UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q


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

For the quarterly period ended ~~June 30, 2020~~March 31, 2021


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

For the transition period from to

Commission File Number: 001-38289

AVAYA HOLDINGS CORP.

(Exact name of registrant as specified in its charter)

Delaware

26-1119726

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

~~4655 Great America~~2605 Meridian Parkway, Suite 200

~~95054~~27713

~~Santa Clara,~~Durham,

~~California~~North Carolina

(Address of Principal executive offices)

(Zip Code)

(908) 953-6000

(Registrant's telephone number, including area code)

None

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

Securities registered pursuant to Section 12(b) of the Act


Title of Each Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	AVYA	New York Stock Exchange

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

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 ☒ 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 filer	☒	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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

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 ☒ No ☐

As of ~~July 31, 2020, 82,977,984~~April 30, 2021, 84,573,426 shares of common stock, $.01 par value, of the registrant were outstanding.

TABLE OF CONTENTS


Item	Item	Description	Page	Item	Description	Page

		PART I—FINANCIAL INFORMATION			PART I—FINANCIAL INFORMATION
1.	1.	Financial Statements	1	1.	Financial Statements	1
2.	2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	34	2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30
3.	3.	Quantitative and Qualitative Disclosures About Market Risk	50	3.	Quantitative and Qualitative Disclosures About Market Risk	44
4.	4.	Controls and Procedures	51	4.	Controls and Procedures	45

		PART II—OTHER INFORMATION			PART II—OTHER INFORMATION
1.	1.	Legal Proceedings	52	1.	Legal Proceedings	46
1A.	1A.	Risk Factors	52	1A.	Risk Factors	46
2.	2.	Unregistered Sales of Equity Securities and Use of Proceeds	53	2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
3.	3.	Defaults Upon Senior Securities	53	3.	Defaults Upon Senior Securities	46
4.	4.	Mine Safety Disclosures	53	4.	Mine Safety Disclosures	46
5.	5.	Other Information	53	5.	Other Information	46
6.	6.	Exhibits	54	6.	Exhibits	47
7.	7.	Signatures	55	7.	Signatures	48

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 Quarterly Report on Form 10-Q contains the registered and unregistered trademarks or service marks of Avaya and are the property of Avaya Holdings Corp. and/or its affiliates. This Quarterly Report on Form 10-Q 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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PART I—FINANCIAL INFORMATION


Item 1.			Financial Statements.

Avaya Holdings Corp.

Condensed Consolidated Statements of Operations (Unaudited)

(In millions, except per share amounts)


		Three months ended June 30,						Nine months ended June 30,							Three months ended March 31,				Six months ended March 31,
		2020		2019		2020		2019			2021		2020		2021		2020
REVENUE	REVENUE									REVENUE
Products	Products	$	261	$	297	$	804	$	908	Products	$	226	$	245	$	492	$	543
Services	Services	460		420		1,314		1,256		Services	512		437		989		854
		721		717		2,118		2,164			738		682		1,481		1,397
COSTS	COSTS									COSTS
Products:	Products:									Products:
Costs	Costs	103		109		299		329		Costs	92		92		197		196
Amortization of technology intangible assets	Amortization of technology intangible assets	43		43		130		130		Amortization of technology intangible assets	43		44		86		87
Services	Services	178		175		527		522		Services	191		175		370		349
		324		327		956		981			326		311		653		632
GROSS PROFIT	GROSS PROFIT	397		390		1,162		1,183		GROSS PROFIT	412		371		828		765
OPERATING EXPENSES	OPERATING EXPENSES									OPERATING EXPENSES
Selling, general and administrative	Selling, general and administrative	232		253		763		761		Selling, general and administrative	264		248		519		531
Research and development	Research and development	52		49		155		154		Research and development	57		51		112		103
Amortization of intangible assets	Amortization of intangible assets	40		41		122		122		Amortization of intangible assets	39		41		79		82
Impairment charges		—		659		624		659
Impairment of goodwill										Impairment of goodwill	0		624		0		624
Restructuring charges, net	Restructuring charges, net	20		1		27		12		Restructuring charges, net	8		4		12		7
		344		1,003		1,691		1,708			368		968		722		1,347
OPERATING INCOME (LOSS)	OPERATING INCOME (LOSS)	53		(613)		(529)		(525)		OPERATING INCOME (LOSS)	44		(597)		106		(582)
Interest expense	Interest expense	(51)		(59)		(162)		(177)		Interest expense	(59)		(53)		(115)		(111)
Other income, net	Other income, net	27		12		56		35		Other income, net	1		15		1		29
INCOME (LOSS) BEFORE INCOME TAXES		29		(660)		(635)		(667)
(Provision for) benefit from income taxes		(20)		27		(82)		30
NET INCOME (LOSS)		$	9	$	(633)	$	(717)	$	(637)
EARNINGS (LOSS) PER SHARE
LOSS BEFORE INCOME TAXES										LOSS BEFORE INCOME TAXES	(14)		(635)		(8)		(664)
Provision for income taxes										Provision for income taxes	(44)		(37)		(54)		(62)
NET LOSS										NET LOSS	$	(58)	$	(672)	$	(62)	$	(726)
LOSS PER SHARE										LOSS PER SHARE
Basic	Basic	$	0.08	$	(5.70)	$	(7.61)	$	(5.75)	Basic	$	(0.70)	$	(7.24)	$	(0.76)	$	(7.24)
Diluted	Diluted	$	0.08	$	(5.70)	$	(7.61)	$	(5.75)	Diluted	$	(0.70)	$	(7.24)	$	(0.76)	$	(7.24)
Weighted average shares outstanding	Weighted average shares outstanding									Weighted average shares outstanding
Basic	Basic	83.1		111.0		95.1		110.7		Basic	84.6		93.0		84.2		101.1
Diluted	Diluted	83.3		111.0		95.1		110.7		Diluted	84.6		93.0		84.2		101.1

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

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Avaya Holdings Corp.

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(In millions)

Three months ended
June 30, Nine months ended
June 30,
2020 2019 2020 2019
Net income (loss) $ 9 $ (633) $ (717) $ (637)
Other comprehensive loss:
Pension, post-retirement and postemployment benefit-related items, net of income taxes of $2 for the three and nine months ended June 30, 2019 — (6) — (6)
Cumulative translation adjustment (11) (10) (17) 9
Change in interest rate swaps, net of income taxes of $7 and $18 for the three and nine months ended June 30, 2019 4 (22) (35) (53)
Other comprehensive loss (7) (38) (52) (50)
Total comprehensive income (loss) $ 2 $ (671) $ (769) $ (687)


	Three months ended March 31,				Six months ended March 31,
	2021		2020		2021		2020
Net loss	$	(58)	$	(672)	$	(62)	$	(726)
Other comprehensive income (loss):
Pension, post-retirement and postemployment benefit-related items, net of income taxes of $(1) for the three and six months ended March 31, 2021	34		0		46		0
Cumulative translation adjustment	21		(9)		15		(6)
Change in interest rate swaps, net of income taxes of $2 for the three months ended March 31, 2020	30		(46)		41		(39)
Other comprehensive income (loss)	85		(55)		102		(45)
Total comprehensive income (loss)	$	27	$	(727)	$	40	$	(771)

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

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Avaya Holdings Corp.

Condensed Consolidated Balance Sheets (Unaudited)

(In millions, except per share and share amounts)


		June 30, 2020		September 30, 2019			March 31, 2021		September 30, 2020
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	742	$	752	Cash and cash equivalents	$	593	$	727
Accounts receivable, net	Accounts receivable, net	260		314		Accounts receivable, net	289		275
Inventory	Inventory	56		63		Inventory	51		54
Contract assets		276		187
Contract assets, net						Contract assets, net	401		296
Contract costs	Contract costs	124		114		Contract costs	115		115
Other current assets	Other current assets	111		115		Other current assets	124		112
TOTAL CURRENT ASSETS	TOTAL CURRENT ASSETS	1,569		1,545		TOTAL CURRENT ASSETS	1,573		1,579
Property, plant and equipment, net	Property, plant and equipment, net	256		255		Property, plant and equipment, net	278		268
Deferred income taxes, net	Deferred income taxes, net	27		35		Deferred income taxes, net	42		31
Intangible assets, net	Intangible assets, net	2,637		2,891		Intangible assets, net	2,394		2,556
Goodwill, net	Goodwill, net	1,477		2,103		Goodwill, net	1,481		1,478
Operating lease right-of-use assets	Operating lease right-of-use assets	167		—		Operating lease right-of-use assets	152		160
Other assets	Other assets	135		121		Other assets	190		159
TOTAL ASSETS	TOTAL ASSETS	$	6,268	$	6,950	TOTAL ASSETS	$	6,110	$	6,231
LIABILITIES	LIABILITIES					LIABILITIES
Current liabilities:	Current liabilities:					Current liabilities:
Debt maturing within one year		$	50	$	29
Accounts payable	Accounts payable	250		291		Accounts payable	$	261	$	242
Payroll and benefit obligations	Payroll and benefit obligations	166		116		Payroll and benefit obligations	163		198
Contract liabilities	Contract liabilities	514		472		Contract liabilities	451		446
Operating lease liabilities	Operating lease liabilities	49		—		Operating lease liabilities	49		49
Business restructuring reserve		23		33
Business restructuring reserves						Business restructuring reserves	19		21
Other current liabilities	Other current liabilities	192		158		Other current liabilities	230		181
TOTAL CURRENT LIABILITIES	TOTAL CURRENT LIABILITIES	1,244		1,099		TOTAL CURRENT LIABILITIES	1,173		1,137
Non-current liabilities:	Non-current liabilities:					Non-current liabilities:
Long-term debt, net of current portion		2,888		3,090
Long-term debt						Long-term debt	2,800		2,886
Pension obligations	Pension obligations	734		759		Pension obligations	716		749
Other post-retirement obligations	Other post-retirement obligations	194		200		Other post-retirement obligations	149		215
Deferred income taxes, net	Deferred income taxes, net	55		72		Deferred income taxes, net	43		38
Contract liabilities	Contract liabilities	336		78		Contract liabilities	348		373
Operating lease liabilities	Operating lease liabilities	135		—		Operating lease liabilities	123		129
Business restructuring reserve		28		36
Business restructuring reserves						Business restructuring reserves	22		28
Other liabilities	Other liabilities	315		316		Other liabilities	310		312
TOTAL NON-CURRENT LIABILITIES	TOTAL NON-CURRENT LIABILITIES	4,685		4,551		TOTAL NON-CURRENT LIABILITIES	4,511		4,730
TOTAL LIABILITIES	TOTAL LIABILITIES	5,929		5,650		TOTAL LIABILITIES	5,684		5,867
Commitments and contingencies (Note 20)	Commitments and contingencies (Note 20)					Commitments and contingencies (Note 20)
Preferred stock, $0.01 par value; 55,000,000 shares authorized at June 30, 2020 and September 30, 2019
Convertible series A preferred stock; 125,000 shares issued and outstanding at June 30, 2020 and no shares issued and outstanding at September 30, 2019		128		—
Preferred stock, $0.01 par value; 55,000,000 shares authorized at March 31, 2021 and September 30, 2020						Preferred stock, $0.01 par value; 55,000,000 shares authorized at March 31, 2021 and September 30, 2020
Convertible series A preferred stock; 125,000 shares issued and outstanding at March 31, 2021 and September 30, 2020						Convertible series A preferred stock; 125,000 shares issued and outstanding at March 31, 2021 and September 30, 2020	130		128
STOCKHOLDERS' EQUITY	STOCKHOLDERS' EQUITY					STOCKHOLDERS' EQUITY
Common stock, $0.01 par value; 550,000,000 shares authorized; 82,864,260 shares issued and outstanding at June 30, 2020; and 111,046,085 shares issued and 111,033,405 shares outstanding at September 30, 2019		1		1
Common stock, $0.01 par value; 550,000,000 shares authorized; 84,658,712 shares issued and outstanding at March 31, 2021; and 83,278,383 shares issued and outstanding at September 30, 2020						Common stock, $0.01 par value; 550,000,000 shares authorized; 84,658,712 shares issued and outstanding at March 31, 2021; and 83,278,383 shares issued and outstanding at September 30, 2020	1		1
Additional paid-in capital	Additional paid-in capital	1,441		1,761		Additional paid-in capital	1,472		1,449
Accumulated deficit	Accumulated deficit	(1,006)		(289)		Accumulated deficit	(1,034)		(969)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(225)		(173)		Accumulated other comprehensive loss	(143)		(245)
TOTAL STOCKHOLDERS' EQUITY	TOTAL STOCKHOLDERS' EQUITY	211		1,300		TOTAL STOCKHOLDERS' EQUITY	296		236
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	6,268	$	6,950	TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	6,110	$	6,231

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

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Avaya Holdings Corp.

Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)

(In millions)


		Common Stock					Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income				Total Stockholders' Equity						Common Stock					Additional Paid-In Capital				Accumulated Deficit			Accumulated Other Comprehensive Loss				Total Stockholders' Equity
															Shares					Par Value				Additional Paid-In Capital
Balance as of September 30, 2020															Balance as of September 30, 2020				83.3				$		1				$	(969)			$	(245)		$	236
Issuance of common stock under the equity incentive plan															Issuance of common stock under the equity incentive plan				0.3																0
Issuance of common stock under the employee stock purchase plan															Issuance of common stock under the employee stock purchase plan				0.3							3									3
Shares repurchased and retired for tax withholding on vesting of restricted stock units															Shares repurchased and retired for tax withholding on vesting of restricted stock units				(0.1)							(2)									(2)
Share-based compensation expense															Share-based compensation expense											14									14
Preferred stock dividends accrued															Preferred stock dividends accrued											(1)									(1)
Adjustment for adoption of new accounting standard (Note 2)															Adjustment for adoption of new accounting standard (Note 2)													(3)							(3)
Net loss															Net loss													(4)							(4)
Other comprehensive income															Other comprehensive income																	17			17
Balance as of December 31, 2020															Balance as of December 31, 2020				83.8				$	1		$	1,463	$	(976)			$	(228)		$	260
Issuance of common stock under the equity incentive plan															Issuance of common stock under the equity incentive plan				1.2							8									8
Issuance of common stock under the employee stock purchase plan															Issuance of common stock under the employee stock purchase plan				0.2							3									3
Shares repurchased and retired for tax withholding on vesting of restricted stock units															Shares repurchased and retired for tax withholding on vesting of restricted stock units				(0.3)							(7)									(7)
Shares repurchased and retired under share repurchase program															Shares repurchased and retired under share repurchase program				(0.2)							(7)									(7)
Share-based compensation expense															Share-based compensation expense											13									13
Preferred stock dividends accrued															Preferred stock dividends accrued											(1)									(1)
Net loss															Net loss													(58)							(58)
Other comprehensive income															Other comprehensive income																	85			85
Balance as of March 31, 2021															Balance as of March 31, 2021				84.7				$	1		$	1,472	$	(1,034)			$	(143)		$	296
		Shares	Par Value						Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income							Total Stockholders' Equity
Balance as of September 30, 2019	Balance as of September 30, 2019	111.0	$	1	$	1,761				Balance as of September 30, 2019			111.0				$	1					$	1,761		$	(289)	$	(173)			$	1,300
Issuance of common stock under the equity incentive plan	Issuance of common stock under the equity incentive plan	0.3											—			Issuance of common stock under the equity incentive plan					0.3																0
Shares repurchased and retired for tax withholding on vesting of restricted stock units	Shares repurchased and retired for tax withholding on vesting of restricted stock units	(0.1)			(2)								(2)		Shares repurchased and retired for tax withholding on vesting of restricted stock units				(0.1)								(2)									(2)
Shares repurchased and retired under share repurchase program	Shares repurchased and retired under share repurchase program	(10.7)			(142)								(142)		Shares repurchased and retired under share repurchase program				(10.7)							(142)									(142)
Share-based compensation expense	Share-based compensation expense				6								6		Share-based compensation expense											6									6
Accretion of preferred stock to redemption value	Accretion of preferred stock to redemption value				(4)								(4)		Accretion of preferred stock to redemption value											(4)									(4)
Preferred stock dividends accrued	Preferred stock dividends accrued				(1)								(1)		Preferred stock dividends accrued											(1)									(1)
Net loss	Net loss						(54)								(54)		Net loss														(54)							(54)
Other comprehensive income	Other comprehensive income									10			10		Other comprehensive income																	10			10
Balance as of December 31, 2019	Balance as of December 31, 2019	100.5	$	1	$	1,618	$	(343)		$	(163)		$	1,113	Balance as of December 31, 2019				100.5				$	1		$	1,618	$	(343)			$	(163)		$	1,113
Issuance of common stock under the equity incentive plan	Issuance of common stock under the equity incentive plan	0.6											—		Issuance of common stock under the equity incentive plan				0.6																0
Shares repurchased and retired for tax withholding on vesting of restricted stock units	Shares repurchased and retired for tax withholding on vesting of restricted stock units	(0.2)			(1)								(1)		Shares repurchased and retired for tax withholding on vesting of restricted stock units				(0.2)							(1)									(1)
Shares repurchased and retired under share repurchase program	Shares repurchased and retired under share repurchase program	(18.2)			(188)								(188)		Shares repurchased and retired under share repurchase program				(18.2)							(188)									(188)
Share-based compensation expense	Share-based compensation expense				8								8		Share-based compensation expense											8									8
Preferred stock dividends accrued	Preferred stock dividends accrued				(1)								(1)		Preferred stock dividends accrued											(1)									(1)
Net loss	Net loss						(672)						(672)		Net loss													(672)							(672)
Other comprehensive loss	Other comprehensive loss									(55)			(55)		Other comprehensive loss																	(55)			(55)
Balance as of March 31, 2020	Balance as of March 31, 2020	82.7	$	1	$	1,436	$	(1,015)		$	(218)		$	204	Balance as of March 31, 2020				82.7				$	1		$	1,436	$	(1,015)			$	(218)		$	204
Issuance of common stock under the equity incentive plan		0.3											—
Shares repurchased and retired for tax withholding on vesting of restricted stock units		(0.1)			(1)								(1)
Share-based compensation expense					7								7
Preferred stock dividends accrued					(1)								(1)
Net income							9						9
Other comprehensive loss										(7)			(7)
Balance as of June 30, 2020		82.9	$	1	$	1,441	$	(1,006)		$	(225)		$	211

Balance as of September 30, 2018		110.2	$	1	$	1,745	$	287		$	18		$	2,051
Issuance of common stock under the equity incentive plan		0.8											—
Shares repurchased and retired for tax withholding on vesting of restricted stock units		(0.3)			(6)								(6)
Share-based compensation expense					6								6
Adjustment for adoption of new accounting standard							92						92
Net income							9						9
Other comprehensive loss										(20)			(20)
Balance as of December 31, 2018		110.7	$	1	$	1,745	$	388		$	(2)		$	2,132
Share-based compensation expense					5								5
Adjustment for adoption of new accounting standard							3						3
Net loss							(13)						(13)
Other comprehensive income										8			8
Balance as of March 31, 2019		110.7	$	1	$	1,750	$	378		$	6		$	2,135
Issuance of common stock under the equity incentive plan		0.3											—
Shares repurchased and retired for tax withholding on vesting of restricted stock units		(0.1)			(2)								(2)
Share-based compensation expense					8								8
Net loss							(633)						(633)
Other comprehensive loss										(38)			(38)
Balance as of June 30, 2019		110.9	$	1	$	1,756	$	(255)		$	(32)		$	1,470

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

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Avaya Holdings Corp.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)


		Nine months ended June 30,							Six months ended March 31,
		2020		2019			2021		2020
OPERATING ACTIVITIES:	OPERATING ACTIVITIES:					OPERATING ACTIVITIES:
Net loss	Net loss	$	(717)	$	(637)	Net loss	$	(62)	$	(726)
Adjustments to reconcile net loss to net cash provided by operating activities:	Adjustments to reconcile net loss to net cash provided by operating activities:					Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	319		335		Depreciation and amortization	209		212
Share-based compensation	Share-based compensation	21		19		Share-based compensation	27		14
Debt discount and issuance costs		19		16
Amortization of debt discount and issuance costs						Amortization of debt discount and issuance costs	13		14
Loss on extinguishment of debt						Loss on extinguishment of debt	1		0
Deferred income taxes, net	Deferred income taxes, net	(11)		(27)		Deferred income taxes, net	(4)		(17)
Impairment charges		624		659
Impairment of goodwill						Impairment of goodwill	0		624
Gain on post-retirement plan settlement						Gain on post-retirement plan settlement	(14)		0
Change in fair value of emergence date warrants	Change in fair value of emergence date warrants	—		(28)		Change in fair value of emergence date warrants	27		(3)
Unrealized loss on foreign currency transactions	Unrealized loss on foreign currency transactions	19		9		Unrealized loss on foreign currency transactions	12		8
Impairment of debt securities	Impairment of debt securities	10		—		Impairment of debt securities	0		10
Unrealized gain on equity securities						Unrealized gain on equity securities	0		(19)
Realized gain on sale of equity securities	Realized gain on sale of equity securities	(59)		—		Realized gain on sale of equity securities	0		(11)
Other non-cash credits, net		(7)		7
Other non-cash charges (credits), net						Other non-cash charges (credits), net	1		(6)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	50		100		Accounts receivable	(12)		41
Inventory	Inventory	6		(14)		Inventory	3		6
Operating lease right-of-use assets and liabilities	Operating lease right-of-use assets and liabilities	12		—		Operating lease right-of-use assets and liabilities	2		2
Contract assets	Contract assets	(122)		(99)		Contract assets	(122)		(53)
Contract costs	Contract costs	1		(26)		Contract costs	(5)		(13)
Accounts payable	Accounts payable	(37)		27		Accounts payable	21		(31)
Payroll and benefit obligations	Payroll and benefit obligations	5		(66)		Payroll and benefit obligations	(76)		(24)
Business restructuring reserve		(15)		(23)
Business restructuring reserves						Business restructuring reserves	(8)		(13)
Contract liabilities	Contract liabilities	(37)		26		Contract liabilities	(22)		(30)
Other assets and liabilities	Other assets and liabilities	(4)		(103)		Other assets and liabilities	33		47
NET CASH PROVIDED BY OPERATING ACTIVITIES	NET CASH PROVIDED BY OPERATING ACTIVITIES	77		175		NET CASH PROVIDED BY OPERATING ACTIVITIES	24		32
INVESTING ACTIVITIES:	INVESTING ACTIVITIES:					INVESTING ACTIVITIES:
Capital expenditures	Capital expenditures	(72)		(84)		Capital expenditures	(53)		(48)
Proceeds from sale of marketable securities	Proceeds from sale of marketable securities	412		—		Proceeds from sale of marketable securities	0		294
Investment in debt securities		—		(10)
Other investing activities, net		—		(1)
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES		340		(95)
NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES						NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES	(53)		246
FINANCING ACTIVITIES:	FINANCING ACTIVITIES:					FINANCING ACTIVITIES:
Shares repurchased under share repurchase program	Shares repurchased under share repurchase program	(330)		—		Shares repurchased under share repurchase program	(7)		(330)
Proceeds from issuance of Series A Preferred Stock, net of issuance costs of $4	Proceeds from issuance of Series A Preferred Stock, net of issuance costs of $4	121		—		Proceeds from issuance of Series A Preferred Stock, net of issuance costs of $4	0		121
Repayment of Term Loan Credit Agreement due to refinancing						Repayment of Term Loan Credit Agreement due to refinancing	(743)		0
Proceeds from Term Loan Credit Agreement due to refinancing						Proceeds from Term Loan Credit Agreement due to refinancing	743		0
Repayment of Term Loan Credit Agreement	Repayment of Term Loan Credit Agreement	(250)		(22)		Repayment of Term Loan Credit Agreement	(100)		(250)
Borrowings under ABL Credit Agreement		50		—
Principal payments for financing leases	Principal payments for financing leases	(8)		(12)		Principal payments for financing leases	(8)		(5)
Proceeds from other financing arrangements						Proceeds from other financing arrangements	3		0
Payment of acquisition-related contingent consideration	Payment of acquisition-related contingent consideration	(5)		(9)		Payment of acquisition-related contingent consideration	0		(5)
Debt issuance costs						Debt issuance costs	(2)		0
Proceeds from Employee Stock Purchase Plan	Proceeds from Employee Stock Purchase Plan	1		—		Proceeds from Employee Stock Purchase Plan	7		0
Proceeds from exercises of stock options						Proceeds from exercises of stock options	8		0
Other financing activities, net	Other financing activities, net	(4)		(8)		Other financing activities, net	(9)		(3)
NET CASH USED FOR FINANCING ACTIVITIES	NET CASH USED FOR FINANCING ACTIVITIES	(425)		(51)		NET CASH USED FOR FINANCING ACTIVITIES	(108)		(472)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(2)		1		Effect of exchange rate changes on cash, cash equivalents, and restricted cash	3		(5)
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH		(10)		30
NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH						NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	(134)		(199)
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	756		704		Cash, cash equivalents, and restricted cash at beginning of period	731		756
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	746	$	734	Cash, cash equivalents, and restricted cash at end of period	$	597	$	557

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

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Avaya Holdings Corp.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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-premises~~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-add~~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 unaudited interim Condensed 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") for interim financial statements. The unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and other financial information for the fiscal year ended September 30, ~~2019,~~2020, included in the Company's Annual Report on Form 10-K filed with the SEC on November ~~29, 2019.~~25, 2020. In management's opinion, these unaudited interim Condensed Consolidated Financial Statements reflect all adjustments, consisting of normal and recurring adjustments, necessary to fairly state the results of operations, financial position and cash flows for the periods indicated. The condensed consolidated results of operations for the interim periods reported are not necessarily indicative of the results for the entire fiscal year.

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. 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 may differ from these estimates. During the second quarter of fiscal 2020, the World Health Organization characterized a novel strain of coronavirus ("COVID-19") as a pandemic. ~~Concerns related to the~~The spread of COVID-19 around the globe and the actions required to mitigate its impact have created substantial disruption to the global economy. The duration of the pandemic and the long-term impacts on the global economy are uncertain. ~~We expect the effects of the COVID-19 pandemic to negatively impact our results of operations, cash flows and financial position. In addition, the~~The pandemic may affect ~~management's~~management’s estimates and assumptions, in particular those that require a projection of our financial results, our cash flows or broader economic conditions, such as the collectability of accounts receivable, sales returns and allowances, the use and recoverability of inventory, the realization of deferred tax assets, annual effective tax rate, the fair value of equity compensation, the recoverability of long-lived assets, useful lives and impairment of tangible and intangible assets including goodwill, ~~(see Note 6, "Goodwill, net and Intangible Assets, net")~~business restructuring reserves and fair value ~~measurements (see Note 11, "Fair Value Measurements"), among others.~~

~~The accompanying Condensed Consolidated Financial Statements of~~measurements. During fiscal 2020, the Company ~~have been prepared assuming that the Company will continue as~~recognized a ~~going concern and contemplates the realization of assets and the satisfaction of liabilities and commitments~~significant goodwill impairment charge which is further described in Note 7, “Goodwill, net” in the ~~normal course of business. While we believe existing cash and cash equivalents of $742 million as of June~~Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2020 ~~future cash provided by operating activities and borrowings available under~~filed with the ~~ABL Credit Agreement will be sufficient to meet our future cash requirements for at least the next twelve months, our ability to meet our future cash requirements will depend~~SEC on November 25, 2020. The COVID-19 pandemic did not have a material impact on the Company's ~~ability to generate cash in~~operating results during the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond the Company's control. The Company further believes that its financial resources allow it to manage the anticipated impactsecond quarter of COVID-19 on the Company's business operations for the foreseeable future. The challenges posed by COVID-19 on the Company's business are evolving rapidly. Consequently, the Company will continue to evaluate its financial position in light of future developments.fiscal 2021.

2. Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In ~~February 2018,~~December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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

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comprehensive income to retained earnings any stranded tax benefits resulting from the enactment of the Tax Cuts and Jobs Act. The Company adopted this standard as of October 1, 2019. The adoption of this standard did not have a material impact on the Company's Condensed Consolidated Financial Statements.

In February 2016, the FASB issued 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 standard makes similar changes to lessor accounting and aligns key aspects of the lessor accounting model with the GAAP revenue recognition standard. 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, on October 1, 2019, the Company recognized and measured leases without revising the historical 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 the previous lease accounting guidance. The Company elected to apply the package of 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; and (3) the initial direct costs for an existing lease. In addition, the Company elected the land easement practical expedient permitting it to not reassess whether an existing or expired land easement is a lease or contains a lease. The Company also 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 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 had a material impact to the Company's Condensed Consolidated Balance Sheet mainly due to the recognition of $190 million of operating lease right-of-use assets and $194 million of operating lease liabilities. The adoption of ASC 842 also resulted in the one-time reclassification of certain prepaid and deferred rent and facility-related business restructuring liabilities to operating lease right-of-use assets.

~~The impact of the adoption of ASC 842 on the September 30, 2019 Condensed Consolidated Balance Sheet was as follows:~~

September 30, 2019 Upon Adoption of ASC 842
(In millions) As Reported Adjustments
ASSETS
Other current assets $ 115 $ (2) $ 113
Intangible assets, net 2,891 (2) 2,889
Operating lease right-of-use assets — 190 190
LIABILITIES
Current liabilities:
Operating lease liabilities — 51 51
Business restructuring reserve 33 (4) 29
Non-current liabilities:
Operating lease liabilities — 143 143
Business restructuring reserve 36 (1) 35
Other liabilities 316 (3) 313

~~Recent Standards Not Yet Effective~~

~~In December 2019, the FASB issued ASU No.~~ 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income ~~Taxes".~~Taxes." This standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in ~~Accounting Standards Codification ("ASC")~~ASC 740. The amendments also improve consistent application of and simplify GAAP for other areas of ASC 740 by clarifying and amending existing guidance. This standard is effective for the Company beginning in the first quarter of fiscal 2022, with early adoption permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis. The Company ~~intends to~~ early ~~adopt~~adopted this standard ~~in the first quarter~~as of ~~fiscal 2021.~~October 1, 2020. The ~~Company does not expect the~~ adoption of ~~the~~this standard todid not have a material impact on ~~its~~the Company's Condensed Consolidated Financial Statements.

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

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a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The ~~standard is effective for the~~ Company ~~in the first quarter of fiscal 2021, with early adoption permitted. The amendments in~~adopted this standard ~~may be applied~~as of October 1, 2020 on a ~~retrospective or~~ prospective basis. The ~~Company intends to adopt~~adoption of this standard did

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not have a material impact on the ~~standard on a prospective basis in the first quarter of fiscal 2021 and is currently assessing the impact the new guidance may have on its~~Company's Condensed 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 ~~update~~standard 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 ~~does not expect~~adopted this standard as of October 1, 2020 using the retrospective transition method. The adoption of ~~the~~this standard todid not result in material changes to ~~its~~the Company’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 ~~disclosures~~existing 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 ~~does not expect the~~adopted this standard as of October 1, 2020. The adoption of ~~the~~this standard todid not result in material changes to ~~its~~the Company's fair value disclosures.

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'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.

Updates to Significant Accounting Policies for Recently Adopted Accounting Pronouncements

The Company's significant accounting policies previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2020 filed with the SEC on November 25, 2020 have been updated to include the following new policies as a result of adopting ASU Nos. 2018-15 and 2016-13:

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 in the Company’s existing Property, Plant and Equipment accounting policy.

Allowance 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.

Recent Standards Not Yet Effective

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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 ~~2021~~2023 with early adoption permitted in the first quarter of fiscal 2022. 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 Accounting Standards Codification ("ASC") 825 for any financial instrument that is a convertible security upon adoption of this standard. The Company is currently ~~evaluating~~assessing the impact ~~that~~ the ~~adoption of this standard may~~new guidance will have on its Condensed Consolidated Financial Statements.

3. ~~Revenue Recognition~~

~~The Company’s revenue recognition accounting policy is disclosed in its Annual Report on Form 10-K filed~~Contracts with ~~the SEC on November 29, 2019. During the nine months ended June 30, 2020, the Company updated its revenue recognition accounting policy to include its new subscription offerings as detailed below.~~

During the nine months ended June 30, 2020, the Company continued developing and selling 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 upfront upon 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.Customers

Disaggregation of Revenue

The following tables provide the Company's disaggregated revenue for the periods presented:


											Three months ended March 31,				Six months ended March 31,
(In millions)	(In millions)	Three months ended June 30,						Nine months ended June 30,						(In millions)	2021		2020		2021	2020
		2020		2019		2020		2019
REVENUE
Revenue:										Revenue:
Products & Solutions	Products & Solutions	$	262	$	298	$	805	$	913	Products & Solutions	$	226	$	245	$	492	$	543
Services	Services	460		422		1,317		1,269		Services	513		438		990		857
Unallocated Amounts	Unallocated Amounts	(1)		(3)		(4)		(18)		Unallocated Amounts	(1)		(1)		(1)		(3)
		$	721	$	717	$	2,118	$	2,164
Total revenue										Total revenue	$	738	$	682	$	1,481	$	1,397


	Three months ended March 31, 2021								Three months ended March 31, 2020
(In millions)	Products & Solutions		Services		Unallocated		Total		Products & Solutions		Services		Unallocated		Total
Revenue:
U.S.	$	102	$	311	$	0	$	413	$	119	$	266	$	(1)	$	384
International:
Europe, Middle East and Africa	73		115		(1)		187		78		94		0		172
Asia Pacific	30		47		0		77		27		43		0		70
Americas International - Canada and Latin America	21		40		0		61		21		35		0		56
Total International	124		202		(1)		325		126		172		0		298
Total revenue	$	226	$	513	$	(1)	$	738	$	245	$	438	$	(1)	$	682

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Three months ended June 30, 2020 Three months ended June 30, 2019
(In millions) Products & Solutions Services Unallocated Total Products & Solutions Services Unallocated Total
Revenue:
U.S. $ 138 $ 277 $ — $ 415 $ 149 $ 245 $ (2) $ 392
International:
Europe, Middle East and Africa 77 101 — 178 91 93 (1) 183
Asia Pacific 32 44 (1) 75 38 47 — 85
Americas International - Canada and Latin America 15 38 — 53 20 37 — 57
Total International 124 183 (1) 306 149 177 (1) 325
Total revenue $ 262 $ 460 $ (1) $ 721 $ 298 $ 422 $ (3) $ 717


		Nine months ended June 30, 2020														Nine months ended June 30, 2019															Six months ended March 31, 2021				Six months ended March 31, 2020
(In millions)	(In millions)	Products & Solutions		Services		Unallocated		Total		Products & Solutions		Services		Unallocated		Total		(In millions)	Products & Solutions		Services		Unallocated		Total		Products & Solutions		Services		Unallocated		Total
Revenue:	Revenue:																	Revenue:
U.S.	U.S.	$	406	$	789	$	(2)	$	1,193	$	429	$	744	$	(12)	$	1,161	U.S.	$	228	$	599	$	0	$	827	$	268	$	512	$	(2)	$	778
International:	International:																	International:
Europe, Middle East and Africa	Europe, Middle East and Africa	248		289		(1)		536		290		283		(3)		570		Europe, Middle East and Africa	165		218		(1)		382		171		188		(1)		358
Asia Pacific	Asia Pacific	92		131		(1)		222		113		131		(2)		242		Asia Pacific	59		93		0		152		60		87		0		147
Americas International - Canada and Latin America	Americas International - Canada and Latin America	59		108		—		167		81		111		(1)		191		Americas International - Canada and Latin America	40		80		0		120		44		70		0		114
Total International	Total International	399		528		(2)		925		484		525		(6)		1,003		Total International	264		391		(1)		654		275		345		(1)		619
Total revenue	Total revenue	$	805	$	1,317	$	(4)	$	2,118	$	913	$	1,269	$	(18)	$	2,164	Total revenue	$	492	$	990	$	(1)	$	1,481	$	543	$	857	$	(3)	$	1,397

Unallocated amounts represent the fair value adjustment to deferred revenue recognized upon 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 were wholly or partially unsatisfied as of ~~June 30, 2020~~March 31, 2021 was $2.4 billion, of which ~~58%~~56% 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 and contract liabilities for the periods presented:

(In millions) June 30, 2020 September 30, 2019 Increase (Decrease)
Accounts receivable, net $ 260 $ 314 $ (54)
Contract assets:
Current $ 276 $ 187 $ 89
Non-current (Other assets) 49 16 33
$ 325 $ 203 $ 122
Cost of obtaining a contract:
Current (Contract costs) $ 88 $ 89 $ (1)
Non-current (Other assets) 35 45 (10)
$ 123 $ 134 $ (11)
Cost to fulfill a contract:
Current (Contract costs) $ 36 $ 25 $ 11
Contract liabilities:
Current $ 514 $ 472 $ 42
Non-current 336 78 258
$ 850 $ 550 $ 300


(In millions)	March 31, 2021		September 30, 2020		Increase (Decrease)
Accounts receivable, net	$	289	$	275	$	14

Contract assets, net:
Current	$	401	$	296	$	105
Non-current (Other assets)	88		71		17
	$	489	$	367	$	122

Cost of obtaining a contract:
Current (Contract costs)	$	85	$	92	$	(7)
Non-current (Other assets)	45		40		5
	$	130	$	132	$	(2)

Cost to fulfill a contract:
Current (Contract costs)	$	30	$	23	$	7

Contract liabilities:
Current	$	451	$	446	$	5
Non-current	348		373		(25)
	$	799	$	819	$	(20)

The increase in Contract assets was mainly driven by growth in the Company's subscription offerings. The increase in Contract liabilities was mainly driven by consideration received in connection with the strategic partnership with RingCentral, Inc. ("RingCentral") as discussed in Note 5, "Strategic Partnership."

During the ~~nine~~three and six months ended ~~June 30,~~March 31, 2021 and 2020, the Company did not record any asset impairment charges related to contract assets. During the six months ended March 31, 2021 and ~~2019,~~2020, the Company recognized revenue of ~~$500~~ $402

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million and ~~$505~~$405 million that had been previously recorded as a Contract liability as of October 1, ~~2019~~2020 and October 1, ~~2018,~~2019, respectively. ~~As a result of contract modifications during both~~

During the three ~~and nine~~ months ended ~~June 30,~~March 31, 2021 and 2020, the Company ~~recorded adjustments~~recognized a decrease to ~~reduce~~ revenue byof $1 million ~~related~~and $0 million, respectively, for performance obligations that were satisfied in prior periods. During the six months ended March 31, 2021 and 2020, the Company recognized a decrease to revenue of $0 million and $1 million, respectively, for performance obligations that were satisfied in prior periods.

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.

~~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. For~~During the three months ended ~~June 30, 2020,~~March 31, 2021, the Company recognized ~~$39~~$51 million for amortization of costs to obtain customer contracts, of which ~~$38~~$48 million was included inwithin Selling, general and administrative expense and the remaining $1$3 million was recognized as a reduction to Revenue. ~~For~~During the ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, the Company recognized ~~$105~~$95 million for amortization of costs to obtain customer contracts, of which ~~$104~~$91 million was included inwithin Selling, general and administrative expense and the remaining $1$4 million was recognized as a reduction to Revenue. ~~For~~During the three and six months ended ~~June 30, 2019,~~March 31, 2020, the Company recognized ~~$27~~$34 million and $66 million, respectively, for amortization of costs to obtain customer contracts which ~~was~~were included inwithin Selling, general and administrative expense. For the nine months ended June 30, 2019, the Company recognized $73 million for amortization of costs to obtain customer contracts, of which $70 million was included in Selling, general and administrative expense and the remaining $3 million was a reduction to Revenue.

~~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. For~~During the three months ended ~~June 30,~~March 31, 2021 and 2020, the Company recognized ~~$12~~$10 million and $6 million of contract fulfillment costs ~~of which $8 million was included~~ within Costs, ~~and~~respectively. During the ~~remaining $4 million was a reduction to revenue. For the nine~~six months ended ~~June 30,~~March 31, 2021 and 2020, the Company recognized ~~$32 million of contract fulfillment costs, of which $28 million was included within Costs and the remaining $4 million was a reduction to revenue. For the three~~

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~~and nine months ended June 30, 2019, the Company recognized $11~~$14 million and ~~$31~~$20 million of contract fulfillment costs within Costs, respectively.

Allowance for Credit Losses

The following table presents the change 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	$	0	$	0	$	7
Adjustment to retained earnings upon adoption	1		1		1		3
Adjustment to credit loss provision	(3)		0		0		(3)
Allowance for credit loss as of March 31, 2021	$	5	$	1	$	1	$	7

(1) Recorded within Accounts receivable, net on the Condensed Consolidated Balance Sheets.

(2) Recorded within Contract assets, net on the Condensed Consolidated Balance Sheets.

(3) Recorded within Other assets on the Condensed Consolidated Balance Sheets.

4. Leases

The Company enters into various arrangements for office, warehouse and data center facilities, network equipment and vehicles. 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.

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 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 term of 12 months or less. The Company's leases have remaining lease terms ranging from 1 month to 9.7 years.

The following table details the components of net lease expense for the ~~three and nine months ended June 30, 2020:~~periods indicated:


							Three months ended March 31,				Six months ended March 31,
In millions	In millions	Three months ended June 30, 2020		Nine months ended June 30, 2020		In millions	2021		2020		2021		2020
Operating lease cost ⁽¹⁾	Operating lease cost ⁽¹⁾	$	17	$	51	Operating lease cost (1)	$	14	$	16	$	30	$	34
Short-term lease cost ⁽¹⁾	Short-term lease cost ⁽¹⁾	1		4		Short-term lease cost (1)	2		1		3		3
Variable lease cost ⁽¹⁾⁽²⁾	Variable lease cost ⁽¹⁾⁽²⁾	5		14		Variable lease cost (1)(2)	3		4		7		9
Finance lease amortization of right-of-use assets ⁽¹⁾	Finance lease amortization of right-of-use assets ⁽¹⁾	1		3		Finance lease amortization of right-of-use assets (1)	2		1		3		2
Sublease income ⁽³⁾	Sublease income ⁽³⁾	(1)		(4)		Sublease income (3)	(1)		(1)		(1)		(3)
Total lease cost	Total lease cost	$	23	$	68	Total lease cost	$	20	$	21	$	42	$	45

⁽¹⁾Allocated between Cost of products and services, and Operating expenses.

⁽²⁾Includes real estate taxes and other charges for non-lease services payable to lessors and recognized in the period incurred.

⁽³⁾Included in Other income, net.

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The Company's right-of-use assets and lease liabilities for financing leases are included in the Condensed Consolidated Balance ~~Sheet~~Sheets as follows:


~~In millions~~	~~June 30, 2020~~
~~ASSETS~~
~~Property, plant and equipment, net~~	$	10

~~LIABILITIES~~
~~Other current liabilities~~	8
~~Other liabilities~~	8


In millions	March 31, 2021		September 30, 2020
ASSETS
Property, plant and equipment, net	$	15	$	12

LIABILITIES
Other current liabilities	5		8
Other liabilities	11		9

The following table ~~presents~~summarizes the ~~Company's annual maturity of lease payments,~~ weighted average remaining lease term and weighted average interest rate for the Company's operating and financing leases for the periods indicated:


	March 31, 2021		September 30, 2020
Weighted average remaining lease term
Operating Leases	4.4 years		4.5 years
Financing Leases	3.7 years		2.7 years

Weighted average interest rate
Operating Leases	5.8	%	6.1	%
Financing Leases	4.6	%	5.4	%

The following table presents the maturities of lease payments for the Company's operating and financing leases as of ~~June 30, 2020:~~March 31, 2021 (by fiscal year):

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In millions	Operating Leases		Financing Leases
2021 (remaining six months)	$	30	$	3
2022	53		5
2023	40		4
2024	28		3
2025	17		2
2026	11		0
2027 and thereafter	16		0
Total lease payments	195		17
Less: imputed interest	(23)		(1)
Total lease liability	$	172	$	16

In millions Operating Leases Financing Leases
Remaining three months of 2020 $ 18 $ 3
2021 53 8
2022 47 3
2023 34 2
2024 25 1
2025 14 —
2026 and thereafter 21 —
Total lease payments 212 17
Less: imputed interest (28) (1)
Total lease liability $ 184 $ 16
Weighted average remaining lease term 4.7 years 2.7 years
Weighted average interest rate 6.1 % 5.7 %

~~The following table presents the Company's future minimum lease payments under non-cancelable leases as of September 30, 2019, prior to the adoption of ASC 842:~~

In millions Operating Leases Capital Leases
2020 $ 51 $ 12
2021 39 6
2022 33 2
2023 22 —
2024 17 —
2025 and thereafter 29 —
Total lease payments $ 191 20
Less: imputed interest (1)
Total lease liability $ 19

~~The capital lease obligation as of September 30, 2019 included $11 million and $8 million within Other current liabilities and Other liabilities, respectively.~~

The Company outsources certain delivery services associated with its Enterprise Cloud and Managed Services, which included the sale of specified assets owned by the Company that were leased-back by the Company and are accounted for as a finance lease. As of June 30, 2020 and September 30, 2019, finance lease obligations associated with these sale leaseback agreements were $7 million and $13 million, respectively.

5. Strategic Partnership

On October 3, 2019, the Company entered into certain agreements that establish the framework for the Company's strategic partnership with RingCentral, Inc. ("RingCentral") a leading provider of global enterprise cloud communications, video meetings, collaboration and contact center ("CC") solutions, to accelerate the Company's transition to the cloud. Through this partnership, the Company introduced Avaya Cloud Office by RingCentral ("~~Avaya Cloud Office" or "ACO"~~ACO"), a new global unified communications as a service ("UCaaS") solution. Avaya Cloud Office expands the Company's portfolio to offer a full suite of UC, CC, UCaaS and contact center as a service solutions to its global customer base. ACO combines RingCentral's leading UCaaS platform with Avaya technology, services and migration capabilities to create a highly differentiated UCaaS offering. The transaction closed on October 31, 2019 and ACO was launched on March 31, 2020. ~~The Company now has a full suite of public, private and hybrid cloud solutions for its global UC and CC customers and partners.~~

As part of 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 acts as an agent to Avaya's channel partners with respect to the sale of ACO and make direct sales of ACO. RingCentral will pay a fee 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

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exceptions) market and sell ACO as its exclusive UCaaS solution (as defined in the Framework Agreement). 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 accordance with the Framework Agreement, RingCentral paid Avaya $375 million, predominantly for future fees, as well as for certain licensing rights. The $375 million payment consisted of $361 million in shares of RingCentral ~~shares~~common stock and $14 million in cash. During the ~~nine~~six months ended ~~June 30,~~March 31, 2020, the Company sold ~~all~~a significant portion of ~~its~~the RingCentral ~~shares. During~~shares and realized a gain on the ~~three and nine months ended June 30, 2020,~~sale. The Company also recorded unrealized gains on the RingCentral shares retained by the Company ~~recognized~~as of March 31, 2020. The Company sold the remaining RingCentral shares by the end of fiscal 2020.

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The following table summarizes the realized and unrealized gains on ~~RingCentral~~the shares of ~~$29 million and $59 million, respectively,~~RingCentral common stock recorded within Other income, net in the Condensed Consolidated Statements of ~~Operation~~s.Operations for the periods presented:


(In millions)	Three months ended March 31, 2020		Six months ended March 31, 2020
Realized gain	$	0	$	11
Unrealized gain	18		19
Total gain	$	18	$	30

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. See Note 15, "Capital Stock" for additional information on the Series A Preferred Stock.

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6. Goodwill, net and Intangible Assets, net

Goodwill, net

~~The changes in the carrying amount of goodwill by segment during fiscal 2020 were as follows:~~

(In millions) Products & Solutions Services Total
Balance as of September 30, 2019
Cost $ 1,282 $ 1,478 $ 2,760
Accumulated impairment charges (657) — (657)
625 1,478 2,103
Impairment charges (624) — (624)
Foreign currency fluctuations (1) (1) (2)
Balance as of June 30, 2020
Cost 1,281 1,477 2,758
Accumulated impairment charges (1,281) — (1,281)
$ — $ 1,477 $ 1,477

Goodwill is not amortized but is subject to periodic testing for impairment in accordance with GAAP at the reporting unit level. The Company's reporting units 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.~~

The 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. 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 from a technological segment basis. Macroeconomic factors such as changes in economies, product

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~~evolution, industry consolidation and other changes beyond the Company's control could have a positive or negative impact on achieving its targets.~~

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.

~~Nine~~Six Months Ended ~~June 30, 2020~~March 31, 2021

During the first quarter of fiscal 2020, the Company changed its reporting units to align with changes in its organizational structure, mainly resulting from the previously disclosed strategic review process which concluded in October 2019. As a result, on October 1, 2019, the Company consolidated its Unified Communications ("UC") 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. As a result of these changes, the Company's reporting units are the same as its operating segments. Due to the consolidation of reporting units, the Company performed an interim goodwill impairment assessment immediately before and after the consolidation on October 1, 2019 by estimating and comparing the fair value of each reporting unit to its carrying value. The Company determined that no events occurred or circumstances changed during the ~~carrying amounts of each of~~six months ended March 31, 2021 that would indicate that it is more likely than not that its goodwill was impaired. To the ~~Company's reporting units did not exceed their estimated fair values~~extent that business conditions deteriorate or if changes in key assumptions and ~~therefore no~~estimates differ significantly from management's expectations, it may be necessary to record impairment ~~existed as of October 1, 2019.~~charges in the future.

Six Months Ended March 31, 2020

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 ~~since~~at the ~~advent~~beginning stages of the pandemic which was caused by the resulting volatility in the financial markets. As a result, the Company performed an 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.

The results of the ~~Company's~~Company’s interim goodwill impairment test as of March 31, 2020 indicated that the estimated fair value of the ~~Company's~~Company’s Services reporting unit exceeded its carrying ~~amount by 16%.~~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~~Company’s long-term forecast to reflect increased risk from higher market uncertainty and the accelerated reduction of product sales related to the ~~Company's~~Company’s historical on-premises perpetual ~~licenses. The Company anticipates~~licenses with a continued shift and acceleration of customers upgrading and acquiring new technology innovation through the utilization of the ~~Company's~~Company’s subscription offering, which is included in the Services reporting unit. As a result, the Company recorded a goodwill impairment charge of $624 million to write down the full carrying amount of the Products & Solutions goodwill in the ~~Impairment charges line item in the Condensed Consolidated Statements of Operations for the nine months ended June 30, 2020.~~

The Company's long-term forecast includes significant estimates and assumptions, including management's estimate of the potential impact of the COVID-19 pandemic on the Company's operating results. Due to the uncertainty surrounding the impact of the COVID-19 pandemic on the macroeconomic environment and, more specifically, on the Company's future operating results, it is reasonably possible that the pandemic could have a more adverse impact than what is currently contemplated by the Company's long-term forecast.

The Company determined that no events occurred or circumstances changed during the three months ended June 30, 2020 that would indicate that it is more likely than not that its goodwill was 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 record additional impairment charges in the future.

~~Nine Months Ended June 30, 2019~~

During the third quarter of fiscal 2019, the Company concluded that triggering events occurred for all of its reporting units 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 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 UC, GSS, APS and ECMS reporting units were greater than their carrying amounts, however, the carrying amount of the Company's 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 the Condensed Consolidated Statement of Operations offor the ~~nine~~six months ended ~~June 30, 2019, representing the amount by which the carrying value of the CC reporting unit exceeded its fair value.~~

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March 31, 2020.

Intangible Assets, net

The Company's intangible assets consist of the following for the periods indicated:


(In millions)	(In millions)	Technology and Patents		Customer Relationships and Other Intangibles		Trademarks and Trade Names		Total		(In millions)	Technology and Patents		Customer Relationships and Other Intangibles		Trademarks and Trade Names		Total
Balance as of June 30, 2020
Balance as of March 31, 2021										Balance as of March 31, 2021
Finite-lived intangible assets:	Finite-lived intangible assets:									Finite-lived intangible assets:
Cost	Cost	$	960	$	2,150	$	42	$	3,152	Cost	$	964	$	2,155	$	42	$	3,161
Accumulated amortization	Accumulated amortization	(437)		(394)		(17)		(848)		Accumulated amortization	(570)		(511)		(19)		(1,100)
Finite-lived intangible assets, net	Finite-lived intangible assets, net	523		1,756		25		2,304		Finite-lived intangible assets, net	394		1,644		23		2,061

Indefinite-lived intangible assets:
Cost		—		—		333		333
Accumulated impairment		—		—		—		—
Indefinite-lived intangible assets, net		—		—		333		333
Indefinite-lived intangible assets										Indefinite-lived intangible assets	0		0		333		333
Intangible assets, net	Intangible assets, net	$	523	$	1,756	$	358	$	2,637	Intangible assets, net	$	394	$	1,644	$	356	$	2,394
Balance as of September 30, 2019
Balance as of September 30, 2020										Balance as of September 30, 2020
Finite-lived intangible assets:	Finite-lived intangible assets:									Finite-lived intangible assets:
Cost	Cost	$	960	$	2,154	$	42	$	3,156	Cost	$	961	$	2,153	$	42	$	3,156
Accumulated amortization	Accumulated amortization	(308)		(279)		(11)		(598)		Accumulated amortization	(482)		(433)		(18)		(933)
Finite-lived intangible assets, net	Finite-lived intangible assets, net	652		1,875		31		2,558		Finite-lived intangible assets, net	479		1,720		24		2,223
Indefinite-lived intangible assets:
Cost		2		—		333		335
Accumulated amortization		(2)		—		—		(2)
Indefinite-lived intangible assets, net		—		—		333		333
Indefinite-lived intangible assets										Indefinite-lived intangible assets	0		0		333		333
Intangible assets, net	Intangible assets, net	$	652	$	1,875	$	364	$	2,891	Intangible assets, net	$	479	$	1,720	$	357	$	2,556

~~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

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amortized but are tested for impairment annually, ~~and~~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 fair value for the Company's indefinite-lived intangible asset, 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 from a technological segment basis. The royalty rate is determined using a set of observed market royalty rates.

~~Nine~~Six Months Ended ~~June 30, 2020~~

~~As a result of the goodwill triggering event described above, the Company performed a recoverability test on all of its finite-lived asset groups as of~~ March 31, 2020 before proceeding to the goodwill impairment review and concluded that no impairment charge was necessary. As of March 31, 2020, the Company also performed an interim quantitative impairment test for the Avaya Trade Name which indicated no impairment existed and the level of excess fair value over carrying value was 5%. As of March 31, 2020, an increase in the discount rate of 50 basis points or a decrease in the long-term revenue growth rate of 140 basis points would have resulted in an estimated fair value of the trade name below its carrying value.2021

The Company determined that no events occurred or circumstances changed during the ~~three~~six months ended ~~June 30, 2020~~March 31, 2021 that would indicate that its finite-lived intangible assets may not be recoverable or that it is more likely than not that its indefinite-lived intangible assets were 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 record impairment charges in the future.

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~~Nine~~Six Months Ended ~~June 30, 2019~~March 31, 2020

During the third quarter of fiscal 2019, the Company elected to abandon an in-process research and development project that 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 project within the Impairment charges line item in the Condensed Consolidated Statements of Operations.

As a result of the goodwill triggering events identified during the ~~third~~second quarter of fiscal ~~2019,~~2020, the Company performed a recoverability test on all of its finite-lived asset groups as of ~~June 30, 2019~~March 31, 2020 before proceeding to the goodwill impairment review and concluded that no impairment charge was necessary.The Company also performed an interim quantitative impairment test for its indefinite lived intangible asset, the Avaya Trade Name, as of ~~June 30, 2019~~March 31, 2020 and determined that its estimated fair value exceeded its carrying value and no impairment existed.

7. Supplementary Financial Information

The following table presents a summary of Other income, net for the periods indicated:


		Three months ended June 30,						Nine months ended June 30,							Three months ended March 31,				Six months ended March 31,
(In millions)	(In millions)	2020		2019		2020		2019		(In millions)	2021		2020		2021		2020
OTHER INCOME, NET	OTHER INCOME, NET									OTHER INCOME, NET
Interest income	Interest income	$	1	$	4	$	6	$	11	Interest income	$	1	$	2	$	1	$	5
Foreign currency loss, net		(5)		(1)		(16)		(8)
Foreign currency gains (losses), net										Foreign currency gains (losses), net	1		(7)		(1)		(11)
Gain on post-retirement plan settlement										Gain on post-retirement plan settlement	14		0		14		0
Gain on investments in equity and debt securities, net	Gain on investments in equity and debt securities, net	29		—		49		—		Gain on investments in equity and debt securities, net	0		8		0		20
Other pension and post-retirement benefit credits, net	Other pension and post-retirement benefit credits, net	5		1		16		5		Other pension and post-retirement benefit credits, net	7		6		14		11
Change in fair value of emergence date warrants	Change in fair value of emergence date warrants	(3)		7		—		28		Change in fair value of emergence date warrants	(22)		6		(27)		3
Sublease income	Sublease income	1		—		4		—		Sublease income	1		1		1		3
Other, net	Other, net	(1)		1		(3)		(1)		Other, net	(1)		(1)		(1)		(2)
Total other income, net	Total other income, net	$	27	$	12	$	56	$	35	Total other income, net	$	1	$	15	$	1	$	29

~~The~~During the three and six months ended March 31, 2020, the gain on investments in equity and debt securities, net includes realized and unrealized gains on RingCentral common stock as disclosed in Note 5, "Strategic Partnership," partially offset by a $10 million impairment of debt securities mainly driven by a decline in the macroeconomic environment due to the COVID-19 pandemic and a decline in the expected operating results and cash flows for the investment company.

The gain on post-retirement plan settlement for the three and ~~nine~~six months ended June 30, 2020 includes gains on RingCentral shares of $29 million and $59 million, respectively, which are further described in Note 5. "Strategic Partnership." The gain on investments in equity and debt securities, net for the nine months ended June 30, 2020 also includes a ~~$10 million~~ ~~impairment of debt securities owned by the Company which~~March 31, 2021 is further described in Note ~~11, "Fair Value Measurements.~~13, "Benefit Obligations."

The following table presents supplemental cash flow information for the periods presented:


		Three months ended June 30,						Nine months ended June 30,							Three months ended March 31,				Six months ended March 31,
(In millions)	(In millions)	2020		2019		2020		2019		(In millions)	2021		2020		2021		2020
OTHER PAYMENTS	OTHER PAYMENTS									OTHER PAYMENTS
Interest payments	Interest payments	$	47	$	61	$	151	$	160	Interest payments	$	59	$	46	$	92	$	104
Income tax payments	Income tax payments	63		13		88		48		Income tax payments	6		13		9		25

NON-CASH INVESTING ACTIVITIES	NON-CASH INVESTING ACTIVITIES									NON-CASH INVESTING ACTIVITIES
Increase (decrease) in Accounts payable for Capital expenditures		$	1	$	(6)	$	5	$	(1)
(Decrease) increase in Accounts payable for capital expenditures										(Decrease) increase in Accounts payable for capital expenditures	$	(1)	$	1	$	(2)	$	(4)
Acquisition of equipment under finance leases	Acquisition of equipment under finance leases	$	5	$	—	$	5	$	—	Acquisition of equipment under finance leases	4		0		6		0

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During the three ~~and nine~~ months ended ~~June 30,~~March 31, 2021 and 2020, the Company made payments for operating lease liabilities of ~~$17~~$16 million and ~~$50~~$19 million, respectively, and recorded non-cash additions for operating lease right-of-use assets of ~~$14~~$5 million and ~~$29~~$6 million, respectively. During the six months ended March 31, 2021 and 2020, the Company made payments for operating lease liabilities of $33 million and recorded non-cash additions for operating lease right-of-use assets of $16 million and $15 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 Condensed Consolidated Statements of Cash Flows for the periods presented:


(In millions)	(In millions)	June 30, 2020		September 30, 2019		June 30, 2019		September 30, 2018		(In millions)	March 31, 2021		September 30, 2020		March 31, 2020		September 30, 2019
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	CASH, CASH EQUIVALENTS, AND RESTRICTED CASH									CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
Cash and cash equivalents	Cash and cash equivalents	$	742	$	752	$	729	$	700	Cash and cash equivalents	$	593	$	727	$	553	$	752
Restricted cash included in other assets	Restricted cash included in other assets	4		4		5		4		Restricted cash included in other assets	4		4		4		4
Total cash, cash equivalents, and restricted cash	Total cash, cash equivalents, and restricted cash	$	746	$	756	$	734	$	704	Total cash, cash equivalents, and restricted cash	$	597	$	731	$	557	$	756

8. Business Restructuring Reserves and Programs

The following table summarizes the restructuring charges by activity for the periods presented:


		Three months ended June 30,						Nine months ended June 30,							Three months ended March 31,				Six months ended March 31,
(In millions)	(In millions)	2020		2019		2020		2019		(In millions)	2021		2020		2021		2020
Employee separation costs	Employee separation costs	$	5	$	1	$	6	$	10	Employee separation costs	$	1	$	0	$	2	$	1
Facility exit costs	Facility exit costs	15		—		21		2		Facility exit costs	7		4		10		6
Total restructuring charges	Total restructuring charges	$	20	$	1	$	27	$	12	Total restructuring charges	$	8	$	4	$	12	$	7

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 employee separation costs generally ~~encompass~~consist of severance 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. Facility exit costs primarily ~~include~~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 Company does not allocate restructuring reserves to its operating segments.

As a result of the adoption of ASC 842 on October 1, 2019, the Company no longer records facility-related restructuring charges within the Business restructuring reserve on the Condensed Consolidated Balance Sheets. As a result, the Company recorded a one-time reclassification of $5 million for certain facility-related lease obligations from the Business restructuring reserve to Operating lease right-of-use assets upon adoption of ASC 842.

The following table summarizes the activity for employee separation costs recognized under the Company's restructuring programs for the ~~nine~~six months ended ~~June 30, 2020:~~March 31, 2021:


(In millions)	(In millions)	Fiscal 2020 Restructuring Program ⁽²⁾		Fiscal 2019 Restructuring Program ⁽³⁾		Fiscal 2008 through 2018 Restructuring Programs ⁽⁴⁾		Total		(In millions)	Fiscal 2021 Restructuring Program (1)		Fiscal 2020 Restructuring Program (2)		Fiscal 2008 through 2019 Restructuring Programs (2)		Total
Accrual balance as of September 30, 2019		$	—	$	11	$	53	$	64
Accrual balance as of September 30, 2020										Accrual balance as of September 30, 2020	$	0	$	8	$	41	$	49
Cash payments	Cash payments	—		(4)		(16)		(20)		Cash payments	(1)		(1)		(9)		(11)
Restructuring charges	Restructuring charges	7		—		—		7		Restructuring charges	2		0		0		2
Adjustments⁽¹⁾		—		—		(1)		(1)

Impact of foreign currency fluctuations	Impact of foreign currency fluctuations	(1)		1		1		1		Impact of foreign currency fluctuations	0		0		1		1
Accrual balance as of June 30, 2020		$	6	$	8	$	37	$	51
Accrual balance as of March 31, 2021										Accrual balance as of March 31, 2021	$	1	$	7	$	33	$	41

⁽¹⁾Includes changes in estimates for increases and decreases in costs related to the Company's restructuring programs, which are recorded in Restructuring charges, net in the Condensed Consolidated Statements of Operations in the period of the adjustment.

⁽²⁾Payments related to the ~~2020~~fiscal 2021 restructuring ~~programs~~program are expected to be completed in fiscal ~~2027.~~2021.

⁽³⁾(2)Payments related to the fiscal 2020 and 2008 through 2019 restructuring programs are expected to be completed in fiscal 2026.

⁽⁴⁾~~Payments related to the 2008 through 2018 restructuring programs are expected to be completed in fiscal 2026.~~

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9. Financing Arrangements

The following table reflects principal amounts of debt and debt net of discounts and issuance costs for the periods presented:

June 30, 2020 September 30, 2019
(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 $ 2,624 $ 2,602 $ 2,874 $ 2,846
Convertible 2.25% senior notes due June 15, 2023 350 286 350 273
ABL Credit Agreement due August 10, 2020 50 50 — —
Total debt $ 3,024 2,938 $ 3,224 3,119
Debt maturing within one year (50) (29)
Long-term debt, net of current portion $ 2,888 $ 3,090


	March 31, 2021				September 30, 2020
(In millions)	Principal amount		Net of discounts and issuance costs		Principal amount		Net of discounts and issuance costs
Senior 6.125% Notes due September 15, 2028	$	1,000	$	985	$	1,000	$	984
Tranche B Term Loans due December 15, 2024	0		0		843		835
Tranche B-1 Term Loans due December 15, 2027	800		778		800		776
Tranche B-2 Term Loans due December 15, 2027	743		736		0		0
Convertible 2.25% Senior Notes due June 15, 2023	350		301		350		291
Total Long-term debt	$	2,893	$	2,800	$	2,993	$	2,886

Term Loan and ABL Credit Agreements

As of ~~June 30, 2020~~March 31, 2021 and September 30, ~~2019,~~2020, the Company maintained (i) its 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 ~~maturing on December 15, 2024,~~ (the ~~"Term~~“Term Loan Credit ~~Agreement"~~Agreement”), and (ii) its ABL Credit Agreement, 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, ~~maturing on December 15, 2022,~~ which provides a revolving credit facility consisting of a U.S. tranche and a foreign tranche allowing for borrowings of up to an aggregate principal amount of ~~$300~~$200 million from time to time, subject to borrowing base availability (the "ABL Credit Agreement"). ~~On November 7, 2019, the Company made a principal prepayment~~The ABL Credit Agreement matures on ~~its Term Loan of $250 million. Due~~September 25, 2025.

Prior to ~~the prepayment, there are no amounts due within one year on~~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”). On February 24, 2021, the ~~balance has been classified~~Company amended the Term Loan Credit Agreement (“Amendment No. 3”), pursuant to which 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 ~~non-current~~a loan modification at the syndicated lender level. Based on the application of the loan modification guidance within ASC 470, 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 ~~June 30, 2020.~~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 the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company recognized interest expense of ~~$32~~$22 million and ~~$51~~$40 million, respectively, related to the Term Loan Credit Agreement, including the expenses associated with Amendment No. 3 described above and the amortization of the ~~underwriting discount.~~debt discount and issuance costs. For the ~~nine~~six months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company recognized interest expense of ~~$118~~$42 million and ~~$151~~$86 million, respectively, related to the Term Loan Credit Agreement, including the expenses associated with Amendment No. 3 described above and the amortization of the ~~underwriting discount.~~debt discount and issuance costs.

~~On April 6, 2020,~~As of March 31, 2021, the Company borrowed $50 million under the ABL Credit Agreement. The borrowing matures monthly and is renewable at the Company's election in accordance with the terms and conditions of the ABL Credit Agreement. As of June 30, 2020, the Company has the ability and intent to repay the ABL Credit Agreement balance within one year and has classified the balance as current. On July 31, 2020, the Company repaid itshad no borrowings outstanding ~~borrowing~~ under the ABL Credit Agreement. Under the terms of the ABL Credit Agreement, the Company can issue letters of credit up to $150 million. At ~~June 30, 2020,~~March 31, 2021, the Company had issued and outstanding letters of credit and guarantees of ~~$41~~$39 million under the ABL Credit Agreement. The aggregate additional principal amount that may be borrowed under the ABL Credit Agreement, based on the borrowing base less ~~$91~~$39 million of outstanding ~~borrowings,~~ letters of credit and guarantees was ~~$72~~$128 million at ~~June 30, 2020. For the nine months ended June 30, 2020, the Company recognized interest expense of $1 million related to the ABL Credit Agreement.~~March 31, 2021. For the three and six months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019 and the nine months ended June 30, 2019,~~ recognized interest expense related to the ABL Credit Agreement was not material.

Senior Notes

The Company’s Senior 6.125% First Lien Notes have an aggregate principal amount outstanding of $1,000 million and mature on September 15, 2028 (the “Senior Notes”).The Senior Notes were issued on September 25, 2020, pursuant to an indenture among the Company, the Company's subsidiaries that are guarantors of the Senior Notes and party thereto and Wilmington Trust, National Association, as trustee and notes collateral agent.

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For the three and six months ended March 31, 2021, the Company recognized interest expense of $16 million and $32 million, respectively, related to the Senior Notes, including the amortization of debt issuance costs.

Convertible Notes

The Company's 2.25% Convertible Notes have an aggregate principal amount outstanding of $350 million (including notes issued in connection with the underwriters' exercise in full of an over-allotment option of $50 million) and mature on June 15, 2023 (the "Convertible Notes"). The Convertible Notes were issued under an indenture, by and between the Company and the Bank of New York Mellon Trust Company N.A., as Trustee.

For both the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company recognized interest expense of $7 million related to the Convertible Notes, which includes $5 million of amortization of the debt discount and $6issuance costs. For the six months ended March 31, 2021 and 2020, the Company recognized interest expense of $14 and $13 million related to the Convertible Notes, respectively, which includes $4$10 and $9 million of amortization of the underwriting discount and issuance costs in both periods. For the nine months ended June 30, 2020 and 2019, the Company recognized interest expense of $20 million and $18 million related to the Convertible Notes, respectively, which includes $13 million and $12 million of amortization of the underwritingdebt discount and issuance costs, respectively.

The net carrying amount of the Convertible Notes for the periods indicated was as follows:

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(In millions)	(In millions)	June 30, 2020		September 30, 2019		(In millions)	March 31, 2021		September 30, 2020
Principal	Principal	350		350		Principal	$	350	$	350
Less:	Less:					Less:
Unamortized debt discount	Unamortized debt discount	(59)		(72)		Unamortized debt discount	(45)		(55)
Unamortized issuance costs	Unamortized issuance costs	(5)		(5)		Unamortized issuance costs	(4)		(4)
Net carrying amount	Net carrying amount	$	286	$	273	Net carrying amount	$	301	$	291

The weighted average contractual interest rate of the Company's outstanding debt was ~~5.8% and 6.3%~~6.5% as of ~~June 30, 2020~~both March 31, 2021 and September 30, ~~2019,~~2020, respectively. The effective interest rate for the Term Loan Credit Agreement as of ~~June 30, 2020~~March 31, 2021 and September 30, ~~2019~~2020 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 ~~ABL Credit Agreement~~Senior Notes as of ~~June~~March 31, 2021 and September 30, 2020 was not materially different than its contractual interest rate. The effective interest rate for the Convertible Notes was 9.2% as of ~~June 30, 2020~~March 31, 2021 and September 30, ~~2019~~2020 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.

As of ~~June 30, 2020,~~March 31, 2021, the Company was not in default under any of its debt agreements.

10. 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.

On May 16, 2018, the Company entered into interest rate swap agreements with 6 counterparties, which fix 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 of June 30,~~Through September 23, 2020, the total $1,800 million notional amount of the 6Original Swap Agreements ~~was $1,800 million.~~

~~The Swap Agreements are~~were designated as cash flow hedges ~~as they are~~and 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 March 31, 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 losses~~Company entered into interest rate swap agreements with 4 counterparties, which fix a portion of the variable interest due on ~~these contracts are~~its 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.

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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 in~~within Accumulated other comprehensive loss in the Condensed Consolidated Balance Sheets. As interest expense is recognized on the Term Loan Credit Agreement, the corresponding deferred gain or loss on the ~~Swap Agreements~~cash flow hedge is reclassified from Accumulated other comprehensive loss to Interest expense in the Condensed 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.

Based on the amount in Accumulated other comprehensive loss at ~~June 30, 2020,~~March 31, 2021, approximately ~~$49~~$50 million would be reclassified to ~~interest~~Interest expense in the next twelve months.

On July 1, 2020, the Company entered into new interest rate swap agreements with 4 counterparties. See Note 21, "Subsequent Event" to our Condensed Consolidated Financial Statements for additional information.

It is management's intention that the net notional amount of interest rate ~~swaps~~swap 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,~~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, net to offset the change in the value of the hedged assets and liabilities. As of ~~June~~March 31, 2021, the Company maintained open foreign currency forward contracts with a total notional value of $355 million, primarily hedging the British Pound Sterling, Euro, Chinese Renminbi, Mexican Peso and Indian Rupee. As of September 30, 2020, the Company maintained open foreign currency forward contracts with a total notional value of ~~$373~~$375 million, primarily hedging the British Pound Sterling, Euro, Chinese Renminbi and Indian Rupee.

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 ~~Company~~the Company's common stock to the holders of the second lien obligations extinguished pursuant to the Plan of Reorganization ~~pursuant to a warrant agreement~~ (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

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classified as a liability and ~~require~~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 ~~June 30, 2020.~~March 31, 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 ~~June 30, 2020~~March 31, 2021 and September 30, ~~2019~~2020 was determined using the input assumptions summarized below:


		June 30, 2020		September 30, 2019			March 31, 2021		September 30, 2020
Expected volatility	Expected volatility	64.94	%	56.89	%	Expected volatility	74.76	%	68.53	%
Risk-free interest rates	Risk-free interest rates	0.17	%	1.55	%	Risk-free interest rates	0.10	%	0.14	%
Contractual remaining life (in years)	Contractual remaining life (in years)	2.46		3.21		Contractual remaining life (in years)	1.71		2.21
Price per share of common stock	Price per share of common stock	$12.36		$10.23		Price per share of common stock	$28.03		$15.20

In determining the fair value of the Emergence Date Warrants, the dividend yield was assumed to be ~~zero~~0 as the Company does not anticipate paying dividends throughout the term of the warrants.

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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:


			June 30, 2020						September 30, 2019								March 31, 2021				September 30, 2020
(In millions)	(In millions)	Balance Sheet Caption	Asset		Liability		Asset		Liability		(In millions)	Balance Sheet Caption	Asset		Liability		Asset		Liability
Derivatives Designated as Hedging Instruments:	Derivatives Designated as Hedging Instruments:										Derivatives Designated as Hedging Instruments:
Interest rate contracts	Interest rate contracts	Other current liabilities	$	—	$	49	$	—	$	23	Interest rate contracts	Other assets	10		0		0		0
Interest rate contracts	Interest rate contracts	Other liabilities	—		68		—		58		Interest rate contracts	Other current liabilities	0		43		0		43
Interest rate contracts											Interest rate contracts	Other liabilities	0		31		0		58
			—		117		—		81				10		74		0		101
Derivatives Not Designated as Hedging Instruments:	Derivatives Not Designated as Hedging Instruments:										Derivatives Not Designated as Hedging Instruments:
Interest rate contracts											Interest rate contracts	Other current liabilities	0		7		0		7
Interest rate contracts											Interest rate contracts	Other liabilities	0		5		0		9
Foreign exchange contracts	Foreign exchange contracts	Other current assets	1		—		1		—		Foreign exchange contracts	Other current assets	1		0		1		0
Foreign exchange contracts	Foreign exchange contracts	Other current liabilities	—		1		—		—		Foreign exchange contracts	Other current liabilities	0		1		0		2
Emergence Date Warrants	Emergence Date Warrants	Other liabilities	—		5		—		5		Emergence Date Warrants	Other liabilities	0		35		0		8
			1		6		1		5				1		48		1		26
Total derivative fair value	Total derivative fair value		$	1	$	123	$	1	$	86	Total derivative fair value		$	11	$	122	$	1	$	127

The following tables provide information regarding the location and amount of pre-tax ~~losses~~gains (losses) for ~~derivatives~~interest rate swaps designated as cash flow hedges:


											Three months ended March 31,
		Three months ended June 30, 2020						Three months ended June 30, 2019							2021				2020
(In millions)	(In millions)	Interest Expense		Other Comprehensive Loss		Interest Expense		Other Comprehensive Loss		(In millions)	Interest Expense		Other Comprehensive Income (Loss)		Interest Expense		Other Comprehensive Income (Loss)
Financial Statement Line Item in which Cash Flow Hedges are Recorded	Financial Statement Line Item in which Cash Flow Hedges are Recorded	$	(51)	$	(7)	$	(59)	$	(38)	Financial Statement Line Item in which Cash Flow Hedges are Recorded	$	(59)	$	85	$	(53)	$	(55)

Impact of cash flow hedging relationships:	Impact of cash flow hedging relationships:									Impact of cash flow hedging relationships:
Loss recognized in AOCI on interest rate swaps		$	—	$	(7)	$	—	$	(31)
Gain (loss) recognized in AOCI on interest rate swaps										Gain (loss) recognized in AOCI on interest rate swaps	0		17		$	0	$	(54)
Interest expense reclassified from AOCI	Interest expense reclassified from AOCI	$	(11)	$	11	$	(2)	$	2	Interest expense reclassified from AOCI	(13)		13		$	(6)	$	6


											Six months ended March 31,
		Nine months ended June 30, 2020						Nine months ended June 30, 2019							2021				2020
(In millions)	(In millions)	Interest Expense		Other Comprehensive Loss		Interest Expense		Other Comprehensive Loss		(In millions)	Interest Expense		Other Comprehensive Income (Loss)		Interest Expense		Other Comprehensive Income (Loss)
Financial Statement Line Item in which Cash Flow Hedges are Recorded	Financial Statement Line Item in which Cash Flow Hedges are Recorded	$	(162)	$	(52)	$	(177)	$	(50)	Financial Statement Line Item in which Cash Flow Hedges are Recorded	$	(115)	$	102	$	(111)	$	(45)

Impact of cash flow hedging relationships:	Impact of cash flow hedging relationships:									Impact of cash flow hedging relationships:
Loss recognized in AOCI on interest rate swaps		$	—	$	(57)	$	—	$	(78)
Gain (loss) recognized in AOCI on interest rate swaps										Gain (loss) recognized in AOCI on interest rate swaps	0		16		$	0	$	(50)
Interest expense reclassified from AOCI	Interest expense reclassified from AOCI	$	(22)	$	22	$	(7)	$	7	Interest expense reclassified from AOCI	(25)		25		$	(11)	$	11

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The following table provides information regarding the pre-tax (losses) gains for derivatives not designated as hedging instruments on the Condensed Consolidated Statements of Operations:


			Three months ended June 30,						Nine months ended June 30,								Three months ended March 31,				Six months ended March 31,
(In millions)	(In millions)	Location of Derivative Pre-tax (Loss) Gain	2020		2019		2020		2019		(In millions)	Location of Derivative Pre-tax (Loss) Gain	2021		2020		2021		2020
Emergence Date Warrants	Emergence Date Warrants	Other income, net	$	(3)	$	7	$	—	$	28	Emergence Date Warrants	Other income, net	$	(22)	$	6	$	(27)	$	3
Foreign exchange contracts	Foreign exchange contracts	Other income, net	—		(1)		(3)		(1)		Foreign exchange contracts	Other income, net	1		(7)		6		(2)

The Company records its derivatives on a gross basis in the Condensed 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:


		June 30, 2020						September 30, 2019							March 31, 2021				September 30, 2020
(In millions)	(In millions)	Asset		Liability		Asset		Liability		(In millions)	Asset		Liability		Asset		Liability
Gross amounts recognized in the Condensed Consolidated Balance Sheets	Gross amounts recognized in the Condensed Consolidated Balance Sheets	$	1	$	123	$	1	$	86	Gross amounts recognized in the Condensed Consolidated Balance Sheets	$	11	$	122	$	1	$	127
Gross amount subject to offset in master netting arrangements not offset in the Condensed Consolidated Balance Sheets	Gross amount subject to offset in master netting arrangements not offset in the Condensed Consolidated Balance Sheets	(1)		(1)		(1)		(1)		Gross amount subject to offset in master netting arrangements not offset in the Condensed Consolidated Balance Sheets	(11)		(11)		(1)		(1)
Net amounts	Net amounts	$	—	$	122	$	—	$	85	Net amounts	$	0	$	111	$	0	$	126

11. 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 ~~recent~~ COVID-19 pandemic that has caused significant volatility in U.S. and international markets, 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.

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Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis as of ~~June 30, 2020~~March 31, 2021 and September 30, ~~2019~~2020 were as follows:

June 30, 2020 September 30, 2019
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:
Investments in debt securities $ — $ — $ — $ — $ 10 $ — $ — $ 10
Foreign exchange contracts 1 — 1 — 1 — 1 —
Total assets $ 1 $ — $ 1 $ — $ 11 $ — $ 1 $ 10
Liabilities:
Interest rate contracts $ 117 $ — $ 117 $ — $ 81 $ — $ 81 $ —
Spoken acquisition earn-outs — — — — 5 — — 5
Foreign exchange contracts 1 — 1 — — — — —
Emergence Date Warrants 5 — — 5 5 — — 5
Total liabilities $ 123 $ — $ 118 $ 5 $ 91 $ — $ 81 $ 10

~~Investments in debt securities~~

The investments in debt securities were 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 investments in debt securities were recorded in Other assets in the Condensed Consolidated Balance Sheets.

~~Interest rate and foreign exchange contracts~~


	March 31, 2021								September 30, 2020
	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:
Interest rate contracts	$	10	$	0	$	10	$	0	$	0	$	0	$	0	$	0
Foreign exchange contracts	1		0		1		0		1		0		1		0
Total assets	$	11	$	0	$	11	$	0	$	1	$	0	$	1	$	0

Liabilities:
Interest rate contracts	$	86	$	0	$	86	$	0	$	117	$	0	$	117	$	0
Foreign exchange contracts	1		0		1		0		2		0		2		0
Emergence Date Warrants	35		0		0		35		8		0		0		8
Total liabilities	$	122	$	0	$	87	$	35	$	127	$	0	$	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.

~~Spoken acquisition earn-outs~~

The Spoken acquisition earn-outs classified as Level 3 liabilities were 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 in valuing these liabilities. The earn-outs were recorded in Other current liabilities in the Condensed Consolidated Balance Sheets.

~~Emergence Date Warrants~~

Emergence Date Warrants classified as Level 3 liabilities are valued using ~~the~~a probability weighted Black-Scholes option pricing ~~model.~~model which is further described in Note 10, "Derivative Instruments and Hedging Activities."

During the three and ~~nine~~six months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 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 ~~for~~related to the Company's Level 3 ~~assets and liabilities measured at~~liability, the Emergence Date Warrants, related to a change in fair value ~~on a recurring basis:~~

(In millions) Emergence Date Warrants Spoken acquisition earn-outs Investments in debt securities
Balance as of September 30, 2019 $ 5 $ 5 $ 10
Impairment⁽¹⁾
— — (10)
Settlement — (5) —
Balance as of June 30, 2020 $ 5 $ — $ —

⁽¹⁾~~During the nine months ended June 30, 2020, the Company~~which was recorded an other-than-temporary impairment charge for a $10 million credit loss on its investments in debt securities mainly driven by a decline in the macroeconomic environment due to the COVID-19 pandemic and a decline in the expected operating results and cash flows for the investment company. The impairment charge is included in Other income, net.

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Fair Value of Financial Instruments

The estimated fair values of ~~cash~~the Company's Senior Notes, Term Loans, and cash equivalents, accounts receivable, accounts payable, accrued expenses and amounts borrowed under the ABL Credit Agreement, 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 June 30, 2020~~Convertible Notes at March 31, 2021 and September 30, ~~2019, the~~2020 were as follows:


	March 31, 2021				September 30, 2020
(In millions)	Principal amount		Fair value		Principal amount		Fair value
Senior 6.125% Notes due September 15, 2028	$	1,000	$	1,064	$	1,000	$	1,022
Tranche B Term Loans due December 15, 2024	0		0		843		838
Tranche B-1 Term Loans due December 15, 2027	800		801		800		786
Tranche B-2 Term Loans due December 15, 2027	743		744		0		0
Convertible 2.25% Senior Notes due June 15, 2023	350		435		350		331
Total	$	2,893	$	3,044	$	2,993	$	2,977

The estimated fair value of the ~~Company's~~ Term ~~Loan Credit Agreement~~Loans and Senior Notes was determined using a Level 2 ~~input~~inputs based on a market approach utilizing market-clearing data on the valuation date in addition to bid/ask prices.

~~As of June 30, 2020 and September 30, 2019, the~~ 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 cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, to the ~~Company's Term Loan Credit Agreement and Convertible Notes as~~extent the underlying liability will be settled in cash, approximate their carrying values because of ~~June 30, 2020 and September 30, 2019 are as follows:~~

June 30, 2020 September 30, 2019
(In millions) Principal amount Fair value Principal amount Fair value
Term Loan Credit Agreement due December 15, 2024 $ 2,624 $ 2,429 $ 2,874 $ 2,739
Convertible 2.25% senior notes due June 15, 2023 350 287 350 298
Total $ 2,974 $ 2,716 $ 3,224 $ 3,037

the short-term nature of these instruments.

12. Income Taxes

The Company's effective income tax rate for the three and ~~nine~~six months ended ~~June 30, 2020~~March 31, 2021 differed from the U.S. federal tax rate ~~primarily due to: (1) income~~by 335% and ~~losses taxed at different foreign tax rates, (2)~~696%, or $47 million and $56 million, respectively, principally related to nondeductible expenses, including expenses related to the change in fair value of the Emergence Date Warrants, and deferred ~~tax assets~~taxes (including losses) generated for which no benefit was recorded because it is more likely than not that the tax benefits would not be ~~realized, (3)~~realized.

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The Company's effective income tax rate for the three and six months ended March 31, 2020 differed from the U.S. ~~state~~federal tax rate by 27% and ~~local income taxes, (4) the impact of the Tax Cuts~~30%, or $170 million and ~~Jobs Act ("the Act") and associated regulations, (5)~~$201 million, respectively, principally related to the goodwill impairment charge recorded in the second quarter of fiscal 2020 ~~(6) the impact of the Coronavirus Aid, Relief~~ and ~~Economic Security Act (the "CARES Act") and (7) foreign tax credits.~~

The Company's effective income tax rate for the three and nine months ended June 30, 2019 differed from the U.S. federal tax rate primarily due to: (1) income and losses taxed at different foreign tax rates, (2) lossesdeferred taxes (including 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 income taxes, (6) the impact of the Act, (7) the goodwill impairment charges recorded in the third quarter of fiscal 2019, (8) current period elections taken in submitted tax filings, and (9) foreign tax credits.

~~On December 22, 2017, the Act was signed into law. The Act lowered the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018. The Company has a September 30~~^th tax year-end and therefore many of the tax law changes became effective in the first quarter of fiscal 2019. The Company benefits from the deduction attributable to Foreign Derived Intangible Income and has taxable income attributable to Global Intangible Low-Taxed Income, both of which impact the effective tax rate. During the three months ended December 31, 2018, Avaya completed its analysis of the impact of the Act as required by Staff Accounting Bulletin No. 118 issued by the SEC on December 22, 2017.realized.

13. 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.

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The components of the pension and post-retirement net periodic benefit (credit) cost for the periods indicated are provided in the table below:


		Three months ended June 30,						Nine months ended June 30,							Three months ended March 31,				Six months ended March 31,
(In millions)	(In millions)	2020		2019		2020		2019		(In millions)	2021		2020		2021		2020
Pension Benefits - U.S.	Pension Benefits - U.S.									Pension Benefits - U.S.
Components of net periodic benefit credit	Components of net periodic benefit credit									Components of net periodic benefit credit
Service cost	Service cost	$	1	$	1	$	3	$	3	Service cost	$	1	$	1	$	2	$	2
Interest cost	Interest cost	7		10		22		29		Interest cost	5		8		10		15
Expected return on plan assets	Expected return on plan assets	(14)		(15)		(42)		(45)		Expected return on plan assets	(13)		(15)		(26)		(28)
Amortization of actuarial loss										Amortization of actuarial loss	1		0		1		0
Net periodic benefit credit	Net periodic benefit credit	$	(6)	$	(4)	$	(17)	$	(13)	Net periodic benefit credit	$	(6)	$	(6)	$	(13)	$	(11)
Pension Benefits - Non-U.S.	Pension Benefits - Non-U.S.									Pension Benefits - Non-U.S.
Components of net periodic benefit cost	Components of net periodic benefit cost									Components of net periodic benefit cost
Service cost	Service cost	$	2	$	2	$	6	$	5	Service cost	$	2	$	2	$	4	$	4
Interest cost	Interest cost	1		2		3		7		Interest cost	1		1		2		2
Net periodic benefit cost	Net periodic benefit cost	$	3	$	4	$	9	$	12	Net periodic benefit cost	$	3	$	3	$	6	$	6
Post-retirement Benefits - U.S.	Post-retirement Benefits - U.S.									Post-retirement Benefits - U.S.
Components of net periodic benefit cost
Components of net periodic benefit credit										Components of net periodic benefit credit
Service cost	Service cost	$	1	$	—	$	1	$	1	Service cost	$	1	$	0	$	1	$	0
Interest cost	Interest cost	2		4		8		11		Interest cost	2		3		4		6
Expected return on plan assets	Expected return on plan assets	(2)		(2)		(7)		(7)		Expected return on plan assets	(2)		(2)		(4)		(5)
Amortization of prior service cost		—		—		(1)		—
Amortization of prior service credit										Amortization of prior service credit	(1)		(1)		(2)		(1)
Amortization of actuarial loss	Amortization of actuarial loss	—		(1)		—		(1)		Amortization of actuarial loss	0		0		1		0
Net periodic benefit cost		$	1	$	1	$	1	$	4
Settlement gain										Settlement gain	(14)		0		(14)		0
Net periodic benefit credit										Net periodic benefit credit	$	(14)	$	0	$	(14)	$	0

The service components of net periodic benefit (credit) cost were recorded similar to compensation expense, while all other components were recorded in Other income, 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. ~~Contributions to U.S. pension plans were $9 million for the nine months ended June 30, 2020, which represented the amounts required to satisfy the minimum statutory funding requirements in the U.S.~~ On March 27, 2020, the ~~CARES~~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 ~~may~~were permitted to delay contributions for single employer defined benefit pension plans until January 1,4, 2021. The Company resumed making contributions to its U.S. pension plans during the second quarter of fiscal 2021. Contributions to U.S. pension plans were $11 million for the six months ended March 31, 2021, which represented the amounts required to satisfy the minimum statutory funding requirements in the U.S. On March 11, 2021, the American Rescue Plan Act (the "ARP Act") was signed into law, providing limited interest-rate relief provisions and an extended shortfall amortization period for pension funding and retirement plan distributions. As a result, the Company does not expect to make ~~additional~~any contributions to the U.S. pension ~~plan contributions in~~plans during the remainder of fiscal ~~2020 other than its final contribution for the 2019 plan year of $1 million.~~2021.

Contributions to the non-U.S. pension plans were ~~$18~~$15 million for the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021. For the remainder of fiscal ~~2020,~~2021, the Company estimates that it will make contributions totaling $6$9 million for its non-U.S. plans.

~~In June 2019, the Company announced a change in medical benefits under the post-retirement medical plan for represented retirees as~~

Table of ~~April 30, 2019 and their eligible dependents.~~ Contents

Effective ~~January~~December 1, 2020, the 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 ~~medical~~ coverage ~~provided~~ through the private and public insurance ~~marketplace for the identified retirees.~~marketplace. As a result, the U.S. represented ~~retiree~~ post-retirement plan was remeasured as of ~~June~~November 30, ~~2019,~~2020, which resulted in the recognition of ~~an $8~~a $12 million ~~increase~~reduction to the accumulated benefit obligation with an offset to the Accumulated other comprehensive loss within the Condensed Consolidated Balance ~~Sheets.~~Sheet. The ~~increase~~decrease was mainly driven by ~~changes in actuarial assumptions, partially offset by the impact of~~ the change in medical ~~coverage.~~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 transfer $209 million of its post-retirement life insurance projected benefit obligations related to certain salaried and represented 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 value of $190 million. As a result of this transaction, a settlement gain of $14 million was recognized within Other income, net in the Condensed Consolidated Statements of Operations.

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 Communications Workers of America and the International Brotherhood of Electrical Workers, and contributions from the participants, if required. During the ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, the Company made payments for retiree medical and dental benefits of ~~$10~~$5 million and received a $3$2 million reimbursement from the represented employees' post-retirement health trust related to payments in prior periods. The Company estimates it will make ~~contributions~~payments for retiree medical and dental benefits totaling $3$6 million for the remainder of fiscal ~~2020.~~2021.

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14. Share-based Compensation

~~Pre-tax~~The Company maintains share-based compensation ~~expense for the three months ended June 30, 2020 and 2019 was $7 million and $8 million, respectively, and $21 million and $19 million for the nine months ended June 30, 2020 and 2019, respectively.~~

~~2017 Equity Incentive Plan~~

~~On December 15, 2017, the Company adopted the Avaya Holdings Corp. 2017 Equity Incentive Plan (the "2017 Plan"),~~plans under which non-employee directors, employees of the Company or any of its affiliates, and certain consultants and advisors may be granted 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.

~~2019 Equity Incentive Plan~~

~~On November 13, 2019,~~ Pre-tax share-based compensation expense for the ~~Board of Directors of~~three months ended March 31, 2021 and 2020 was $13 million and $8 million, respectively, and $27 million and $14 million for the ~~Company (the "Board") approved the Avaya Holdings Corp. 2019 Equity Incentive Plan~~six months ended March 31, 2021 and ~~on January 8,~~ 2020, approved an amendment to such plan (as so amended, the "2019 Plan"). On November 13, 2019, the Board also adopted the 2019 Omnibus Inducement Equity Plan (the "Inducement Plan"), which reserved up to 1,700,000 shares of the Company's common stock for awards to be made to certain prospective employees pursuant to the "inducement grant" exemption under the NYSE Listing Rules. On March 4, 2020, the stockholders of the Company approved the 2019 Plan and, as of such date, no additional awards may be granted under the 2017 Plan or the Inducement Plan (together, the "Prior Plans"). The 2019 Plan provides an initial pool of 18,800,000 shares of common stock that may be issued or granted, which can be adjusted for shares that become available from existing awards issued under the Prior Plans in accordance with the terms of the 2019 Plan.respectively.

Restricted Stock Units

During the ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, the Company granted ~~1,888,007~~1,484,403 RSUs with a weighted average grant date fair value of ~~$12.06~~$20.18 per ~~RSU. During the nine months ended June 30, 2020,~~RSU and there were ~~1,204,055~~983,143 RSUs that vested with a weighted average grant date fair value of ~~$15.35~~$15.03 per RSU.

Performance Restricted Stock Units

During the ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, the Company granted ~~661,856~~620,924 PRSUs with a weighted average grant date fair value of ~~$13.69~~$22.27 per ~~PRSU, which~~PRSU. These PRSUs will vest based onupon the attainment of specified performance metrics for each of the next three separate fiscal years (collectively the "Performance Period"), ~~and~~as well as the ~~Company's~~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. During the Performance Period, the Company will adjust compensation expense for the ~~awards~~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 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 grant date fair value of the ~~awards~~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:


	~~Nine~~Six months ended ~~June 30, 2020~~March 31, 2021
Expected volatility⁽¹⁾	~~55.75~~63.56	%
Risk-free interest rate⁽²⁾	~~1.61~~0.20	%
Dividend yield⁽³⁾	—0	%

⁽¹⁾Expected volatility based on ~~a blend of Company and peer group company historical data adjusted for~~ the Company's ~~leverage.~~historical data.

⁽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.

~~Stock Options~~

During the nine months ended June 30, 2020, the Company granted 163,666 non-qualified stock options with a grant date fair value of $6.11 per option. The grant date fair value was determined using the Black-Scholes option pricing model with the following assumptions:

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	~~Nine months ended June 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⁾	—		%

Stock Options

⁽¹⁾~~Expected volatility based on~~During the six months ended March 31, 2021, there were 397,279 stock options exercised with a ~~blend~~weighted average exercise price of ~~Company and peer group company historical data adjusted for~~$19.53. The intrinsic value of a stock option is the difference between the Company's ~~leverage.~~

⁽²⁾~~Expected life based on the vesting terms of~~common stock price and the option ~~and a contractual life~~exercise price. The total pre-tax intrinsic value of ~~ten years.~~

⁽³⁾~~Risk-free interest rate based on U.S. Treasury yields with a term equal to~~stock options exercised during the ~~expected option term.~~

⁽⁴⁾~~Dividend yield~~six months ended March 31, 2021 was ~~assumed to be zero as the Company does not anticipate paying dividends.~~

$5 million.

Employee Stock Purchase Plan

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. The first offering period began on June 1, 2020. During the ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, the Company withheld $1$7 million of eligible employee compensation for purchases of common stock and issued 448,168 shares of common stock under ~~the ESPP.~~its employee stock purchase plan (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 ~~period~~periods that commenced during the ~~nine~~six months ended ~~June 30, 2020~~March 31, 2021 was ~~$6.31~~$6.39 per share. The grant date fair value was determined using a Black-Scholes option pricing model with the following average grant date assumptions:


	~~Nine~~Six months ended ~~June 30, 2020~~March 31, 2021
Expected volatility⁽¹⁾	~~140.23~~56.90	%
Risk-free interest rate⁽²⁾	~~0.14~~0.07	%
Dividend yield⁽³⁾	—0	%

⁽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)⁽³⁾Dividend yield was assumed to be zero as the Company does not anticipate paying dividends.

15. Capital Stock

Preferred Stock

~~The 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 ~~June 30, 2020,~~March 31, 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

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~~preference (which equals the 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 Condensed Consolidated Balance Sheets between Total liabilities and Stockholders' equity. As of ~~June 30, 2020,~~March 31, 2021, the carrying value of the Series A Preferred Stock was ~~$128~~$130 million, which includes $3$5 million of ~~accumulated and unpaid dividends.~~

~~In connection with~~accreted dividends paid in kind. During the ~~issuance~~six months ended March 31, 2021, the carrying value of the Series A Preferred Stock ~~the Company granted RingCentral certain customary consent rights with respect~~increased $2 million due to ~~certain actions by the Company, including amending the Company's organizational documents~~accreted dividends paid in ~~a manner that would have an adverse effect on the Series A Preferred Stock and issuing securities that are senior to, or equal in priority with, the Series A Preferred Stock. In addition, pursuant~~kind.

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-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. ~~The director~~On November 6, 2020, Robert Theis was elected to ~~be designated by RingCentral will be nominated to~~join the Company's Board of Directors ~~following~~as RingCentral's ~~identification of a nominee.~~designee.

Common Stock

The 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 June 30, 2020, there were 82,864,260 shares issued and outstanding. As of September 30, 2019, there were 111,046,085 shares issued and 111,033,405 shares outstanding with the remaining 12,680 shares distributable in accordance with the Plan of Reorganization.

~~On November 14, 2018, the Company's Board of Directors approved a warrant repurchase program, authorizing 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 June 30, 2020, there were no warrant repurchases under the program.

~~On October 1, 2019, the Board of Directors of the Company approved~~maintains a share 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 adopted a purchase plan 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 and may be terminated, increased or decreased by the Board of Directors in its discretion at any time. All shares that are repurchased under the program are retired by the Company. During the ~~nine~~three and six months ended ~~June 30, 2020,~~March 31, 2021, the Company repurchased ~~28,923,664~~245,206 shares of its common stock at a weighted average price per share of ~~$11.41,~~$29.69, including transaction ~~costs. The~~costs based on the settlement date of the repurchase. There were an additional 7,962 shares repurchased that were pending settlement as of March 31, 2021 which have been accrued for by the Company ~~did not repurchase any shares of its common stock during~~within Other current liabilities in the ~~three months ended June 30, 2020.~~Condensed Consolidated Balance Sheet. As of ~~June 30, 2020,~~March 31, 2021, the remaining authorized amount for share repurchases under this program was ~~$170~~$163 million.

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16. ~~Earnings (Loss)~~Loss Per Common Share

Basic ~~earnings (loss)~~loss per share is calculated by dividing net ~~income (loss)~~loss attributable to common stockholders by the weighted average number of common shares outstanding. Diluted ~~earnings (loss)~~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.

The following table sets forth the calculation of net ~~income (loss)~~loss attributable to common stockholders and the computation of basic and diluted ~~earnings (loss)~~loss per share for the periods indicated:

Three months ended
June 30, Nine months ended
June 30,
(In millions, except per share amounts) 2020 2019 2020 2019
Earnings (loss) per share:
Numerator
Net Income (loss) $ 9 $ (633) $ (717) $ (637)
Dividends and accretion to preferred stockholders (1) — (7) —
Undistributed Income (loss) 8 (633) (724) (637)
Percentage allocated to common stockholders⁽¹⁾
91.2 % 100.0 % 100.0 % 100.0 %
Numerator for basic and diluted earnings (loss) per common share $ 7 $ (633) $ (724) $ (637)
Denominator
Denominator for basic earnings (loss) per weighted average common shares 83.1 111.0 95.1 110.7
Effect of dilutive securities
Restricted stock units 0.2 — — —
Denominator for diluted earnings (loss) per weighted average common shares 83.3 111.0 95.1 110.7
Earnings (loss) per common share
Basic $ 0.08 $ (5.70) $ (7.61) $ (5.75)
Diluted $ 0.08 $ (5.70) $ (7.61) $ (5.75)
⁽¹⁾ Basic weighted average common stock outstanding
83.1 111.0 95.1 110.7
Basic weighted average common stock and common stock equivalents (preferred shares) 91.1 111.0 95.1 110.7
Percentage allocated to common stockholders 91.2 % 100.0 % 100.0 % 100.0 %


	Three months ended March 31,						Six months ended March 31,
(In millions, except per share amounts)	2021			2020			2021			2020
Loss per share:
Numerator
Net loss	$	(58)		$	(672)		$	(62)		$	(726)
Dividends and accretion to preferred stockholders	(1)			(1)			(2)			(6)
Undistributed loss	(59)			(673)			(64)			(732)
Percentage allocated to common stockholders(1)	100.0		%	100.0		%	100.0		%	100.0		%
Numerator for basic and diluted loss per common share	$	(59)		$	(673)		$	(64)		$	(732)

Denominator for basic and diluted loss per weighted average common shares	84.6			93.0			84.2			101.1

Loss per common share
Basic	$	(0.70)		$	(7.24)		$	(0.76)		$	(7.24)
Diluted	$	(0.70)		$	(7.24)		$	(0.76)		$	(7.24)

(1) Basic weighted average common stock outstanding	84.6			93.0			84.2			101.1
Basic weighted average common stock and common stock equivalents (preferred shares)	84.6			93.0			84.2			101.1
Percentage allocated to common stockholders	100.0		%	100.0		%	100.0		%	100.0		%

The Company's ~~Series A Preferred Stock~~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 ~~earnings (loss)~~loss per common share is computed by dividing the net ~~income (loss)~~loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Net ~~income (loss)~~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 the three and six months ended ~~June 30, 2020,~~March 31, 2021, the Company excluded ~~2.1~~3.1 million RSUs, ~~1.0~~0.5 million stock options, ~~0.2~~0.1 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 ~~earnings (loss)~~loss per share calculation as their effect would have been anti-dilutive. The Company also excluded 1.6 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 the three and six months ended March 31, 2020, the Company excluded 3.2 million RSUs, 1.0 million stock options, 5.6 million Emergence Date Warrants and 0.1 million shares of Series A Preferred Stock from the diluted loss per share calculation

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as their effect would have been anti-dilutive. The Company also excluded 1.0 million PRSUs from the diluted ~~earnings (loss) per share calculation as their performance metrics have not yet been attained.~~

~~Table of Contents~~

For the nine months ended June 30, 2020, the Company excluded 2.8 million RSUs, 1.0 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 earnings (loss) per share calculation as their effect would have been anti-dilutive. The Company also excluded 1.0 million PRSUs from the diluted earnings (loss) per share calculation as their performance metrics have not yet been attained.

For the three and nine months ended June 30, 2019, the Company excluded 1.0 million stock options, 3.6 million RSUs and 5.6 million Emergence Date Warrants from the diluted earnings (loss) per share calculation as their effect would have been anti-dilutive. The Company also excluded 0.5 million PRSUs from the diluted earnings (loss)loss per share calculation as their performance metrics had not yet been attained.

The Company's Convertible Notes and Call Spread Warrants were excluded from the diluted ~~earnings (loss)~~loss per share calculation for all periods presented as their effect would have been anti-dilutive.

17. Operating Segments

The Products & Solutions segment primarily develops, markets, and sells unified communications 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. ~~We also classify~~Revenue from customers who upgrade and acquire new technology through the Company's subscription offerings ~~as part of our~~is reported within the 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, 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:


		Three months ended June 30,						Nine months ended June 30,							Three months ended March 31,				Six months ended March 31,
(In millions)	(In millions)	2020		2019		2020		2019		(In millions)	2021		2020		2021		2020
REVENUE	REVENUE									REVENUE
Products & Solutions	Products & Solutions	$	262	$	298	$	805	$	913	Products & Solutions	$	226	$	245	$	492	$	543
Services	Services	460		422		1,317		1,269		Services	513		438		990		857
Unallocated Amounts⁽¹⁾	Unallocated Amounts⁽¹⁾	(1)		(3)		(4)		(18)		Unallocated Amounts (1)	(1)		(1)		(1)		(3)
		$	721	$	717	$	2,118	$	2,164		$	738	$	682	$	1,481	$	1,397
GROSS PROFIT	GROSS PROFIT									GROSS PROFIT
Products & Solutions	Products & Solutions	$	159	$	189	$	507	$	587	Products & Solutions	$	134	$	154	$	295	$	348
Services	Services	282		249		791		759		Services	322		263		620		509
Unallocated Amounts⁽²⁾	Unallocated Amounts⁽²⁾	(44)		(48)		(136)		(163)		Unallocated Amounts (2)	(44)		(46)		(87)		(92)
		397		390		1,162		1,183			412		371		828		765
OPERATING EXPENSES	OPERATING EXPENSES									OPERATING EXPENSES
Selling, general and administrative	Selling, general and administrative	232		253		763		761		Selling, general and administrative	264		248		519		531
Research and development	Research and development	52		49		155		154		Research and development	57		51		112		103
Amortization of intangible assets	Amortization of intangible assets	40		41		122		122		Amortization of intangible assets	39		41		79		82
Impairment charges		—		659		624		659
Impairment of goodwill										Impairment of goodwill	0		624		0		624
Restructuring charges, net	Restructuring charges, net	20		1		27		12		Restructuring charges, net	8		4		12		7
		344		1,003		1,691		1,708			368		968		722		1,347
OPERATING INCOME (LOSS)	OPERATING INCOME (LOSS)	53		(613)		(529)		(525)		OPERATING INCOME (LOSS)	44		(597)		106		(582)
INTEREST EXPENSE AND OTHER INCOME, NET	INTEREST EXPENSE AND OTHER INCOME, NET	(24)		(47)		(106)		(142)		INTEREST EXPENSE AND OTHER INCOME, NET	(58)		(38)		(114)		(82)
INCOME (LOSS) BEFORE INCOME TAXES		$	29	$	(660)	$	(635)	$	(667)
LOSS BEFORE INCOME TAXES										LOSS BEFORE INCOME TAXES	$	(14)	$	(635)	$	(8)	$	(664)

⁽¹⁾Unallocated amounts in Revenue represent the fair value adjustment to deferred revenue recognized upon emergence from bankruptcy and excluded from segment revenue.

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⁽²⁾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~~intangibles which are ~~not core to the measurement of~~excluded from segment ~~management's performance, but rather are controlled at the corporate level.~~gross profit.

~~18. Accumulated Other Comprehensive (Loss) Income~~

~~The components of Accumulated other comprehensive (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 Accumulated Other Comprehensive (Loss) Income
Balance as of March 31, 2020 $ (106) $ (13) $ (99) $ (218)
Other comprehensive loss before reclassifications — (11) (7) (18)
Amounts reclassified to earnings — — 11 11
Balance as of June 30, 2020 $ (106) $ (24) $ (95) $ (225)

(In millions) Change in Unamortized Pension, Post-retirement and Postemployment Benefit-related Items Foreign Currency Translation Unrealized Loss on Term Loan Interest Rate Swap Accumulated Other Comprehensive (Loss) Income
Balance as of September 30, 2019 $ (106) $ (7) $ (60) $ (173)
Other comprehensive loss before reclassifications — (44) (57) (101)
Amounts reclassified to earnings — 27 22 49
Balance as of June 30, 2020 $ (106) $ (24) $ (95) $ (225)

(In millions) Change in Unamortized Pension, Post-retirement and Postemployment Benefit-related Items Foreign Currency Translation Unrealized Loss on Term Loan Interest Rate Swap Accumulated Other Comprehensive Income (Loss)
Balance as of March 31, 2019 $ 51 $ (12) $ (33) $ 6
Other comprehensive loss before reclassifications (8) (10) (31) (49)
Amounts reclassified to earnings — — 2 2
Benefit from income taxes 2 — 7 9
Balance as of June 30, 2019 $ 45 $ (22) $ (55) $ (32)

(In millions) Change in Unamortized Pension, Post-retirement and Postemployment Benefit-related Items Foreign Currency Translation Unrealized Loss on Term Loan Interest Rate Swap Accumulated Other Comprehensive Income (Loss)
Balance as of September 30, 2018 $ 51 $ (31) $ (2) $ 18
Other comprehensive (loss) income before reclassifications (8) 9 (78) (77)
Amounts reclassified to earnings — — 7 7
Benefit from income taxes 2 — 18 20
Balance as of June 30, 2019 $ 45 $ (22) $ (55) $ (32)

Reclassifications from Accumulated other comprehensive (loss) income related to the unrealized loss on term loan interest rate swap agreements are recorded in Interest expense in the Condensed Consolidated Statements of Operations. Reclassifications

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18. Accumulated Other Comprehensive Loss

The components of Accumulated other comprehensive loss 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 Interest Rate Swaps		Accumulated Other Comprehensive Loss
Balance as of December 31, 2020	$	(96)	$	(52)	$	(80)	$	(228)
Other comprehensive income before reclassifications	50		21		17		88
Amounts reclassified to earnings	(15)		0		13		(2)
Provision for income taxes	(1)		—		—		(1)
Balance as of March 31, 2021	$	(62)	$	(31)	$	(50)	$	(143)


(In millions)	Change in Unamortized Pension, Post-retirement and Postemployment Benefit-related Items		Foreign Currency Translation		Unrealized Loss on Interest Rate Swaps		Accumulated Other Comprehensive Loss
Balance as of September 30, 2020	$	(108)	$	(46)	$	(91)	$	(245)
Other comprehensive income before reclassifications	62		15		16		93
Amounts reclassified to earnings	(15)		0		25		10
Provision for income taxes	(1)		—		—		(1)
Balance as of March 31, 2021	$	(62)	$	(31)	$	(50)	$	(143)


(In millions)	Change in Unamortized Pension, Post-retirement and Postemployment Benefit-related Items		Foreign Currency Translation		Unrealized Loss on Interest Rate Swaps		Accumulated Other Comprehensive Loss
Balance as of December 31, 2019	$	(106)	$	(4)	$	(53)	$	(163)
Other comprehensive loss before reclassifications	0		(36)		(54)		(90)
Amounts reclassified to earnings	0		27		6		33
Benefit from income taxes	0		0		2		2
Balance as of March 31, 2020	$	(106)	$	(13)	$	(99)	$	(218)


(In millions)	Change in Unamortized Pension, Post-retirement and Postemployment Benefit-related Items		Foreign Currency Translation		Unrealized Loss on Interest Rate Swaps		Accumulated Other Comprehensive Loss
Balance as of September 30, 2019	$	(106)	$	(7)	$	(60)	$	(173)
Other comprehensive loss before reclassifications	0		(33)		(50)		(83)
Amounts reclassified to earnings	0		27		11		38
Balance as of March 31, 2020	$	(106)	$	(13)	$	(99)	$	(218)

Reclassifications from Accumulated other comprehensive ~~(loss)~~loss related to changes in unamortized pension, post-retirement and postemployment benefit-related items are recorded in Other income, net. Reclassifications from Accumulated other comprehensive loss related to the unrealized loss on interest rate swap agreements are recorded in Interest expense. Reclassifications from Accumulated other comprehensive loss related to foreign currency translation reflect the impact of certain liquidated entities and are recorded in Other income, ~~net in the Condensed Consolidated Statements~~net.

Table of ~~Operations.~~Contents

19. Related Party Transactions

The Company's Board of Directors is comprised of 78 directors, including the Company's Chief Executive Officer and 67 non-employee directors.

Specific Arrangements Involving the Company's Current Directors and Executive Officers

William D. Watkins is a Director and Chair of the Board of Directors of the Company and serves on the board of directors of Flex Ltd. ("Flex"), an electronics design manufacturer. For the ~~nine~~six months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company purchased goods and services from subsidiaries of Flex of ~~$20~~$7 million and ~~$22~~$16 million, respectively. For the six months ended March 31, 2021 and 2020, sales of goods and services to subsidiaries of Flex were not material. As of both ~~June 30, 2020~~March 31, 2021 and September 30, ~~2019,~~2020, the Company had outstanding accounts payable due to Flex of $6$3 million. As of March 31, 2021, outstanding accounts receivable due from Flex were not material. As of September 30, 2020, the Company had outstanding accounts receivable due from Flex of $1 million.

Effective April 13, 2020, Stephan Scholl, a Director of the Company, assumed the role of Chief Executive Officer of Alight Solutions LLC ("Alight"), a provider of integrated benefits, payroll and cloud solutions. For the ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, the Company purchased goods and services from subsidiaries of Alight of ~~$3 million and did not have material~~$2 million. As of March 31, 2021, outstanding accounts payable due to Alight aswere not material. As of ~~June~~September 30, ~~2020.~~2020, the Company had outstanding accounts payable due to Alight of $1 million.

20. Commitments and Contingencies

Legal Proceedings

In the ordinary course of business, the Company is involved in litigation, claims, government inquiries, investigations and proceedings, including but not limited to, those 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.

In the opinion of the Company's management, while the outcome of these matters is uncertain, the likely results of these matters are not expected, either individually or in the aggregate, to have a material adverse effect on the Company's financial position, annual results of operations or cash flows. However, an unfavorable resolution could have a material adverse effect on the Company's financial position, results of operations or cash 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.

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 Condensed Consolidated Balance Sheets, for actual experience. As of ~~June 30, 2020~~March 31, 2021 and September 30, ~~2019,~~2020, the amount reserved for product warranties was $2 million.

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 obligations. As of ~~June 30, 2020,~~March 31, 2021, the maximum potential payment obligation with regards to letters of credit, guarantees and surety bonds was ~~$52~~$62 million. The outstanding letters of credit are collateralized by restricted cash of $4 million, which is included in Other assets on the Condensed Consolidated Balance ~~Sheets~~Sheet as of ~~June 30, 2020.~~March 31, 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

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outsourced manufacturers due to actual sales of product varying from forecast and due to transition of manufacturing from one vendor to another.

~~Table of Contents~~

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. ("Lucent")) contributed to the Company substantially all of the assets, liabilities and operations associated with its enterprise networking businesses (the "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 Contributed Businesses and all contingent liabilities primarily relating to the Contributed 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.

~~21.Subsequent Event~~

On July 1, 2020, the Company entered into interest rate swap agreements with 4 counterparties, which fix a portion of the variable interest due on its Term Loan Credit Agreement (the "New Swap Agreements") from December 15, 2022 (the maturity date of the Company's existing Swap Agreements) through December 15, 2024 (the maturity date of the Term Loan Credit Agreement).Under the terms of the New 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 New Swap Agreements is $1,400 million. The New Swap Agreements are designated as cash flow hedges as they are deemed highly effective as defined under ASC 815. As a result, the unrealized gains or losses on these contracts will be initially recorded in Accumulated other comprehensive loss in the Condensed Consolidated Balance Sheets.As interest expense is recognized on the Term Loan Credit Agreement, the corresponding deferred gain or loss on the New Swap Agreements will be reclassified from Accumulated other comprehensive loss in the Condensed Consolidated Balance Sheets to Interest expense in the Condensed Consolidated Statements of Operations.

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

Unless the context otherwise indicates, as used in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," the terms "we," "us," "our," "the Company," "Avaya" and similar terms refer to Avaya Holdings Corp. and its consolidated subsidiaries. "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with the unaudited interim Condensed Consolidated Financial Statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and our Consolidated Financial Statements and other financial information for the fiscal year ended September 30, ~~2019, which were~~2020, included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020 filed with the Securities and Exchange Commission on November ~~29, 2019.~~25, 2020.

Our accompanying unaudited interim Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the rules and regulations of the United States Securities and Exchange Commission ("SEC") for interim financial statements. In our opinion, the unaudited interim Condensed Consolidated Financial Statements reflect all adjustments, consisting of normal and recurring adjustments, necessary to state fairly the financial position, results of operations and cash flows for the periods indicated.

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. See "Cautionary Note Regarding Forward-Looking Statements" at the end of this discussion.

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 ~~customers~~our clients, their employees and their ~~employees.~~customers. Avaya builds open, converged and innovative solutions to enhance and simplify communications and collaboration in the cloud, ~~on-premises~~on-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.

During fiscal 2020, the Company shifted its entire comprehensive portfolio of capabilities to Avaya OneCloud, which offers significant capabilities across contact center, unified communications and collaboration, and communications platform as a service. Avaya OneCloud provides the full spectrum of cloud and on-premise deployment options. This enables organizations to deploy the Company’s solutions in the way that best serves their business requirements and complements their existing investments, while moving with the speed and agility they require.

The Company 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 them 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 communications and contact center platforms, applications and devices.

The Company's unified communications and collaboration ("~~UC"~~UCC") solutions enable organizations to reimagine ~~what teaming can mean~~collaborative work environments and help companies increase employee productivity, improve customer service and reduce costs. With Avaya's UCUCC solutions, 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 from consumer apps. Avaya embeds communications directly into the ~~applications,~~apps, browsers and devices employees use every day giving ~~people~~them a more natural, efficient and flexible way to connect, engage, respond and share - where and how they ~~want - for better business results.~~

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 intowant. During fiscal 2020, 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 continuesCompany expanded its UCC portfolio to ~~evolve its UC solutions for cloud deployment, as some customers prefer to consume this service via the cloud.~~include cloud-based solutions.

The Company's industry-leading digital contact center ("CC") solutions enable ~~customers~~the Company's clients to build a customized portfolio of applications, driving 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. ~~Similar to~~Like the ~~Company's UC solutions,~~UCC business, the Company is evolving ~~the~~ CC ~~solution set~~solutions for cloud ~~development.~~deployment and, in fiscal 2020, the Company expanded its CC portfolio to include cloud-based solutions.

Avaya also focuses on ensuring an outstanding experience for mobile callers by integrating transformative technologies, including Artificial Intelligence, mobility, big data analytics and cybersecurity into our ~~contact center~~CC solutions. As organizations use these

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solutions to gain a deeper understanding of their customer needs, we believe that their teams become more efficient and effective and, as a result, their customer loyalty grows.

The Company's UC and CC solutions 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, internal and external collaboration, and employee productivity. Customers experience seamless audio and video capabilities for both Avaya 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

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~~accelerate business. Developers can easily customize capabilities for their specific needs with our client Software Development Kit.~~

Services

Services consists of a portfolio of offerings created to help customers achieve better business outcomes, including global support services, enterprise cloud and managed services and professional services. We ~~also~~ classify customers who upgrade and acquire new technology through the Company's subscription offerings as part of our Services segment.

The Company's global support services provide 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 competitiveness~~gain a competitive edge through proactive problem prevention, rapid issue resolution and continual solution optimization. ~~The majority~~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 majority~~Most of our enterprise cloud and managed services revenue ~~in this business~~ is recurring in nature and based on multi-year services contracts.

The Company's professional services enable ~~businesses worldwide~~our customers to take full advantage of their IT and communications solution investments to drive measurable business results. Our ~~expert~~experienced consultants and ~~experienced~~ engineers ~~work~~partner with ~~clients as a strategic partner along~~customers at each step of the solution lifecycle to deliver services that add value and drive business ~~transformation and expand ongoing value. The majority~~transformation. Most of our professional services revenue ~~in this business~~ is one-time in nature.

Together, these comprehensive services enable clients to 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, enable employee productivity and deliver a differentiated customer experience.

Our services teams also help our ~~clients~~customers transition at their desired pace to next generation communications technology solutions, either via the cloud, ~~on-premises,~~on-premise, or a hybrid of both. Customers can ~~choose various~~select the support levels ~~of support~~ for their communications solutions ~~including~~best suited for their needs, which may include deployment, training, monitoring, ~~troubleshooting and~~solution management optimization, and more. Our ~~proactive, preventative system~~systems and service team's performance monitoring can quickly identify and ~~resolve issues.~~address issues before they arise. Remote diagnostics and resolutions ~~rapidly fix~~focus on fixing existing problems and ~~avoid~~avoiding potential issues ~~helping~~in order to help our customers save time and ~~reducing~~reduce the risk of an outage.

~~Recent Developments~~

~~Strategic Partnership with RingCentral~~

On October 3, 2019, the Company entered into a strategic partnership with RingCentral, Inc. ("RingCentral"), a leading provider of global enterprise cloud communications, collaboration and contact center ("CC") solutions, to accelerate the Company's transition to the cloud. Through this partnership, the Company introduced Avaya Cloud Office by RingCentral ("Avaya Cloud Office" or "ACO"), a new global unified communications as a service ("UCaaS") solution. Avaya Cloud Office expands the Company's portfolio to offer a full suite of UC, CC, UCaaS and contact center as a service solutions to its global customer base. ACO combines RingCentral's leading UCaaS platform with Avaya technology, services and migration capabilities to create a highly differentiated UCaaS offering. The transaction closed on October 31, 2019 and ACO was launched on March 31, 2020. The Company now has a full suite of public, private and hybrid cloud solutions for its global UC and CC customers and partners.

As part of 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 acts as an agent to Avaya's channel partners with respect to the sale of ACO and make direct sales of ACO. 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 strategic partnership, the Company and RingCentral entered into an investment agreement, whereby RingCentral purchased 125,000 shares of the Company's 3% Series A Convertible Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock"), for an aggregate purchase price of $125 million. See Note 15, "Capital Stock," to our unaudited interim Condensed Consolidated Financial Statements for additional information on the Series A Preferred Stock.

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Factors and Trends Affecting Our Results of Operations

WeThere are several 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~~technology and the manner in ~~the geopolitical environment of~~which our customers ~~instability in the global credit markets~~procure such technology and ~~other disruptions, such as the novel coronavirus disease ("COVID-19") described below, has put pressure on the global economy causing uncertainties.~~services.

On March 11, 2020, the WHO characterized COVID-19 as a pandemic. The COVID-19 pandemic, and the responses of governments worldwide to COVID-19, are having a negative impact on regional, national and global economies, are disrupting supply chains and reducing international trade and business activity. The extent of the impact of the COVID-19 pandemic on 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, as well as potential resurgences of the virus, all of which are uncertain and cannot be predicted. Although the COVID-19 pandemic has not had a material impact on the Company's revenue and gross margin for the three and nine months ended June 30, 2020, the Company did recognize a significant goodwill impairment charge and additional bad debt expense during the nine months ended June 30, 2020 as a result of the COVID-19 pandemic, as described in more detail in the Financial Results Summary below. If the pandemic continues to have a significant adverse effect on regional, national and global economies, we may be required to recognize additional impairments and bad debt expense in the future. Due to the uncertainty and unpredictability of the impact the COVID-19 pandemic will have on the Company's future operating results, financial position and cash flows, as well as the demand for the Company's products and services, current results and financial condition discussed herein may not be indicative of future operating results and trends. For further discussion of the uncertainties and business risks associated with the COVID-19 pandemic, refer to Part II, Item 1A "Risk Factors" of this Form 10-Q.

The health and safety of our employees has been our highest priority throughout the COVID-19 pandemic, and we have implemented several preventative and protective measures, including requiring, to the extent possible, all employees to work remotely, and cancelling conventions and conferences where social distancing would not be possible. We have also implemented business continuity plans and have continued to support our customers primarily by providing our services remotely instead of onsite.

The Company has also implemented cost containment and cash management initiatives to mitigate the impact of the COVID-19 pandemic on its business and liquidity and will continue to evaluate its financial position in light of future developments. For example, although the Company retains approval for additional share repurchases under its share repurchase program, it has elected to suspend repurchases out of caution and prudence due to the existing global economic and market uncertainties. Refer to Part II, Item 2 "Unregistered Sales of Equity Securities and Use of Proceeds" of this Form 10-Q for additional information. In addition, during April 2020, the Company elected to borrow $50 million under its ABL Credit Agreement solely as a precautionary measure to boost liquidity and reinforce stability in an economically turbulent environment. The $50 million borrowing was repaid on July 31, 2020.

We believe that the current macroeconomic environment has accelerated a developing trend in the way people work, with more employees working remotely, and believe this could increase demand for certain products and services of the Company.Industry Trends

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~~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~~reduces our associated maintenance support opportunities. We ~~continue to evolve~~are evolving 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~~and include revenue ~~recurring~~ from sales of its software, ~~maintenance, Cloud,~~global support services, enterprise cloud and ~~Enterprise Cloud~~managed services and ~~Managed Services.~~other cloud offerings.

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Coronavirus ("COVID-19") Pandemic

Instability in the geopolitical environment of our customers, instability in the global credit markets and other disruptions, such as the COVID-19 pandemic, have put pressure on the global economy causing uncertainties.

The COVID-19 pandemic, and the responses of governments worldwide to COVID-19, are having a significant impact on regional, national and global economies. The ultimate impact of the COVID-19 pandemic on 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 and the speed with which vaccines can be distributed globally, which are uncertain and cannot be predicted. During fiscal 2020, the Company recognized a significant goodwill impairment charge as a result of the COVID-19 pandemic which is further described in Note 7, “Goodwill, net” in the Company’s Annual Report on Form 10-K filed with the SEC on November 25, 2020.

The health and safety of our employees has been our highest priority throughout the COVID-19 pandemic, and we have implemented several preventative and protective measures, including requiring, to the extent possible, all employees to work remotely, and cancelling conventions and conferences where social distancing would not be possible. We have also implemented business continuity plans and have continued to support our clients primarily by providing our services remotely instead of onsite.

While the pandemic and its effect on the global economy have not materially impacted the Company or its financial condition to date, the Company will continue to evaluate its financial position in light of future developments.

The Company has maintained its focus on profitability levels and investing in future ~~results. As the Company continues its transformation to a software~~results 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 in addition to those implemented in response to the COVID-19 pandemic and may take additional restructuring actions in the future. The costs of ~~those~~any future actions could be material.

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Financial Results Summary

The following table displays our consolidated net ~~income (loss)~~loss for the three and ~~nine~~six months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:


		Three months ended June 30,						Nine months ended June 30,							Three months ended March 31,				Six months ended March 31,
(In millions)	(In millions)	2020		2019		2020		2019		(In millions)	2021		2020		2021		2020
REVENUE	REVENUE									REVENUE
Products	Products	$	261	$	297	$	804	$	908	Products	$	226	$	245	$	492	$	543
Services	Services	460		420		1,314		1,256		Services	512		437		989		854
		721		717		2,118		2,164			738		682		1,481		1,397
COSTS	COSTS									COSTS
Products:	Products:									Products:
Costs	Costs	103		109		299		329		Costs	92		92		197		196
Amortization of technology intangible assets	Amortization of technology intangible assets	43		43		130		130		Amortization of technology intangible assets	43		44		86		87
Services	Services	178		175		527		522		Services	191		175		370		349
		324		327		956		981			326		311		653		632
GROSS PROFIT	GROSS PROFIT	397		390		1,162		1,183		GROSS PROFIT	412		371		828		765
OPERATING EXPENSES	OPERATING EXPENSES									OPERATING EXPENSES
Selling, general and administrative	Selling, general and administrative	232		253		763		761		Selling, general and administrative	264		248		519		531
Research and development	Research and development	52		49		155		154		Research and development	57		51		112		103
Amortization of intangible assets	Amortization of intangible assets	40		41		122		122		Amortization of intangible assets	39		41		79		82
Impairment charges		—		659		624		659
Impairment of goodwill										Impairment of goodwill	—		624		—		624
Restructuring charges, net	Restructuring charges, net	20		1		27		12		Restructuring charges, net	8		4		12		7
		344		1,003		1,691		1,708			368		968		722		1,347
OPERATING INCOME (LOSS)	OPERATING INCOME (LOSS)	53		(613)		(529)		(525)		OPERATING INCOME (LOSS)	44		(597)		106		(582)
Interest expense	Interest expense	(51)		(59)		(162)		(177)		Interest expense	(59)		(53)		(115)		(111)
Other income, net	Other income, net	27		12		56		35		Other income, net	1		15		1		29
INCOME (LOSS) BEFORE INCOME TAXES		29		(660)		(635)		(667)
(Provision for) benefit from income taxes		(20)		27		(82)		30
NET INCOME (LOSS)		$	9	$	(633)	$	(717)	$	(637)
LOSS BEFORE INCOME TAXES										LOSS BEFORE INCOME TAXES	(14)		(635)		(8)		(664)
Provision for income taxes										Provision for income taxes	(44)		(37)		(54)		(62)
NET LOSS										NET LOSS	$	(58)	$	(672)	$	(62)	$	(726)

Three months ended ~~June 30, 2020 Compared~~March 31, 2021 compared with the Three months ended ~~June 30, 2019 Results~~March 31, 2020

Revenue

Revenue for the three months ended ~~June 30, 2020~~March 31, 2021 was ~~$721~~$738 million compared to ~~$717~~$682 million for the three months ended ~~June 30, 2019.~~March 31, 2020. The increase was primarily driven by higher revenue from the Company's ~~new~~ subscription offerings; higher demand for remote agent licenses for the Company's contact center solutions as a result of the COVID-19 pandemic; revenue growth from the Company's strategic alliance partners, which includes the Avaya Cloud Office offering; and revenue from the fulfillment of certain obligations related to a new government ~~contract.~~contract; revenue growth from the Company's Avaya Cloud Office offering which launched on March 31, 2020; and the favorable impact of foreign currency exchange rates. The increase was partially offset by lower demand for the Company's ~~on-premises unified communications solutions and the unfavorable impact of foreign currency exchange rates.~~on-premise product solutions.

The following table displays revenue and the percentage of revenue to total sales by operating segment for the periods indicated:


																						Percentage of Total Revenue						Yr. to Yr. Percentage Change			Yr. to Yr. Percentage Change, net of Foreign Currency Impact
						Percentage of Total Revenue									Yr. to Yr. Percentage Change, excluding Foreign Currency Impact				Three months ended March 31,						Three months ended March 31,								Yr. to Yr. Percentage Change, net of Foreign Currency Impact
(In millions)	(In millions)	Three months ended June 30, 2020		Three months ended June 30, 2019		Three months ended June 30, 2020		Three months ended June 30, 2019		Yr. to Yr. Percentage Change				Yr. to Yr. Percentage Change, excluding Foreign Currency Impact				2021			2020			2021			2020			Yr. to Yr. Percentage Change				Yr. to Yr. Percentage Change, net of Foreign Currency Impact
Products & Solutions	Products & Solutions	$	262	$	298	36	%	41	%	(12)	%	(12)	%			$	226		$	245		31	%		36	%		(8)	%						(9)	%
Services	Services	460		422		64	%	59	%	9	%	11	%	Services		513			438			69	%		64	%		17	%		15	%
Unallocated amounts	Unallocated amounts	(1)		(3)		—	%	—	%	(1)		(1)		Unallocated amounts		(1)			(1)			—	%		—	%		(1)			(1)
Total revenue	Total revenue	721		717		100	%	100	%	1	%	2	%	Total revenue		$	738		$	682		100	%		100	%		8	%		7	%

⁽¹⁾Not meaningful.

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Products & Solutions revenue for the three months ended ~~June 30, 2020~~March 31, 2021 was ~~$262~~$226 million compared to ~~$298~~$245 million for the three months ended ~~June 30, 2019.~~March 31, 2020. The decrease was primarily attributable to lower demand for the Company's ~~on-premises unified communications~~on-premise product solutions, partially offset by ~~higher demand for remote agent licenses for the Company's contact center solutions as a result of the COVID-19 pandemic;~~ revenue ~~growth~~ from the Company's ~~strategic alliance partners, which includes the~~ Avaya Cloud Office ~~offering; and~~offering which launched on March 31, 2020; revenue from the fulfillment of certain obligations related to a new government ~~contract.~~contract; and the favorable impact of foreign currency exchange rates.

Services revenue for the three months ended ~~June 30, 2020~~March 31, 2021 was ~~$460~~$513 million compared to ~~$422~~$438 million for the three months ended ~~June 30, 2019.~~March 31, 2020. The increase was primarily driven by higher revenue from the Company's ~~new~~ subscription ~~offerings~~ and OneCloud Private offerings; revenue from the fulfillment of certain obligations related to a new government ~~contract,~~contract; and the favorable impact of foreign currency exchange rates, partially offset by the planned declines in hardware maintenance and software support services which continue to face headwinds driven by lower new product sales over the past several years.

Unallocated amounts for the three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ represent the fair value adjustment to deferred revenue recognized upon emergence from bankruptcy in December 2017 which is excluded from segment revenue.

The following table displays revenue and the percentage of revenue to total sales by location for the periods indicated:


																						Percentage of Total Revenue						Yr. to Yr. Percentage Change			Yr. to Yr. Percentage Change, net of Foreign Currency Impact
						Percentage of Total Revenue									Yr. to Yr. Percentage Change, excluding Foreign Currency Impact				Three months ended March 31,						Three months ended March 31,								Yr. to Yr. Percentage Change, net of Foreign Currency Impact
(In millions)	(In millions)	Three months ended June 30, 2020		Three months ended June 30, 2019		Three months ended June 30, 2020		Three months ended June 30, 2019		Yr. to Yr. Percentage Change				Yr. to Yr. Percentage Change, excluding Foreign Currency Impact				2021			2020			2021			2020			Yr. to Yr. Percentage Change					Yr. to Yr. Percentage Change, net of Foreign Currency Impact
U.S.	U.S.	$	415	$	392	58	%	55	%	6	%	6	%			$	413		$	384		56	%		56	%		8	%							8	%
International:	International:													International:
EMEA	EMEA	178		183		25	%	25	%	(3)	%	(1)	%	EMEA		187			172			25	%		26	%		9	%				5	%
APAC - Asia Pacific	APAC - Asia Pacific	75		85		10	%	12	%	(12)	%	(9)	%	APAC - Asia Pacific		77			70			11	%		10	%		10	%		4	%
Americas International - Canada and Latin America	Americas International - Canada and Latin America	53		57		7	%	8	%	(7)	%	(3)	%	Americas International - Canada and Latin America		61			56			8	%		8	%		9	%		8	%
Total International	Total International	306		325		42	%	45	%	(6)	%	(4)	%	Total International		325			298			44	%		44	%		9	%		6	%
Total revenue	Total revenue	721		717		100	%	100	%	1	%	2	%	Total revenue		$	738		$	682		100	%		100	%		8	%		7	%

Revenue in the U.S. was ~~$415~~$413 million for the three months ended ~~June 30, 2020~~March 31, 2021 compared to ~~$392~~$384 million for three months ended ~~June 30, 2019. Revenue~~March 31, 2020. The increase in U.S. revenue was mainly driven by higher revenue from the Company's ~~new~~ subscription offerings; ~~higher demand for remote agent licenses for the Company's contact center solutions as a result of the COVID-19 pandemic; and~~ revenue from the fulfillment of certain obligations related to a new government ~~contract were~~contract; and revenue growth from the Company's Avaya Cloud Office offering which launched on March 31, 2020, partially offset by lower demand for the Company's ~~on-premises unified communications~~on-premise product solutions. Revenue in Europe, Middle East and Africa ("EMEA") for the three months ended ~~June 30, 2020~~March 31, 2021 was ~~$178~~$187 million compared to ~~$183~~$172 million for the three months ended ~~June 30, 2019.~~March 31, 2020. The ~~decrease~~increase in EMEA revenue was ~~primarily attributable to lower demand for~~mainly driven by higher revenue from the Company's ~~on-premises unified communications solutions~~subscription offerings; revenue growth from the Company's Avaya Cloud Office offering; and the ~~unfavorable~~favorable impact of foreign currency exchange rates. Revenue in Asia Pacific ("APAC") for the three months ended ~~June 30, 2020~~March 31, 2021 was ~~$75~~$77 million compared to ~~$85~~$70 million for the three months ended ~~June 30, 2019.~~March 31, 2020. The ~~decrease~~increase in APAC revenue was primarily attributable to higher revenue from the Company's subscription offerings and the favorable impact of foreign currency exchange rates, partially offset by lower demand for the Company's ~~on-premises unified communications solutions and the unfavorable impact of foreign currency exchange rates.~~on-premise product solutions. Revenue in Americas International for the three months ended ~~June 30, 2020~~March 31, 2021 was ~~$53~~$61 million compared to ~~$57~~$56 million for the three months ended ~~June 30, 2019.~~March 31, 2020. The ~~decrease~~increase in Americas International revenue was primarily ~~attributable to lower demand for the Company's on-premises unified communications solutions and the unfavorable impact of foreign currency exchange rates, partially offset~~driven by higher revenue from the Company's ~~new~~ subscription ~~offerings.~~

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~~Gross Profit~~

~~The following table sets forth gross profit~~ and ~~gross margin by operating segment for the periods indicated:~~

Gross Margin Change
(In millions) Three months ended
June 30, 2020 Three months ended
June 30, 2019 Three months ended
June 30, 2020 Three months ended
June 30, 2019 Amount Percent
Products & Solutions $ 159 $ 189 60.7 % 63.4 % $ (30) (16) %
Services 282 249 61.3 % 59.0 % 33 13 %
Unallocated amounts (44) (48) (1) (1) 4 (1)
Total $ 397 $ 390 55.1 % 54.4 % $ 7 2 %

⁽¹⁾~~Not meaningful.~~

Gross profit for the three months ended June 30, 2020 was $397 million compared to $390 million for the three months ended June 30, 2019. The increase was primarily driven by the growth in revenue described above.

Products & Solutions gross profit for the three months ended June 30, 2020 was $159 million compared to $189 million for the three months ended June 30, 2019. The decrease was mainly attributable to the decline in revenue described above. Products & Solutions gross margin decreased from 63.4% to 60.7% for the three months ended June 30, 2020 mainly driven by less favorableon-premise product ~~mix.~~

Services gross profit for the three months ended June 30, 2020 was $282 million compared to $249 million for the three months ended June 30, 2019. The increase was mainly driven by the growth in revenue described above. Services gross margin increased from 59.0% to 61.3% for the three months ended June 30, 2020 due to the favorable impact of revenue from the Company's new subscription offerings.

Unallocated amounts for the three months ended June 30, 2020 and 2019 include the amortization of technology intangibles; the fair value adjustments recognized upon emergence from bankruptcy and excluded from segment gross profit; and costs that are not core to the measurement of segment performance, but rather are controlled at the corporate level.

~~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 Revenue Change
(In millions) Three months ended
June 30, 2020 Three months ended
June 30, 2019 Three months ended
June 30, 2020 Three months ended
June 30, 2019 Amount Percent
Selling, general and administrative $ 232 $ 253 32.2 % 35.3 % $ (21) (8) %
Research and development 52 49 7.2 % 6.8 % 3 6 %
Amortization of intangible assets 40 41 5.5 % 5.7 % (1) (2) %
Impairment charges — 659 — % 91.9 % (659) (100) %
Restructuring charges, net 20 1 2.8 % 0.2 % 19 1,900 %
Total operating expenses $ 344 $ 1,003 47.7 % 139.9 % $ (659) (66) %

Selling, general and administrative expenses for the three months ended June 30, 2020 were $232 million compared to $253 million for the three months ended June 30, 2019. The decrease was primarily attributable to lower headcount-related costs; and lower travel costs as a result of the COVID-19 pandemic, partially offset by higher accrued incentive compensation.

~~Research and development expenses for the three months ended June 30, 2020 were $52 million compared to $49 million for the three months ended June 30, 2019.~~

~~Amortization of intangible assets for the three months ended June 30, 2020 were $40 million compared to $41 million for the three months ended June 30, 2019.~~

The Company did not recognize any impairment charges for the three months ended June 30, 2020. Impairment charges for the three months ended June 30, 2019 were $659 million. During the three months ended June 30, 2019, the Company performed an interim impairment test of its goodwill and indefinite-lived intangible assets due to a sustained decrease in the Company's

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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. The results of the Company's interim goodwill impairment test as of June 30, 2019 indicated that the carrying amount of the Company's Contact Center ("CC") reporting unit, which was subsequently aggregated into the Products & Solutions reporting unit on October 1, 2019, 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. During the three months ended June 30, 2019, the Company also elected to abandon an in-process research and development project that 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 project.

Restructuring charges, net were $20 million for the three months ended June 30, 2020 compared to $1 million for the three months ended June 30, 2019. Restructuring charges during the three months ended June 30, 2020 consisted of $15 million for facility exit costs primarily in the U.S. and $5 million for employee separation actions in EMEA.

~~Operating Income (loss)~~

Operating income for the three months ended June 30, 2020 was $53 million compared to an operating loss of $613 million for the three months ended June 30, 2019. Our operating results for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019 reflect, among other things:

•~~higher revenue and gross profit for the three months ended June 30, 2020, as described above;~~

•~~lower selling, general and administrative costs during the three months ended June 30, 2020;~~

•a $659 million impairment charge related to the Company's goodwill and an in-process research and development project during the three months ended June 30, 2019 with no comparable charges for the three months ended June 30, 2020; and

•~~higher restructuring charges during the three months ended June 30, 2020.~~

~~Interest Expense~~

Interest expense for the three months ended June 30, 2020 was $51 million compared to $59 million for the three months ended June 30, 2019. The decrease was mainly driven by the prepayment of $250 million of the outstanding principal amount of the Company's Term Loan on November 7, 2019 and lower average interest rates.

~~Other Income, Net~~

Other income, net for the three months ended June 30, 2020 was $27 million compared to $12 million for the three months ended June 30, 2019. Other income, net for the three months ended June 30, 2020 consisted of gains on RingCentral shares received by the Company under the strategic partnership of $29 million; other pension and post-retirement benefit credits of $5 million; interest income of $1 million; and sublease income of $1 million, partially offset by net foreign currency losses of $5 million; an increase in the fair value of the warrants issued in accordance with the Company's bankruptcy plan ("Emergence Date Warrants") of $3 million; and other, net of $1 million. Other income, net for the three months ended June 30, 2019 consisted of a decrease in the fair value of the Emergence Date Warrants of $7 million; interest income of $4 million; other pension and post-retirement benefit credits of $1 million; and other, net of $1 million, partially offset by net foreign currency losses of $1 million.

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

~~The provision for income taxes was $20 million for the three months ended June 30, 2020 compared to a benefit from income taxes of $27 million for the three months ended June 30, 2019.~~

The Company's effective income tax rate for the three months ended June 30, 2020 differed from the U.S. federal tax rate primarily due to: (1) income and losses taxed at different foreign tax rates, (2) deferred tax assets (including losses) generated for which no benefit was recorded because it is more likely than not that the tax benefits would not be realized, (3) U.S. state and local income taxes, (4) the impact of the Tax Cuts and Jobs Act ("the Act") and associated regulations, (5) the goodwill impairment charge recorded in the second quarter of fiscal 2020, (6) the impact of the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") and (7) foreign tax credits.

The Company's effective income tax rate for the three months ended June 30, 2019 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 income taxes, (6) the impact of the Act, (7) the goodwill impairment charges recorded in the current year period, (8) current period elections taken in submitted tax filings, and (9) foreign tax credits.

~~Table of Contents~~

~~Net Income (Loss)~~

~~Net income was $9 million for the three months ended June 30, 2020 compared to a net loss of $633 million for the three months ended June 30, 2019, as a result of the items discussed above.~~

~~Nine months ended June 30, 2020 Compared with the Nine months ended June 30, 2019 Results~~

~~Revenue~~

Revenue for the nine months ended June 30, 2020 was $2,118 million compared to $2,164 million for the nine months ended June 30, 2019. The decrease was primarily driven by lower demand for the Company's on-premises unified communications solutions and the unfavorable impact of foreign currency exchange rates. The decrease was partially offset by revenue from the Company's new subscription offerings; a lower impact of applying fresh start accounting upon emergence from bankruptcy, which initially resulted in the recognition of deferred revenue at fair value and lower revenue in subsequent periods; and revenue from the fulfillment of certain obligations related to a new government contract.

~~The following table displays revenue and the percentage of revenue to total sales by operating segment for the periods indicated:~~

Percentage of Total Revenue Yr. to Yr. Percentage Change, net of Foreign Currency Impact
(In millions) Nine months ended
June 30, 2020 Nine months ended
June 30, 2019 Nine months ended
June 30, 2020 Nine months ended
June 30, 2019 Yr. to Yr. Percentage Change
Products & Solutions $ 805 $ 913 38 % 42 % (12) % (11) %
Services 1,317 1,269 62 % 59 % 4 % 5 %
Unallocated amounts (4) (18) — % (1) % (1) (1)
Total revenue $ 2,118 $ 2,164 100 % 100 % (2) % (1) %

⁽¹⁾~~Not meaningful.~~

Products & Solutions revenue for the nine months ended June 30, 2020 was $805 million compared to $913 million for the nine months ended June 30, 2019. The decrease was primarily attributable to lower demand for the Company's on-premises unified communications solutions, partially offset by a higher demand for remote agent licenses for the Company's contact center solutions as a result of the COVID-19 pandemic and revenue from the fulfillment of certain obligations related to a new government contract.

Services revenue for the nine months ended June 30, 2020 was $1,317 million compared to $1,269 million for the nine months ended June 30, 2019. The increase was primarily driven by revenue from the Company's new subscription offerings and revenue from the fulfillment of certain obligations related to a new government contract, partially offset by the planned declines in hardware maintenance and software support services which continue to face headwinds driven by lower new product sales over the past several years.

Unallocated amounts for the nine months ended June 30, 2020 and 2019 represent the fair value adjustment to deferred revenue recognized upon emergence from bankruptcy which is excluded from segment revenue.

~~The following table displays revenue and the percentage of revenue to total sales by location for the periods indicated:~~

Percentage of Total Revenue Yr. to Yr. Percentage Change, net of Foreign Currency Impact
(In millions) Nine months ended
June 30, 2020 Nine months ended
June 30, 2019 Nine months ended
June 30, 2020 Nine months ended
June 30, 2019 Yr. to Yr. Percentage Change
U.S. $ 1,193 $ 1,161 56 % 54 % 3 % 3 %
International:
EMEA 536 570 25 % 26 % (6) % (5) %
APAC - Asia Pacific 222 242 11 % 11 % (8) % (7) %
Americas International - Canada and Latin America 167 191 8 % 9 % (13) % (11) %
Total International 925 1,003 44 % 46 % (8) % (6) %
Total revenue $ 2,118 $ 2,164 100 % 100 % (2) % (1) %

Revenue in the U.S. was $1,193 million for the nine months ended June 30, 2020 compared to $1,161 million for the nine months ended June 30, 2019. Revenue from the Company's new subscription offerings; higher demand for remote agent licenses for the Company's contact center solutions as a result of the COVID-19 pandemic; and revenue from the fulfillment of certain obligations related to a new government contract were partially offset by lower demand for the Company's on-premises unified communications solutions. Revenue in Europe, Middle East and Africa ("EMEA") for the nine months ended June 30, 2020 was $536 million compared to $570 million for the nine months ended June 30, 2019. The decrease in EMEA revenue was primarily attributable to lower demand for the Company's on-premises unified communications solutions and the unfavorable impact of foreign currency exchange rates, partially offset by higher professional services revenue. Revenue in Asia Pacific ("APAC") for the nine months ended June 30, 2020 was $222 million compared to $242 million for the nine months ended June 30, 2019. The decrease in APAC revenue was primarily attributable to lower demand for the Company's on-premises unified communications solutions and the unfavorable impact of foreign currency exchange rates. Revenue in Americas International for the nine months ended June 30, 2020 was $167 million compared to $191 million for the nine months ended June 30, 2019. The decrease in Americas International revenue was primarily attributable to lower demand for the Company's on-premises unified communications solutions and the unfavorablefavorable impact of foreign currency exchange rates.

Gross Profit

The following table sets forth gross profit and gross margin by operating segment for the periods indicated:


																			Gross Margin				Change
						Gross Margin						Change							Three months ended March 31,				Three months ended March 31,
(In millions)	(In millions)	Nine months ended June 30, 2020		Nine months ended June 30, 2019		Nine months ended June 30, 2020		Nine months ended June 30, 2019		Amount		Percent		(In millions)	2021		2020		2021		2020		Amount		Percent
Products & Solutions	Products & Solutions	$	507	$	587	63.0	%	64.3	%	$	(80)	(14)	%	Products & Solutions	$	134	$	154	59.3	%	62.9	%	$	(20)	(13)	%
Services	Services	791		759		60.1	%	59.8	%	32		4	%	Services	322		263		62.8	%	60.0	%	59		22	%
Unallocated amounts	Unallocated amounts	(136)		(163)		(1)		(1)		27		(1)		Unallocated amounts	(44)		(46)		(1)		(1)		2		(1)
Total	Total	$	1,162	$	1,183	54.9	%	54.7	%	$	(21)	(2)	%	Total	$	412	$	371	55.8	%	54.4	%	$	41	11	%

⁽¹⁾Not meaningful.

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Gross profit for the nine months ended June 30, 2020 was $1,162 million compared to $1,183 million for the nine months ended June 30, 2019. The decrease was primarily driven by the decline in revenue described above.

Products & Solutions gross profit for the ~~nine~~three months ended ~~June 30, 2020~~March 31, 2021 was ~~$507~~$134 million compared to ~~$587~~$154 million for the ~~nine~~three months ended ~~June 30, 2019.~~March 31, 2020. The decrease was mainly attributable to the decline in revenue described above. Products & Solutions gross margin decreased from ~~64.3%~~62.9% to ~~63.0%~~59.3% for the ~~nine~~three months ended ~~June 30, 2020~~March 31, 2021 mainly driven by less favorable product mix.

Services gross profit for the ~~nine~~three months ended ~~June 30, 2020~~March 31, 2021 was ~~$791~~$322 million compared to ~~$759~~$263 million for the ~~nine~~three months ended ~~June 30, 2019.~~March 31, 2020. The increase was mainly driven by the growth in revenue described above. Services gross margin increased from ~~59.8%~~60.0% to ~~60.1%~~62.8% for the ~~nine~~three months ended ~~June 30, 2020~~March 31, 2021 due to the favorable impact of higher revenue from the Company's ~~new~~ subscription offerings.

Unallocated amounts for the ~~nine~~three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ include the amortization of technology ~~intangibles;~~intangibles and the fair value adjustments recognized upon emergence from bankruptcy ~~and~~which are excluded from segment gross ~~profit; 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 Revenue				Change
						Percentage of Total Revenue						Change							Three months ended March 31,				Three months ended March 31,
(In millions)	(In millions)	Nine months ended June 30, 2020		Nine months ended June 30, 2019		Nine months ended June 30, 2020		Nine months ended June 30, 2019		Amount		Percent		(In millions)	2021		2020		2021		2020		Amount		Percent
Selling, general and administrative	Selling, general and administrative	$	763	$	761	36.0	%	35.1	%	$	2	—	%	Selling, general and administrative	$	264	$	248	35.8	%	36.3	%	$	16	6	%
Research and development	Research and development	155		154		7.3	%	7.1	%	1		1	%	Research and development	57		51		7.7	%	7.5	%	6		12	%
Amortization of intangible assets	Amortization of intangible assets	122		122		5.8	%	5.6	%	—		—	%	Amortization of intangible assets	39		41		5.3	%	6.0	%	(2)		(5)	%
Impairment charges		624		659		29.5	%	30.5	%	(35)		(5)	%
Impairment of goodwill														Impairment of goodwill	—		624		—	%	91.5	%	(624)		(100)	%
Restructuring charges, net	Restructuring charges, net	27		12		1.3	%	0.6	%	15		125	%	Restructuring charges, net	8		4		1.1	%	0.6	%	4		100	%
Total operating expenses	Total operating expenses	$	1,691	$	1,708	79.9	%	78.9	%	$	(17)	(1)	%	Total operating expenses	$	368	$	968	49.9	%	141.9	%	$	(600)	(62)	%

Selling, general and administrative expenses for the three months ended March 31, 2021 were ~~$763~~$264 million compared to $248 million for the ~~nine~~three months ended ~~June 30, 2020 compared to $761 million for the nine months ended June 30, 2019.~~March 31, 2020. The increase was primarily attributable to ~~advisory fees associated with executing~~higher channel compensation driven by the ~~strategic partnership with RingCentral;~~increase in revenue; higher accrued incentive compensation; and ~~higher bad debt expense due to collection uncertainties as a result~~the unfavorable impact of ~~the COVID-19 pandemic. The increases were~~foreign currency exchange rates, partially offset by lower ~~headcount-related costs;~~bad debt expense and lower travel costs as a result of the COVID-19 ~~pandemic; lower consulting costs; and the favorable impact of foreign currency exchange rates.~~pandemic.

Research and development expenses for the three months ended March 31, 2021 were ~~$155~~$57 million compared to $51 million for the ~~nine~~three months ended ~~June 30, 2020 compared~~March 31, 2020. The increase was primarily attributable to ~~$154 million for the nine months ended June 30, 2019.~~investments in cloud technology development.

Amortization of intangible assets ~~was $122~~for the three months ended March 31, 2021 were $39 million compared to $41 million for ~~both~~ the ~~nine~~three months ended ~~June 30, 2020 and 2019.~~March 31, 2020.

Impairment ~~charges~~of goodwill for the ~~nine~~three months ended ~~June 30,~~March 31, 2020 ~~were~~was $624 million. During the ~~nine~~three months ended ~~June 30,~~March 31, 2020, the Company performed an interim impairment test of its goodwill and indefinite-lived intangible assets 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 ~~since~~at the ~~advent~~beginning stages of the pandemic which was caused by the resulting volatility in the financial markets. The results of the ~~Company's~~Company’s interim goodwill impairment test as of March 31, 2020 indicated that the estimated fair value of the ~~Company's~~Company’s Services reporting unit exceeded 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~~Company’s long-term forecast to reflect increased risk from higher market uncertainty and the accelerated reduction of product sales related to the ~~Company's~~Company’s historical on-premises perpetual ~~licenses. The Company anticipates~~licenses with a continued shift and acceleration of customers upgrading and acquiring new technology innovation through the utilization of the ~~Company's~~Company’s subscription offering, which is included in the Services reporting unit. As a result, the Company recorded a goodwill impairment charge of $624 million to write down the full carrying amount of the Products & Solutions goodwill. ~~As of March 31, 2020, the estimated fair value of the Services reporting unit exceeded its carrying amount by 16%.~~ The results of the indefinite-lived intangible asset impairment test indicated that no impairment existed and the level of excess fair value over carrying value was 5%. An increase in the discount rate of 50 basis points or a decrease in the long-term revenue growth rate of 140 basis points would result in an estimated fair value below its carrying value. The Company's long-term forecast includes significant estimates and assumptions, including management's estimate of the potential impact of the COVID-19 pandemic on the Company's operating results. Due to the uncertainty surrounding the impact of the COVID-19 pandemic on the macroeconomic environment and the Company's future operating results, it is reasonably possible that the pandemic could have a more adverse impact than what is currently considered in the Company's long-term forecast.existed. To the extent business conditions deteriorate or ~~there are~~if changes in key assumptions and estimates differ significantly from management's expectations included in the long-term forecast, it may be necessary to record additional impairment charges in the future.

Impairment charges for the nine months ended June 30, 2019 were $659 million. During the nine months ended June 30, 2019, the Company performed an interim impairment test of its goodwill and indefinite-lived intangible assets 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 third quarter of fiscal 2019. The results of the Company's interim goodwill impairment test as of June 30, 2019 indicated that the carrying amount of the Company's Contact Center ("CC") reporting unit, which was subsequently aggregated into the Products & Solutions reporting unit on October 1, 2019, 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. During the nine months ended June 30, 2019, the Company also elected to abandon an in-process research and development project that 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 in-process research and development project.

Restructuring charges, net ~~for the nine months ended June 30, 2020~~ were ~~$27 million compared to $12~~$8 million for the ~~nine~~three months ended ~~June 30, 2019.~~March 31, 2021 compared to $4 million for the three months ended March 31, 2020. Restructuring charges during the ~~nine~~three months ended ~~June 30, 2020~~March 31, 2021 consisted of ~~$21~~$7 million for facility exit costs ~~primarily~~and $1 million for employee separation actions in the U.S. ~~and $6 million for employee severance actions in EMEA.~~ Restructuring charges ~~during~~for the ~~nine~~three months ended ~~June 30, 2019 included $10 million for employee severance actions in the U.S., EMEA and Canada and$2 million for facility exit costs~~March 31, 2020 primarily ~~in the U.S.~~related to exited leased facilities.

Table of Contents

Operating ~~Loss~~Income (loss)

Operating ~~loss~~income for the ~~nine~~three months ended ~~June 30, 2020~~March 31, 2021 was ~~$529~~$44 million compared to ~~$525~~an operating loss of $597 million for the ~~nine~~three months ended ~~June 30, 2019.~~March 31, 2020. Our operating results for the ~~nine~~three months ended ~~June 30, 2020~~March 31, 2021 as compared to the ~~nine~~three months ended ~~June 30, 2019~~March 31, 2020 reflect, among other things:

•~~lower~~higher revenue and gross profit for the ~~nine~~three months ended ~~June 30, 2020, as described above;~~March 31, 2021;

•~~lower impairment charges during~~higher selling, general and administrative costs for the ~~nine~~three months ended ~~June 30, 2020;~~March 31, 2021; and

•~~higher restructuring charges~~a $624 million goodwill impairment charge during the ~~nine~~three months ended ~~June 30,~~March 31, 2020 with no comparable charge during the three months ended March 31, 2021.

Interest Expense

Interest expense for the ~~nine~~three months ended ~~June 30, 2020~~March 31, 2021 was ~~$162~~$59 million compared to ~~$177~~$53 million for the ~~nine~~three months ended ~~June 30, 2019.~~March 31, 2020. The ~~decrease~~increase was mainly driven by higher average interest rates primarily attributable to changes in the ~~prepayment of $250 million of the outstanding principal amount~~Company's debt portfolio which occurred in September 2020 and new debt issuance costs incurred as a result of the Company's Term Loan ~~on November 7, 2019~~amendment described in the "Liquidity and Capital Resources" section below, partially offset by the impact of lower average ~~interest rates.~~principal amounts outstanding during the three months ended March 31, 2021.

Other Income, Net

Other income, net for the ~~nine~~three months ended ~~June 30, 2020~~March 31, 2021 was ~~$56~~$1 million compared to ~~$35~~$15 million for the ~~nine~~three months ended ~~June 30, 2019. Other income, net for~~March 31, 2020. The decrease was mainly driven by the ~~nine months ended June 30, 2020 consisted~~change in fair value of the warrants issued in accordance with the Company's bankruptcy plan (the "Emergence Date Warrants") and unrealized gains on RingCentral shares received by the Company under the strategic partnership during the three months ended March 31, 2020 which were sold by the end of ~~$59 million; other pension and post-retirement benefit credits of $16 million; interest income of $6 million; and sublease income of $4 million,~~fiscal 2020, partially offset by a non-cash settlement gain recorded during the three months ended March 31, 2021 related to the Company's other post-retirement plan and the net impact of foreign currency losses of $16 million; an impairment of debt securities of $10 million, driven by a decline in the macroeconomic environment due to the COVID-19 pandemic and a decline in the expected operating results and cash flowsgains (losses).

Provision for the investment company; and other, net of $3 million. Other income, net for the nine months ended June 30, 2019 consisted of a decrease in the fair value of the Emergence Date Warrants of $28 million; interest income of $11 million; and other pension and post-retirement benefit credits of $5 million, partially offset by net foreign currency losses of $8 million and other, net of $1 million.

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

The provision for income taxes was ~~$82~~$44 million for the ~~nine~~three months ended ~~June 30, 2020~~March 31, 2021 compared to a ~~benefit from~~provision for income taxes of ~~$30~~$37 million for the ~~nine~~three months ended ~~June 30, 2019.~~March 31, 2020.

The Company's effective income tax rate for the ~~nine~~three months ended ~~June 30, 2020~~March 31, 2021 differed from the U.S. federal tax rate ~~primarily due to: (1) income~~by 335% or $47 million principally related to nondeductible expenses, including expenses related to the change in fair value of the Emergence Date Warrants, and ~~losses taxed at different foreign tax rates, (2)~~ deferred ~~tax assets~~taxes (including losses) generated for which no benefit was recorded because it is more likely than not that the tax benefits would not be ~~realized, (3)~~realized.

The Company's effective income tax rate for the three months ended March 31, 2020 differed from the U.S. ~~state and local income taxes, (4) the impact of the Act and associated regulations, (5)~~federal tax rate by 27% or $170 million principally related to the goodwill impairment charge recorded in the second quarter of fiscal 2020 ~~(6) the impact of the CARES Act~~ and ~~(7) foreign tax credits.~~

The Company's effective income tax rate for the nine months ended June 30, 2019 differed from the U.S. federal tax rate primarily due to: (1) income and losses taxed at different foreign tax rates, (2) lossesdeferred taxes (including 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 income taxes, (6) the impact of the Act, (7) the goodwill impairment charges recorded in the current year period, (8) current period elections taken in submitted tax filings, and (9) foreign tax credits.realized.

Net Loss

Net loss was ~~$717~~$58 million for the ~~nine~~three months ended ~~June 30, 2020~~March 31, 2021 compared to ~~$637~~a net loss of $672 million for the ~~nine~~three months ended ~~June 30, 2019,~~March 31, 2020, as a result of the items discussed above.

Six months ended March 31, 2021 compared with the Six months ended March 31, 2020

Revenue

Revenue for the six months ended March 31, 2021 was $1,481 million compared to $1,397 million for the six months ended March 31, 2020. The increase was primarily driven by higher revenue from the Company's subscription offerings; revenue from the fulfillment of certain obligations related to a new government contract; revenue growth from the Company's Avaya Cloud Office offering which launched on March 31, 2020; and the favorable impact of foreign currency exchange rates. The increase was partially offset by lower demand for the Company's on-premise product solutions.

Table of Contents

The following table displays revenue and the percentage of revenue to total sales by operating segment for the periods indicated:


					Percentage of Total Revenue				Yr. to Yr. Percentage Change		Yr. to Yr. Percentage Change, net of Foreign Currency Impact
	Six months ended March 31,				Six months ended March 31,
(In millions)	2021		2020		2021		2020
Products & Solutions	$	492	$	543	33	%	39	%	(9)	%	(11)	%
Services	990		857		67	%	61	%	16	%	14	%
Unallocated amounts	(1)		(3)		—	%	—	%	(1)		(1)
Total revenue	$	1,481	$	1,397	100	%	100	%	6	%	5	%

(1)Not meaningful.

Products & Solutions revenue for the six months ended March 31, 2021 was $492 million compared to $543 million for the six months ended March 31, 2020. The decrease was primarily attributable to lower demand for the Company's on-premise product solutions, partially offset by revenue from the Company's Avaya Cloud Office offering which launched on March 31, 2020; revenue from the fulfillment of certain obligations related to a new government contract; and the favorable impact of foreign currency exchange rates.

Services revenue for the six months ended March 31, 2021 was $990 million compared to $857 million for the six months ended March 31, 2020. The increase was primarily driven by higher revenue from the Company's subscription and OneCloud Private offerings; revenue from the fulfillment of certain obligations related to a new government contract; and the favorable impact of foreign currency exchange rates, partially offset by the planned declines in hardware maintenance and software support services which continue to face headwinds driven by lower new product sales over the past several years.

Unallocated amounts for the six months ended March 31, 2021 and 2020 represent the fair value adjustment to deferred revenue recognized upon emergence from bankruptcy in December 2017 which is excluded from segment revenue.

The following table displays revenue and the percentage of revenue to total sales by location for the periods indicated:


					Percentage of Total Revenue				Yr. to Yr. Percentage Change		Yr. to Yr. Percentage Change, net of Foreign Currency Impact
	Six months ended March 31,				Six months ended March 31,
(In millions)	2021		2020		2021		2020
U.S.	$	827	$	778	56	%	56	%	6	%	6	%
International:
EMEA	382		358		26	%	26	%	7	%	3	%
APAC - Asia Pacific	152		147		10	%	10	%	3	%	—	%
Americas International - Canada and Latin America	120		114		8	%	8	%	5	%	5	%
Total International	654		619		44	%	44	%	6	%	3	%
Total revenue	$	1,481	$	1,397	100	%	100	%	6	%	5	%

Revenue in the U.S. was $827 million for the six months ended March 31, 2021 compared to $778 million for six months ended March 31, 2020. The increase in U.S. revenue was mainly driven by higher revenue from the Company's subscription offerings; revenue from the fulfillment of certain obligations related to a new government contract; and revenue growth from the Company's Avaya Cloud Office offering which launched on March 31, 2020, partially offset by lower demand for the Company's on-premise product solutions. Revenue in EMEA for the six months ended March 31, 2021 was $382 million compared to $358 million for the six months ended March 31, 2020. The increase in EMEA revenue was mainly driven by higher revenue from the Company's subscription offerings; revenue growth from the Company's Avaya Cloud Office offering; and the favorable impact of foreign currency exchange rates. Revenue in APAC for the six months ended March 31, 2021 was $152 million compared to $147 million for the six months ended March 31, 2020. The increase in APAC revenue was primarily attributable to higher revenue from the Company's subscription offerings; revenue growth from the Company's Avaya Cloud Office offering; and the favorable impact of foreign currency exchange rates, partially offset by lower demand for the Company's on-premise product solutions. Revenue in Americas International for the six months ended March 31, 2021 was $120 million compared to $114 million for the six months ended March 31, 2020. The increase in Americas International revenue was primarily driven by higher revenue from the Company's subscription offerings.

Table of Contents

Gross Profit

The following table sets forth gross profit and gross margin by operating segment for the periods indicated:


					Gross Margin				Change
	Six months ended March 31,				Six months ended March 31,
(In millions)	2021		2020		2021		2020		Amount		Percent
Products & Solutions	$	295	$	348	60.0	%	64.1	%	$	(53)	(15)	%
Services	620		509		62.6	%	59.4	%	111		22	%
Unallocated amounts	(87)		(92)		(1)		(1)		5		(1)
Total	$	828	$	765	55.9	%	54.8	%	$	63	8	%

(1)Not meaningful.

Products & Solutions gross profit for the six months ended March 31, 2021 was $295 million compared to $348 million for the six months ended March 31, 2020. The decrease was mainly attributable to the decline in revenue described above. Products & Solutions gross margin decreased from 64.1% to 60.0% for the six months ended March 31, 2021 mainly driven by less favorable product mix.

Services gross profit for the six months ended March 31, 2021 was $620 million compared to $509 million for the six months ended March 31, 2020. The increase was mainly driven by the growth in revenue described above. Services gross margin increased from 59.4% to 62.6% for the six months ended March 31, 2021 due to the favorable impact of higher revenue from the Company's subscription offerings.

Unallocated amounts for the six months ended March 31, 2021 and 2020 include the amortization of technology intangibles and the fair value adjustments recognized upon emergence from bankruptcy which are excluded from segment gross 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 Revenue				Change
	Six months ended March 31,				Six months ended March 31,
(In millions)	2021		2020		2021		2020		Amount		Percent
Selling, general and administrative	$	519	$	531	35.0	%	38.0	%	$	(12)	(2)	%
Research and development	112		103		7.6	%	7.4	%	9		9	%
Amortization of intangible assets	79		82		5.3	%	5.9	%	(3)		(4)	%
Impairment of goodwill	0		624		—	%	44.6	%	(624)		(100)	%
Restructuring charges, net	12		7		0.8	%	0.5	%	5		71	%
Total operating expenses	$	722	$	1,347	48.7	%	96.4	%	$	(625)	(46)	%

Selling, general and administrative expenses for the six months ended March 31, 2021 were $519 million compared to $531 million for the six months ended March 31, 2020. The decrease was primarily attributable to higher advisory fees incurred in the prior period associated with executing the strategic partnership with RingCentral; lower bad debt expense; and lower travel costs as a result of the COVID-19 pandemic, partially offset by higher channel compensation driven by the increase in revenue; higher accrued incentive compensation; and the unfavorable impact of foreign currency exchange rates.

Research and development expenses for the six months ended March 31, 2021 were $112 million compared to $103 million for the six months ended March 31, 2020. The increase was primarily attributable to investments in cloud technology development.

Amortization of intangible assets for the six months ended March 31, 2021 were $79 million compared to $82 million for the six months ended March 31, 2020.

Impairment of goodwill for the six months ended March 31, 2020 was $624 million. During the six months ended March 31, 2020, the Company performed an interim impairment test of its goodwill and indefinite-lived intangible assets 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. The results of the Company’s interim goodwill impairment test as of March 31, 2020 indicated that the estimated fair value of the Company’s Services reporting unit exceeded its carrying amount. The carrying amount of the Company's Products & Solutions reporting unit

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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 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 $624 million to write down the full carrying amount of the Products & Solutions goodwill. The results of the indefinite-lived intangible asset impairment test indicated that no impairment existed. To the extent business conditions deteriorate or if changes in key assumptions and estimates differ significantly from management's expectations included in the long-term forecast, it may be necessary to record additional impairment charges in the future.

Restructuring charges, net were $12 million for the six months ended March 31, 2021 compared to $7 million for the six months ended March 31, 2020. Restructuring charges during the six months ended March 31, 2021 consisted of $10 million for facility exit costs and $2 million for employee separation actions in the U.S. and EMEA. Restructuring charges for the six months ended March 31, 2020 primarily related to exited leased facilities.

Operating Income (loss)

Operating income for the six months ended March 31, 2021 was $106 million compared to an operating loss of $582 million for the six months ended March 31, 2020. Our operating results for the six months ended March 31, 2021 as compared to the six months ended March 31, 2020 reflect, among other things:

•higher revenue and gross profit for the six months ended March 31, 2021;

•lower selling, general and administrative costs for the six months ended March 31, 2021; and

•a $624 million goodwill impairment charge during the six months ended March 31, 2020, with no comparable charge for the six months ended March 31, 2021.

Interest Expense

Interest expense for the six months ended March 31, 2021 was $115 million compared to $111 million for the six months ended March 31, 2020. The increase was mainly driven by higher average interest rates primarily attributable to changes in the Company's debt portfolio which occurred in September 2020 and new debt issuance costs incurred as a result of the Company's Term Loan amendment described in the "Liquidity and Capital Resources" section below, partially offset by the impact of lower average principal amounts outstanding during the six months ended March 31, 2021.

Other Income, Net

Other income, net for the six months ended March 31, 2021 was $1 million compared to $29 million for the six months ended March 31, 2020. The decrease was mainly driven by the change in fair value of the Emergence Date Warrants and realized and unrealized gains on RingCentral shares received by the Company under the strategic partnership during the six months ended March 31, 2020, all of which were sold by the end of fiscal 2020, partially offset by a non-cash settlement gain recorded during the six months ended March 31, 2021 related to the Company's other post-retirement plan and the net impact of foreign currency gains (losses).

Provision for Income Taxes

The provision for income taxes was $54 million for the six months ended March 31, 2021 compared to $62 million for the six months ended March 31, 2020.

The Company's effective income tax rate for the six months ended March 31, 2021 differed from the U.S. federal tax rate by 696% or $56 million principally related to nondeductible expenses, including expenses related to the change in fair value of the Emergence Date Warrants, and deferred taxes (including losses) generated for which no benefit was recorded because it is more likely than not that the tax benefits would not be realized.

The Company's effective income tax rate for the six months ended March 31, 2020 differed from the U.S. federal tax rate by 30% or $201 million principally related to the goodwill impairment charge recorded in the second quarter of fiscal 2020 and deferred taxes (including losses) generated for which no benefit was recorded because it is more likely than not that the tax benefits would not be realized.

Net loss

Net loss was $62 million for the six months ended March 31, 2021 compared to $726 million for the six months ended March 31, 2020, 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 to be our primary sources of short-term liquidity. 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

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that are beyond our control. Based on our current level of operations, as well as our current estimates of the impact that the

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COVID-19 pandemic will have on our business and cash flow, 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:


		Nine months ended June 30,							Six months ended March 31,
(In millions)	(In millions)	2020		2019		(In millions)	2021		2020
Net cash provided by (used for):	Net cash provided by (used for):					Net cash provided by (used for):
Operating activities	Operating activities	$	77	$	175	Operating activities	$	24	$	32
Investing activities	Investing activities	340		(95)		Investing activities	(53)		246
Financing activities	Financing activities	(425)		(51)		Financing activities	(108)		(472)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(2)		1		Effect of exchange rate changes on cash, cash equivalents, and restricted cash	3		(5)
Net (decrease) increase in cash, cash equivalents, and restricted cash		(10)		30
Net decrease in cash, cash equivalents, and restricted cash						Net decrease in cash, cash equivalents, and restricted cash	(134)		(199)
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	756		704		Cash, cash equivalents, and restricted cash at beginning of period	731		756
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	746	$	734	Cash, cash equivalents, and restricted cash at end of period	$	597	$	557

Operating Activities

Cash provided by operating activities for the ~~nine~~six months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ was ~~$77~~$24 million and ~~$175~~$32 million, respectively. The decrease was primarily due to higher ~~income tax~~incentive compensation payments; the timing of customer and vendor payments; and higher contributions to the Company's pension and post-retirement benefit plans, partially offset by higher advisory fees incurred in the prior year period associated with executing the strategic partnership with RingCentral; ~~the timing of vendor and customer~~higher cash earnings; lower income tax payments; ~~and lower cash earnings, partially offset by lower contributions to the Company's pension and post-retirement benefit plans; lower severance payments under the Company's restructuring programs;~~ and lower interest payments.

Investing Activities

Cash used for investing activities for the six months ended March 31, 2021 was $53 million compared to cash provided by investing activities of $246 million for the ~~nine~~six months ended ~~June 30, 2020 was $340 million compared to cash used for investing activities of $95 million for nine months ended June 30, 2019.~~March 31, 2020. The change was primarily due to proceeds ~~received~~in the prior year period from the sale of shares of RingCentral common stock, ~~during the nine months ended June 30, 2020,~~ which were received by the Company upon entry into the strategic partnership in October 2019, ~~and lower~~partially offset by an increase in capital expenditures for IT-related projects and facility improvements. The nine months ended June 30, 2019 also included a $10 million investment in a unified communications as a service ("UCaaS") provider catering to public sector security requirements.expenditures.

Financing Activities

Cash used for financing activities for the ~~nine~~six months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ was ~~$425~~$108 million and ~~$51~~$472 million, respectively.

Cash used for financing activities for the ~~nine~~six months ended ~~June 30,~~March 31, 2021 included:

•a principal prepayment under the Term Loan Credit Agreement of $100 million;

•repurchases of shares under the Company's share repurchase program of $7 million;

•payments in connection with financing leases of $8 million;

•debt issuance costs of $2 million related to the Company's Senior Notes issuance in the fourth quarter of fiscal 2020; and

•other financing activities, net of $9 million; partially offset by

•proceeds from exercises of stock options of $8 million;

•proceeds from the Company's Employee Stock Purchase Plan of $7 million; and

•proceeds from other financing arrangements of $3 million.

Cash used for financing activities for the six months ended March 31, 2020 included:

•repurchases of shares of common stock under the Company's share repurchase program of $330 million;

•a principal prepayment under the Term Loan Credit Agreement of $250 million;

•~~repayments in connection with financing leases of $8 million;~~

•payment of acquisition-related contingent consideration of $5 million;

•payments in connection with financing leases of $5 million; and

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•other financing activities, net of $4$3 million; partially offset by

•proceeds from the issuance of Series A Preferred Stock to RingCentral upon entry into the strategic partnership in October 2019, net of issuance costs, of $121 ~~million;~~million.

Term Loan Credit Agreement

•~~borrowings under~~On February 24, 2021, the ~~ABL~~Company amended the Term Loan Credit Agreement, ~~of $50 million;~~pursuant to which the Company prepaid, replaced and

•~~proceeds from the Company's Employee Stock Purchase Plan of $1 million.~~

~~Cash used for financing activities for the nine months ended June 30, 2019 included:~~

•~~scheduled debt repayments~~ refinanced all first lien term 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. See Note ~~repayments in connection with financing leases of $12 million;~~

•9, ~~payment of acquisition-related contingent consideration of $9 million; and~~“Financing Arrangements,” to our unaudited interim Condensed Consolidated Financial Statements for additional information regarding the Company’s Term Loan Credit Agreement refinancing.

•~~other financing activities, net of $8 million.~~

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As of ~~June 30, 2020,~~March 31, 2021, the Company was ~~not~~ in ~~default~~compliance with all covenants and other requirements under ~~any of~~ its debt agreements.

Future Cash Requirements

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

Specifically, we expect our primary cash requirements for the remainder of fiscal ~~2020~~2021 to be as follows:

•Debt service—We expect to make payments of approximately ~~$43~~$95 million during the remainder of fiscal ~~2020~~2021 in interest associated with the Term Loan Credit Agreement, Senior Notes and Convertible Notes, and interest and fees onassociated with our ABL Credit ~~Agreement and 2.25% Convertible Notes due 2023.~~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 $50 million to $60 million for capital expenditures during the remainder of fiscal 2021.

•Benefit obligations—We estimate we will make payments under our pension and post-retirement benefit obligations of approximately $15 million during the remainder of fiscal 2021. These payments include $9 million for our non-U.S. benefit plans, which are predominantly not pre-funded; and $6 million for salaried and represented retiree post-retirement benefits. As a result of the American Rescue Plan Act, we do not expect to make any contributions to satisfy the minimum statutory funding requirements of our U.S. qualified pension plans during the remainder of fiscal 2021. See discussion in Note 13, "Benefit Obligations," to our unaudited interim Condensed Consolidated Financial Statements for further details.

•Restructuring payments—We expect to make payments of approximately $5$15 million to ~~$10~~$20 million during the remainder of fiscal ~~2020~~2021 for employee separation costs and lease termination obligations associated with restructuring actions. The Company continues to evaluate opportunities to streamline its operations and identify additional cost savings globally.

•~~Capital expenditures—We expect to spend approximately $25 million to $35 million for capital expenditures during the remainder of fiscal 2020.~~

•~~Benefit Obligations~~—We estimate we will make payments under our pension and post-retirement obligations totaling $10 million during the remainder of fiscal 2020. These payments include $1 million for our U.S. qualified pension plans, representing our final contribution to satisfy minimum statutory funding requirements for the 2019 plan year; $6 million for our non-U.S. benefit plans, which are predominantly not pre-funded; and $3 million for represented retiree post-retirement benefits. See discussion in Note 13, "Benefit Obligations," to our unaudited interim Condensed 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, relating to intellectual property, commercial, employment, environmental and regulatory matters, which may require us to make cash payments. ~~These and other legal~~In the opinion of the Company's management, while the outcome of these matters ~~could~~is uncertain, the likely results of these matters are not expected, either individually or in the aggregate, to have a material adverse effect on the ~~manner in which the Company does business and the~~ Company's financial position, results of operations or cash ~~flows and liquidity.~~flows.

We and our subsidiaries and affiliates may from time to time seek to ~~retire~~repurchase or ~~purchase~~prepay 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 to be our primary sources of short-term liquidity.

As of ~~June 30, 2020~~March 31, 2021 and September 30, ~~2019,~~2020, our cash and cash equivalent balances held outside the U.S. were ~~$256~~$305 million and ~~$176~~$227 million, respectively. As of ~~June 30, 2020,~~March 31, 2021, the Company's cash and cash equivalents held outside the U.S. are not expected 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. On April 6, 2020, the Company elected to borrow $50 million under the ABL Credit Agreement solely as a precautionary measure to boost liquidity and reinforce stability in an economically turbulent environment. These borrowings were repaid on JulyAt March 31, ~~2020, reflecting confidence in our current cash position and future liquidity. At June 30, 2020,~~2021, the Company had issued and outstanding letters of credit and guarantees of ~~$41~~$39 million under the ABL Credit ~~Agreement.~~Agreement and

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had no borrowings outstanding. The aggregate additional principal amount that may be borrowed under the ABL Credit Agreement, based on the borrowing base less ~~outstanding borrowings of $50 million and $41~~$39 million of outstanding letters of credit and guarantees, was ~~$72~~$128 million at ~~June 30, 2020.~~March 31, 2021.

We believe that our existing cash and cash equivalents of ~~$742~~$593 million as of ~~June 30, 2020,~~March 31, 2021, expected future cash provided by operating activities and borrowings available under the ABL Credit Agreement will be sufficient to meet our future cash requirements for at least the next twelve ~~months.~~months from the filing of this quarterly report on Form 10-Q. 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

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future. However, the challenges posed by COVID-19 on our business ~~are evolving~~constantly and rapidly evolve and could result in the need for additional liquidity. Consequently, we will continue to evaluate our financial position in light of future developments.

Off-Balance Sheet Arrangements

See discussion in Note 20, "Commitments and Contingencies," to our unaudited interim Condensed 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.

As of ~~June 30, 2020,~~March 31, 2021, the Company's debt ratings were as follows:

•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~~Senior Notes and the Term Loan Credit ~~Agreement of "B2";~~Agreement;

•Standard and Poor's issued a definitive corporate credit rating of "B" with a stable outlook and a rating of "B" applicable to the Senior Notes and the Term Loan Credit ~~Agreement of "B";~~Agreement; and

•Fitch Ratings Inc. issued a Long-Term Issuer Default Rating of "B" with a stable outlook and a rating of "BB-" applicable to the Senior Notes and the Term Loan Credit ~~Agreement of "BB-".~~Agreement.

Critical Accounting Policies and Estimates

Management has reassessed the critical accounting policies and estimates disclosed in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on November ~~29, 2019~~25, 2020 and determined that there were no significant changes to our critical accounting policies and estimates during the ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, except for the recently adopted accounting policy changes as discussed in Note 2, "Recent Accounting Pronouncements," to our unaudited interim Condensed Consolidated Financial ~~Statements and certain other changes discussed in more detail below.~~

~~Revenue Recognition~~

As the Company continues to transform its business model to meet the evolving needs of its customers, it is increasing the proportion of subscription software offerings it provides. During the nine months ended June 30, 2020, the Company continued developing and selling 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 upfront upon 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.

~~Goodwill and Indefinite-lived Intangible Assets~~

Goodwill is not amortized but is subject to periodic testing for impairment in accordance with GAAP at the reporting unit level. The Company's reporting units are subject to impairment testing annually 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.

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 since the advent of the pandemic which was caused by the resulting volatility in the financial markets. As a result, the Company performed an 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. The fair value of each reporting unit was determined using a combination of the income approach and the market approach in accordance with the Company's historical practices and accounting policies.

The results of the Company's interim goodwill impairment test as of March 31, 2020 indicated that the estimated fair value of the Company's Services reporting unit exceeded its carrying amount by 16%. 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 the accelerated reduction of product sales related to the Company's historical on-premises perpetual licenses. The Company anticipates a continued shift and acceleration of customers upgrading

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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 $624 million to write down the full carrying amount of the Products & Solutions goodwill in the Impairment charges line item in the Condensed Consolidated Statements of Operations.

As a result of the goodwill triggering event described above, the Company also performed an interim quantitative impairment test for its indefinite-lived intangible asset, the Avaya Trade Name, as of March 31, 2020. The fair value of the Avaya Trade Name was estimated using the relief-from-royalty model, a form of the income approach in accordance with the Company's historical practices and accounting policies. The result of the interim impairment test of the Avaya Trade Name as of March 31, 2020 indicated that no impairment existed and the level of excess fair value over carrying value was 5%. As of March 31, 2020, an increase in the discount rate of 50 basis points or a decrease in the long-term revenue growth rate of 140 basis points would have resulted in an estimated fair value below its carrying value.

The Company determined that no events occurred or circumstances changed during the three months ended June 30, 2020 that would indicate that it is more likely than not that its goodwill or indefinite-lived intangible assets were 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 record additional impairment charges in the future.

New Accounting Pronouncements

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

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 ~~income (loss)~~loss before income taxes, interest expense, interest income and depreciation and amortization and excludes the results of discontinued operations. EBITDA provides us with a measure of operating performance that excludes 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.

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EBITDA and Adjusted EBITDA have limitations as analytical tools. EBITDA measures do not represent net ~~income (loss)~~loss or cash flow from operations as those terms are defined by GAAP and do not necessarily indicate whether cash flows will be sufficient to fund cash needs. While EBITDA measures are frequently used as measures of operations and the ability to meet debt service requirements, these terms are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation. Further, Adjusted EBITDA excludes the impact of earnings or charges resulting from matters that we consider not to be indicative of our ongoing operations that still affect our net ~~income.~~loss. In particular, our formulation of Adjusted EBITDA adjusts for certain amounts that are included in calculating net ~~income (loss)~~loss as set forth in the following table including, but not limited to, restructuring charges, impairment charges, resolution of certain legal matters and a portion of our pension costs and post-retirement benefits costs, which represents the amortization of ~~pension~~prior service costs (credits) and actuarial ~~gain (loss)~~(gain) loss associated with these benefits. However, these are expenses that may recur, may vary and/or may be difficult to predict.

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The ~~unaudited~~ reconciliation of net ~~income (loss),~~loss, which is a GAAP measure, to EBITDA and Adjusted EBITDA, which are non-GAAP measures, is presented below for the periods indicated:


			Three months ended June 30,						Nine months ended June 30,							Three months ended March 31,				Six months ended March 31,
(In millions)	(In millions)		2020		2019		2020		2019		(In millions)	2021		2020		2021		2020
Net Income (loss)			$	9	$	(633)	$	(717)	$	(637)
Net loss											Net loss	$	(58)	$	(672)	$	(62)	$	(726)
Interest expense	Interest expense		51		59		162		177		Interest expense	59		53		115		111
Interest income	Interest income		(1)		(4)		(6)		(11)		Interest income	(1)		(2)		(1)		(5)
Provision for (benefit from) income taxes			20		(27)		82		(30)
Provision for income taxes											Provision for income taxes	44		37		54		62
Depreciation and amortization	Depreciation and amortization		107		110		319		335		Depreciation and amortization	106		105		209		212
EBITDA	EBITDA		186		(495)		(160)		(166)		EBITDA	150		(479)		315		(346)
Impact of fresh start accounting adjustments(a)	Impact of fresh start accounting adjustments(a)	(a)	1		(2)		—		7		Impact of fresh start accounting adjustments(a)	1		(1)		1		(1)
Restructuring charges(b)	Restructuring charges(b)	(b)	14		1		18		12		Restructuring charges(b)	6		3		10		4
Advisory fees(c)	Advisory fees(c)	(c)	—		1		40		3		Advisory fees(c)	—		1		—		40
Acquisition-related costs			—		1		—		8
Share-based compensation	Share-based compensation		7		8		21		19		Share-based compensation	13		8		27		14
Impairment charges			—		659		624		659
Impairment of goodwill											Impairment of goodwill	—		624		—		624
Gain on post-retirement plan settlement											Gain on post-retirement plan settlement	(14)		—		(14)		—
Change in fair value of Emergence Date Warrants	Change in fair value of Emergence Date Warrants		3		(7)		—		(28)		Change in fair value of Emergence Date Warrants	22		(6)		27		(3)
Loss on foreign currency transactions			5		1		16		8
(Gain) loss on foreign currency transactions											(Gain) loss on foreign currency transactions	(1)		7		1		11
Gain on investments in equity and debt securities, net(d)	Gain on investments in equity and debt securities, net(d)	(d)	(29)		—		(49)		—		Gain on investments in equity and debt securities, net(d)	—		(8)		—		(20)
Adjusted EBITDA	Adjusted EBITDA		$	187	$	167	$	510	$	522	Adjusted EBITDA	$	177	$	149	$	367	$	323

^(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.

^(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.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q, 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 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Part II, Item 1A "Risk Factors" in this Quarterly Report on Form 10-Q and our Quarterly ~~Reports on Form 10-Q~~Report filed with the SEC on ~~May 11, 2020 and~~ February ~~10, 2020,~~9, 2021, as well as Part I, Item 1A "Risk Factors" and Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with the SEC on November ~~29, 2019.~~25, 2020.

All forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q and the risk that actual results will differ materially from the expectations expressed in this Quarterly 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 Quarterly 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 Quarterly 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 Quarterly Report will be achieved.


Item 3.			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. ~~The~~As of March 31, 2021, the Company had ~~$2,674~~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 ~~as of June 30, 2020.~~(the "Swap Agreements").

~~On May 16, 2018, the~~The Company ~~entered into~~maintains additional interest rate swap agreements ~~with six counterparties, which~~to fix a portion of the variable rate interest due ~~under~~on 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 ~~pays~~will pay a fixed rate of ~~2.935%~~0.7047% and ~~receives~~receive a variable rate of interest based on one-month LIBOR. ~~As of June 30, 2020, the~~The 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 Agreements~~interest rate swap agreements be less than or equal to the variable rate loans outstanding during the life of the derivatives. For the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company recognized a loss on the Swap Agreements of ~~$11~~$13 million and $2$6 million, respectively, which is reflected in Interest expense in the Condensed Consolidated Statements of Operations. For the ~~nine~~six months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company recognized a loss on the Swap Agreements of ~~$22~~$25 million and $7$11 million, respectively, which is also reflected in Interest expense. At ~~June 30, 2020,~~March 31, 2021, the ~~fair value of the outstanding Swap Agreements was~~Company maintained a $50 million deferred loss ~~of $115 million. Based~~ on ~~the payment dates of the contracts, $49 million and $68 million, including accrued~~its interest ~~was recorded in Other current liabilities and Other liabilities~~rate swap agreements designated as highly effective cash flow hedges within Accumulated other comprehensive loss in the Condensed Consolidated Balance Sheets, respectively. On an annual basis, a hypothetical one percent change in interest rates for the $874 million of unhedged variable rate debt as of June 30, 2020 would affect interest expense by approximately $9 million.Sheets.

~~On July 1, 2020, the Company entered into new interest rate swap agreements with four counterparties.~~ See Note ~~21, "Subsequent Event"~~10, “Derivative Instruments and Hedging Activities,” to our Condensed Consolidated Financial Statements included in Part I, Item 1I of this ~~Quarterly Report~~quarterly report on Form 10-Q for additional ~~information.~~

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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

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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 and ~~Japanese Yen.~~Indian Rupee.

Non-U.S. denominated revenue was ~~$158~~$167 million and ~~$472~~$343 million for the three and ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, respectively. We estimate a 10% change in the value of the U.S. dollar relative to all foreign currencies would ~~affect~~have affected our revenue for the three and ~~nine~~six months ended ~~June 30, 2020~~March 31, 2021 by ~~$16~~$17 million and ~~$47~~$34 million, respectively.

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, net to offset the change in the value of the underlying assets and liabilities. As of ~~June 30, 2020,~~March 31, 2021, the Company maintained open foreign exchange contracts with a total notional value of ~~$373~~$355 million, primarily hedging the British Pound Sterling, Euro, Chinese Renminbi, Mexican Peso and Indian Rupee. At ~~June 30, 2020,~~March 31, 2021, the Company ~~had~~held $1 million in both Other current assets and Other current liabilities in the Condensed Consolidated Balance ~~Sheets~~Sheet to reflect the fair value of the open foreign exchange contracts.

For the three months ended ~~June 30,~~March 31, 2021 and 2020, the Company's ~~loss on foreign exchange contracts was not material. For the three months ended June 30, 2019, the Company's loss~~gain (loss) on foreign exchange contracts was $1 million and is$(7) million, respectively, and was recorded inwithin Other income, net in the Condensed Consolidated Statement of Operations. For the ~~nine~~six months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company's ~~loss~~gain (loss) on foreign exchange contracts was $3$6 million and $1$(2) million, respectively, which iswas also recorded inwithin Other income, net.


Item 4.			Controls and Procedures

Disclosure Controls and Procedures

As of ~~June 30, 2020,~~March 31, 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, ~~evaluating~~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 ~~June 30, 2020~~March 31, 2021 to provide 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.

Changes Inin 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 ~~June 30, 2020~~March 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II. OTHER INFORMATION


Item 1.			Legal Proceedings

The information set forth under Note 20, "Commitments and Contingencies," to the unaudited interim Condensed Consolidated Financial Statements is incorporated herein by reference.


Item 1A.			Risk Factors

There have been no material changes during the quarterly period ended ~~June 30, 2020~~March 31, 2021 to the risk factors previously disclosed in the Company'sForm 10-K for the year ended September 30, 2020 and Form 10-Q for the quarter ended December 31, 2020 filed with the Securities and Exchange Commission on November ~~29, 2019 and the Company's Form 10-Q reports filed with the Securities and Exchange Commission on February 10,~~25, 2020 and ~~May 11, 2020, other than as shown below.~~February 9, 2021, respectively.

~~The outbreak of COVID-19 coronavirus could have a material adverse effect on the Company's business, results of operations and financial condition and/or cash flows.~~

On March 11, 2020, the World Health Organization ("WHO") characterized the novel coronavirus disease ("COVID-19") as a pandemic. The current COVID-19 pandemic, and the responses of governments worldwide to COVID-19, are having a negative impact on regional, national and global economies, are disrupting supply chains and reducing international trade and business activity. The pandemic has caused several governments to implement stay-at-home orders, quarantines, significant restrictions on travel and other social distancing measures including restrictions that prohibit many employees from commuting to their customary work locations and require these employees to work remotely if possible. Quarantines, travel restrictions and other social distancing measures have been implemented globally throughout the second and third quarters of fiscal 2020.

~~The impact of the COVID-19 pandemic has had and may continue to adversely impact our financial condition and results of 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, in affected areas has and may continue to be hindered, which may cause our business and operating results to decline.

•Inability of our employees to access customers' sites has and will continue to 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 due to financial downturns or general economic uncertainty.

•~~We may experience temporary or long-term disruptions in our supply chain, which may significantly impact our distribution network, results of operations (including sales) or business.~~

•The effects of shelter-in-place orders may negatively disrupt our business, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course.

•To the extent our employees, including our executive officers and other members of our management team, are impacted in significant numbers by the outbreak of the pandemic and are not available or allowed 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 further capital, which could in the future negatively affect our liquidity and affect our business in the near and long-term.

The extent of the impact of the COVID-19 pandemic on 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, as well as any resurgence of the pandemic in regions that were opening businesses, none of which can be predicted. Any of the foregoing factors, or other cascading effects of the coronavirus pandemic that are not currently foreseeable, could have a material adverse effect on our business, results of operations, financial condition and/or cash flows. Some economists are predicting that the recession caused by the COVID-19 pandemic, including as a result of the actions by governments to slow the spread of the disease will be steep and severe. The

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effectiveness of economic stabilization efforts, including government stimulus efforts, is not assured. Additionally, as pandemic conditions wane, we cannot predict how quickly the marketplaces in which we operate will return to normal.


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

~~Issuer~~ Purchases of Equity Securities by the Issuer

The following table provides information with respect to purchases by the Company of shares of common stock during the three months ended ~~June 30, 2020:~~March 31, 2021:

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⁾
April 1 - 30, 2020 57,629 $ 8.7172 — $ 185,000,003
May 1 - 31, 2020 37,423 $ 12.9600 — $ 185,000,003
June 1 - 30, 2020 — $ — — $ 185,000,003
Total 95,052 $ 10.3876 —


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)
January 1 - 31, 2021	74,616	$	19.0000	—	$	185,000,003
February 1 - 28, 2021	201,544	$	31.5200	—	$	185,000,003
March 1 - 31, 2021	245,206	$	29.6902	245,206	$	177,719,788
Total	521,366	$	28.8676	245,206

⁽¹⁾~~Represents~~January and February 2021 include 74,616 and 201,544 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 approved~~The Company maintains a warrant repurchase program authorizing ~~the Company~~it to repurchase the Company's outstanding warrants to purchase shares of the Company'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 approved~~The Company maintains a share repurchase program authorizing ~~the Company~~it 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. ~~In connection~~Share repurchases presented in the table above are based on the transaction settlement date. There were an additional 7,962 shares repurchased and pending settlement as of March 31, 2021 that are not reflected in the table.

(4)Average price paid per share includes transaction costs associated with the COVID-19 pandemic, the Company has determined to suspend the repurchase program but may recommence the program at any time based on its assessment of the impact the COVID-19 pandemic has on the Company's stock price, business and liquidity.repurchases.


Item 3.			Defaults Upon Senior Securities

None.


Item 4.			Mine Safety Disclosures

Not applicable.


Item 5.			Other Information

None.

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Item 6.			Exhibits


Exhibit Number						Exhibit Description
10.1						Amendment No. 3, dated as of February 24, 2021, 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
10.2*						Form of Restricted Stock Unit Award Agreement pursuant to the Avaya Holdings Corp. 2019 Equity Incentive Plan
10.3*						Form of Non-Qualified Stock Option Award Agreement pursuant to the Avaya Holdings Corp. 2019 Equity Incentive Plan
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
101.INS						XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH						XBRL Taxonomy Extension Schema
101.CAL						XBRL Taxonomy Extension Calculation Linkbase
101.DEF						XBRL Taxonomy Extension Definition Linkbase
101.LAB						XBRL Taxonomy Extension Labels Linkbase
101.PRE						XBRL Taxonomy Extension Presentation Linkbase
104						Cover Page Interactive Data File (formatted as Inline XBRL in Exhibit 101)

* Indicates management contract or compensatory plan or arrangement.

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SIGNATURES

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


			AVAYA HOLDINGS CORP.

			By:			/s/ KEVIN SPEED
			Name:			Kevin Speed
			Title:			Vice President, Controller and Chief Accounting Officer

~~August~~May 10, ~~2020~~2021

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	September 30, 2019				Upon Adoption of ASC 842
(In millions)	As Reported		Adjustments
ASSETS
Other current assets	$	115	$	(2)	$	113
Intangible assets, net	2,891		(2)		2,889
Operating lease right-of-use assets	—		190		190

LIABILITIES
Current liabilities:
Operating lease liabilities	—		51		51
Business restructuring reserve	33		(4)		29
Non-current liabilities:
Operating lease liabilities	—		143		143
Business restructuring reserve	36		(1)		35
Other liabilities	316		(3)		313


In millions	Operating Leases		Capital Leases
2020	$	51	$	12
2021	39		6
2022	33		2
2023	22		—
2024	17		—
2025 and thereafter	29		—
Total lease payments	$	191	20
Less: imputed interest			(1)
Total lease liability			$	19


(In millions)	Emergence Date Warrants		Spoken acquisition earn-outs		Investments in debt securities
Balance as of September 30, 2019	$	5	$	5	$	10
Impairment⁽¹⁾	—		—		(10)
Settlement	—		(5)		—
Balance as of June 30, 2020	$	5	$	—	$	—


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⁾
April 1 - 30, 2020	57,629	$	8.7172	—	$	185,000,003
May 1 - 31, 2020	37,423	$	12.9600	—	$	185,000,003
June 1 - 30, 2020	—	$	—	—	$	185,000,003
Total	95,052	$	10.3876	—