectively to record certain cash receipts that were received on December 15, 2017, the date the Company emerged from bankruptcy.
This internal control deficiency resulted in an adjustment in the financial statements of the Company's cash and accounts receivable as of December 15, 2017, the Company's cash flow statements, and the revision of the Company's Consolidated Financial Statements for the predecessor period ended December 15, 2017 and the successor period ended December 31, 2017.
In connection with the preparation of the Company’s Consolidated Financial Statements for the successor period from December 16, 2017 through September 30, 2018, the Company identified an additional material weakness in the Company's internal control over financial reporting related to the review of certain journal entries. Specifically, the Company did not maintain effective controls to ensure that there was appropriate segregation of duties related to recording journal entries. This material weakness did not result in a misstatement.
Management took the following steps to remediate these material weaknesses and concluded that these material weaknesses were remediated as of September 30, 2019:
Provided additional training for employees involved in the cash and accounts receivable reconciliation processes, as well as certain other reconciliation processes, and supplemented existing reviewers with higher skilled resources.
Implemented a new system solution that automates and standardizes the account reconciliation process, including the use of standardized account reconciliation templates and workflows for the preparation, approval and review of account reconciliations with appropriate segregation of duties.

Implemented changes to posting rights and responsibilities to eliminate segregation of duties conflicts.
Provided additional training so that appropriate segregation of duties related to recording journal entries is achieved and performed on a timely basis as designed.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the quarter ended September 30, 20192021 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Item 9B.Other Information
None.

Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
117



PART III


Item 10.Directors, Executive Officers and Corporate Governance
Information required by this item will be included in an amendment hereto or a definitive proxy statement to be filed with the SEC within 120 days of the fiscal year ended September 30, 2019.2021.
Item 11.Executive Compensation
Information required by this item will be included in an amendment hereto or a definitive proxy statement to be filed with the SEC within 120 days of the fiscal year ended September 30, 2019.2021.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by this item will be included in an amendment hereto or a definitive proxy statement to be filed with the SEC within 120 days of the fiscal year ended September 30, 2019.2021.
Item 13.Certain Relationships and Related Transactions, and Director Independence
Information required by this item will be included in an amendment hereto or a definitive proxy statement to be filed with the SEC within 120 days of the fiscal year ended September 30, 2019.2021.
Item 14.Principal Accountant Fees and Services
Information required by this item will be included in an amendment hereto or a definitive proxy statement to be filed with the SEC within 120 days of the fiscal year ended September 30, 2019.2021.

118


PART IV


Item 15.Exhibits, Financial Statement Schedules
(a) (1)Financial Statements - The information required by this item is included in Part II Item 8 of this Annual Report on Form 10-K.
(2)Financial Statement Schedules - The information required by this item is included in Note 10, "Supplementary Financial Information," to our Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K.
(3)Exhibits - See Index to Exhibits, which is incorporated by reference in this Item. The Exhibits listed in the accompanying Index to Exhibits are filed herewith or incorporated by reference as part of this Annual Report on Form 10-K.
(a) (1)    Financial Statements - The information required by this item is included in Part II Item 8 of this Annual Report on Form 10-K.
(2)    Financial Statement Schedules - The information required by this item is included in Note 9, "Supplementary Financial Information," to our Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K.
(3)    Exhibits - See Index to Exhibits, which is incorporated by reference in this Item. The Exhibits listed in the accompanying Index to Exhibits are filed herewith or incorporated by reference as part of this Annual Report on Form 10-K.
(b) Exhibits - See Index to Exhibits, which is incorporated by reference in this Item. The Exhibits listed in the accompanying Index to Exhibits are filed herewith or incorporated by reference as part of this Annual Report on Form 10-K.
INDEX TO EXHIBITS
Exhibit NumberExhibit DescriptionIncorporated by ReferenceFiled Herewith
FormFile No.ExhibitFiling Date
2.110-12B001-382892.1December 15, 2017
3.110-12B001-382893.1December 15, 2017
3.28-K001-382893.1October 31, 2019
3.38-K001-382893.1May 13, 2021
4.110-12B001-382894.1December 15, 2017
4.210-12B001-382894.2December 15, 2017
4.310-K001-382894.3November 29, 2019
4.410-12B001-382894.6December 15, 2017
4.510-12B001-382894.7December 15, 2017
4.68-K001-382894.1June 12, 2018
4.710-K 001-382894.7November 25, 2020
10.18-K001-3828910.1October 3, 2019
10.28-K001-3828910.1October 31, 2019
10.3 +
10-Q001-3828910.1February 10, 2020
10.410-12B001-3828910.5December 22, 2017
119


Exhibit NumberExhibit DescriptionIncorporated by ReferenceFiled Herewith
FormFile No.ExhibitFiling Date
10.58-K001-3828910.1June 20, 2018
10.610-K001-3828910.6November 25, 2020
10.710-Q001-3828910.1May 10, 2021
10.810-12B001-3828910.6December 22, 2017
10.910-K001-3828910.8November 25, 2020
10.10*10-12B001-3828910.7December 15, 2017
10.11*10-12B001-3828910.12December 22, 2017
10.12*10-12B001-3828910.13December 22, 2017
10.13*10-Q001-3828910.1August 14, 2018
10.14*10-Q001-3828910.1February 15, 2019
120


Exhibit NumberExhibit DescriptionIncorporated by ReferenceFiled Herewith
FormFile No.ExhibitFiling Date
10.15*10-Q001-3828910.2February 15, 2019
10.16*10-Q001-3828910.1May 15, 2018
10.17*10-Q001-3828910.3February 15, 2019
10.18*S-8333-23471699.2November 15, 2019
10.19*10-Q001-3828910.4February 10, 2020
10.20*10-Q001-3828910.5February 10, 2020
10.21*Sch 14A333-234716Annex BJanuary 17, 2020
10.22*10-Q001-3828910.1May 11, 2020
10.23*10-Q001-3828910.3May 11, 2020
10.24*10-K001-3828910.29November 25, 2020
10.25*10-K001-3828910.30November 25, 2020
10.26*10-Q001-3828910.2May 10, 2021
10.27*10-Q001-3828910.3May 10, 2021
10.28*10-Q001-3828910.4May 11, 2020
10.29*X
10.30*10-Q001-3828910.5May 11, 2020
10.31*8-K001-3828910.1March 8, 2018
10.32*10-Q001-3828910.1February 9, 2021
10.33*8-K001-3828910.2May 18, 2018
10.34*10-Q001-3828910.4February 15, 2019
10.358-K001-3828910.1June 12, 2018
121


Exhibit NumberExhibit DescriptionIncorporated by ReferenceFiled Herewith
FormFile No.ExhibitFiling Date
10.368-K001-3828910.2June 12, 2018
10.378-K001-3828910.3June 12, 2018
10.388-K001-3828910.4June 12, 2018
10.398-K001-3828910.5June 12, 2018
10.408-K001-3828910.6June 12, 2018
10.418-K001-3828910.1June 28, 2018
10.428-K001-3828910.2June 28, 2018
10.438-K001-3828910.3June 28, 2018
10.448-K001-3828910.4June 28, 2018
10.458-K001-3828910.5June 28, 2018
10.468-K001-3828910.6June 28, 2018
10.47*10-12B001-3828910.8December 15, 2017
10.48*8-K001-3828910.1January 6, 2020
10.49*10-K001-3828910.38November 29, 2019
10.50*10-K001-3828910.39November 29, 2019
10.51*10-K001-3828910.53November 25, 2020
10.52*10-K001-3828910.54November 25, 2020
10.53*10-12B001-3828910.1December 22, 2017
21.1X
23.1X
31.1X
31.2X
32.1X
122


Exhibit NumberExhibit Description
2.1
Second Amended Joint Chapter 11 Plan of Reorganization of Avaya Inc. and its Debtor Affiliates, incorporated hereinIncorporated by reference to Exhibit 2.1 to the Company's Registration Statement on Form 10 filed on December 15, 2017
3.1Reference
Amended and Restated Certificate of Incorporation of Avaya Holdings Corp., incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form 10 filed on December 15, 2017
3.2
Certificate of Designations of the Series A Convertible Preferred Stock, incorporated herein by reference to Exhibit 3.1 to the Company's Form 8-K filed on October 31, 2019
3.3
Amended and Restated Bylaws of Avaya Holdings Corp., incorporated herein by reference to Exhibit 3.1 to the Company's Form 8-K filed on November 14, 2018
4.1
Form of Certificate of Common Stock of Avaya Holdings Corp., incorporated herein by reference to Exhibit 4.1 to the Company's Registration Statement on Form 10 filed on December 15, 2017
4.2
Form of Registration Rights Agreement between Avaya Holdings Corp. and the stockholders party thereto, incorporated herein by reference to Exhibit 4.2 to the Company's Registration Statement on Form 10 filed on December 15, 2017
4.3
Description of Capital Stock
4.4
Warrant Agreement between Avaya Holdings Corp. and American Stock Transfer & Trust Company, LLC, incorporated herein by reference to Exhibit 4.6 to the Company's Registration Statement on Form 10 filed on December 15, 2017
4.5
Form of Warrant Certificate, incorporated herein by reference to Exhibit 4.7 to the Company’s Registration Statement on Form 10 filed on December 15, 2017
4.6
Indenture, dated June 11, 2018, by and between Avaya Holdings Corp. and The Bank of New York Mellon Trust Company, N.A., incorporated herein by reference to Exhibit 4.1 to the Company’s Form 8-K filed on June 12, 2018
10.1
Investment Agreement, dated as of October 3, 2019, by and between Avaya Holdings Corp. and RingCentral, Inc., incorporated herein by reference to Exhibit 10.1 to the Company's Form 8-K filed on October 3, 2019
10.2
Investor Rights Agreement, dated October 31, 2019, by and between Avaya Holdings Corp. and RingCentral, Inc., incorporated herein by reference to Exhibit 10.1 to the Company's Form 8-K filed on October 31, 2019
10.3
Term Loan Credit Agreement, dated as of December 15, 2017, by and among Avaya Inc., Avaya Holdings Corp., Goldman Sachs Bank USA, as administrative agent and collateral agent, the subsidiary guarantors party thereto and each lender from time to time party thereto, incorporated herein by reference to Exhibit 10.5 to the Company's Registration Statement on Form 10 filed on December 22, 2017

Filed Herewith
10.4FormFile No.
Amendment No. 1, dated as of June 18, 2018, to the Term Loan Credit Agreement, dated as of December 15, 2017, among Avaya Inc., as borrower, Avaya Holdings Corp., the lenders from time to time party thereto, Goldman Sachs Bank USA, as the Administrative Agent and the Collateral Agent, and the other parties from time to time party thereto, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 20, 2018
10.5
ABL Credit Agreement, dated as of December 15, 2017, among Avaya Inc., Avaya Holdings Corp., Avaya Canada Corp., Avaya UK, Avaya International Sales Limited, Avaya Deutschland GmbH, Avaya GmbH & Co. KG, Citibank, N.A. as collateral agent and administrative agent, the lending institutions from time to time party thereto and the lending institutions named therein as letters of credit issuers and swing line lenders, incorporated herein by reference to Exhibit 10.6 to the Company's Registration Statement on Form 10 filed on December 22, 2017
10.6*
Avaya Holdings Corp. 2017 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.7 to the Company’s Registration Statement on Form 10 filed on December 15, 2017
10.7*
Form of Restricted Stock Unit Emergence Award Agreement Pursuant to the Avaya Holdings Corp. 2017 Equity Incentive Plan for James M. Chirico, Jr., incorporated herein by reference to Exhibit 10.9 to the Company's Registration Statement filed on December 22, 2017
10.8*
Form of Restricted Stock Unit Emergence Award Agreement Pursuant to the Avaya Holdings Corp. 2017 Equity Incentive Plan for Senior Executives, incorporated herein by reference to Exhibit 10.10 to the Company's Registration Statement filed on December 22, 2017
10.9*
Form of Restricted Stock Unit Emergence Award Agreement Pursuant to the Avaya Holdings Corp. 2017 Equity Incentive Plan for Other Employees, incorporated herein by reference to Exhibit 10.11 to the Company's Registration Statement filed on December 22, 2017
10.10*
Form of Nonqualified Stock Option Emergence Award Agreement Pursuant to the Avaya Holdings Corp. 2017 Equity Incentive Plan for James M. Chirico, Jr., incorporated herein by reference to Exhibit 10.12 to the Company's Registration Statement filed on December 22, 2017
10.11*
Form of Nonqualified Stock Option Emergence Award Agreement Pursuant to the Avaya Holdings Corp. 2017 Equity Incentive Plan for Senior Executives, incorporated herein by reference to Exhibit 10.13 to the Company's Registration Statement filed on December 22, 2017
10.12*
Form of Nonqualified Stock Option Emergence Award Agreement Pursuant to the Avaya Holdings Corp. 2017 Equity Incentive Plan for Other Employees, incorporated herein by reference to Exhibit 10.14 to the Company's Registration Statement filed on December 22, 2017
10.13*
Form of Restricted Stock Unit Award Agreement pursuant to the Avaya Holdings Corp. 2017 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed August 14, 2018
10.14*
Form of Nonqualified Stock Option Award Agreement pursuant to the Avaya Holdings Corp. 2017 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed August 14, 2018
10.15*
Form of Performance Restricted Stock Unit Award Agreement pursuant to the Avaya Holdings Corp. 2017 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed February 15, 2019
10.16*
Form of Performance Restricted Stock Unit Award Agreement for the Chief Executive Officer pursuant to the Avaya Holdings Corp. 2017 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed February 15, 2019
10.17*
Form of Restricted Stock Unit Award Agreement for Non-Employee Directors pursuant to the Avaya Holdings Corp. 2017 Equity Incentive Plan incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed May 15, 2018
10.18*
Form of Restricted Stock Unit Award Agreement for Non-Employee Directors pursuant to the Avaya Holdings Corp. 2017 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed on February 15, 2019
10.19*
Avaya Holdings Corp. 2019 Equity Incentive Plan, incorporated herein by reference to Exhibit 99.1 to the Company's Registration Statement on Form S-8 filed on November 15, 2019
10.20*
Avaya Holdings Corp. 2019 Omnibus Inducement Equity Plan, incorporated herein by reference to Exhibit 99.2 to the Company's Registration Statement on Form S-8 filed on November 15, 2019
10.21*
Avaya Inc. Executive Annual Incentive Plan, effective March 7, 2018, incorporated herein by reference to Exhibit 10.1 to the Company's Form 8-K filed on March 8, 2018
10.22*
Avaya Inc. Involuntary Separation Plan for Senior Executives, dated May 16, 2018, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on May 18, 2018
10.23*
Avaya Inc. Change in Control Severance Plan, dated May 16, 2018, incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K filed on May 18, 2018

Filing Date
10.24*32.2
10.25
Base Convertible Bond Hedge Confirmation, by and between Avaya Holdings Corp. and Barclays Bank PLC, dated June 6, 2018, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 12, 2018
10.26
Base Convertible Bond Hedge Confirmation, by and between Avaya Holdings Corp. and Credit Suisse Capital LLC, dated June 6, 2018, incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K filed on June 12, 2018
10.27
Base Convertible Bond Hedge Confirmation, by and between Avaya Holdings Corp. and JPMorgan Chase Bank, National Association, dated June 6, 2018, incorporated herein by reference to Exhibit 10.3 to the Company’s Form 8-K filed on June 12, 2018
10.28
Base Warrant Confirmation, by and between Avaya Holdings Corp. and Barclays Bank PLC, dated June 6, 2018, incorporated herein by reference to Exhibit 10.4 to the Company’s Form 8-K filed on June 12, 2018
10.29
Base Warrant Confirmation, by and between Avaya Holdings Corp. and Credit Suisse Capital LLC, dated June 6, 2018, incorporated herein by reference to Exhibit 10.5 to the Company’s Form 8-K filed on June 12, 2018
10.30
Base Warrant Confirmation, by and between Avaya Holdings Corp. and JPMorgan Chase Bank, National Association, dated June 6, 2018, incorporated herein by reference to Exhibit 10.6 to the Company’s Form 8-K filed on June 12, 2018
10.31
Additional Convertible Bond Hedge Confirmation, by and between Avaya Holdings Corp. and Barclays Bank PLC, dated June 26, 2018, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 28, 2018
10.32
Additional Convertible Bond Hedge Confirmation, by and between Avaya Holdings Corp. and Credit Suisse Capital LLC, dated June 26, 2018, incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K filed on June 28, 2018
10.33
Additional Convertible Bond Hedge Confirmation, by and between Avaya Holdings Corp. and JPMorgan Chase Bank, National Association, dated June 26, 2018, incorporated herein by reference to Exhibit 10.3 to the Company’s Form 8-K filed on June 28, 2018
10.34
Additional Warrant Confirmation, by and between Avaya Holdings Corp. and Barclays Bank PLC, dated June 26, 2018, incorporated herein by reference to Exhibit 10.4 to the Company’s Form 8-K filed on June 28, 2018
10.35
Additional Warrant Confirmation, by and between Avaya Holdings Corp. and Credit Suisse Capital LLC, dated June 26, 2018, incorporated herein by reference to Exhibit 10.5 to the Company’s Form 8-K filed on June 28, 2018
10.36
Additional Warrant Confirmation, by and between Avaya Holdings Corp. and JPMorgan Chase Bank, National Association, dated June 26, 2018, incorporated herein by reference to Exhibit 10.6 to the Company’s Form 8-K filed on June 28, 2018
10.37*
Executive Employment Agreement, dated November 13, 2017, between James M. Chirico, Jr. and Avaya Inc., incorporated herein by reference to Exhibit 10.8 to the Company’s Registration Statement on Form 10 filed on December 15, 2017
10.38*
Employment Offer Letter, dated January 30, 2019, between Kieran McGrath and Avaya Inc.
10.39*
Employment Offer Letter, dated November 16, 2017, between Shefali Shah and Avaya Inc.
10.40*
Form of Director and Officer Indemnification Agreement, incorporated herein by reference to Exhibit 10.1 to the Company’s Registration Statement on Form 10 filed on December 22, 2017
10.41*
Transition and Consulting Services Agreement dated January 12, 2018, between Kevin J. Kennedy and Avaya Inc., incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed March 2, 2018
21.1
List of Subsidiaries
23.1
Consent of Independent Registered Public Accounting Firm
31.1
Certification of James M. Chirico, Jr. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Kieran J. McGrath, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of James M. Chirico, Jr. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification of Kieran J. McGrath, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
101.INSXBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.X
101.SCHXBRL Taxonomy Extension Schema

X
101.CALXBRL Taxonomy Extension Calculation LinkbaseX
101.DEFXBRL Taxonomy Extension Definition LinkbaseX
101.LABXBRL Taxonomy Extension Labels LinkbaseX
101.PREXBRL Taxonomy Extension Presentation LinkbaseX
104Cover Page Interactive Data File (Formatted as Inline XBRL in Exhibit 101)X
* Indicates management contract or compensatory plan or arrangement.
+ Immaterial information has Portions of this exhibit have been omitted from this exhibit pursuant to rules promulgated byItem 601(b)(10)(iv) of Regulation S-K, which portions will be furnished to the Securities and Exchange Commission.Commission upon request.
(c) Not applicable.
Item 16.Form 10-K Summary
None.


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November 29, 2019.

22, 2021.
AVAYA HOLDINGS CORP.
By:
/s/ KEVIN SPEED
Name:Kevin Speed
Title:Global Vice President, Controller and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

123


SignatureTitleDate
/s/ JAMES M. CHIRICO, JR.
Director, President and Chief Executive Officer
(Principal Executive Officer)		November 22, 2021
James M. Chirico, Jr.
/s/ KIERAN J. MCGRATH
Executive Vice President, Chief Financial Officer
(Principal Financial Officer)		November 22, 2021
Kieran J. McGrath
/s/ KEVIN SPEED
Global Vice President, Controller and Chief Accounting OfficerNovember 22, 2021
    Kevin Speed
/s/ WILLIAM D. WATKINS
Chair of the Board of
Directors		November 22, 2021
William D. Watkins
/s/ STEPHAN SCHOLL
DirectorNovember 22, 2021
Stephan Scholl
/s/ SUSAN L. SPRADLEY
DirectorNovember 22, 2021
Susan L. Spradley
/s/ STANLEY J. SUTULA, III
DirectorNovember 22, 2021
Stanley J. Sutula, III
/s/ ROBERT THEIS
DirectorNovember 22, 2021
Robert Theis
/s/ SCOTT D. VOGEL
DirectorNovember 22, 2021
Scott D. Vogel
/s/ JACQUELINE E. YEANEY
DirectorNovember 22, 2021
Jacqueline E. Yeaney
SignatureTitleDate
/s/ JAMES M. CHIRICO, JR.
Director, President and Chief Executive Officer
(Principal Executive Officer)		November 29, 2019
James M. Chirico, Jr.
/s/ KIERAN J. MCGRATH
Senior Vice President, Chief Financial Officer
(Principal Financial Officer)
November 29, 2019
Kieran J. McGrath
/s/ KEVIN SPEED
Vice President, Corporate Controller and Chief Accounting OfficerNovember 29, 2019
    Kevin Speed
/s/ WILLIAM D. WATKINS
Chairman of the Board of
Directors
November 29, 2019
William D. Watkins
/s/ STEPHAN SCHOLL
DirectorNovember 29, 2019
Stephan Scholl
/s/ SUSAN L. SPRADLEY
DirectorNovember 29, 2019
Susan L. Spradley
/s/ STANLEY J. SUTULA, III
DirectorNovember 29, 2019
Stanley J. Sutula, III
/s/ SCOTT D. VOGEL
DirectorNovember 29, 2019
Scott D. Vogel
/s/ JACQUELINE E. YEANEY
DirectorNovember 29, 2019
Jacqueline E. Yeaney

158124