UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.DC 20549
________________________________________________ 
FORM 10-Q
________________________________________________ 
FORM 10-Q
x

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 20172020
or
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File NumberNumber: 001-38289
_______________________________________________ 
AVAYA HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
________________________________________________ 

Delaware26-1119726
Delaware
26-1119726
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer Identification No.)
4655 Great America2605 Meridian Parkway,
Santa Clara, California Suite 200		9505427713
Durham,North Carolina
(Address of principalPrincipal executive offices)(Zip Code)
(908) 953-6000
(Registrant’sRegistrant'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 ClassTrading Symbol(s)Name of each exchange on which registered
Common StockAVYANew 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  x☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  ¨ ☒No  ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.filer, a smaller reporting company, or an emerging growth company. See definitionthe definitions of “accelerated"large accelerated filer," "accelerated filer," "smaller reporting company" and large accelerated filer”"emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer¨
☒
Accelerated filer ¨
☐
Non-accelerated filerx
☐
Smaller Reporting Company ¨
☐
Emerging growth company ¨
(Do not check if a smaller
reporting 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  x☒
Indicate by check mark whether the registrant has filed all documentdocuments and reports required to be filed by SectionsSection 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 March 2, 2018, 109,794,137January 31, 2021, 83,902,999 shares of Common Stock, $0.01common stock, $.01 par value, of the registrant were outstanding.



1

TABLE OF CONTENTS
Item DescriptionPageItemDescriptionPage
 
 
PART I—FINANCIAL INFORMATION
 PART I—FINANCIAL INFORMATION
1. 
Financial Statements
1
1.Financial Statements
1
2. 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
40
2.
28
3. 
Quantitative and Qualitative Disclosures About Market Risk
55
3.Quantitative and Qualitative Disclosures About Market Risk
38
4. 
Controls and Procedures
55
4.Controls and Procedures
39
 
 
PART II—OTHER INFORMATION
 PART II—OTHER INFORMATION
1. 
Legal Proceedings
57
1.Legal Proceedings
40
1A. 
Risk Factors
57
1A.Risk Factors
40
2. 
Unregistered Sales of Equity Securities and Use of Proceeds
57
2.Unregistered Sales of Equity Securities and Use of Proceeds
42
3. 
Defaults Upon Senior Securities
57
3.Defaults Upon Senior Securities
42
4. 
Mine Safety Disclosures
57
4.Mine Safety Disclosures
42
5. 
Other Information
57
5.Other Information
42
6. 
Exhibits
58
6.Exhibits
43
 
Signatures
59
7.7.Signatures
44
When we use the terms “we,” “us,” “our,” “Avaya”"we," "us," "our," "Avaya" or the “Company,”"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 Avaya Aura®, AvayaLive®, Scopia® and other 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 tradenames,trade names, trademarks or service marks belonging to us and to other companies. We do not intend our use or display of other parties’parties' trademarks, tradenamestrade 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.





2
Table of Contents

PART I—FINANCIAL INFORMATION


Item 1.Financial Statements.


Avaya Holdings Corp.
Condensed Consolidated Statements of Operations (Unaudited)
(In millions, except per share amounts)
 Successor  Predecessor
 Period from December 16, 2017 through December 31, 2017  Period from October 1, 2017 through December 15, 2017 Three months ended December 31, 2016
REVENUE      
Products$71
  $253
 $401
Services77
  351
 474
 148
  604
 875
COSTS      
Products:      
Costs33
  84
 145
Amortization of technology intangible assets7
  3
 5
Services30
  155
 190
 70
  242
 340
GROSS PROFIT78
  362
 535
OPERATING EXPENSES      
Selling, general and administrative50
  264
 336
Research and development9
  38
 62
Amortization of intangible assets7
  10
 57
Restructuring charges, net10
  14
 10
 76
  326
 465
OPERATING INCOME2
  36
 70
Interest expense(9)  (14) (174)
Other (expense) income, net(2)  (2) 4
Reorganization items, net—
  3,416
 —
(LOSS) INCOME BEFORE INCOME TAXES(9)  3,436
 (100)
Benefit from (provision for) income taxes246
  (459) (3)
NET INCOME (LOSS)$237
  $2,977
 $(103)
Net income (loss) per share:      
Basic$2.16
  $5.19
 $(0.22)
Diluted$2.15
  $5.19
 $(0.22)
Weighted average shares outstanding:      
Basic109.8
  497.3
 497.0
Diluted110.3
  497.3
 497.0

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


Avaya Holdings Corp.
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(In millions)

 Successor  Predecessor
 Period from December 16, 2017 through December 31, 2017  Period from October 1, 2017 through December 15, 2017 Three months ended December 31, 2016
Net income (loss)$237
  $2,977
 $(103)
Other comprehensive (loss) income:      
Pension, post-retirement and postemployment benefit-related items, net of income taxes of $58 for the period from October 1, 2017 through December 15, 2017 and $6 for the three months ended December 31, 2016—
  655
 14
Cumulative translation adjustment, net of income taxes of $(4) for the three months ended December 31, 2016(13)  3
 23
Other comprehensive (loss) income(13)  658
 37
Elimination of Predecessor Company accumulated other comprehensive loss—
  790
 —
Total comprehensive income (loss)$224
  $4,425
 $(66)

Three months ended
December 31,
20202019
REVENUE
Products$266 $298 
Services477 417 
743 715 
COSTS
Products:
Costs105 104 
Amortization of technology intangible assets43 43 
Services179 174 
327 321 
GROSS PROFIT416 394 
OPERATING EXPENSES
Selling, general and administrative255 283 
Research and development55 52 
Amortization of intangible assets40 41 
Restructuring charges, net4 3 
354 379 
OPERATING INCOME62 15 
Interest expense(56)(58)
Other income, net0 14 
INCOME (LOSS) BEFORE INCOME TAXES6 (29)
Provision for income taxes(10)(25)
NET LOSS$(4)$(54)
LOSS PER SHARE
Basic$(0.06)$(0.54)
Diluted$(0.06)$(0.54)
Weighted average shares outstanding
Basic83.8 109.0 
Diluted83.8 109.0 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

1


Table of Contents

Avaya Holdings Corp.
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(In millions)
Three months ended
December 31,
20202019
Net loss$(4)$(54)
Other comprehensive income:
Pension, post-retirement and postemployment benefit-related items12 0 
Cumulative translation adjustment(6)3 
Change in interest rate swaps, net of income taxes of $(2) for the three months ended December 31, 201911 7 
Other comprehensive income17 10 
Total comprehensive income (loss)$13 $(44)
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

2
Table of Contents

Avaya Holdings Corp.
Condensed Consolidated Balance Sheets (Unaudited)
(In millions, except per share and sharesshare amounts)
 Successor  Predecessor
 December 31, 2017  September 30, 2017
ASSETS    
Current assets:    
Cash and cash equivalents$417
  $876
Accounts receivable, net413
  536
Inventory124
  96
Other current assets230
  269
TOTAL CURRENT ASSETS1,184
  1,777
Property, plant and equipment, net306
  200
Deferred income taxes, net31
  —
Intangible assets, net3,421
  311
Goodwill2,632
  3,542
Other assets53
  68
TOTAL ASSETS$7,627
  $5,898
LIABILITIES    
Current liabilities:    
Debt maturing within one year$—
  $725
Long-term debt, current portion29
  —
Accounts payable304
  282
Payroll and benefit obligations124
  127
Deferred revenue384
  614
Business restructuring reserve36
  35
Other current liabilities153
  90
TOTAL CURRENT LIABILITIES1,030
  1,873
Non-current liabilities:    
Long-term debt, net of current portion2,867
  —
Pension obligations793
  513
Other post-retirement obligations215
  —
Deferred income taxes, net444
  32
Business restructuring reserve34
  34
Other liabilities377
  170
TOTAL NON-CURRENT LIABILITIES4,730
  749
LIABILITIES SUBJECT TO COMPROMISE—
  7,705
TOTAL LIABILITIES5,760
  10,327
Commitments and contingencies (Note 20)
  
Predecessor equity awards on redeemable shares—
  7
Predecessor preferred stock, $0.001 par value, 250,000 shares authorized at September 30, 2017
  
Convertible Series B preferred stock; 48,922 shares issued and outstanding at September 30, 2017—
  393
Series A preferred stock; 125,000 shares issued and outstanding at September 30, 2017—
  184
Successor preferred stock, $0.01 par value; 55,000,000 authorized, no shares issued or outstanding at December 31, 2017

  —
STOCKHOLDERS' EQUITY (DEFICIT)    
Predecessor common stock, $0.001 par value; 750,000,000 shares authorized, 494,768,243 issued and outstanding at September 30, 2017—
  —
Successor common stock, $0.01 par value; 550,000,000 shares authorized, 110,000,000 issued and 109,794,137 outstanding at December 31, 20171
  —
Additional paid-in capital1,642
  2,389
Retained earnings (Accumulated deficit)237
  (5,954)
Accumulated other comprehensive loss(13)  (1,448)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)1,867
  (5,013)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)$7,627
  $5,898
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.


Avaya Holdings Corp.
Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) (Unaudited)
(In millions)

  Common Stock        
  Number Par Value Additional
Paid-in
Capital		 (Accumulated
Deficit) Retained Earnings		 Accumulated
Other
Comprehensive
(Loss) Income		 Total
Stockholders'
(Deficit) Equity
Balance as of September 30, 2017 (Predecessor) 494.8
 $—
 $2,389
 $(5,954) $(1,448) $(5,013)
Issuance of common stock, net of shares redeemed and cancelled, under employee stock option plan           —
Amortization of share-based compensation     3
     3
Accrued dividends on Series A preferred stock     (2)     (2)
Accrued dividends on Series B preferred stock     (4)     (4)
Reclassifications to equity awards on redeemable shares     1
     1
Net income       2,977
   2,977
Other comprehensive income         658
 658
Balance as of December 15, 2017 (Predecessor) 494.8
 —
 2,387
 (2,977) (790) (1,380)
Cancellation of Predecessor equity (494.8) 
 (2,387) 2,977
 790
 1,380
Balance as of December 15, 2017 (Predecessor) —
 $—
 $—
 $—
 $—
 $—
             
  Common Stock        
  Number Par Value Additional
Paid-in
Capital		 (Accumulated
Deficit) Retained Earnings		 Accumulated
Other
Comprehensive
(Loss) Income		 Total
Stockholders'
Equity
(Deficit)
Balance as of December 15, 2017 (Predecessor) —
 $—
 $—
 $—
 $—
 $—
Issuance of Successor common stock           

Common stock issued for Predecessor debt 103.7
 1
 1,548
     1,549
Common stock issued for Pension Benefit Guaranty Corporation 6.1
   90
     90
Common stock issued for general unsecured creditors or Predecessor debt 0.2
   3
     3
Balance as of December 15, 2017 (Predecessor) 110.0
 $1
 $1,641
 $—
 $—
 $1,642
             
             
Balance as of December 15, 2017 (Successor) 110.0
 1
 1,641
 —
 —
 1,642
Issuance of common stock, net           —
Amortization of share-based compensation     1
     1
Net income       237
   237
Other comprehensive loss         (13) (13)
Balance as of December 31, 2017 (Successor) 110.0
 $1
 $1,642
 $237
 $(13) $1,867

December 31, 2020September 30, 2020
ASSETS
Current assets:
Cash and cash equivalents$750 $727 
Accounts receivable, net258 275 
Inventory53 54 
Contract assets, net325 296 
Contract costs128 115 
Other current assets124 112 
TOTAL CURRENT ASSETS1,638 1,579 
Property, plant and equipment, net276 268 
Deferred income taxes, net38 31 
Intangible assets, net2,476 2,556 
Goodwill, net1,482 1,478 
Operating lease right-of-use assets162 160 
Other assets158 159 
TOTAL ASSETS$6,230 $6,231 
LIABILITIES
Current liabilities:
Accounts payable$292 $242 
Payroll and benefit obligations153 198 
Contract liabilities408 446 
Operating lease liabilities49 49 
Business restructuring reserves21 21 
Other current liabilities190 181 
TOTAL CURRENT LIABILITIES1,113 1,137 
Non-current liabilities:
Long-term debt2,893 2,886 
Pension obligations766 749 
Other post-retirement obligations203 215 
Deferred income taxes, net38 38 
Contract liabilities362 373 
Operating lease liabilities131 129 
Business restructuring reserves26 28 
Other liabilities309 312 
TOTAL NON-CURRENT LIABILITIES4,728 4,730 
TOTAL LIABILITIES5,841 5,867 
Commitments and contingencies (Note 20)
Preferred stock, $0.01 par value; 55,000,000 shares authorized at December 31, 2020 and September 30, 2020
Convertible series A preferred stock; 125,000 shares issued and outstanding at December 31, 2020 and September 30, 2020129 128 
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value; 550,000,000 shares authorized; 83,781,354 shares issued and outstanding at December 31, 2020; and 83,278,383 shares issued and outstanding at September 30, 20201 1 
Additional paid-in capital1,463 1,449 
Accumulated deficit(976)(969)
Accumulated other comprehensive loss(228)(245)
TOTAL STOCKHOLDERS' EQUITY260 236 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$6,230 $6,231 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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Table of Contents

Avaya Holdings Corp.
Condensed Consolidated Statements of Cash FlowsChanges in Stockholders' Equity (Unaudited)
(In millions)
 Successor  Predecessor
 Period from December 16, 2017 through December 31, 2017  Period from October 1, 2017 through December 15, 2017 Three months ended December 31, 2016
OPERATING ACTIVITIES:      
Net income (loss)$237
  $2,977
 $(103)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:      
Depreciation and amortization22
  31
 90
Share-based compensation1
  —
 2
Amortization of debt issuance costs—
  —
 36
Accretion of debt discount—
  —
 25
Provision for uncollectible receivables1
  (1) 1
Deferred income taxes, net(245)  455
 (1)
Post-retirement curtailment—
  —
 (4)
Loss on disposal of long-lived assets—
  1
 —
Unrealized gain on foreign currency exchange(4)  —
 (8)
Reorganization items:      
     Net gain on settlement of Liabilities subject to compromise—
  (1,804) —
     Payment to PBGC—
  (340) —
     Payment to pension trust—
  (49) —
     Payment of unsecured claims—
  (58) —
     Fresh start adjustments, net—
  (1,671) —
  Non-cash and financing related reorganization items, net—
  26
 —
Changes in operating assets and liabilities:      
Accounts receivable5
  14
 54
Inventory3
  (2) 1
Accounts payable27
  (40) (22)
Payroll and benefit obligations(22)  16
 (56)
Business restructuring reserve(3)  (7) (18)
Deferred revenue44
  28
 1
Other assets and liabilities—
  (16) (42)
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES66
  (440) (44)
INVESTING ACTIVITIES:      
Capital expenditures(2)  (13) (14)
Acquisition of businesses, net of cash acquired—
  —
 (4)
Restricted cash10
  21
 —
Other investing activities, net—
  —
 3
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES8
  8
 (15)
FINANCING ACTIVITIES:      
Proceeds from Term Loan Credit Agreement—
  2,896
 —
Repayment of DIP financing—
  (725) —
Repayment of first lien debt—
  (2,061) —
Repayment of Foreign ABL—
  —
 (5)
Repayment of Domestic ABL—
  —
 (22)
Repayment of long-term debt, including adequate protection payments—
  (111) (6)
Debt issuance costs—
  (97) —
Repayments of borrowings on revolving loans under the Senior Secured Credit Agreement—
  —
 (18)
Repayments of borrowings under sale-leaseback transaction—
  (4) (5)
Other financing activities, net—
  —
 (1)
NET CASH USED FOR FINANCING ACTIVITIES—
  (102) (57)
Effect of exchange rate changes on cash and cash equivalents3
  (2) (11)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS77
  (536) (127)
Cash and cash equivalents at beginning of period340
  876
 336
Cash and cash equivalents at end of period$417
  $340
 $209

Common StockAdditional
Paid-In
Capital		Accumulated DeficitAccumulated
Other
Comprehensive
Loss		Total
Stockholders'
Equity
SharesPar Value
Balance as of September 30, 202083.3 $1 $1,449��$(969)$(245)$236 
Issuance of common stock under the equity incentive plan0.3 0 
Issuance of common stock under the employee stock purchase plan0.3 3 3 
Shares repurchased and retired for tax withholding on vesting of restricted stock units(0.1)(2)(2)
Share-based compensation expense14 14 
Preferred stock dividends accrued(1)(1)
Adjustment for adoption of new accounting standard (Note 2)(3)(3)
Net loss(4)(4)
Other comprehensive income17 17 
Balance as of December 31, 202083.8 $1 $1,463 $(976)$(228)$260 
Balance as of September 30, 2019111.0 $1 $1,761 $(289)$(173)$1,300 
Issuance of common stock under the equity incentive plan0.3 0 
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(10.7)(142)(142)
Share-based compensation expense6 6 
Accretion of preferred stock to redemption value(4)(4)
Preferred stock dividends accrued(1)(1)
Net loss(54)(54)
Other comprehensive income10 10 
Balance as of December 31, 2019100.5 $1 $1,618 $(343)$(163)$1,113 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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Table of Contents
AVAYA HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)Avaya Holdings Corp.

Condensed Consolidated Statements of Cash Flows (Unaudited)
(In millions)
Three months ended
December 31,
20202019
OPERATING ACTIVITIES:
Net loss$(4)$(54)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization103 107 
Share-based compensation14 6 
Amortization of debt discount and issuance costs7 8 
Deferred income taxes, net2 (8)
Change in fair value of emergence date warrants5 3 
Unrealized loss on foreign currency transactions11 9 
Unrealized gain on equity securities0 (1)
Realized gain on sale of equity securities0 (11)
Other non-cash credits, net0 (14)
Changes in operating assets and liabilities:
Accounts receivable23 35 
Inventory2 3 
Operating lease right-of-use assets and liabilities0 3 
Contract assets(32)(18)
Contract costs(8)(8)
Accounts payable51 (15)
Payroll and benefit obligations(57)(10)
Business restructuring reserves(4)(6)
Contract liabilities(56)(25)
Other assets and liabilities(9)8 
NET CASH PROVIDED BY OPERATING ACTIVITIES48 12 
INVESTING ACTIVITIES:
Capital expenditures(27)(26)
Proceeds from sale of marketable securities0 294 
NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES(27)268 
FINANCING ACTIVITIES:
Shares repurchased under share repurchase program0 (132)
Proceeds from issuance of Series A Preferred Stock, net of issuance costs of $40 121 
Repayment of Term Loan Credit Agreement0 (250)
Principal payments for financing leases(7)(3)
Proceeds from other financing arrangements1 0 
Payment of acquisition-related contingent consideration0 (5)
Debt issuance costs(2)0 
Proceeds from Employee Stock Purchase Plan4 0 
Other financing activities, net(2)(2)
NET CASH USED FOR FINANCING ACTIVITIES(6)(271)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash9 5 
NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH24 14 
Cash, cash equivalents, and restricted cash at beginning of period731 756 
Cash, cash equivalents, and restricted cash at end of period$755 $770 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
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Table of Contents
1.Background and Basis of Presentation

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”"Company" or “Avaya”"Avaya"), is a leading global provider of software and associated hardwareleader in digital communications products, solutions and services for contact centerbusinesses of all sizes delivering its technology predominantly through software and unifiedservices. Avaya builds open, converged and innovative solutions to enhance and simplify communications offered on-premises,and collaboration in the cloud, on-premise or as a hybrid solution. Avaya provides the mission-critical, real-time communication applications for small businessesof both. The Company's global team of professionals delivers services from initial planning and design, to large multinational enterprisesimplementation and government organizations. Currently, theintegration, to ongoing managed operations, optimization, training and support. The Company manages its business operations in two2 segments, Global CommunicationsProducts & Solutions ("GCS") representing the Company's products portfolio, and Avaya Global Services ("AGS") representing the Company's services portfolio.Services. The Company sells directly to customers through its worldwide sales force and indirectly through its global network of channel partners, including distributors, service providers, dealers, value-added resellers, system integrators and business partners that provide sales and services support.
Basis of Presentation
Avaya Holdings has no material assets or standalone operations other than its ownership inof direct wholly-owned subsidiary Avaya Inc. and its subsidiaries. The accompanying unaudited interim Condensed Consolidated Financial Statements as of December 31, 2017 and for the period from December 16, 2017 through December 31, 2017, the period from October 1, 2017 through December 15, 2017 and the three months ended December 31, 2016, 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”("GAAP") and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”("SEC") for interim financial statements, andstatements. 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, 2017,2020, included in Amendment No. 3 to the Company’s Company's Annual Report on Form 1010-K filed with the SEC on January 10, 2018.November 25, 2020. In management’smanagement's opinion, these unaudited interim Condensed Consolidated Financial Statements reflect all adjustments, consisting of normal and recurring adjustments, necessary to present 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 ourthe 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. These estimates include assessing the collectability of accounts receivable, sales returns and allowances, the use and recoverability of inventory, the realization of deferred tax assets, business restructuring reserves, pension and post-retirement benefit costs, the fair value of equity compensation, the fair value of assets and liabilities in connection with fresh start accounting as well as those acquired in business combinations, the recoverability of long-lived assets, useful lives and impairment of tangible and intangible assets including goodwill, the amount of exposure from potential loss contingencies, and fair value measurements, among others. The markets for the Company’s products are characterized by intense competition, rapid technological development and frequent new product introductions, all of which could affect the future recoverability of the Company’s assets. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Actual results couldmay differ from these estimates.
On January 19, 2017 (the “Petition Date”), Avaya Holdings, together with certain During the second quarter of fiscal 2020, the World Health Organization characterized a novel strain of coronavirus ("COVID-19") as a pandemic. The spread of COVID-19 around the globe and the actions required to mitigate its affiliates, namely Avaya CALA Inc., Avaya EMEA Ltd., Avaya Federal Solutions, Inc., Avaya Holdings LLC, Avaya Holdings Two, LLC, Avaya Inc., Avaya Integrated Cabinet Solutions Inc., Avaya Management Services Inc., Avaya Services Inc., Avaya World Services Inc., Octel Communications LLC, Sierra Asia Pacific Inc., Sierra Communication International LLC, Technology Corporation of America, Inc., Ubiquity Software Corporation, VPNet Technologies, Inc., and Zang, Inc. (the “Debtors”), filed voluntary petitions for relief (the “Bankruptcy Filing”) under Chapter 11impact have created substantial disruption to the global economy. The duration of the United States Bankruptcy Code (the “Bankruptcy Code’) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court’). The cases were jointly administered as Case No. 17-10089 (SMB). The Debtors operated their businesses as "debtors-in-possession" under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of Chapter 11 of the Bankruptcy Codepandemic and the orderslong-term impacts on the global economy are uncertain. The pandemic may affect management’s estimates and assumptions, in particular those that require a projection of our financial results, our cash flows or broader economic conditions, such as the Bankruptcy Court until their emergence from bankruptcy on December 15, 2017.
Subsequent tocollectability of accounts receivable, sales returns and allowances, the Petition Date, all expenses, gainsuse and losses directly associated with the reorganization proceedings were reported as Reorganization items, net in the accompanying Condensed Consolidated Statementsrecoverability of Operations. In addition, Liabilities subject to compromise during Chapter 11 proceedings were distinguished from liabilities of the non-debtors and


from post-petition liabilities in the accompanying Condensed Consolidated Balance Sheets. The Company's other subsidiaries that were not part of the Bankruptcy Filing ("non-debtors") continued to operate in the ordinary course of business.
Upon emergence from bankruptcy on December 15, 2017 (the "Emergence Date"), the Company applied fresh start accounting, which resulted in a new basis of accounting and the Company becoming a new entity for financial reporting purposes. As a result of the application of fresh start accounting and the effects of the implementation of the Second Amended Joint Plan of Reorganization filed by the Debtors on October 24, 2017 and approved by the Bankruptcy Court on November 28, 2017 (the "Plan of Reorganization"), the consolidated financial statements after the Emergence Date, are not comparable with the consolidated financial statements on or before that date. Refer to Note 5, "Fresh Start Accounting," for additional information.
The accompanying Condensed Consolidated Financial Statements of the Company have been prepared on a basis that assumes that the Company will continue as a going concern and contemplatesinventory, the realization of deferred tax assets, and the satisfaction of liabilities and commitments in the normal course of business. During the Chapter 11 proceedings, the Company's ability to continue as a going concern was contingent upon its ability to comply with the financial and other covenants contained in its debtor-in-possession credit agreement, the Bankruptcy Court's approval of the Company's Plan of Reorganization and the Company's ability to successfully implement the Plan of Reorganization, among other factors. As a result of the execution of the Plan of Reorganization, there is no longer substantial doubt about the Company's ability to continue as a going concern.
References to "Successor" or "Successor Company" relate to the financial position and results of operations of the reorganized Avaya Holdings after the Emergence Date. References to "Predecessor" or "Predecessor Company" refer to the financial position and results of operations of Avaya Holdings on or before the Emergence Date.
2. Accounting Policy Changes
The Company emerged from bankruptcy on December 15, 2017, and qualified for fresh start accounting. Fresh start accounting allows a company to set new accounting policies for the successor company independent of those followed by the predecessor company. As such, the following are the accounting policy changes the Successor Company has adopted.
Fair Value of Equity Awards
Successor Accounting Policy: The Black-Scholes-Merton option pricing model ("Black-Scholes") replaced the Cox-Ross-Rubinstein ("CRR") binomial option pricing model in calculatingannual effective tax rate, the fair value of equity awards,compensation, the recoverability of long-lived assets, useful lives and impairment of tangible and intangible assets including thegoodwill, business restructuring reserves and fair value of warrants to purchase common stock. In addition to the change in option pricing models,measurements. During fiscal 2020, the Company now accounts for forfeituresrecognized a significant goodwill impairment charge as incurred.
Predecessor Accounting Policy: The CRR binomial option pricing model was utilized to determine the grant date fair valuesa result of the equity awards, including the fair value of the Preferred Series A and B Stock warrants. Forfeitures was an input assumptionCOVID-19 pandemic which is further described in Note 7, “Goodwill, net” in the valuation model.
Uncollected Deferred Revenue
Successor Accounting Policy: The Company does not recognize deferred revenue relating to any sales transactions that have been billed, but for which the related account receivable has not yet been collected. The aggregate amount of unrecognized accounts receivable and deferred revenue was $100 million at December 31, 2017.
Predecessor Accounting Policy: The Company recorded the deferred revenue and related collectible accounts receivable in its consolidated balance sheets.
Foreign Currency
Successor Accounting Policy: Income and expense of non-U.S. dollar functional currency subsidiaries are translated into U.S. dollars using an average rateCompany’s Annual Report on Form 10-K for the period.fiscal year ended September 30, 2020 filed with the SEC on November 25, 2020. The COVID-19 pandemic did not have a material impact on the Company's operating results during the first quarter of fiscal 2021.
Predecessor Accounting Policy: Income and expense of non-U.S. dollar functional currency subsidiaries are translated into U.S. dollars at the spot rate for the transaction.
3.2. Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In March 2016,December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-09, "Improvements to Employee Share-Based Payment Accounting.2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." This standard simplifies the accounting for share-based paymentsincome taxes by removing certain exceptions to the general principles in ASC 740. The amendments also improve consistent application of and their presentationsimplify GAAP for other areas of ASC 740 by clarifying and amending existing guidance. The Company early adopted this standard as of October 1, 2020. The adoption of this standard did not have a material impact on 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 statementsrequirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use
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software. The Company adopted this standard as of October 1, 20172020 on a prospective basis. The adoption of this standard did not have a material impact on itsthe 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 March 2017,August 2018, the FASB issued ASU No. 2017-07, "Improving2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirementDisclosure Requirements for Defined Benefit Cost.Plans." This standard changes howmodifies the disclosure requirements for employers that sponsor defined benefit pension andor other post-retirement benefit plans present net periodic benefitplans. This standard removes disclosures that are not considered cost in the income statement. This amendment requires that the service cost component be disaggregated from the other components of pensionbeneficial, clarifies certain required disclosures and post-retirement benefit costs on the income statement. The service cost component is reported in the same line items as other compensation costs and the other components of pension and post-retirement benefit costs (including interest cost, expected return on plan assets, amortization and curtailments and settlements) are reported in Other income (expense), net in the Company's Condensed Consolidated Financial Statements.adds additional disclosures. The Company early adopted this accounting standard as of October 1, 2017.2020 using the retrospective transition method. The adoption of this standard did not result in material changes to 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 or modifying certain existing disclosure requirements and adding additional disclosure requirements. The Company adopted this standard as of October 1, 2020. The adoption of this standard did not result in material changes to 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 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 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 assessing the impact the new guidance will have on its Condensed Consolidated Financial Statements have been applied retrospectively. AsStatements.
3. Contracts with Customers
Disaggregation of Revenue
The following tables provide the Company's disaggregated revenue for the periods presented:

Three months ended
December 31,
(In millions)20202019
Revenue:
Products & Solutions$266 $298 
Services477 419 
Unallocated Amounts
0 (2)
Total revenue$743 $715 

Three months ended December 31, 2020Three months ended December 31, 2019
(In millions)Products & SolutionsServicesUnallocatedTotalProducts & SolutionsServicesUnallocatedTotal
Revenue:
U.S.$126 $288 $0 $414 $149 $246 $(1)$394 
International:
Europe, Middle East and Africa92 103 0 195 93 94 (1)186 
Asia Pacific29 46 0 75 34 43 0 77 
Americas International - Canada and Latin America19 40 0 59 22 36 0 58 
Total International140 189 0 329 149 173 (1)321 
Total revenue$266 $477 $0 $743 $298 $419 $(2)$715 

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 December 31, 2020 was $2.5 billion, of which 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 result,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 Company reclassified $(6) million of other pension and post-retirement benefit costs to other income (expense), net forperiods presented:
(In millions)December 31, 2020September 30, 2020Increase (Decrease)
Accounts receivable, net$258 $275 $(17)
Contract assets, net:
Current$325 $296 $29 
Non-current (Other assets)75 71 4 
$400 $367 $33 
Cost of obtaining a contract:
Current (Contract costs)$94 $92 $2 
Non-current (Other assets)36 40 (4)
$130 $132 $(2)
Cost to fulfill a contract:
Current (Contract costs)$34 $23 $11 
Contract liabilities:
Current$408 $446 $(38)
Non-current362 373 (11)
$770 $819 $(49)
During the three months ended December 31, 2016 (Predecessor). For2020 and 2019, the period from December 16, 2017 throughCompany did not record any asset impairment charges related to contract assets. During the three months ended December 31, 2017 (Successor)2020 and 2019, the period fromCompany recognized revenue of $223 million and $251 million that had been previously recorded as a Contract liability as of October 1, 2017 through2020 and October 1, 2019, respectively. During the three months ended December 15, 2017 (Predecessor),31, 2020 and 2019, the Company recordedrecognized an increase (decrease) to revenue of $1 million and $(8)$(1) million, respectively, for performance obligations that were satisfied in prior periods.
Contract Costs
During the three months ended December 31, 2020, the Company recognized $44 million for amortization of costs to obtain customer contracts, of which $43 million was included within Selling, general and administrative expense and the remaining $1 million was recognized as a reduction to Revenue. During the three months ended December 31, 2019, the Company recognized $32 million for amortization of costs to obtain customer contracts all of which was included within Selling, general and administrative expense. During the three months ended December 31, 2020 and 2019, the Company recognized $4 million and $14 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 adoption1 1 1 3 
Adjustment to credit loss provision(2)0 0 (2)
Allowance for credit loss as of December 31, 2020$6 $1 $1 $8 
(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.
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4. Leases
The following table details the components of net lease expense for the periods indicated:
Three months ended December 31,
In millions20202019
Operating lease cost (1)
$16 $18 
Short-term lease cost (1)
1 2 
Variable lease cost (1)(2)
4 5 
Finance lease amortization of right-of-use assets (1)
1 1 
Sublease income (3)
0 (2)
Total lease cost$22 $24 
(1)Allocated between Cost of products and services, and Operating expenses.
(2)Includes real estate taxes and other pensioncharges for non-lease services payable to lessors and post-retirement benefit costsrecognized in otherthe period incurred.
(3)Included in Other income, (expense)net.

The Company's right-of-use assets and lease liabilities for financing leases are included in the Condensed Consolidated Balance Sheets as follows:
In millionsDecember 31, 2020September 30, 2020
ASSETS
Property, plant and equipment, net$12 $12 
LIABILITIES
Other current liabilities4 8
Other liabilities9 9
The following table summarizes the weighted average remaining lease term and weighted average interest rate for the Company's operating and financing leases for the periods indicated:
December 31, 2020September 30, 2020
Weighted average remaining lease term
Operating Leases4.6 years4.5 years
Financing Leases3.4 years2.7 years
Weighted average interest rate
Operating Leases5.9 %6.1 %
Financing Leases4.4 %5.4 %
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The following table presents the Company's annual maturity of lease payments for operating and financing leases as of December 31, 2020:
In millionsOperating LeasesFinancing Leases
Remaining nine months of 2021$44 $4 
202252 4 
202338 3 
202428 2 
202516 1 
202611 0 
2027 and thereafter16 0 
Total lease payments205 14 
Less: imputed interest(25)(1)
Total lease liability$180 $13 

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 ("ACO"), net.a new global unified communications as a service ("UCaaS") solution. The transaction closed on October 31, 2019 and ACO was launched on March 31, 2020.
Recent Standards Not Yet Effective
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” This standard supersedes mostAs part of the current revenue recognition guidance under GAAP and is intended to improve and converge with international standards the financial reporting requirements for revenue recognition. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. New disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required. Subsequently, the FASB issued several standards that clarified certain aspects of the standard but did not change the original standard. This new guidance is effective forstrategic partnership, the Company beginning in the first quarter of fiscal 2019. The ASU may be applied retrospectively (a) to each reporting period presented or (b) with the cumulative effect in retained earnings at the beginning of the adoption period.
We currently anticipate adoption of the new standard effective October 1, 2018 using the modified retrospective method whereby the cumulative effect is recorded to retained earnings at the beginning of the adoption period. Adoption of the standard is dependent on completion of a detailed accounting assessment, the success of the design and implementation phase for changes to the Company's processes, internal controls and system functionality and the completion of our analysis of information necessary to assess the overall impact of adoption of this guidance on our consolidated financial statements.
We continue to make progress on the accounting assessment and implementation phases to identify and implement the required changes to accounting policies and disclosures in our consolidated financial statements. We have reached preliminary conclusions on certain accounting assessments and we will continue to monitor and assess the impact of changes to the standard and interpretations as they become available. We expect revenue recognition related to our stand-alone product shipments and maintenance services to remain substantially unchanged. However, we continue to evaluate our preliminary conclusion and assess the impact on our other sources of revenue recognition.
4. Emergence from Voluntary Reorganization under Chapter 11 Proceedings
Plan of Reorganization
On November 28, 2017, the Bankruptcy CourtRingCentral also entered into an order confirming the Plan of Reorganization. On the Emergence Date, the Plan of Reorganization became effective and the Debtors emerged from bankruptcy.
On or following the Emergence Date and pursuant toagreement governing the terms of the Plancommercial arrangement between the parties (the "Framework Agreement"). 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 Reorganization,$361 million in shares of RingCentral common stock and $14 million in cash. During the following occurred:
Debtor-in-Possession Credit Agreement. three months ended December 31, 2019, the Company sold a significant portion of the RingCentral shares and realized a gain of $11 million. The Company paid in fullalso recorded an unrealized gain of $1 million for RingCentral shares retained by the debtor-in-possession credit agreement (the "DIP Credit Agreement")Company as of December 31, 2019. The realized and unrealized gains were recorded within Other income, net in the amountCondensed Consolidated Statements of $725 million;
Operations. The remaining RingCentral shares were sold by the Company by the end of fiscal 2020.
Predecessor EquityIn connection with the strategic partnership, the Company and Indebtedness. The Debtors' obligations under stock certificates, equity interests, and / or any other instrument or document directly or indirectly evidencing or creating any indebtedness or obligation of, or ownership interest in, the Debtors or giving rise to any claim or equity interest were cancelled, except as provided under the Plan of Reorganization;
Successor Equity. The Company's certificate of incorporation was amended and restated to authorize the issuance of 605.0 millionRingCentral entered into an investment agreement, whereby RingCentral purchased 125,000 shares of Successor Company stock, consisting of 55.0 million shares of preferred stock,the Company's Series A 3% Convertible Preferred Stock, par value $0.01 per share and 550.0 million shares of common stock, par value $0.01 per share, of which 110.0 million shares of common stock were issued (as discussed below);


Exit Financing. The Successor Company entered into (1) a term loan credit agreement ("the Term Loan Credit Agreement"(the "Series A Preferred Stock"), for a principal amount of $2,925 million maturing on December 15, 2024, and (2) a $300 million asset-based revolving credit facility (the "ABL Credit Agreement") maturing on December 15, 2022;
First Lien Debt Claims. All of the Predecessor Company's outstanding obligations under the variable rate term B-3, B-4, B-6, and B-7 loans and the 7% and 9% senior secured notes (collectively, the "Predecessor first lien obligations") were cancelled, and the holders of claims under the Predecessor first lien obligations received 99.3 million shares of Successor Company common stock. In addition, the holders of the Predecessor first lien obligations received cash in the amount of $2,061 million;
Second Lien Debt Claims. All the Predecessor Company's outstanding obligations under the 10.50% senior secured notes (the "Predecessor second lien obligations") were cancelled, and the holders of claims under the Predecessor second lien obligations received 4.4 million shares of Successor Company common stock. In addition, holders of the Predecessor second lien obligations received warrants toan aggregate purchase 5.6 million shares of Successor Company common stock at an exercise price of $25.55 per warrant (the "Warrants");
Claims of Pension Benefit Guaranty Corporation ("PBGC"). The Predecessor Company's outstanding obligations under the Avaya Inc. Pension Plan$125 million. See Note 15, "Capital Stock" for Salaried Employees ("APPSE") were terminated and transferred to the PBGC. The PBGC received 6.1 million shares of Successor Company common stock and $340 million in cash; and
General Unsecured Claims. Holders of the Predecessor Company's general unsecured claims will receive their pro rata share of the general unsecured recovery pool. A liquidating trust was established in the amount of $58 million for the benefit of the general unsecured claims. Included in the 110.0 million Successor Company common stock issued are 0.2 million additional shares of common stock that have been issued (but are not outstanding) for the benefit of the general unsecured creditors. The general unsecured creditors will receive a total of $58 million in cash and common stock. Any excess cash and / or common stock not distributed to the general unsecured creditors will be distributed to the holders of the Predecessor first lien obligations.
Section 363 Asset Sales
In July 2017, the Company sold its networking business ("Networking" or the "Networking business") to Extreme Networks, Inc. ("Extreme"). The Networking business was comprised primarily of certain assets of the Company's Networking segment (which prior to the sale was a separate operating segment), along with the maintenance and professional services of the Networking business, which were part of the AGS segment. Under a Transition Services Agreement ("TSA"), the Company provides administrative services to Extreme for process support, maintenance services and product logistics on a fee basis. While the TSA can expire sooner, the agreement terminates after 2 years.
5. Fresh Start Accounting
In connection with the Company's emergence from bankruptcy and in accordance with FASB Accounting Standards Codification ("ASC") 852, "Reorganizations" ("ASC 852"), the Company applied the provisions of fresh start accounting to its Condensed Consolidated Financial Statementsinformation on the Emergence Date. The Company was required to use fresh start accounting since (i) the holdersSeries A Preferred Stock.
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Table of existing voting shares of the Predecessor Company received less than 50% of the voting shares of the emerging entityContents

6. Goodwill, net and (ii) the reorganization value of the Company's assets immediately prior to confirmation of the Plan of Reorganization was less than the post-petition liabilities and allowed claims.Intangible Assets, net
ASC 852 prescribes that with the application of fresh start accounting, the Company allocated its reorganization value to its individual assets based on their estimated fair values in conformity with ASC 805, "Business Combinations". The reorganization value represents the fair value of the Successor Company's assets before considering liabilities. The excess reorganization value over the fair value of identified tangible and intangible assets is reported as goodwill. As a result of the application of fresh start accounting and the effects of the implementation of the Plan of Reorganization, the consolidated financial statements after December 15, 2017 are not comparable with the consolidated financial statements as of or prior to that date.Goodwill, net
Reorganization Value
As set forth in the Plan of Reorganization, the agreed upon enterprise value of the Company was $5,721 million. This value is within the initial range calculated by the Company of approximately $5,100 million to approximately $7,100 million using an income approach. The $5,721 million enterprise value was selected as it was the transaction price agreed to in the global settlement agreement with the Company’s creditor constituencies, including the PBGC. The reorganization value was then determined by adding back liabilities other than interest bearing debt, pension obligations and the deferred tax impact of the reorganization and fresh start adjustments.


The following table reconciles the enterprise value to the estimated fair value of the Successor stockholders' equity as of the Emergence Date:
(In millions, except per share amount) 
Enterprise value$5,721
Plus: 
Cash and cash equivalents340
Less: 
Minimum cash required for operations(120)
Fair value of Term Loan Credit Agreement(1)
(2,896)
Fair value of capitalized leases(20)
Fair value of pension and other post-retirement obligations, net of tax(2)
(856)
Change in net deferred tax liabilities from reorganization(510)
Fair value of Successor warrants(3) 
(17)
Fair value of Successor common stock$1,642
Shares issued at December 15, 2017110.0
Per share value$14.93
(1)
The fair value of the Term Loan Credit Agreement was determined based on a market approach utilizing market-clearing data on the valuation date in addition to bid/ask prices and was estimated to be 99% of par value.
(2)
The following assumptions were used when measuring the fair value of the U.S. pension, non-U.S. pension, and post-retirement benefit plans: weighted-average return on assets of 7.75%, 3.80% and 5.90%, and weighted-average discount rate to measure plan obligations of 3.70%, 1.52% and 3.77%, respectively.
(3)
The fair value of the Warrants was estimated using the Black-Scholes pricing model.
The following table reconciles the enterprise value to the estimated reorganization value as of the Emergence Date:
(In millions) 
Enterprise value$5,721
Plus: 
Non-debt current liabilities955
Non-debt non-current liabilities2,090
Excess cash and cash equivalents220
Less: 
Pension and other post-retirement obligations, net of deferred taxes(856)
Capital lease obligations(20)
Change in net deferred tax liabilities from reorganization(510)
Warrants issued upon emergence(17)
Reorganization value of Successor assets$7,583
Consolidated Balance Sheet
The adjustments set forth in the following consolidated balance sheet as of December 15, 2017 reflect the effect of the consummation of the transactions contemplated by the Plan of Reorganization (reflected in the column "Reorganization Adjustments") as well as fair value adjustments as a result of applying fresh start accounting (reflected in the column "Fresh Start Adjustments"). The explanatory notes highlight methods used to determine fair values or other amounts of the assets and liabilities, as well as significant assumptions or inputs.


(In millions)Predecessor Company Reorganization Adjustments   Fresh Start Adjustments   Successor Company December 15, 2017
ASSETS           
Current assets:           
Cash and cash equivalents$744
 $(404) (1) $—
   $340
Accounts receivable, net523
 —
   (106) (21,29) 417
Inventory98
 —
   29
 (22) 127
Other current assets366
 (58) (2) (66) (23) 242
TOTAL CURRENT ASSETS1,731
 (462)   (143)   1,126
Property, plant and equipment, net194
 —
   116
 (24) 310
Deferred income taxes, net—
 48
 (3) (17) (25) 31
Intangible assets, net298
 —
   3,137
 (26) 3,435
Goodwill3,541
 —
   (909) (27) 2,632
Other assets70
 6
 (4) (27) (28) 49
TOTAL ASSETS$5,834
 $(408)   $2,157
   $7,583
LIABILITIES           
Current liabilities:           
Debt maturing within one year$725
 $(696) (5) $—
   $29
Accounts payable325
 (49) (6) —
   276
Payroll and benefit obligations123
 23
 (7) —
   146
Deferred revenue627
 50
 (8) (341) (29) 336
Business restructuring reserve35
 3
 (9) —
   38
Other current liabilities97
 65
 (6,10) (3) (30) 159
TOTAL CURRENT LIABILITIES1,932
 (604)   (344)   984
Non-current liabilities:           
Long-term debt, net of current portion—
 2,771
 (11) 96
 (31) 2,867
Pension obligations539
 246
 (12) —
   785
Other post-retirement obligations—
 212
 (13) —
   212
Deferred income taxes, net28
 113
 (14) 548
 (32) 689
Business restructuring reserve26
 4
 (9) 4
 (33) 34
Other liabilities180
 233
 (8,15) (43) (29,34) 370
TOTAL NON-CURRENT LIABILITIES773
 3,579
   605
   4,957
LIABILITIES SUBJECT TO COMPROMISE7,585
 (7,585) (16) —
   —
TOTAL LIABILITIES10,290
 (4,610)   261
   5,941
Commitments and contingencies           
Equity awards on redeemable shares6
 (6) (17) —
   —
Preferred stock:           
Series B397
 (397) (17) —
   —
Series A186
 (186) (17) —
   —
STOCKHOLDERS' (DEFICIT) EQUITY           
Common stock (Successor)—
 1
 (18) —
   1
Additional paid-in capital (Successor)—
 1,641
 (18) —
   1,641
Common stock (Predecessor)—
 —
   —
   —
Additional paid-in capital (Predecessor)2,387
 (2,387) (17) —
   —
(Accumulated deficit) retained earnings(5,978) 4,872
 (19) 1,106
 (36) —
Accumulated other comprehensive (loss) income(1,454) 664
 (20) 790
 (35) —
TOTAL STOCKHOLDERS' (DEFICIT) EQUITY(5,045) 4,791
   1,896
   1,642
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY$5,834
 $(408)   $2,157
   $7,583


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



10.Other Current Liabilities.
(In millions) 
Reclassification of accrued bankruptcy related professional fees$50
Reinstatement of other current liabilities16
Payment of accrued interest on the DIP Credit Agreement(1)
Total other current liabilities$65
11.Exit Financing. In accordance with the Plan of Reorganization, the Company entered into the Term Loan Credit Agreement with a principal amount of $2,925 million maturing seven years from the date of issuance, and the ABL Credit Agreement, which allows borrowings up to an aggregate principal amount of $300 million, subject to borrowing base availability, maturing five years from the date of issuance.
(In millions) 
Term Loan Credit Agreement$2,925
Less: 
Discount(29)
Upfront and underwriting fees(54)
Cash received upon emergence from bankruptcy2,842
Reclassification of debt issuance cost incurred prior to emergence from bankruptcy(42)
Current portion of Long-term debt(29)
Long-term debt, net of current portion$2,771
12.
Pension Obligations. In accordance with the Plan of Reorganization, the Company reinstated from liabilities subject to compromise $295 million related to the Avaya Pension Plan for represented employees and also contributed $49 million to the related pension trust.
13.
Other Post-retirement Obligations. Other post-retirement benefit obligations of $212 million were reinstated from liabilities subject to compromise.
14.
Deferred Income Taxes. The adjustment represents the reinstatement of the deferred tax liability that was included in liabilities subject to compromise.
15.
Other Liabilities. The increase of $233 million primarily relates to the reinstatement of employee benefits, tax liabilities and deferred revenue from liabilities subject to compromise. Also included is the value of the Warrants issued to the holders of the Predecessor second lien obligations on the Emergence Date.


16.Liabilities Subject to Compromise. Liabilities subject to compromise were reinstated or settled as follows in accordance with the Plan of Reorganization:
(In millions)   
Liabilities subject to compromise  $7,585
Less amounts settled per the Plan of Reorganization   
Pre-petition first lien debt  (4,281)
Pre-petition second lien debt  (1,440)
Avaya Pension Plan for Salaried Employees  (620)
Amounts reinstated:   
Accounts payable(4)  
Payroll and benefit obligations(23)  
Deferred revenue(50)  
Business restructuring reserves(7)  
Other current liabilities(16)  
Pension obligations(295)  
Other post-retirement obligations(212)  
Deferred income taxes, net(118)  
Other liabilities(216)  
Total liabilities reinstated at emergence  (941)
General unsecured credit claims(1)
  (303)
Liabilities subject to compromise  $—
(1) In settlement of allowed general unsecured claims, each claimant will receive a pro-rata distribution of $58 million of the general unsecured claims account.
The following table displays the detail on the gain on settlement of liabilities subject to compromise:
(In millions) 
Pre-petition first lien debt$734
Pre-petition second lien debt1,357
Avaya pension plan for salaried employees(514)
General unsecured creditors' claims227
Net gain on settlement of Liabilities subject to compromise$1,804
17.
Cancellation of Predecessor Preferred and Common Stock. All common stock, Series A and B preferred stock and all other equity awards of the Predecessor Company were cancelled on the Emergence Date without any recovery on account thereof.
18.
Issuance of Successor Common Stock and Warrants. In settlement of the Company's $5,721 million Predecessor first lien obligations and Predecessor second lien obligations, the holders of the Predecessor first lien obligations received a total of 99.3 million shares of common stock (fair value of $1,486 million) and $2,061 million in cash and the holders of the Predecessor second lien obligations received a total of 4.4 million shares of common stock (fair value of $66 million) and 5.6 million of Warrants to purchase additional common shares (fair value of $17 million). In addition, as part of the Plan of Reorganization, the Company completed a distressed termination of the APPSE in accordance with the Stipulation Settlement with the PBGC, the PBGC received $340 million in cash and 6.1 million shares of common stock (fair value of $90 million).


19.Accumulated Deficit.
(In millions) 
Accumulated deficit: 
Net gain on settlement of liabilities subject to compromise$1,804
Expense for certain professional fees(26)
Benefit from income taxes118
Cancellation of Predecessor equity awards6
Cancellation of Predecessor Preferred stock Series B397
Cancellation of Predecessor Preferred stock Series A186
Cancellation of Predecessor Common stock2,387
Total$4,872
20.
Accumulated Comprehensive Loss. The changes to Accumulated comprehensive loss relate to the settlement of the APPSE and the Avaya Supplemental Pension Plan ("ASPP") and the associated taxes.
Fresh Start Adjustments
At the Emergence Date, the Company met the requirements under ASC 852 for fresh start accounting as (i) the holders of existing voting shares of the Predecessor Company received less than 50% of the voting shares of the emerging entity and (ii) the reorganization value of the Company's assets immediately prior to confirmation was less than the post-petition liabilities and allowed claims. These adjustments reflect actual amounts recorded as of the Emergence Date.
21.
Accounts Receivable. This adjustment relates to a change in accounting policy for the way the Company will present uncollected deferred revenue upon emergence from bankruptcy. The Company will offset such deferred revenue against the related account receivable.
22.
Inventory. This adjustment relates to the write-up of inventory to fair value based on estimated selling prices, less costs of disposal.
23.
Other Current Assets. This adjustment reflects the write-off of certain prepaid commissions, deferred installation costs and debt issuance costs that do not meet the definition of an asset upon emergence.
24.
Property, Plant and Equipment. An adjustment of $116 million was recorded to increase the net book value of property, plant and equipment to its estimated fair value based on estimated current acquisition price, plus costs to make the property fully operational.
The following table reflects the components of property, plant and equipment, net as of December 15, 2017:
(In millions) 
Buildings and improvements$82
Machinery and equipment38
Rental equipment85
Assets under construction13
Internal use software92
Total property, plant and equipment310
Less: accumulated depreciation and amortization—
Property, plant and equipment, net$310
25.
Deferred Income Tax.The adjustment represents the release of the valuation allowance on deferred tax assets for certain non-U.S. subsidiaries which management believes more likely than not will be realized as a result of future taxable income from the reversal of deferred tax liabilities that were established as part of fresh start accounting.


26.
Intangible Assets. The Company recorded an adjustment to intangible assets for $3,137 million as follows:
(In millions)Successor  Predecessor  
 December 15, 2017 Post-emergence  December 15, 2017 Pre-emergence Difference
Customer relationships and other intangible assets$2,155
  $96
 $2,059
Technology and patents905
  12
 893
Trademarks and trade names375
  190
 185
Total$3,435
  $298
 $3,137
The fair value of customer relationships was determined using the excess earnings method, a derivation of the income approach that calculates residual profit attributable to an asset after proper returns are paid to complementary or contributory assets.
The fair value of technology and patents and trademarks and trade names determined using the royalty savings method, a derivation of the income approach that estimates the royalties saved through ownership of the assets.
27.Goodwill. Predecessor goodwill of $3,541 million was eliminated and Successor goodwill of $2,632 million was established based on the calculated reorganization value.
(In millions) 
Reorganization value of Successor Company$7,583
Less: Fair value of Successor Company assets(4,951)
Reorganization value of Successor Company assets in excess of fair value - goodwill$2,632
28.
Other Assets. The $27 million decrease to other assets is related to prepaid commissions that do not meet the definition of an asset upon emergence as there is no future benefit to the Successor Company.
29.
Deferred Revenue. The fair value of deferred revenue, which principally relates to payments on annual maintenance contracts, was determined by deducting selling costs and associated profit from the Predecessor deferred revenue balance to arrive at the costs and profit associated with fulfilling the liability. Additionally, the decrease includes the impact of an accounting policy change whereby the Successor Company no longer presents uncollected deferred revenue.
30.
Other Current Liabilities. The decrease of $3 million to other current liabilities is related to the fair value of real estate leases determined to be above or below market using the income approach based on the difference between the contractual rental rate and the estimated market rental rate, discounted utilizing a risk-related discount rate.
31.
Long-term Debt. The fair value of the Term Loan Credit Agreement was determined based on a market approach utilizing market-clearing data on the valuation date in addition to bid/ask prices.
32.
Deferred Income Taxes. The adjustment represents the establishment of deferred tax liabilities related to book/tax differences created by fresh start accounting adjustments. The amount is net of the release of the valuation allowance on deferred tax assets, which management believes more likely than not will be realized as a result of future taxable income from the reversal of such deferred tax liabilities.
33.
Business Restructuring Reserve. The Company recorded an increase to its non-current business restructuring reserves based on estimated future cash flows applied to a current discount rate at emergence.
34.
Other Liabilities. A decrease in other liabilities of $43 million relates to deferred revenue and real estate leases as previously discussed.
35.
Accumulated Other Comprehensive Loss. The remaining balance in Accumulated comprehensive loss was reversed to Reorganization expenses, net.
36.
Fresh Start Adjustments. The following table reflects the cumulative impact of the fresh start adjustments as discussed above, the elimination of the Predecessor Company's accumulated other comprehensive loss and the adjustments required to eliminate accumulated deficit.


(In millions)    
Eliminate Predecessor Intangible assets$(298)   
Eliminate Predecessor Goodwill(3,541)   
Establish Successor Intangible assets3,435
   
Establish Successor Goodwill2,632
   
Fair value adjustment to Inventory29
   
Fair value adjustment to Other current assets(66)   
Fair value adjustment to Property, plant and equipment116
   
Fair value adjustment to Other assets(27)   
Fair value adjustment to Deferred revenue235
   
Fair value adjustment to Business restructuring reserves(4)   
Fair value adjustment to Other current liabilities3
   
Fair value adjustment to Long-term debt(96)   
Fair value adjustment to Other liabilities43
   
Release Predecessor Accumulated comprehensive loss(790)   
Fresh start adjustments included in Reorganization items, net   $1,671
Tax impact of fresh start adjustments   (565)
Gain on fresh start accounting   $1,106
6.Goodwill and Intangible Assets
Goodwill
Goodwill is not amortized but is subject to periodic testing for impairment in accordance with GAAP at the reporting unit level, which is one level below the Company’s operating segments.level. The Company performsCompany'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 determined that no events occurred or circumstances changed during the period from December 16, 2017 throughthree months ended December 31, 2017 (Successor) and the period from October 1, 2017 through December 15, 2017 (Predecessor)2020 that would indicate that it is more likely than not reducethat its goodwill was impaired. To the fair value of any of the Company's reporting units below their respective carrying amounts. However, ifextent that business conditions deteriorate or there is a changeif changes in the business,key assumptions and estimates differ significantly from management's expectations, it may be necessary to record impairment charges in the future.
The Company adjusted the carrying value of goodwill upon application of fresh start accounting.Intangible Assets, net
The carrying valueCompany's intangible assets consist of goodwill by operating segmentsthe following for the periods indicated was as follows:indicated:
(In millions)
Technology
and Patents		Customer
Relationships
and Other
Intangibles		Trademarks and Trade NamesTotal
Balance as of December 31, 2020
Finite-lived intangible assets:
Cost$964 $2,155 $42 $3,161 
Accumulated amortization(527)(472)(19)(1,018)
Finite-lived intangible assets, net437 1,683 23 2,143 
Indefinite-lived intangible assets:
Cost0 0 333 333 
Accumulated impairment0 0 0 0 
Indefinite-lived intangible assets, net0 0 333 333 
Intangible assets, net$437 $1,683 $356 $2,476 
Balance as of September 30, 2020
Finite-lived intangible assets:
Cost$961 $2,153 $42 $3,156 
Accumulated amortization(482)(433)(18)(933)
Finite-lived intangible assets, net479 1,720 24 2,223 
Indefinite-lived intangible assets:
Cost0 0 333 333 
Accumulated impairment0 0 0 0 
Indefinite-lived intangible assets, net0 0 333 333 
Intangible assets, net$479 $1,720 $357 $2,556 
(In millions)
Global
Communications
Solutions
 Avaya Global Services Total
September 30, 2017 (Predecessor)$1,093
 $2,449
 $3,542
Adjustments(1) —
 (1)
Impact of fresh start accounting68
 (977) (909)
December 15, 2017 (Predecessor)$1,160
 $1,472
 $2,632
      
      
December 31, 2017 (Successor)$1,160
 $1,472
 $2,632
Intangible Assets
Intangible assets include technology, customer relationships, trademarks and trade-names and other intangibles. Intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from three years to twenty years.
Long-lived assets, including intangibleassets. Intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.


Intangible assets determined to have indefinite useful lives are not amortized. The Company performsamortized but are tested for impairment testing annually, on July 1st, or more frequently if events occur or changes in circumstances change that indicate that it is more likely than not that thean asset ismay be impaired. The Avaya trade name is expected to generate cash flow indefinitely. Consequently, this asset is classified as an indefinite-lived intangible.
The Company determined that no events had occurred or circumstances changed during the period from December 16, 2017 throughthree months ended December 31, 2017 (Successor) and the period from October 1, 2017 through December 15, 2017 (Predecessor)2020 that would indicate that its long-lived assets, includingfinite-lived intangible assets with finite lives, may not be recoverable or that it is more likely than not that its indefinite-lived intangible assets with indefinite lives arewere impaired. However, ifTo the extent that business conditions deteriorate or there is a changeif changes in the business,key assumptions and estimates differ significantly from management's expectations, it may be necessary to record impairment charges in the future.
The Company adjusted the carrying value
7. Supplementary Financial Information

12
Table of intangible assets upon application of fresh start accounting.Contents

The gross carrying amount and accumulated amortization by major intangible asset category asfollowing table presents a summary of December 31, 2017 (Successor) and September 30, 2017 (Predecessor) were as follows:
 Successor
 As of December 31, 2017
(In millions)Technology and patents Customer relationships and other intangibles Trademarks
and trade
names		 Total
Gross Carrying Amount$905
 $2,155
 $375
 $3,435
Accumulated Amortization(7) (7) —
 (14)
Net$898
 $2,148
 $375
 $3,421
        
        
 Predecessor
 As of September 30, 2017
(In millions)Technology and patents Customer relationships and other intangibles Trademarks
and trade
names		 Total
Gross Carrying Amount$1,427
 $2,196
 $545
 $4,168
Accumulated Amortization(1,411) (2,091) —
 (3,502)
Accumulated Impairment—
 —
 (355) (355)
Net$16
 $105
 $190
 $311
Amortization expense related to intangible assets was $14 million, $13 million and $62 millionOther income, net for the period from December 16, 2017 through December 31, 2017 (Successor), the period from October 1, 2017 through December 15, 2017 (Predecessor) andperiods indicated:
Three months ended
December 31,
(In millions)20202019
OTHER INCOME, NET
Interest income$0 $3 
Foreign currency losses, net(2)(4)
Gain on investments in equity securities0 12 
Other pension and post-retirement benefit credits, net7 5 
Change in fair value of emergence date warrants(5)(3)
Sublease income0 2 
Other, net0 (1)
Total other income, net$0 $14 
The gain on investments in equity securities for the three months ended December 31, 2016 (Predecessor), respectively.2019 reflects gains on shares of RingCentral common stock as further described in Note 5, "Strategic Partnership."
The technology and patents have useful lives that range between 3 years and 10 years with a weighted average remaining useful life of 5.7 years. Customer relationships have useful lives that range between 7 years and 20 years with a weighted average useful life of 14.5 years. Amortizable product trade names have useful lives of 10 years. The Avaya trade name is expected to generatefollowing table presents supplemental cash flows indefinitely and, consequently, this asset is classified as an indefinite-lived intangible.
Future amortization expense related to intangible assets as of December 31, 2017 are as follows:
(In millions) 
Remainder of fiscal 2018$247
2019326
2020326
2021325
2022298
2023 and thereafter1,566
Total$3,088


7.Supplementary Financial Information
Supplemental Operations Information
A summary of other (expense) income, netflow information for the periods indicated is presented inpresented:
Three months ended
December 31,
(In millions)20202019
OTHER PAYMENTS
Interest payments$33 $58 
Income tax payments3 12 
NON-CASH INVESTING ACTIVITIES
Decrease in Accounts payable for Capital expenditures$(1)$(5)
Acquisition of equipment under finance leases2 0 
During the following table:
  
Successor  Predecessor
(In millions)Period from December 16, 2017 through December 31, 2017  Period from October 1, 2017 through December 15, 2017 Three months ended December 31, 2016
OTHER (EXPENSE) INCOME, NET      
Interest income$—
  $2
 $—
Foreign currency gains, net2
  —
 11
Income from transition services agreement, net—
  3
 —
Other pension and post-retirement benefit costs1
  (8) (6)
Change in fair value of the warrant liability(5)  —
 —
Other, net—
  1
 (1)
Total other (expense) income, net$(2)  $(2) $4
A summary of reorganization items, net forthree months ended December 31, 2020 and 2019, the periods indicated is presented in the following table:
  
Successor  Predecessor
(In millions)Period from December 16, 2017 through December 31, 2017  Period from October 1, 2017 through December 15, 2017 Three months ended December 31, 2016
REORGANIZATION ITEMS, NET      
Bankruptcy-related professional fees$—
  $(56) $—
Net gain on settlement of liabilities subject to compromise—
  1,804
 —
Net gain on fresh start adjustments—
  1,671
 —
Other items, net—
  (3) —
Reorganization items, net$—
  $3,416
 $—
Cash payments for reorganization items$1
  $2,524
 $—
Costs directly attributable to the implementation of the Plan of Reorganization were reported as reorganization items, net. The cashCompany made payments for reorganization items for the period from October 1, 2017 through December 15, 2017 (Predecessor) included $2,468 millionoperating lease liabilities of claims paid related to liabilities subject to compromise and $56 million for bankruptcy-related professional fees, including emergence and success fees paid on the Emergence Date.
8.Business Restructuring Reserves and Programs
For the period from December 16, 2017 through December 31, 2017 (Successor) and the period from October 1, 2017 through December 15, 2017 (Predecessor), the Company recognized restructuring charges of $10$17 million and $14 million, respectively, including adjustmentsand recorded non-cash additions for operating lease right-of-use assets of $11 million and $9 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)December 31, 2020September 30, 2020December 31, 2019September 30, 2019
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
Cash and cash equivalents$750 $727 $766 $752 
Restricted cash included in other assets5 4 4 4 
Total cash, cash equivalents, and restricted cash$755 $731 $770 $756 

8. Business Restructuring Reserves and Programs
The following table summarizes the restructuring charges by activity for the periods presented:
Three months ended
December 31,
(In millions)20202019
Employee separation costs$1 $0 
Facility exit costs3 3 
Total restructuring charges$4 $3 
13
Table of Contents

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 primarily consisting of the termination/buyout of leases. As the Company continues to evaluate opportunities to streamline its operations, it may identify cost savings globally and take additional restructuring actions in the future and the costs of those actions could be material.
Fiscal 2018 Restructuring Program
During the period from December 16, 2017 through December 31, 2017 (Successor) and the period from October 1, 2017 through December 15, 2017 (Predecessor), recognized restructuring charges for the fiscal 2018 restructuring program were foryears. The Company's employee separation costs associated with employeegenerally consist of severance actions primarily in the U.S. and Europe, Middle East and Africa ("EMEA"), primarily the U.K. and forcharges which the related payments are expected to be completed by the beginning of fiscal 2020. These actions include workforce reductions of 206 employees including 120 in the U.S. and 25 in EMEA. The separation charges 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 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.
The following table summarizes the components of the fiscal 2018 restructuring program for the period from December 16, 2017 through December 31, 2017 (Successor) and the period from October 1, 2017 through December 15, 2017 (Predecessor):
(In millions)Employee Separation Costs Lease Obligations Total
2018 restructuring charges$12
 $—
 $12
Cash payments(3) —
 (3)
Balance as of December 15, 2017 (Predecessor)$9
 $—
 $9
      
      
2018 restructuring charges(1)
$—
 $10
 $10
Cash payments(2) (10) (12)
Balance as of December 31, 2017 (Successor)$7
 $—
 $7
(1) Charges incurred in connection with the termination of the Santa Clara lease.
Fiscal 2017 Restructuring Program
During fiscal 2017, the Company identified opportunities to streamline operations and generate costs savings, which included eliminating employee positions. These obligations are primarilyactivity for employee separation costs associated withrecognized under the Company's restructuring programs for the three months ended December 31, 2020:
(In millions)
Fiscal 2021 Restructuring Program (1)
Fiscal 2020 Restructuring Program (2)
Fiscal 2008 through 2019 Restructuring Programs (3)
Total
Accrual balance as of September 30, 2020$0 $8 $41 $49 
Cash payments0 0 (5)(5)
Restructuring charges1 0 0 1 
Impact of foreign currency fluctuations0 0 2 2 
Accrual balance as of December 31, 2020$1 $8 $38 $47 
(1)Payments related to the fiscal 2017 employee severance actions in the U.S. and EMEA, for which the related payments2021 restructuring program are expected to be completed in fiscal 2023. The separation charges include, but are not limited2021.
(2)Payments related to pension fund payments and health care and unemployment insurance costs to be paid to or on behalf of the affected employees.
The following table summarizes the components of the fiscal 20172020 restructuring program for the period from December 16, 2017 through December 31, 2017 (Successor) and the period from October 1, 2017 through December 15, 2017 (Predecessor):
(In millions)Employee Separation Costs Lease Obligations Total
Balance as of September 30, 2017 (Predecessor)$4
 $1
 $5
Cash payments(1) (1) (2)
Balance as of December 15, 2017 (Predecessor)$3
 $—
 $3
      
      
Balance as of December 31, 2017 (Successor)$3
 $—
 $3
Fiscal 2008 through 2016 Restructuring Programs
During fiscal years 2008 through 2016, the Company identified opportunities to streamline operations and generate cost savings, which included eliminating employee positions and exiting facilities. The remaining obligations related to these restructuring programs are for employee severance costs are primarily associated with EMEA plans expected to be completed byin fiscal 2023.2027.
The following table aggregates the components of(3)Payments related to the fiscal 2008 through 20162019 restructuring programs for the period from December 16, 2017 through December 31, 2017 (Successor) and the period from October 1, 2017 through December 15, 2017 (Predecessor):are expected to be completed in fiscal 2026.
(In millions)Employee Separation Costs Lease Obligations Total
Balance as of September 30, 2017 (Predecessor)$51
 $24
 $75
Cash payments(3) (17) (20)
Expense1
 1
 2
Adjustments - fresh start and reorganization items$4
 $(1) $3
Balance as of December 15, 2017 (Predecessor)$53
 $7
 $60
      
      
Cash Payments(2) —
 (2)
Impact of foreign currency fluctuations2
 —
 2
Balance as of December 31, 2017 (Successor)$53
 $7
 $60
9. Financing Arrangements


9.Financing Arrangements
The following table reflects principal amounts of debt and debt net of discounts and issuance costs asfor the periods presented:
  
December 31, 2020September 30, 2020
(In millions)Principal amountNet of discounts and issuance costsPrincipal amountNet of discounts and issuance costs
Term Loan Credit Agreement due December 15, 2024 and 2027$1,643 $1,613 $1,643 $1,611 
Senior 6.125% Notes due September 15, 20281,000 984 1,000 984 
Convertible 2.25% Senior Notes due June 15, 2023350 296 350 291 
Total Long-term debt$2,993 $2,893 $2,993 $2,886 

Term Loan and ABL Credit Agreements
As of December 31, 2017 (Successor)2020 and principal amounts of debt and debt net of discounts and issuance costs as of September 30, 2017 (Predecessor), which includes2020, the impact of adequate protection payments and accrued interest as of January 19, 2017:
 Successor  Predecessor
 December 31, 2017  September 30, 2017
(In millions)Principal amount Net of discounts and issuance costs  Principal amount Net of discounts and issuance costs
Term Loan Credit Agreement$2,925
 $2,896
  $—
 $—
DIP Credit Agreement due January 19, 2018—
 —
  725
 725
First lien debt:        
     Senior secured term B-3 loans—
 —
  594
 594
     Senior secured term B-4 loans—
 —
  1
 1
     Senior secured term B-6 loans—
 —
  519
 519
     Senior secured term B-7 loans—
 —
  2,012
 2,012
     7% senior secured notes—
 —
  982
 982
     9% senior secured notes—
 —
  284
 284
Second lien debt:        
     10.50% senior secured notes—
 —
  1,440
 1,440
Total debt$2,925
 2,896
  $6,557
 6,557
Debt maturing within one year  (29)    (725)
Long-term debt, net of current portion(1)
  $2,867
    $5,832
(1) Pre-petition long-term debt as of September 30, 2017 (Predecessor) was included in liabilities subject to compromise.
On the Emergence Date:
1.the Successor Company entered into the Term Loan Credit Agreement and the ABL Credit Agreement;
2.the DIP Credit Agreement was paid in full;
3.the holders of the Predecessor first lien obligations received cash and Successor Company common stock (aggregate fair value of $3,547 million) and the Company cancelled $4,281 million of the Predecessor Company first lien obligations; and
4.the holders of the Predecessor second lien obligations received Successor Company common stock and Warrants to purchase common stock (aggregate fair value of $83 million) and the Company cancelled $1,440 million of the Predecessor Company second lien obligations.
Successor Financing
On the Emergence Date, Avaya Inc. entered intoCompany maintained (i) theits Term Loan Credit Agreement among Avaya Inc., as borrower, Avaya Holdings, the lending institutions from time to time party thereto, and Goldman Sachs Bank USA, as administrative agent and collateral agent which provided a $2,925 million term loan facility maturing on December 15, 2024(the “Term Loan Credit Agreement”), and (ii) theits ABL Credit Agreement, maturing on December 15, 2022, among Avaya Inc., as borrower, Avaya Holdings, the several other borrowers party thereto, the several lenders from time to time party thereto, and Citibank, N.A., as administrative agent and collateral agent, which providedprovides 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").The Term Loan Credit Agreement matures in two tranches, with a principal amount of $843 million maturing on December 15, 2024 and a principal amount of $800 million maturing on December 15, 2027. The ABL Credit Agreement together withmatures on September 25, 2025.
For the three months ended December 31, 2020 and 2019, the Company recognized interest expense of $20 million and $44 million, respectively, related to the Term Loan Credit Agreement, including the “Credit Agreements”). The Term Loan Credit Agreement, in the case of ABR Loans, bears interest at a rate per annum equal to 3.75% plus the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the U.S. prime rate as publicly announced in the Wall Street Journal and (iii) the LIBOR Rate for an interest period of one month and in the case of LIBOR Loans, bears interest at a rate per annum equal to 4.75% plus the applicable LIBOR Rate, subject to a 1% floor. The ABL Credit Agreement bears interest:
1.In the case of Base Rate Loans denominated in U.S. dollars, at a rate per annum equal to 0.75% (subject to a 0.25% step-up or step-down based on availability) plus the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the U.S. prime rate as publicly announced by Citibank, N.A. and (iii) the LIBOR Rate for an interest period of one month;    


2.In the case of LIBOR Rate Loans denominated in U.S. dollars, at a rate per annum equal to 1.75% (subject to a 0.25% step-up or step-down based on availability) plus the applicable LIBOR Rate;
3.In the case of Canadian Prime Rate Loans denominated in Canadian dollars, at a rate per annum equal to 0.75% (subject to a 0.25% step-up or step-down based on availability) plus the highest of (i) the “Base Rate” as publicly announced by Citibank, N.A., Canadian branch and (ii) the CDOR Rate for an interest period of 30 days;
4.In the case of CDOR Rate Loans denominated in Canadian dollars, at a rate per annum equal to 1.75% (subject to a 0.25% step-up or step-down based on availability) plus the applicable CDOR Rate;
5.In the case of LIBOR Rate Loans denominated in Sterling, at a rate per annum equal to 1.75% (subject to a 0.25% step-up or step-down based on availability) plus the applicable LIBOR Rate;
6.In the case of EURIBOR Rate Loans denominated in Euro, at a rate per annum equal to 1.75% (subject to a 0.25% step-up or step-down based on availability) plus the applicable LIBOR Rate; and
7.In the case of Overnight LIBOR Rate Loans, at a rate per annum equal to 1.75% (subject to a 0.25% step-up or step-down based on availability) plus the applicable Overnight LIBOR Rate.
The Credit Agreements limit, among other things, Avaya Inc.’s ability to (i) incur indebtedness, (ii) incur liens, (iii) dispose of assets, (iv) make investments, (v) make dividends, or conduct redemptions and repurchases of capital stock, (vi) prepay junior indebtedness or amend junior indebtedness documents, (vii) enter into restricted agreements, (viii) enter into transactions with affiliates and (ix) modify the terms of any of its organizational documents.
The Term Loan Credit Agreement does not contain any financial covenants. The ABL Credit Agreement does not contain any financial covenants other than a requirement to maintain a minimum fixed charge coverage ratio of 1:1 that becomes applicable only in the event that the net borrowing availability under the ABL Credit Agreement is less than the greater of $25 million and 10%amortization of the lesser of the total borrowing base and the ABL commitments (commonly known as the "line cap").debt discount.
As of December 31, 2017,2020, the Company was not in defaulthad no borrowings outstanding under any of its debt agreements.
the ABL Credit Agreement. Under the terms of the ABL Credit Agreement, the Company can issue letters of credit up to $150 million. At December 31, 2017,2020, the Company had issued and outstanding letters of credit and guarantees of $74 million.$41 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 $74$41 million of outstanding letters of credit and guarantees was $139$115 million at December 31, 2017.2020. For the three months ended December 31, 2020 and 2019, recognized interest expense related to the ABL Credit Agreement was not material.

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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.
For the three months ended December 31, 2020, the Company recognized interest expense of $16 million 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 the three months ended December 31, 2020 and 2019, the Company recognized interest expense of $7 million and $6 million related to the Convertible Notes, respectively, which includes $5 million and $4 million of amortization of the debt discount and issuance costs, respectively.
The net carrying amount of the Convertible Notes for the periods indicated was as follows:
(In millions)December 31, 2020September 30, 2020
Principal$350 $350 
Less:
Unamortized debt discount(50)(55)
Unamortized issuance costs(4)(4)
Net carrying amount$296 $291 
The weighted average contractual interest rate of the Company’sCompany's outstanding debt was 6.5% as of both December 31, 2020 and September 30, 2020, respectively. The effective interest rate for the Term Loan Credit Agreement as of December 31, 20172020 and September 30, 2020 was 6.2%.
Predecessor Financing
Debt Covenants and Default. not materially different than its contractual interest rate including adjustments related to interest rate swap agreements designated as highly effective cash flow hedges. The indentures governingeffective interest rate for the Predecessor senior secured notes contained a number of covenants that, among other things and subject to certain exceptions, restricted the ability of the Predecessor and certain of its subsidiaries to (a) incur or guarantee additional debt and issue or sell certain preferred stock, (b) pay dividends on, redeem or repurchase capital stock, (c) make certain acquisitions or investments, (d) incur or assume certain liens, (e) enter into transactions with affiliates, (f) merge or consolidate with another company, (g) transfer or otherwise dispose of assets, (h) redeem subordinated debt, (i) incur obligations that restricted the ability of the Company’s subsidiaries to pay dividends or make other payments to the Company, and (j) create or designate unrestricted subsidiaries. They also contained customary affirmative covenants and events of default.
The Bankruptcy Filing constituted an event of default that accelerated the Predecessor’s payment obligations under the senior secured credit agreements and the senior secured notes. As a result of the Bankruptcy Filing, the principal and interest due under the Predecessor’s debt agreements became due and payable. However, any efforts to enforce such payment obligations were automatically stayed as a result of the Bankruptcy Filing, and the creditors’ rights of enforcement were subject to the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. Consequently, all debt outstanding was classified as liabilities subject to compromise and all unamortized debt issuance costs and unaccreted debt discounts were expensed.
DIP Credit Agreement. In connection with the Bankruptcy Filing, on the Petition Date, the Predecessor entered into the DIP Credit Agreement, which provided a $725 million term loan facility due January 2018, and a cash collateralized letter of credit facility in an aggregate amount equal to $150 million. All letters of credit were cash collateralized in an amount equal to 101.5% of the face amount of such letters of credit denominated in U.S. dollars and 103% of the face amount of letters of credit denominated in alternative currencies. The DIP Credit Agreement, in the case of the Base Rate Loans, bore interest at a rate per annum equal to 6.5% plus the highest of (i) Citibank, N.A.’s prime rate, (ii) the Federal Funds Rate plus 0.5% and (iii) the Eurocurrency Rate for an interest period of one month, subject to a 2% floor, and in the case of the Eurocurrency Loans, bore interest at a rate per annum equal to 7.5% plus the applicable Eurocurrency Rate, subject to a 1% floor.


Capital Lease Obligations
Included in other liabilities is $22 million and $14 million of capital lease obligations, net of imputed interestSenior Notes as of December 31, 2017 (Successor)2020 and September 30, 2017 (Predecessor), respectively, and excluded amounts included in liabilities subject to compromise of $12 million2020 was not materially different than its contractual interest rate. The effective interest rate for the Convertible Notes was 9.2% as of December 31, 2020 and September 30, 2017.2020 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 December 31, 2020, 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, 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 "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. Through September 23, 2020, the total $1,800 million notional amount of the Original Swap Agreements were designated as cash flow hedges 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 an agreementthe Offsetting Swap Agreement to outsource certain delivery services associatedmaintain 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 the Avaya Private Cloud Services business. That agreementa notional amount of $257 million were also included the salede-designated from hedge accounting
15
Table of specified assets owned by the Company, which are being leased-back by the Company and accounted for as a capital lease.Contents

treatment. As of December 31, 2017 (Successor)2020, Original Swap Agreements with a 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 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 "Forward Swap Agreements") from December 15, 2022 (the maturity date of the Original Swap Agreements) through December 15, 2024. Under the terms of the Forward Swap Agreements, the Company will pay a fixed rate of 0.7047% and receive a variable rate of interest based on one-month LIBOR. The total notional amount of the Forward Swap Agreements is $1,400 million. Since their execution, the Forward Swap Agreements have been designated as cash flow hedges and deemed highly effective as defined by ASC 815.
The Company records changes in the fair value of interest rate swap agreements designated as cash flow hedges initially 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 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 December 31, 2020, approximately $50 million would be reclassified to Interest expense in the next twelve months.
It is management's intention that the net notional amount of interest rate swap agreements be less than the variable rate loans outstanding during the life of the derivatives.
Foreign Currency Forward Contracts
The Company, from time to time, utilizes foreign currency forward contracts primarily to hedge fluctuations associated with certain monetary assets and liabilities including receivables, payables and certain intercompany 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 December 31, 2020 and September 30, 2017 (Predecessor), capital lease obligations associated2020, the Company maintained open foreign currency forward contracts with this agreement were $21a total notional value of $369 million and $24$375 million, respectively, primarily hedging the British Pound Sterling, Chinese Renminbi, Euro and include $10 million within liabilities subject to compromise as of September 30, 2017.Indian Rupee.
Emergence Date Warrants
10.Derivative Warrant Liability
In accordance with the Planbankruptcy plan of Reorganization,reorganization adopted in connection with the Company's emergence from bankruptcy on the Emergence DateDecember 15, 2017 (the "Plan of Reorganization"), the Company issued Warrantswarrants to purchase 5,645,200 shares of Successorthe Company's common stock to the holders of the Predecessor second lien obligations extinguished pursuant to a warrant agreement (“Warrant Agreement”the Plan of Reorganization (the "Emergence Date Warrants"). Each Emergence Date Warrant has an exercise price of $25.55 per share and expires five years from the date of issuance. We account for derivative financial instruments in accordance with FASB ASC 815, "Derivatives and Hedging."on December 15, 2022. The Emergence Date Warrants contain certain derivative features that require the Warrantsthem to be classified as a liability and for changes in the fair value of the liability to be recognized in earnings each reporting period. The SuccessorOn November 14, 2018, the Company's Board of Directors approved a warrant repurchase program, authorizing the Company had no other derivative instruments atto repurchase up to $15 million worth of the Emergence Date Warrants. None of the Emergence Date Warrants have been exercised or repurchased as of December 31, 2017.2020.
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 Warrants, on the Emergence Date and atWarrants as of December 31, 2017,2020 and September 30, 2020 was determined by using the Black-Scholes option pricing model with the input assumptions summarized below. Accordingly, we recorded a loss of $5 million forbelow:
December 31,
2020		September 30, 2020
Expected volatility72.94 %68.53 %
Risk-free interest rates0.13 %0.14 %
Contractual remaining life (in years)1.962.21
Price per share of common stock$19.15$15.20
In determining the period from December 16, 2017 through December 31, 2017 (Successor) related to the change in fair value of the warrant liability. Emergence Date Warrants, the dividend yield was assumed to be zero as the Company does not anticipate paying dividends throughout the term of the warrants.

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Table of Contents

Financial Statement Information Related to Derivative Instruments
The following table summarizes the fair value loss was recognized in Other (expense) income, net inof 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:
December 31, 2020September 30, 2020
(In millions)Balance Sheet CaptionAssetLiabilityAssetLiability
Derivatives Designated as Hedging Instruments:
Interest rate contractsOther current liabilities$0 $43 $0 $43 
Interest rate contractsOther liabilities0 48 0 58 
0 91 0 101 
Derivatives Not Designated as Hedging Instruments:
Interest rate contractsOther current liabilities0 7 0 7 
Interest rate contractsOther liabilities0 7 0 9 
Foreign exchange contractsOther current assets2 0 1 0 
Foreign exchange contractsOther current liabilities0 1 0 2 
Emergence Date WarrantsOther liabilities0 13 0 8 
2 28 1 26 
Total derivative fair value$2 $119 $1 $127 
The following table provides information regarding the location and amount of pre-tax (losses) gains for interest rate swaps designated as cash flow hedges:
Three months ended
December 31,
20202019
(In millions)Interest ExpenseOther Comprehensive LossInterest ExpenseOther Comprehensive Loss
Financial Statement Line Item in which Cash Flow Hedges are Recorded$(56)$17 $(58)$10 
Impact of cash flow hedging relationships:
(Loss) gain recognized in AOCI on interest rate swaps0 (1)0 4 
Interest expense reclassified from AOCI(12)12 (5)5 
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The following table provides information regarding the pre-tax (losses) gains for derivatives not designated as hedging instruments on the Condensed Consolidated Statements of Operations.Operations:
Three months ended
December 31,
(In millions)Location of Derivative Pre-tax (Loss) Gain20202019
Emergence Date WarrantsOther income, net$(5)$(3)
Foreign exchange contractsOther income, net5 5 
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:
December 31, 2020September 30, 2020
(In millions)AssetLiabilityAssetLiability
Gross amounts recognized in the Condensed Consolidated Balance Sheets$2 $119 $1 $127 
Gross amount subject to offset in master netting arrangements not offset in the Condensed Consolidated Balance Sheets(2)(2)(1)(1)
Net amounts$0 $117 $0 $126 

11. Fair Value Measurements
 December 31, 2017 December 15, 2017
Expected volatility52.38% 54.57%
Risk free interest rates2.20% 2.20%
Expected life (in years)4.96
 5.00
Price per share of common stock$17.55 $14.93
    
Fair value of warrant liability$22 million $17 million
11.Fair Value Measures
Pursuant to the accounting guidance for fair value measurements, fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.Considerable judgment was required in developing certain of the estimates of fair value including the consideration of the COVID-19 pandemic 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’sinstrument'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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AssetAssets and Liabilities Measured at Fair Value on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis as of December 31, 2017 (Successor)2020 and September 30, 2017 (Predecessor)2020 were as follows:
 December 31, 2020September 30, 2020
 Fair Value Measurements UsingFair Value Measurements Using
(In millions)TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3
Assets:
Foreign exchange contracts$2 $0 $2 $0 $1 $0 $1 $0 
Total assets$2 $0 $2 $0 $1 $0 $1 $0 
Liabilities:
Interest rate contracts$105 $0 $105 $0 $117 $0 $117 $0 
Foreign exchange contracts1 0 1 0 2 0 2 0 
Emergence Date Warrants13 0 0 13 8 0 0 8 
Total liabilities$119 $0 $106 $13 $127 $0 $119 $8 
 Successor
 December 31, 2017
 Fair Value Measurements Using
(In millions)Total Level 1 Level 2 Level 3
Other Non-Current Assets:       
Investments$1
 $1
 $—
 $—
Other Non-Current Liabilities:       
Warrants$22
 $—
 $—
 $22
 Predecessor
 September 30, 2017
 Fair Value Measurements Using
(In millions)Total Level 1 Level 2 Level 3
Other Non-Current Assets:       
Investments$1
 $1
 $—
 $—
Investments
InvestmentsInterest rate and foreign exchange contracts classified as Level 12 assets and liabilities are pricednot actively traded and are valued using quoted market prices for identical assets in active marketspricing models that are observable.use observable inputs.
Warrants
Emergence Date Warrants classified as Level 3 liabilities are pricedvalued using thea probability weighted Black-Scholes option pricing model.model which is further described in Note 10, "Derivative Instruments and Hedging Activities."
During the three months ended December 31, 2020 and 2019, there were no transfers into or out of Level 3. The activity related to the Company's Level 3 liability, the Emergence Date Warrants, related to a change in fair value of the Warrants is recognizedwhich was recorded in Other (expense) income, net in the Condensed Consolidated Statements of Operations.net.
Fair Value of Financial Instruments
The estimated fair values of amounts borrowed under the Company’s financing arrangementsCompany's Term Loan Credit Agreement, Senior Notes and Convertible Notes at December 31, 2017 (Successor)2020 and September 30, 2017 (Predecessor)2020 were as follows:
December 31, 2020September 30, 2020
(In millions)Principal amountFair valuePrincipal amountFair value
Term Loan Credit Agreement due December 15, 2024 and 2027$1,643 $1,647 $1,643 $1,624 
Senior 6.125% Notes due September 15, 20281,000 1,068 1,000 1,022 
Convertible 2.25% Senior Notes due June 15, 2023350 363 350 331 
Total$2,993 $3,078 $2,993 $2,977 
The estimated based on afair value of the Term Loan Credit Agreement and Senior Notes was determined using Level 2 inputinputs based on a market approach utilizing market-clearing data on the valuation date in addition to bid/ask prices.
The estimated fair value of the Convertible Notes was determined based on the quoted price of the Convertible Notes in an inactive market on the last trading day of the reporting period and has been classified as Level 2.
The fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, to the amounts borrowed underextent the Company’s financing agreements at underlying liability will be settled in cash, approximate their carrying values because of the short-term nature of these instruments.
12. Income Taxes
The Company's effective income tax rate for the three months ended December 31, 2017 (Successor) and September 30, 2017 (Predecessor) are as follows:
 Successor  Predecessor
 December 31, 2017  September 30, 2017
(In millions)
Principal
Amount
 
Fair
Value
  
Principal
Amount
 
Fair
Value
Term Loan Credit Agreement due December 15, 2024$2,925
 $2,896
  $—
 $—
DIP Credit Agreement due January 19, 2018—
 —
  725
 732
Variable rate Term B-3 Loans due October 26, 2017—
 —
  594
 503
Variable rate Term B-4 Loans due October 26, 2017—
 —
  1
 1
Variable rate Term B-6 Loans due March 31, 2018—
 —
  519
 440
Variable rate Term B-7 Loans due May 29, 2020—
 —
  2,012
 1,709
7% senior secured notes due April 1, 2019—
 —
  982
 832
9% senior secured notes due April 1, 2019—
 —
  284
 241
10.50% senior secured notes due March 1, 2021—
 —
  1,440
 67
Total$2,925
 $2,896
  $6,557
 $4,525
The Company adjusted the carrying value of debt to fair value upon application of fresh start accounting.
12.Income Taxes


For the Predecessor period ended December 15, 2017, the difference between the Company’s recorded provision and the provision that would result2020 differed from applying the U.S. statutoryfederal tax rate of 35% is primarily attributable to: (1) income and losses taxed at different foreign tax rates, (2) lossesby 146% or $9 million principally related to deferred 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 unrecognizedand nondeductible expenses.
The Company's effective income tax positions, (5) U.S. state and local income taxes, and (6)rate for the impact of reorganization and fresh start adjustments.
For the Successor periodthree months ended December 31, 2017,2019 differed from the difference between the Company’s recorded benefit and the benefit that would result from applying the new U.S. statutoryfederal tax rate of 24.5%, is primarily attributable to: (1) income and losses taxed at different foreign tax rates, (2) lossesby (107)% or $(31) million principally related to deferred 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, and (6) the impactnondeductible expenses.
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Table of the Tax Cuts and Jobs Act (“the Act”), as more fully described below.Contents
For the three months ended December 31, 2016, the difference between the Company’s recorded provision and the benefit that would result from applying the U.S. statutory rate of 35% is primarily attributable to: (1) income and losses taxed at different foreign tax rates, (2) changes in the valuation allowance established against the Company’s deferred tax assets, and (3) current period changes to unrecognized tax positions.
Under the Plan of Reorganization a substantial amount of the Company’s debt was extinguished. Absent an exception, a debtor recognizes cancellation of indebtedness income (“CODI”) upon discharge of its outstanding indebtedness for an amount of consideration that is less than its adjusted issue price. The Internal Revenue Code of 1986, as amended, provides that a debtor in a bankruptcy case may exclude CODI from taxable income but must reduce certain of its tax attributes by the amount of any CODI recognized as a result of the consummation of a plan of reorganization. The amount of CODI recognized by a taxpayer is the adjusted issue price of any indebtedness discharged less the sum of (i) the amount of cash paid, (ii) the issue price of any new indebtedness issued and (iii) the fair market value of any other consideration, including equity, issued. The reduction in tax attributes does not occur until the first day of the Company’s first tax year subsequent to the date of emergence, which is October 1, 2018. The Company estimates that the U.S. federal net operating loss (“NOL”) and tax credits disclosed in its September 30, 2017 Condensed Consolidated Financial Statements and the tax loss generated during the September 30, 2018 tax year will be entirely eliminated on October 1, 2018. The Company estimates that $196 million of the tax loss generated during the Predecessor period ended December 15, 2017 will be absorbed by taxable income generated during the Successor period ending September 30, 2018. These estimates are subject to revision and any changes in the estimates will affect income or loss from continuing operations in the Successor period ending September 30, 2018.13. Benefit Obligations
Prior to September 30, 2017, a full valuation allowance was established in any jurisdiction that had a net deferred tax asset. A portion of the U.S. valuation allowance in the amount of $787 million was reversed as part of the reorganization adjustments as it was previously established against (i) the NOL and tax credits which will be eliminated as a result of the CODI rules and (ii) other deferred tax assets that were previously established for liabilities that were discharged in the Plan of Reorganization and eliminated as part of the reorganization adjustments. The valuation allowance in the amount of $47 million was reversed in certain non U.S. jurisdictions as part of the reorganization adjustments as management concluded it is more likely than not that the related deferred tax assets will be realized. The remaining U.S. valuation allowance in the amount of $461 million was reversed as part of the fresh start adjustments because management concluded it is more likely than not that the deferred tax assets will be realized primarily due to future sources of taxable income that will be generated by the reversal of deferred tax liabilities established in the fresh start adjustments.
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. Corporations with a fiscal year-end that is not a calendar year but includes January 1, 2018 are subject to a blended tax rate based on the number of days in the fiscal year before and after January 1, 2018. The Company has a September 30th tax year-end and therefore the U.S. federal tax rate for the year ending September 30, 2018 is 24.5%.
The SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) on December 22, 2017 which provided guidance to registrants on the accounting for tax related impacts under the Act.  The guidance provides a measurement period of up to one year after the enactment date for companies to complete the tax accounting implications of the Act.  As of the first quarter, the Company has provided a provisional estimate related to the revaluation of its deferred taxes and the deemed repatriation of unremitted foreign earnings. We will continue to refine our estimate, which could result in a material adjustment, given additional guidance under the Act, interpretations, available information and assumptions made by the Company.  As a fiscal year-end tax filer, we are subject to various provisions under the Act for fiscal year 2018, including the change to the U.S. federal statutory tax rate and the mandatory deemed repatriation of unremitted foreign earnings. Beginning in our 2019 fiscal year, various other newly enacted provisions will become effective, including provisions that may result in the current U.S. taxation of certain income earned by the Company’s foreign subsidiaries. The FASB has published guidance (Topic 740, No. 5), regarding how to account for the Global Intangible Low-Taxed Income (“GILTI”) provisions included in the Act. The guidance states th


at a company may make a policy decision with respect to the accounting for taxes related to GILTI and whether deferred taxes should be established. The Company estimates that it will generate income that may be taxed as GILTI beginning in fiscal 2019. On a provisional basis, no deferred taxes have been established for GILTI as of December 31, 2018.
The Company does not expect to incur a cash tax liability with respect to the one-time tax on foreign earnings due to historical foreign deficits. The Company previously established a deferred tax liability for non-U.S. withholding taxes to be incurred upon the remittance of foreign earnings. The Condensed Consolidated Financial Statements for the Predecessor and Successor periods include an adjustment for such withholding taxes attributable to current period earnings. In prior periods, the Company established a U.S. deferred income tax liability for certain foreign earnings under the assumption that such earnings would be remitted to the U.S. This deferred tax liability has been adjusted in the Successor period based on the taxation of such earnings under the Act.
A net deferred tax liability was established at the U.S. federal tax rates in effect on December 15, 2017 as part of fresh start accounting for U.S. book-to-tax differences. These deferred taxes are primarily related to differences arising from recording intangible and other assets at fair market value. As of the December 22, 2017 enactment date of the Act, deferred taxes were adjusted to reflect the new tax rates in effect as of the date the deferred tax amounts are expected to be realized.
The provisional amount of the reduction to the net deferred tax liability as a result of the ACT is $245 million and has been recorded as an income tax benefit from continuing operations in the Successor period.
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.
Effective January 25, 2018, the Company and the Communications Workers of America (“CWA”) and the International Brotherhood of Electrical Workers (“IBEW”), agreed to extend the 2009 Collective Bargaining Agreement (“CBA”), previously extended through June 14, 2018, until September 21, 2019. The contract extensions did not affect the Company’s obligation for pension and post-retirement benefits available to U.S. employees of the Company who are represented by the CWA or IBEW (“represented employees”).
In September 2015, the Company amended the post-retirement medical plan for represented retirees effective January 1, 2017, to replace medical coverage through the Company’s group plan for represented retirees who are retired as of October 15, 2015 and their eligible dependents, with medical coverage through the private and public insurance marketplace. The change allows the existing retirees to choose insurance from the marketplace and receive financial support from the Company toward the cost of coverage through a Health Reimbursement Arrangement ("HRA").
The components of the pension and post-retirement net periodic benefit (credit) cost (credit) for the periods indicated are provided in the tablestable below:
Three months ended
December 31,
(In millions)20202019
Pension Benefits - U.S.
Components of net periodic benefit credit
Service cost$1 $1 
Interest cost5 7 
Expected return on plan assets(13)(13)
Net periodic benefit credit$(7)$(5)
Pension Benefits - Non-U.S.
Components of net periodic benefit cost
Service cost$2 $2 
Interest cost1 1 
Net periodic benefit cost$3 $3 
Post-retirement Benefits - U.S.
Components of net periodic benefit cost
Interest cost$2 $3 
Expected return on plan assets(2)(3)
Amortization of prior service cost(1)0 
Amortization of actuarial gain1 0 
Net periodic benefit cost$0 $0 
 Successor  Predecessor
(In millions)Period from December 16, 2017 through December 31, 2017  Period from October 1, 2017 through December 15, 2017 Three months ended December 31, 2016
Pension Benefits - U.S.      
Components of Net Periodic Benefit Cost      
Service cost$—
  $1
 $1
Interest cost1
  22
 24
Expected return on plan assets(2)  (38) (45)
Amortization of previously unrecognized net actuarial loss—
  20
 26
Settlement loss(1)
—
  —
 —
Net periodic benefit cost$(1)  $5
 $6

(1) Excludes PlanThe service components of Reorganization related settlements discussed below thatnet periodic benefit (credit) cost were recorded similar to compensation expense, while all other components were recorded in Reorganization items, net in the Condensed Consolidated Statements of Operations.


 Successor  Predecessor
(In millions)Period from December 16, 2017 through December 31, 2017  Period from October 1, 2017 through December 15, 2017 Three months ended December 31, 2016
Pension Benefits - Non-U.S.      
Components of Net Periodic Benefit Cost      
Service cost$—
  $2
 $2
Interest cost—
  3
 2
Amortization of previously unrecognized net actuarial loss—
  1
 3
Net periodic benefit cost$—
  $6
 $7
 Successor  Predecessor
(In millions)Period from December 16, 2017 through December 31, 2017  Period from October 1, 2017 through December 15, 2017 Three months ended December 31, 2016
Post-retirement Benefits - U.S.      
Components of Net Periodic Benefit Cost      
Interest cost$—
  $3
 $3
Expected return on plan assets—
  (2) (2)
Amortization of unrecognized prior service cost—
  (3) (4)
Amortization of previously unrecognized net actuarial loss—
  2
 3
Curtailment—
  —
 (4)
Net periodic benefit cost$—
  $—
 $(4)
On December 15, 2017, the APPSE, a qualified pension plan, was settled with the PBGC. At that time, the Company and the PBGC executed a termination and trusteeship agreement to terminate the APPSE and to appoint the PBGC as the statutory trustee of the plan. The Company also paid settlement consideration to the PBGC consisting of $340 million in cash and 6.1 million shares of Successor Company common stock (fair value of $90 million). With this payment, any accrued but unpaid minimum funding contributions due were deemed to have been paid in full. As a result of the plan termination on December 15, 2017, the Company's projected benefit obligation and pension trust assets were reduced by $2,192 million and $1,573 million, respectively. Including the settlement consideration and $703 million of Accumulated other comprehensive loss recorded in the Condensed Consolidated Balance Sheet, a settlement loss of $514 million was recorded in Reorganization items, net in the Condensed Consolidated Statement of Operations.
On December 15, 2017, the unfunded ASPP, a non-qualified excess benefit pension plan, was also terminated and settled. Benefit liabilities for ASPP participants were included as allowed claims in the general unsecured recovery pool. Settlement consideration of $17 million in the form of allowed claims payable to ASPP participants was estimated based upon claims data as of the Emergence Date as amounts due to individual general unsecured creditors had not been finalized and paid. As a result of the termination, the Company's projected benefit obligation was reduced by $88 million. Including the settlement consideration and $18 million of Accumulated other comprehensive loss recorded in the Condensed Consolidated Balance Sheet, a settlement gain of $53 million was recorded in Reorganization items, net in the Condensed Consolidated Statements of Operations.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 lawslaw and regulations, or to directly pay benefits where appropriate. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law, providing limited relief for pension funding and retirement plan distributions. Under the CARES Act, employers were permitted to delay contributions for single employer defined benefit pension plans until January 4, 2021. As a result, of the Bankruptcy Filing in January 2017, there was an automatic stay on the Company'sCompany did not make any contributions to theits U.S. pension plans during the three months ended December 31, 2020. For the remainder of fiscal 2017. Therefore, the minimum funding requirements for the U.S. pension plans were not met during fiscal 2017.
The Plan of Reorganization included contributions to or settlements of all U.S. pension plans, which are the Avaya Pension Plan for Represented Employees ("APP"), the APPSE and the ASPP. On December 15, 2017,2021, the Company paid the aggregate unpaid required minimum funding for the APP, a qualified plan, of $49 million.
Remeasurement as a result of fresh start accounting increased the APP and other post-retirement benefit plan obligations by $3estimates that it will make contributions totaling $18 million on December 15, 2017.


The Company made no contributions to satisfy the minimum statutory funding requirements for its U.S. funded defined benefitqualified pension plans.
Contributions to the non-U.S. pension plans were $3 million for the period from December 16, 2017 throughthree months ended December 31, 2017 (Successor) and for the period from October 1, 2017 through December 15, 2017 (Predecessor), exclusive of the payments discussed above as part of the Plan of Reorganization for the APP and settlement consideration to the PBGC for the APPSE. Estimated payments to satisfy minimum statutory funding requirements for2020. For the remainder of fiscal 2018 are $43 million.
The Company provided pension benefits for U.S. employees, which were not pre-funded. Consequently,2021, the Company made payments asestimates that it will make contributions totaling $21 million for its non-U.S. plans.
Effective December 1, 2020, the benefits were disbursed or claims were paid. Forpost-retirement medical plan coverage provided through the period from December 16, 2017Company's group plan for retirees who retired after April 30, 2019 and their eligible dependents and future represented retirees and their eligible dependents was replaced with coverage through December 31, 2017 (Successor)the private and the period from October 1, 2017 through December 15, 2017 (Predecessor), the Company made payments forpublic insurance marketplace. As a result, the U.S. pension benefitsrepresented post-retirement plan was remeasured as of November 30, 2020, which resulted in eachthe recognition of the periods of amounts totaling less than $1 million.
The Company provides for certain pension benefits for non-U.S. employees, the majority of which are not pre-funded. The Company made payments for these non-U.S. pension benefits for the period from December 16, 2017 through December 31, 2017 (Successor) and the period from October 1, 2017 through December 15, 2017 (Predecessor) totaling $1a $12 million and $3 million, respectively. Estimated payments for these non-U.S. pension benefits for the remainder of fiscal 2018 are $24 million.
During the period from December 16, 2017 through December 31, 2017 (Successor), the Company was reimbursed $3 million from the represented employees’ post-retirement health trust for claims paid that exceeded the Company's obligations. During the period from October 1, 2017 through December 15, 2017 (Predecessor), the Company contributed $2 millionreduction to the represented employees’accumulated benefit obligation with an offset to the Accumulated other comprehensive loss within the Condensed Consolidated Balance Sheet. The decrease was mainly driven by the change in medical coverage, partially offset by changes in actuarial assumptions.
Most post-retirement health trust to fund current benefit claims and costs of administration in compliance with the terms of the CBA, as extended through September 21, 2019. Estimated payments under the terms of the 2009 agreement as extended are $12 million for the remainder of fiscal 2018.
The Company also provides certain retiree medical benefits for U.S. employees through an HRA, which are not pre-funded. Consequently, the Company makes payments directly to the claims administrator as these benefitsretiree medical benefit claims are disbursed. ForThese payments are funded by the periodCompany 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 December 16, 2017 throughthe participants, if required. During the three months ended December 31, 2017 (Successor) and the period from October 1, 2017 through December 15, 2017 (Predecessor),2020, the Company made payments in each of the periods totaling less than $1 million for these retiree medical benefits. Estimatedand dental benefits of $2 million and received a $2
20
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million reimbursement from the represented employees' post-retirement health trust related to payments in prior periods. The Company estimates it will make contributions for these retiree medical and dental benefits totaling $8 million for the remainder of fiscal 2018 are less than $1 million.2021.
14. Share-based Compensation
The Predecessor Company's common and preferred stock were cancelled and new common stock was issued on the Emergence Date. Accordingly, the Predecessor Company's then existingCompany maintains share-based compensation awards were also cancelled,plans under which resulted in the recognition of any previously unamortized expense on the date of cancellation. Share-based compensation for the Successor and Predecessor periods are not comparable.


Successor
Pursuant to terms of the Plan of Reorganization, the Avaya Holdings Corp. 2017 Equity Incentive Plan ("2017 Equity Incentive Plan") became effective on the Emergence Date.
The Successor Company's Board of Directors or any committee duly authorized thereby, will administer the 2017 Equity Incentive Plan. The administrator has broad authority to, among other things: (i) select participants; (ii) determine the types of awards that participants are to receive and the number of shares that are to be granted under such awards; and (iii) establish the terms and conditions of awards, including the price to be paid for the shares or the award.
Persons eligible to receive awards under the 2017 Equity Incentive Plan include non-employee directors, employees of the Successor Company or any of its affiliates, and certain consultants and advisors to the Successor Company or any of its affiliates. The types of awards that may be granted under the 2017 Equity Incentive Plan include stock options, restricted stock, restricted stock units ("RSUs"), performance awards ("PRSUs") and other forms of awards granted or denominated in shares of Successorthe Company's common stock, as well as certain cash-based awards.
The maximum number of shares of common stock that may be issued or granted under the 2017 Equity Incentive Plan is 7.4 million shares. If any option or other stock-based award granted under the 2017 Equity Incentive Plan expires, terminates or is cancelled for any reason without having been exercised in full, the number of shares of common stock underlying any unexercised award will again be available Pre-tax share-based compensation expense for the purpose of awards underthree months ended December 31, 2020 and 2019 was $14 million and $6 million, respectively.
Restricted Stock Units
During the 2017 Equity Incentive Plan. If any shares of restricted stock, performance awards or other stock-based awards denominated in shares of common stock awarded under the 2017 Equity Incentive Plan to a participant are forfeited for any reason, the number of forfeited shares of restricted stock, performance awards or other stock-based awards denominated in shares of common stock will again be available for purposes of awards under the 2017 Equity Incentive Plan. Any award under the 2017 Equity Incentive Plan settled in cash will not be counted against the foregoing maximum share limitations. Shares withheld bythree months ended December 31, 2020, the Company in satisfaction of the applicable exercise price or withholding taxes upon the issuance, vesting or settlement of awards, in each case, shall not be available for future issuance under the 2017 Equity Incentive Plan.
The aggregategranted 1,399,516 RSUs with a weighted average grant date fair value of all awards granted to any non-employee director during any calendar year (excluding awards made pursuant to deferred compensation arrangements made in lieu$19.61 per RSU and there were 299,465 RSUs that vested with a weighted average grant date fair value of all or a portion of cash retainers and any dividends payable in respect of outstanding awards) may not exceed $750,000.$15.40 per RSU.
OnPerformance Restricted Stock Units
During the Emergence Date,three months ended December 31, 2020, the Company granted 3.4 million restricted stock units620,924 PRSUs with a weighted average grant date fair value of $22.27 per PRSU. These PRSUs will vest based upon the attainment of specified performance metrics for each of the next three separate fiscal years (collectively the "Performance Period"), as well as the achievement of total shareholder return over the Performance Period for the Company as compared to the total shareholder return for a specified index of companies over the same period. During the Performance Period, the Company will adjust compensation expense for the PRSUs based on its best estimate of attainment of the specified annual performance metrics. The cumulative effect on current and 1.2 million stock options to executives and other employees. The awardsprior periods of a change in the estimated number of PRSUs that are subject to time based vesting. There are 2.8 million shares remaining under the 2017 Equity Incentive Plan availableexpected to be granted.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 premium-priced stock options granted on the Emergence DatePerformance PRSUs was determined using a lattice option pricingMonte Carlo simulation model withthat incorporated multiple valuation assumptions, including the probability of achieving the total shareholder return market condition and the following assumptions:assumptions presented on a weighted-average basis:
Three months ended
December 31, 2020
Expected volatility(1)
63.56 %
Risk-free interest rate(2)
0.20 %
Dividend yield(3)
0 %
Exercise price $19.46
Expected term (in years)(1)
 8.54
Volatility(2)
 65.37%
Risk-free rate(3)
 2.35%
Dividend yield(4)
 —%
(1)(1)Expected termvolatility based on the vesting terms of the option and a contractual life of ten years.Company's historical data.
(2)Volatility based on peer group companies adjusted for the Company's leverage.
(3)Risk-free interest rate based on U.S. Treasury yields with a term equal to the expected option term.remaining Performance Period as of the grant date.
(4)(3)Dividend yield was assumed to be zero as the Company does not anticipate paying dividends.
AtEmployee Stock Purchase Plan
During the three months ended December 31, 2017, all share-based awards granted by2020, the Successor Company were unvestedwithheld $4 million of eligible employee compensation for purchases of common stock and issued 251,394 shares of common stock under its employee stock purchase plan (the "ESPP").
The grant date fair value for shares issued under the related share-based compensation expense recordedESPP is measured on the date that each offering period commences. The grant date fair value for the offering period from December 16, 2017 throughthat commenced during the three months ended December 31, 2017 (Successor)2020 was $1 million.$4.80 per share. The grant date fair value was determined using a Black-Scholes option pricing model with the following assumptions:
Predecessor
Three months ended
December 31, 2020
Expected volatility(1)
54.25 %
Risk-free interest rate(2)
0.09 %
Dividend yield(3)
0 %
Prior(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 Emergence Date,length of the Predecessoroffering period.
(3)Dividend yield was assumed to be zero as the Company had granted share-based awards that were cancelled upon emergence from bankruptcy. In conjunction with the cancellation, the Predecessor Company accelerated the unrecognized share-based compensation expense and recorded $3 milliondoes not anticipate paying dividends.

21
Table of compensation expense in the period from October 1, 2017 through December 15, 2017.
Contents



15. Capital Stock
SuccessorPreferred Stock
Preferred Stock. The Successor Company's certificate of incorporation authorizes it to issue up to 55.0 million55,000,000 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 December 31, 2020, 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 declared. In the event the Company is liquidated or dissolved, the holders of the Series A Preferred Stock are entitled to receive an amount equal to the liquidation preference (which equals the then stated value plus any accrued and unpaid dividends) for each share of Series A Preferred Stock before any distribution is made to holders of the Company's common stock.
The Series A Preferred Stock are redeemable at the Company's election upon the termination of the Framework Agreement. In addition, the holders of the Series A Preferred Stock have certain rights to require the Company to redeem or put rights to require the Company to repurchase all or any portion of the Series A Preferred Stock. The holders can exercise such redemption rights, upon at least 21 days' notice, after the termination of the Framework Agreement or upon the occurrence of certain events. If and to the extent the redemption right is exercised, the Company would be required to purchase each share of Series A Preferred Stock at the per share price equal to the stated value of the Series A Preferred Stock which will be increased by the sum of any dividends on such shares that have accrued and have been paid in kind, plus all accrued but unpaid dividends. Given that the holders of the Series A Preferred Stock may require the Company to redeem all or a portion of its shares, the Series A Preferred Stock is classified in the mezzanine section of the Condensed Consolidated Balance Sheets between Total liabilities and Stockholders' equity. As of December 31, 2017,2020, the carrying value of the Series A Preferred Stock was $129 million, which includes $4 million of accreted dividends paid in kind. During both the three months ended December 31, 2020 and 2019, the carrying value of the Series A Preferred Stock increased $1 million due to accreted dividends paid in kind each period.
In connection with the issuance of the Series A Preferred Stock, the Company granted RingCentral certain customary consent rights with respect to certain actions by the Company, including amending the Company's organizational documents in a manner that would have an adverse effect on the Series A Preferred Stock and issuing securities that are senior to, or equal in priority with, the Series A Preferred Stock. In addition, pursuant to an Investor Rights Agreement, until such time when RingCentral and its affiliates hold or beneficially own less than 4,759,339 shares of the Company's common stock (on an as-converted basis), RingCentral has the right to nominate one person for election to the Company's Board of Directors. The director designated by RingCentral has the option (i) to serve on the Company's Audit and Nominating and Corporate Governance Committees or (ii) to attend (but not vote at) all of the Company's Board of Directors' committee meetings. On November 6, 2020, Robert Theis was elected to join the Company's Board of Directors as RingCentral's designee.
As of December 31, 2020 and September 30, 2020, there were no125,000 shares of preferred shares issued orstock outstanding.
Common Stock. Stock
The Successor Company's certificate of incorporation authorizes it to issue up to 550.0 million550,000,000 shares of common stock with a par value of $0.01 per share. As of December 31, 2017,2020 and September 30, 2020, there were 110.0 million83,781,354 and 83,278,383 shares issued and 109.8 million outstanding. outstanding, respectively.
The outstanding sharesCompany maintains a warrant repurchase program that authorizes the Company to repurchase Emergence Date Warrants for an aggregate expenditure of up to $15 million. The repurchases may be made from time to time in the open market, through block trades or in privately negotiated transactions. The Company may adopt one or more purchase plans pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, in order to implement the warrant repurchase program. The warrant repurchase program does not obligate the Company to purchase any warrants and may be terminated, increased or decreased by the Board of Directors in its discretion at any time. As of December 31, 2020, there were issuedno warrant repurchases under the program.
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The Company also maintains a share repurchase program authorizing the Company to (1) holders of Predecessor first lien obligations (99.3 million shares); (2) holders of Predecessor second lien obligations (4.4 million shares); and (3) PBGC (6.1 million shares). Issued but not outstanding are the shares held on behalf of the general unsecured creditor reserve or the holders of Predecessor first lien debt obligations (0.2 million shares).
Predecessor
In connection withrepurchase the Company's Plancommon stock for an aggregate expenditure of Reorganization and emergenceup to $500 million. The repurchases may be made from bankruptcy, all equity intereststime to time in the Predecessoropen market, through block trades or in privately negotiated transactions. The Company were cancelled, including preferred andadopted 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 warrants and equity-based awards.may be terminated, increased or decreased by the Board in its discretion at any time. All shares that are repurchased under the program are retired by the Company. During the three months ended December 31, 2020, there were no shares repurchased under the program. As of December 31, 2020, the remaining authorized amount for share repurchases under this program was $170 million.
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16. Earnings (Loss)Loss Per Common Share
All outstanding shares of common stock and common stock equivalents of the Predecessor Company were cancelled pursuant to the Plan of Reorganization.
Upon emergence, the Successor Company authorized and issued 110.0 million shares of common stock of which 109.8 million shares were outstanding at December 31, 2017 and used as the basis for determining earnings per share.
Basic earningsloss per share areis calculated by dividing net incomeloss attributable to common stockholders by the weighted average number of common shares outstanding. Diluted earningsloss per share reflectreflects 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 incomeloss attributable to common shareholdersstockholders and the computation of basic and diluted earnings (loss)loss per share for the periods indicated:
Three months ended
December 31,
(In millions, except per share amounts)20202019
Loss per share:
Numerator
Net loss$(4)$(54)
Dividends and accretion to preferred stockholders(1)(5)
Undistributed loss(5)(59)
Percentage allocated to common stockholders(1)
100.0 %100.0 %
Numerator for basic and diluted loss per common share$(5)$(59)
Denominator for basic and diluted loss per weighted average common shares83.8 109.0 
 Loss per common share
Basic$(0.06)$(0.54)
Diluted$(0.06)$(0.54)
(1) Basic weighted average common stock outstanding
83.8 109.0 
 Basic weighted average common stock and common stock equivalents (preferred shares)83.8 109.0 
 Percentage allocated to common stockholders100.0 %100.0 %
  Successor  Predecessor
(In millions, except per share amounts) Period from December 16, 2017 through December 31, 2017  Period from October 1, 2017 through December 15, 2017 Three months ended December 31, 2016
Net income (loss) per share:       
Numerator       
Net income (loss) $237
  $2,977
 $(103)
Dividends to preferred stockholders —
  (6) (8)
Undistributed earnings 237
  2,971
 (111)
Percentage allocated to common stockholders(1)
 100.0%  86.9% 100.0%
Numerator for basic and diluted earnings per common share $237
  $2,582
 $(111)
        
Denominator       
Denominator for basic earnings per weighted average common shares 109.8
  497.3
 497.0
Effect of dilutive securities       
Restricted stock units 0.5
  —
 —
Stock options —
  —
 —
Warrants —
  —
 —
Denominator for diluted earnings per weighted average common shares 110.3
  497.3
 497.0
        
Per common share net income (loss)       
Basic $2.16
  $5.19
 $(0.22)
Diluted $2.15
  $5.19
 $(0.22)
        
(1) Basic weighted average common stock outstanding
 109.8
  497.3
 497.0
  Basic weighted average common stock and common stock equivalents (preferred shares) 109.8
  572.4
 497.0
  Percentage allocated to common stockholders 100.0%  86.9% 100.0%

There were 0.5 million dilutiveThe Company's 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 from December 16, 2017 throughhad been distributed. Basic loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Net loss attributable to common stockholders is reduced for preferred stock dividends earned and accretion recognized during the period. No allocation of undistributed earnings to participating securities was performed for periods with net losses as such securities do not have a contractual obligation to share in the losses of the Company.
For the three months ended December 31, 2017 (Successor).
17.Operating Segments
On July 14, 2017,2020, the Company sold its Networking business to Extreme. Prior toexcluded 3.8 million RSUs, 0.9 million stock options, 0.1 million shares issuable under the sale,ESPP, 5.6 million Emergence Date Warrants and 0.1 million shares of Series A Preferred Stock from the diluted loss per share calculation as their effect would have been anti-dilutive. The Company also excluded 1.6 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 months ended December 31, 2019, the Company excluded 3.7 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 as their effect would have been anti-dilutive. The Company also excluded 1.0 million PRSUs from the diluted loss per share calculation as their performance metrics had three separate operating segments. After the sale, the Company has two operating segments, GCS representing the Company's products portfolio and AGS representing the Company's services portfolio. Both GCS and Networking made up the Company’s Enterprise Collaboration Solutions ("ECS") products portfolio.not yet been attained.
The GCSCompany's Convertible Notes and Call Spread Warrants were excluded from the diluted loss per share calculation for all periods presented as their effect would have been anti-dilutive.
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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, e-mail,email, instant messaging and video. The AGSServices segment develops, markets and sells comprehensive end-to-end global service offerings that enable customers to evaluate, plan, design, implement, monitor, manage and optimize even complex enterprise communications networks. The Networking segment portfolio of softwareRevenue from customers who upgrade and hardware products offered integrated networking products.acquire new technology through the Company's subscription offerings is reported within the Services segment.
The Company’sCompany's chief operating decision maker makes financial decisions and allocates resources based on segment profit information obtained from the Company’sCompany'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’sCompany's operating segments is shown in the following table for the periods indicated:
Three months ended
December 31,
(In millions)20202019
REVENUE
Products & Solutions$266 $298 
Services477 419 
Unallocated Amounts (1)
0 (2)
$743 $715 
GROSS PROFIT
Products & Solutions$161 $194 
Services298 246 
Unallocated Amounts (2)
(43)(46)
416 394 
OPERATING EXPENSES
Selling, general and administrative255 283 
Research and development55 52 
Amortization of intangible assets40 41 
Restructuring charges, net4 3 
354 379 
OPERATING INCOME62 15 
INTEREST EXPENSE AND OTHER INCOME, NET(56)(44)
INCOME (LOSS) BEFORE INCOME TAXES$6 $(29)
  
Successor  Predecessor
(In millions)Period from December 16, 2017 through December 31, 2017  Period from October 1, 2017 through December 15, 2017 Three months ended December 31, 2016
REVENUE      
Global Communications Solutions$71
  $253
 $343
Avaya Networking (1)
—
  —
 58
Enterprise Collaboration Solutions71
  253
 401
Avaya Global Services77
  351
 474
 $148
  $604
 $875
GROSS PROFIT      
Global Communications Solutions$41
  $169
 $231
Avaya Networking (1)
—
  —
 25
Enterprise Collaboration Solutions41
  169
 256
Avaya Global Services50
  196
 284
Unallocated Amounts (2)
(13)  (3) (5)
 78
  362
 535
OPERATING EXPENSES      
Selling, general and administrative50
  264
 336
Research and development9
  38
 62
Amortization of intangible assets7
  10
 57
Restructuring charges, net10
  14
 10
 76
  326
 465
OPERATING INCOME2
  36
 70
INTEREST EXPENSE, OTHER (EXPENSE) INCOME, NET AND REORGANIZATION ITEMS, NET(11)  3,400
 (170)
(LOSS) INCOME BEFORE INCOME TAXES$(9)  $3,436
 $(100)
(1)Unallocated amounts in Revenue represent the fair value adjustment to deferred revenue recognized upon emergence from bankruptcy and excluded from segment revenue.
(1) The Networking business was sold on July 14, 2017.
(2)Unallocated Amountsamounts 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 intangiblesintangibles; and costs that are not core to the measurement of segment management’smanagement's performance, but rather are controlled at the corporate level.
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18.Accumulated Other Comprehensive Loss

18.     Accumulated Other Comprehensive Loss
The components of accumulatedAccumulated other comprehensive income (loss)loss for the periods indicated are summarizedwere as follows:
(In millions)Change in Unamortized Pension, Post-retirement and Postemployment Benefit-related ItemsForeign Currency TranslationUnrealized Loss on Interest Rate SwapsAccumulated Other Comprehensive Loss
Balance as of September 30, 2020$(108)$(46)$(91)$(245)
Other comprehensive income (loss) before reclassifications12 (6)(1)5 
Amounts reclassified to earnings0 0 12 12 
Balance as of December 31, 2020$(96)$(52)$(80)$(228)
(In millions)Change in unamortized pension, post-retirement and postemployment benefit-related items Foreign Currency Translation Other Accumulated Other Comprehensive Income (Loss)
Beginning balance September 30, 2016 (Predecessor)$(1,627) $(33) $(1) $(1,661)
Other comprehensive income before reclassifications—
 19
 —
 19
Amounts reclassified to earnings20
 —
 —
 20
(Provision for) benefit from income taxes(6) 4
 —
 (2)
Ending balance December 31, 2016 (Predecessor)$(1,613) $(10) $(1) $(1,624)


(In millions)Change in Unamortized Pension, Post-retirement and Postemployment Benefit-related ItemsForeign Currency TranslationUnrealized Loss on Interest Rate SwapsAccumulated Other Comprehensive Loss
Balance as of September 30, 2019$(106)$(7)$(60)$(173)
Other comprehensive income before reclassifications0 3 4 7 
Amounts reclassified to earnings0 0 5 5 
Provision for income taxes0 0 (2)(2)
Balance as of December 31, 2019$(106)$(4)$(53)$(163)

(In millions)Change in unamortized pension, post-retirement and postemployment benefit-related items Foreign Currency Translation Other Accumulated Other Comprehensive Income (Loss)
Beginning balance October 1, 2017 (Predecessor)$(1,375) $(72) $(1) $(1,448)
Other comprehensive (loss) income before reclassifications(24) 3
 —
 (21)
Amounts reclassified to earnings16
 —
 —
 16
Pension settlement721
 —
 —
 721
Provision for income taxes(58) —
 —
 (58)
Ending balance December 15, 2017 (Predecessor)(720) (69) (1) (790)
Elimination of Predecessor Company accumulated other comprehensive loss720
 69
 1
 790
Ending balance December 15, 2017 (Predecessor)$—
 $—
 $—
 $—
        
        
Beginning balance December 15, 2017 (Successor)$—
 $—
 $—
 $—
Other comprehensive loss before reclassifications—
 (13) —
 (13)
Ending balance December 31, 2017 (Successor)$—
 $(13) $—
 $(13)
The amounts reclassified out of accumulatedReclassifications from Accumulated other comprehensive loss are reclassified to Other (expense) income, net in the Condensed Consolidated Statements of Operations priorrelated to the impact of income taxes.unrealized loss on interest rate swap agreements are recorded in Interest expense.
19. Related Party Transactions
Pursuant to the Plan of Reorganization confirmed by the Bankruptcy Court, the SuccessorThe Company's Board of Directors is comprised of seven8 directors, including the Successor Company's Chief Executive Officer James M. Chirico, Jr., and six7 non-employee directors, William D. Watkins, Ronald A. Rittenmeyer, Stephan Scholl, Susan L. Spradley, Stanley J. Sutula, III and Scott D. Vogel.directors.
Specific Arrangements Involving the Company’sCompany's Current Directors and Executive Officers
Laurent Philonenko is a Senior Vice President of Avaya Holdings and became an Advisor to Koopid, Inc., a software development company specializing in mobile applications, in February 2017. For the period from December 16, 2017 through December 31, 2017 (Successor) and the period from October 1, 2017 through December 15, 2017 (Predecessor), the Company purchased goods and services from Koopid, Inc. for each of the periods for less than $1 million.
Ronald A. RittenmeyerWilliam D. Watkins is a Director and Chair of Avaya Holdings. Mr. Rittenmeyer serves on the boardBoard of directorsDirectors of Tenet Healthcare Corporation (“Tenet Healthcare”), a healthcare services company,the Company and serves on the board of directors of American International Group, Inc. (“AIG”), a global insurance organization. For the period from December 16, 2017 through December 31, 2017 (Successor) and the period from October 1, 2017 through December 15, 2017 (Predecessor), sales of the Company’s products and services to Tenet Healthcare for each of the periods were less than $1 million. For the period from December 16, 2017 through December 31, 2017 (Successor) and the period from October 1, 2017 through December 15, 2017 (Predecessor), sales of the Company’s products and services to AIG were less than $1 million and $2 million, respectively.
Stanley J. Sutula III is a director of Avaya Holdings and he is Executive Vice President and Chief Financial Officer of Pitney Bowes Inc., a business-to-business provider of equipment, software and services. For the period from December 16, 2017 through December 31, 2017 (Successor), there were no sales of the Company's products and services to Pitney Bowes Inc. For the period from October 1, 2017 through December 15, 2017 (Predecessor) and for fiscal 2017 (Predecessor), sales of the Company’s products and services to Pitney Bowes Inc. for each of the periods were less than $1 million.
William D. Watkins is a director and Chair of the Board of Directors of Avaya Holdings. Mr. Watkins currently serves on the board of directors of Flex Ltd. ("Flex"), an electronics design manufacturer. For the period from December 16, 2017 throughthree months ended December 31, 2017 (Successor), the period from October 1, 2017 through December 15, 2017 (Predecessor)2020 and for fiscal 2017,2019, the Company purchased goods and services from subsidiaries of Flex Ltd. of $2 million, $6$4 million and $38$9 million, respectively. For the three months ended December 31, 2020 and 2019, sales of goods and services to subsidiaries of Flex were not material. As of both December 31, 2020 and September 30, 2020, the Company had outstanding accounts payable due to Flex of $3 million. As of December 31, 2020, 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.
Specific Arrangements AmongEffective April 13, 2020, Stephan Scholl, a Director of the Predecessor Company, Silver Lake Partnersassumed the role of Chief Executive Officer of Alight Solutions LLC ("Alight"), a provider of integrated benefits, payroll and TPG Capitalcloud solutions. For the three months ended December 31, 2020, the Company purchased goods and their Affiliatesservices from subsidiaries of Alight of $1 million. As of December 31, 2020, outstanding accounts payable due to Alight were not material. As of September 30, 2020, the Company had outstanding accounts payable due to Alight of $1 million.
In connection with the Plan of Reorganization, all agreements between the Predecessor Company and Silver Lake Partners, TPG Capital and their affiliates (collectively, the "Predecessor Sponsors") were terminated on the Emergence Date, including the stockholders' agreement, registration rights agreement and management services agreement. In addition, all Predecessor


Company equity held by the Predecessor Sponsors was cancelled. Predecessor Sponsor fees paid were less than $1 million for the period from October 1, 2017 through December 15, 2017 (Predecessor).
20. Commitments and Contingencies
Legal Proceedings
General
The Company records accruals for legal contingencies to the extent that it has concluded it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. No estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made at this time regarding the matters specifically described below because the inherently unpredictable nature of legal proceedings may be exacerbated by various factors, including: (i) the damages sought in the proceedings are unsubstantiated or indeterminate; (ii) discovery is not complete; (iii) the proceeding is in its early stages; (iv) the matters present legal uncertainties; (v) there are significant facts in dispute; (vi) there are a large number of parties (including where it is uncertain how liability, if any, will be shared among multiple defendants); or (vii) there is a wide range of potential outcomes.
In the ordinary course of business, the Company is involved in litigation, claims, government inquiries, investigations and proceedings, including but not limited to, those identified below, relating to intellectual property, commercial, employment, environmental indemnity and regulatory matters.
The Company believesrecords accruals for legal contingencies to the extent that it has meritorious defenses in connection with its current lawsuitsconcluded that it is probable that a liability has been incurred and material claims and disputes, and intends to vigorously contest each of them.
Based on the Company's experience, management believes that the damages amounts claimed in a case are not a meaningful indicatoramount of the potential liability. Claims, suits, investigations and proceedings are inherently uncertain and it is not possible to predict the ultimate outcome of cases.loss can be reasonably estimated.
Other than as described below, inIn the opinion of the Company's management, based upon information currently available to the Company, while the outcome of these lawsuits, claims and disputesmatters is uncertain, the likely results of these lawsuits, claims and disputesmatters are not expected, either individually or in the aggregate, to have a material adverse effect on the Company's financial position,
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annual results of operations or cash flows, although the effectflows. However, an unfavorable resolution could be material to the Company's consolidated results of operations or consolidated cash flows for any interim reporting period.
During the period December 16, 2017 through December 31, 2017 (Successor), October 1, 2017 through December 15, 2017 (Predecessor) and the three months ended December 31, 2016 (Predecessor), costs incurred in connection with certain legal matters was $0 million, $37 million and $0 million, respectively.
Antitrust Litigation
In 2006, the Company instituted an action in the U.S. District Court, District of New Jersey, against defendants Telecom Labs, Inc., TeamTLI.com Corp. and Continuant Technologies, Inc. (“TLI/Continuant”) and subsequently amended its complaint to include certain individual officers of these companies as defendants. Defendants purportedly provide maintenance services to customers who have purchased or leased the Company's communications equipment. The Company asserted in its amended complaint that, among other things, defendants, or each of them, engaged in tortious conduct by improperly accessing and utilizing the Company's proprietary software, including passwords, logins and maintenance service permissions, to perform certain maintenance services on the Company's customers' equipment. TLI/Continuant filed counterclaims against the Company alleging that the Company has violated the Sherman Act's prohibitions against anticompetitive conduct through the manner in which the Company sells its products and services. TLI/Continuant sought to recover the profits they claim they would have earned from maintaining Avaya's products, and asked for injunctive relief prohibiting the conduct they claim is anticompetitive. 
The trial commenced on September 9, 2013. On January 7, 2014, the Court issued an order dismissing the Company's affirmative claims. With respect to TLI/Continuant’s counterclaims, on March 27, 2014, a jury found against the Company on two of eight claims and awarded damages of $20 million. Under the federal antitrust laws, the jury’s award is subject to automatic trebling, or $60 million.
Following the jury verdict, TLI/Continuant sought an injunction regarding the Company’s ongoing business operations. On June 30, 2014, a federal judge rejected the demands of TLI/Continuant’s proposed injunction and stated that “only a narrow injunction is appropriate.” Instead, the judge issued an order relating to customers who purchased an Avaya PBX system between January 1, 1990 and April 30, 2008 only. Those customers and their agents will have free access to the on demand maintenance commands that were installed on their systems at the time of the purchase transaction. The court specified that this right “does not extend to access on a system purchased after April 30, 2008.” Consequently, the injunction affected only


systems sold prior to April 30, 2008. The judge denied all other requests TLI/Continuant made in its injunction filing. The Company complied with the injunction although it has now been vacated by the September 30, 2016 decision discussed below.
The Company and TLI/Continuant filed post-trial motions seeking to overturn the jury’s verdict, which motions were denied. In September 2014, the Court entered judgment in the amount of $63 million, which included the jury's award of $20 million, subject to automatic trebling, or $60 million, plus prejudgment interest in the amount of $3 million. On October 10, 2014, the Company filed a Notice of Appeal, and on October 23, 2014, TLI/Continuant filed a Notice of Conditional Cross-Appeal. On October 23, 2014, the Company filed its supersedeas bond with the Court in the amount of $63 million. The Company secured posting of the bond through the issuance of a letter of credit under its then existing credit facilities.
On November 10, 2014, TLI/Continuant made an application for attorney's fees, expenses and costs, which the Company contested. TLI/Continuant’s application for attorneys’ fees, expenses and costs was approximately $71 million and represented activity through February 28, 2015. On February 22, 2016, the Company posted a bond in the amount of $8 million in connection with TLC/Continuant's attorneys' fees application.
In September 2016, a Special Master appointed by the trial court to assist in evaluating TLI/Continuant's application rendered a Recommendation, finding that TLI/Continuant should receive approximately $61 million in attorneys' fees, expenses and costs. Subsequently, the parties submitted letters to the Special Master seeking an Amended Recommendation. However, in light of the Third Circuit's favorable opinion, outlined below, the trial court proceedings relating to TLI/Continuant's application have not proceeded. TLI/Continuant is no longer entitled to attorneys' fees, expenses and costs, because it no longer is a prevailing party, subject to further proceedings on appeal or retrial.
On September 30, 2016, the Third Circuit issued a favorable ruling for the Company, which included: (1) reversing the mid-trial decision to dismiss four of the Company’s affirmative claims and reinstated them; (2) vacating the jury verdict on the two claims decided in TLI/Continuant’s favor; (3) entering judgment in the Company’s favor on a portion of TLI/Continuant’s claim relating to attempted monopolization; (4) dismissing TLI/Continuant’s PDS patches claim as a matter of law; (5) vacating the damages award to TLI/Continuant; (6) vacating the award of prejudgment interest to TLI/Continuant; and (7) vacating the injunction. On October 28, 2016, TLI/Continuant sought panel rehearing or rehearing en banc review of the opinion, which was denied on November 16, 2016. On November 22, 2016, TLI/Continuant filed a Motion for Stay of Mandate, which was denied. On December 5, 2016, the Third Circuit issued a certified judgment in lieu of a formal mandate, returning jurisdiction to the trial court.
As a result of the Third Circuit’s opinion, on November 23, 2016, the Company filed a Notice of Motion to Release the Supersedeas Bonds, which the court granted on December 23, 2016. On December 12, 2016, the Court issued an Order Upon Mandate and For Status Conference, which i) vacated the Court’s January 7, 2014 order dismissing Avaya’s claims against TLI/Continuant and the order of judgment entered on September 17, 2014 and ii) scheduled a status conference for January 6, 2017 to discuss the Joint Plan for Retrial. On January 13, 2017, the Court entered an Order staying the matter pending mediation. On January 20, 2017, the Company filed a Notice of Suggestion on Pendency of Bankruptcy For Avaya Inc., et. al. and Automatic Stay of Proceedings. TLI/Continuant filed a proof of claim in the Bankruptcy Court. On November 30, 2017, the Company filed a motion in the Bankruptcy Court seeking to estimate TLI/Continuant’s claim.
A loss reserve has been provided for this matter. The Company continues to believe that TLI/Continuant’s claims are without merit and unsupported by the facts and law, and the Company continues to defend this matter. At this time an outcome cannot be predicted and, as a result, the Company cannot be assured that this case will not have a material adverse effect on the manner in which it does business, itsCompany's financial position, results of operations or cash flows.
Patent Infringement
In July 2016, BlackBerry Limited (“BlackBerry”) filed a complaint for patent infringement against the Companyflows in the Northern District of Texas, alleging infringement of multiple patents with respect to a variety of technologies including user interface design, encoding/decoding and call routing. In September 2016,periods in which the Company filed a motion to dismiss these claims and in October 2016, the Company also filed a motion to transfer this matter to the Northern District of California. In January 2017, the Company filed a notice of Suggestion of Pendency of Bankruptcy, which initially stayed the proceedings. The stay was partially lifted to allow the court in Texas to rule on the two pending motions. The Company’s motion to transfer the case from Texas to California has been denied. The Company’s motion to dismiss BlackBerry’s indirect infringement and willfulness claims was granted, although BlackBerry was provided an opportunity to file an Amended Complaint to cure the deficiencies, which it did on October 19, 2017. BlackBerry filed a proof of claimmatters are ultimately resolved, or in the Bankruptcy Court. On February 20, 2018, the Company and BlackBerry entered into a settlement agreement resolving this dispute, and the Company shortly expects the Courtperiods in the Northern District of Texas to enter an order dismissing the lawsuit, with prejudice. A loss reserve has been established for this matter. The Company considers this matter closed, except for distributionwhich more information is obtained that changes management's opinion of the pre-petition allowed claim in accordance with the general unsecured claims procedure pursuant to the Company's Plan of Reorganization.


In September 2011, Network-1 Security Solutions, Inc. (“Network-1”) filed a complaint for patent infringement against the Company and other corporations in the Eastern District of Texas (Tyler Division), alleging infringement of its patent with respect to power over Ethernet technology. Network-1 seeks to recover for alleged reasonable royalties, enhanced damages and attorneys’ fees. In January 2017, the Company filed a Notice of Suggestion of Pendency of Bankruptcy, which informed the Court of the Company’s voluntary bankruptcy petition filing and stay of proceedings. On October 16, 2017, the Bankruptcy Court entered an order approving a settlement agreement with Network-1 and on November 7, 2017 the Tyler Division district court entered an order dismissing the lawsuit, with prejudice. The Company considers this matter closed, except for distribution of the pre-petition allowed claim in accordance with the general unsecured claims procedure in the Company's Plan of Reorganization.
Intellectual Property and Commercial Disputes
In January 2010, SAE Power Incorporated and SAE Power Company (“SAE”) filed a complaint in the New Jersey Superior Court asserting various claims including breach of contract, unjust enrichment, promissory estoppel, and breach of the covenant of good faith and fair dealing arising out of Avaya’s relationship with SAE as a supplier of various power supply products. SAE has since asserted additional claims against Avaya for fraud, negligent misrepresentation, misappropriation of trade secrets, and civil conspiracy. SAE seeks to recover for alleged losses stemming from Avaya’s termination of its power supply purchases from SAE, including for Avaya’s alleged disclosure of SAE’s alleged trade secret and/or confidential information to another power supply vendor. On July 19, 2016, the Court entered an order granting Avaya’s motion for partial summary judgment, dismissing certain of SAE’s claims regarding the alleged disclosure of trade secrets. In January 2017, the Company filed a Notice of Suggestion of Pendency of Bankruptcy, which informed the Court of the Company’s voluntary bankruptcy petition filing and stay of proceedings. SAE filed a proof of claim in the Bankruptcy Court. On September 28, 2017, the Company filed a motion in the Bankruptcy Court seeking to estimate SAE’s claim, and the estimation hearing took place on February 15, 2018. The Bankruptcy Court has not yet decided the estimation motion. A loss reserve has been established for this matter. At this time an outcome cannot be predicted and, as a result, the Company cannot be assured that this case will not have a material adverse effect on the manner in which it does business, its financial position, results of operations or cash flows.
In the ordinary course of business, the Company is involved in litigation alleging it has infringed upon third parties’ intellectual property rights, including patents and copyrights; some litigation may involve claims for infringement against customers, distributors and resellers by third parties relating to the use of Avaya’s products, as to which the Company may provide indemnifications of varying scope to certain parties. The Company is also involved in litigation pertaining to general commercial disputes with customers, suppliers, vendors and other third parties including royalty disputes. Much of the pending litigation against the Debtors has been stayed as result of the Chapter 11 filing and will be subject to resolution in accordance with the Bankruptcy Code and the orders of the Bankruptcy Court. Based on discussions with parties that have filed claims against the Debtors, the Company provided loss provisions for certain matters. However, these matters are on-going and the outcomes are subject to inherent uncertainties. As a result, the Company cannot be assured that any such matter will not have a material adverse effect on its financial position, results of operations or cash flows.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’sCompany'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.


(In millions) 
Accrued warranty obligations as of September 30, 2017 (Predecessor)$2
Reductions for payments and costs to satisfy claims(1)
Accruals for warranties issued during the period1
Accrued warranty obligations as of December 15, 2017 (Predecessor)$2
  
  
Reductions for payments and costs to satisfy claims$(1)
Accruals for warranties issued during the period1
Accrued warranty obligations as of December 31, 2017 (Successor)$2
 As of December 31, 2020 and September 30, 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 December 31, 2017 (Successor),2020, the maximum potential payment obligation with regards to letters of credit, guarantees and surety bonds was $61$67 million. The outstanding letters of credit are collateralized by restricted cash of $4$5 million, which is included in otherOther assets on the Condensed Consolidated Balance Sheets as of December 31, 2017 (Successor).2020.
Purchase Commitments and Termination Fees
The Company purchases components from a variety of suppliers and uses several contract manufacturers to provide manufacturing services for its products. During the normal course of business, in order to manage manufacturing lead times and to help assure adequate component supply, the Company enters into agreements with contract manufacturers and suppliers that allow them to produce and procure inventory based upon forecasted requirements provided by the Company. If the Company does not meet these specified purchase commitments, it could be required to purchase the inventory, or in the case of certain agreements, pay an early termination fee. Historically, the Company has not been required to pay a charge for not meeting its designated purchase commitments with these suppliers, but has been obligated to purchase certain excess inventory levels from its outsourced manufacturers due to actual sales of product varying from forecast and due to transition of manufacturing from one vendor to another.
The Company’sCompany'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’sCompany's products is performed in accordance with either detailed requirements or specifications and product designs furnished by the Company and is subject to rigorous quality control standards.
Long-Term Incentive Cash Bonus Plan
The Predecessor Company had established a long-term incentive cash bonus plan (“LTIP”). Under the LTIP, the Predecessor Company would pay cash awards and recognize compensation expense to certain key employees upon specific triggering events. As of the Emergence Date, no triggering event had occurred, therefore no cash awards were paid and no compensation expense recognized. Upon emergence from bankruptcy, all awards to persons deemed "insiders" for purposes of Chapter 11 proceedings were cancelled.
Credit Facility Indemnification
In connection with the Successor Company's obligations under its post-emergence credit facilities, the Company has agreed to indemnify the third-party lending institutions for costs incurred by the institutions related to non-compliance with environmental law and other liabilities that may arise with respect to the execution, delivery, enforcement, performance and administration of the financing documentation. As of December 31, 2017 (Successor), no amounts were paid or accrued pursuant to this indemnity.
Transactions with Nokia
Pursuant to the Contribution and Distribution Agreement effective October 1, 2000 (the "Contribution and Distribution Agreement"), Nokia Corporation ("Nokia", formerly known as Lucent Technologies, Inc. (now Nokia)("Lucent")) contributed to the Company substantially all of the assets, liabilities and operations associated with its enterprise networking businesses (the “Company’s Businesses”"Contributed Businesses") and distributed the Company’sCompany's stock pro-rata to the shareholders of Lucent (“distribution”("distribution"). The Contribution and Distribution Agreement, among other things, provides that, in general, the Company will indemnify Nokia for all liabilities including certain pre-distribution tax obligations of Nokia relating to the Company’sContributed Businesses and all contingent liabilities primarily relating to the Company’sContributed Businesses or otherwise assigned to the Company. In addition, the Contribution and Distribution Agreement provides that certain contingent liabilities not allocated to one of the


parties will be shared by Nokia and the Company in prescribed percentages. The Contribution and Distribution Agreement also provides that each party will share specified portions of contingent liabilities based upon agreed percentages related to the business of the other party that exceed $50 million. The Company is unable to determine the maximum potential amount of other future payments, if any, that it could be required to make under this agreement.
In addition, in connection with the distribution, the Company and Lucent entered into a Tax Sharing Agreement effective October 1, 2000 (the "Tax Sharing Agreement") that governs Nokia’sNokia's and the Company’sCompany'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’sCompany's separation from Nokia.
21.Condensed Financial Information of Parent Company
Avaya Holdings has no material assets or stand-alone operations other than its ownership in Avaya Inc. and its subsidiaries.
These condensed financial statements have been presented on a "Parent Company only" basis. Under a Parent Company only presentation, the Company's investments in its consolidated subsidiaries are presented using the equity method of accounting. These Parent Company only condensed financial statements should be read in conjunction with the Company's Condensed Consolidated Financial Statements.
The following present:
(1) the Successor Company, Parent Company only, statements of financial position as of December 31, 2017, and the statements of operations, comprehensive income (loss) and cash flows for the period from December 16, 2017 through December 31, 2017, and;
(2) the Predecessor Company, Parent Company only, statements of financial position as of September 30, 2017, and the statements of operations, comprehensive income (loss) and cash flows for the period from October 1, 2017 through December 15, 2017 and for the three months ended December 31, 2016.
Avaya Holdings Corp.
Parent Company Only
Condensed Balance Sheets (unaudited)
(In millions)
27
 Successor  Predecessor
 December 31, 2017  September 30, 2017
ASSETS    
Investment in Avaya Inc.$1,867
  $—
TOTAL ASSETS$1,867
  $—
     
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)    
LIABILITIES    
Deficit in excess of investment in Avaya Inc.$—
  $4,429
TOTAL LIABILITIES—
  4,429
Commitments and contingencies
  
Predecessor equity awards on redeemable shares—
  7
Preferred stock, Series B—
  393
Preferred stock, Series A—
  184
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)1,867
  (5,013)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)$1,867
  $—
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Avaya Holdings Corp.
Parent Company Only
Condensed Statements of Operations (unaudited)
(In millions, except per share amounts)

 Successor  Predecessor
 Period from December 16, 2017 through December 31, 2017  Period from October 1, 2017 through December 15, 2017 Three months ended December 31, 2016
Equity in net income (loss) of Avaya Inc.$237
  $2,977
 $(103)
NET INCOME (LOSS)$237
  $2,977
 $(103)
NET INCOME (LOSS) PER SHARE AVAILABLE TO COMMON STOCKHOLDERS      
Basic$2.16
  $5.19
 $(0.22)
Diluted$2.15
  $5.19
 $(0.22)
Weighted average shares outstanding      
Basic109.8
  497.3
 497.0
Diluted110.3
  497.3
 497.0

Avaya Holdings Corp.
Parent Company Only
Condensed Statements of Comprehensive Income (Loss) (unaudited)
(In millions)
 Successor  Predecessor
 Period from December 16, 2017 through December 31, 2017  Period from October 1, 2017 through December 15, 2017 Three months ended December 31, 2016
Net income (loss)$237
  $2,977
 $(103)
Equity in other comprehensive (loss) income of Avaya Inc.(13)  658
 37
Elimination of Predecessor Company accumulated other comprehensive loss—
  790
 —
Comprehensive income (loss)$224
  $4,425
 $(66)
Avaya Holdings Corp.
Parent Company Only
Condensed Statements of Cash Flows (unaudited)
(In millions)
 Successor  Predecessor
 Period from December 16, 2017 through December 31, 2017  Period from October 1, 2017 through December 15, 2017 Three Months Ended December 31, 2016
Net income (loss)$237
  $2,977
 $(103)
Adjustments to reconcile net loss to net cash used for operating activities:      
Equity in net income (loss) of Avaya Inc.(237)  (2,977) 103
Net cash provided by (used for) operating activities—
  —
 —
Net cash provided by (used for) investing activities—
  —
 —
Net cash provided by (used for) financing activities—
  —
 —
Net increase (decrease) in cash and cash equivalents—
  —
 —
Cash and cash equivalents at beginning of period—
  —
 —
Cash and cash equivalents at end of period$—
  $—
 $—


22.Subsequent Events
On January 29, 2018, the Company entered into a definitive agreement to acquire Intellisist, Inc., doing business as Spoken Communications, a Contact Center as a Service (CCaaS) solutions company. The acquisition is expected to close within the next two months and be funded by cash on hand, however the ultimate purchase price and certain other terms are subject to further negotiation.




Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 2.Management’sUnless the context otherwise indicates, as used in this "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"we," "us," "our," "the Company,” “Avaya”" "Avaya" and similar terms refer to Avaya Holdings Corp. and its consolidated subsidiaries. “Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations”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, 2017, which were2020, included in our Registration StatementAnnual Report on Form 10 Amendment No. 310-K for the fiscal year ended September 30, 2020 filed with the SECSecurities and Exchange Commission on January 10, 2018.November 25, 2020.
Our accompanying unaudited interim Condensed Consolidated Financial Statements as of December 31, 2017 and for the period from December 16, 2017 through December 31, 2017 (Successor), the period from October 1, 2017 through December 15, 2017 (Predecessor) and the three months ended December 31, 2016 (Predecessor) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”("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, as well as fresh start and reorganization adjustments, necessary to presentstate fairly the financial position, results of operations and cash flows for the periods indicated.
The matters discussed in “Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations”Operations" contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. See “Cautionary"Cautionary Note Regarding Forward-Looking Statements”Statements" at the end of this discussion.
Overview
Avaya is a global leader in digital communications software,products, solutions and services and devices for businesses of all sizes. Our open,sizes delivering its technology predominantly through software and services. We enable organizations around the globe to succeed by creating intelligent and customizable solutions for contact centers and unified communications offer the flexibility of Cloud, on-premises and hybrid deployments. Avaya shapes intelligent connections and creates seamless communication experiences for our customers,clients, their employees and their customers. Avaya builds open, converged and innovative solutions to enhance and simplify communications and collaboration in the cloud, on-premise or a hybrid of both. Our professionalglobal, experienced team of professionals delivers award-winning services from initial planning support and management services teamsdesign, 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 optimize solutions, for highly reliablethem get the most out of their communications investments. Avaya IP-enabled handsets, multimedia devices and efficient deployments. conferencing systems enhance collaboration and productivity, and position organizations to incorporate future technological advancements.
Our solutions fall underbusiness has two operating segments:Products & Solutions and Services.
Global CommunicationProducts & Solutions ("GCS")
Products & Solutions encompasses our real-time collaboration solutions for unified communications and contact center offeringsplatforms, applications and devices.
The Company's unified communications and collaboration ("UCC") solutions enable organizations to drive exceptionalreimagine collaborative work environments and help companies increase employee productivity, improve customer experiences. We take a cloud-first approachservice and reduce costs. With Avaya's UCC solutions, organizations can provide their workers with a fully open architecture that supports flexibility, reliability, securitysingle app for all-channel calling, messaging, meetings and scaling so customers can moveteam collaboration with the same ease of use they receive from consumer apps. Avaya embeds communications directly into the apps, browsers and devices employees use every day giving them a more natural, efficient and flexible way to connect, engage, respond and share - where and how they want. During fiscal 2020, the cloud in a way that best meets their specific needs. Avaya omnichannelCompany expanded its UCC portfolio to include cloud-based solutions.
The Company's industry-leading digital contact center ("CC") solutions that enable customersthe Company's clients to build a customized portfolio of applications, to drivedriving stronger customer engagement and promote higher customer lifetime value. Our highly reliable, secure and scalable communications-centriccommunications solutions include voice, e-mail,email, chat, social media, video, performance management and ease of third-party integration that can improve customer service and help companies compete more effectively.
Our unified communicationsLike the UCC business, the Company is evolving CC solutions help companies increase employee productivity, improve customer servicefor cloud deployment and, reduce costs by integrating multiple forms of communications, including telephony, e-mail, instant messaging and video. Avaya embeds communications directly intoin fiscal 2020, the applications, browsers and devices employees use every dayCompany expanded its CC portfolio to create a single, powerful gateway for voice, video, messaging, conferencing and collaboration. We free people from their desktop and give them a more natural and efficient way to connect, communicate and share when, where and how they want. 
This operating segment also includes an open, extensible development platform, so that our customers and third parties can easily adapt our technology by creating custom applications and automated workflows for their unique needs, integrating Avaya’s capabilities into their existing infrastructure and business applications.
Avaya Global Services ("AGS") includes professional and support services designed to help our customers maximize the benefits of ourinclude cloud-based solutions. Our global, experienced professional services team helps maximize customer investments in collaborative communications, with services from initial planning and design, to seamless implementation, to integration and ongoing optimization. We help customers use communications to help minimize risk, enable people, and deliver a differentiated customer experience.
Avaya also offers every levelfocuses on ensuring an outstanding experience for mobile callers by integrating transformative technologies, including Artificial Intelligence, mobility, big data analytics and cybersecurity into our 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.
Services
Services consists of a portfolio of offerings to help customers achieve better business outcomes, including global support for communications solutions, with award-winning services, for implementation, deployment, training, monitoring, troubleshooting and optimization, and more. Our pro-active, preventative monitoring of system performance and the ability to quickly find and fix problems help keep customer communications running optimally. Remote diagnostics and resolutions help us rapidly resolve potential problems, saving time and reducing risk of an outage.


This operating segment also includes our privateenterprise cloud and managed services whichand 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 servicesprovide offerings that help businesses protect their technology investments and address the risk of system outages. We help our customers gain a competitive edge through proactive problem prevention, rapid resolution and continual solution optimization. Most of our global support services revenue is recurring in nature.
Enterprise cloud and managed services enable customers to take advantage of our technology on-premisesvia the cloud, on-premise, or in a private, public or hybrid (i.e., mix of on-premises, private and/or public) cloud environment,both, depending on the solution and customer needs. The majoritythe needs of the customer. Most of our enterprise cloud and managed services revenue in this reporting segment is recurring in nature and based on multi-year services contracts.
On July 14, 2017, the Company sold its former networkingThe Company's professional services enable our customers to take full advantage of their IT and communications solution investments to drive measurable business to Extreme Networks, Inc. (“Extreme”). Prior to the
sale, the networking business was a separate operating segment comprised of certain assetsresults. Our experienced consultants and engineers partner with customers along each step of the Company’s Networking
segment, along with the maintenancesolution lifecycle to deliver services that add value and drive business transformation. Most of our professional services revenue 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 networking business,risk of outages, enable employee productivity and deliver a differentiated customer experience.
Our services teams also help our customers transition at their desired pace to next generation communications technology solutions, either via the cloud, on-premise, or a hybrid of both. Customers can choose the levels of support for their communications solutions best suited for their needs, which were partmay include deployment, training, monitoring, solution management optimization, and more. Our systems and service team's performance monitoring can quickly identify and address issues before they arise. Remote diagnostics and resolutions focus on fixing existing problems and avoiding potential issues in order to help our customers save time and reduce the risk of the AGS
segment. Networking included advanced fabric networking technology, which offered a unique end-to-end virtualized
architecture network designed to be simple to deploy. This operating segment also included software and hardware products
such as ethernet switches, wireless networking, access control, and unified management and orchestration solutions, which
provided network and device management. Accordingly, after the sale of the networking business, our operating segments
consist solely of GCS and AGS.
an outage.
Factors and Trends Affecting Our Results of Operations
There are a number ofseveral trends and uncertainties affecting our business. For example,Most importantly, we are dependent on general economic conditions, and the willingness of our customers to invest in technology. In addition, instability in the geopolitical environment of our customers, instability in the global credit markets and other disruptions put pressure on the global economy causing uncertainties. We are also affected by the impact of foreign currency exchange rates on our business. We believe these uncertainties have impacted our customers’ willingness to spend on ITtechnology and the manner in which they procure such technologiestechnology and services. This includes delays or rejection of capital projects, including the implementation of our products and services. In addition, as further explained below, we believe there is a growing market trend around cloud consumption preferences with more customers exploring operating expense models as opposed to capital expenditure (“CapEx”) models for procuring technology. We believe the market trend toward cloud models will continue as customers seek ways of reducing their fixed overhead and other costs.
We continue to evolve into a software and services business and focus our go-to-market efforts by introducing new solutions and innovations, particularly on workflow automation, multi-channel customer engagement and cloud-enabled communications applications. These include Avaya Oceana®, Avaya Oceanalytics™, Avaya Equinox®, Avaya® Enterprise Private Cloud and Zang® Cloud. We also launched a next-generation desktop device, Avaya Vantage™.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 CapExcapex 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 proposalproposals 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 provide us with reducedreduce our associated maintenance support opportunities. DespiteWe continue to evolve into a software and services business and focus our go-to-market efforts by introducing new solutions and innovations, particularly on workflow automation, multi-channel customer engagement and cloud-enabled communications applications. The Company is focused on growing products and services with a recurring revenue stream. Recurring revenue includes products and services that are delivered pursuant to multi-period contracts and include revenue from sales of its software, global support services, enterprise cloud and managed services and other cloud offerings.
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Novel Coronavirus ("COVID-19") Pandemic
Instability in the benefitsgeopolitical environment of a robust indirect channel, which include expanding our sales reach, our channel partners have direct contact with our customers, thatinstability 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 negative impact on regional, national and global economies, are disrupting supply chains and reducing international trade and business activity. 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, changes in infection rates and the effectiveness of vaccines, as well as the speed with which the vaccine can be distributed, all of 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 COVID-19 pandemic did not have a material impact on the Company's operating results during the first quarter of fiscal 2021. The ultimate 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, is uncertain and unpredictable and, as a result, current results and financial condition discussed herein may foster independent relationships between themnot be indicative of future operating results, financial condition and a lossrelated trends.
The health and safety of certain services agreements for us.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 been ablealso implemented business continuity plans and have continued to offset these impactssupport our clients primarily by focusingproviding our services remotely instead of onsite.
While the pandemic and its effect on utilizing partnersthe global economy have not materially impacted the Company or its financial condition, the Company will continue to evaluate its financial position in light of future developments.
We believe that the current macroeconomic environment has accelerated a sales agent relationship, whereby partners perform selling activities butdeveloping trend in the contract remainsway people work, with Avaya. We are also offering higher-value services in supportmore employees working remotely, and believe this could increase demand for certain of our software offerings, such as professional servicesthe Company's products and cloud-managed services, which are not traditionally provided by our channel partners.services.
The Company has maintained its focus on profitability levels and investing in future results. As the Company continues its transformation to a softwareresults 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 thoseany future actions could be material.
Emergence from Bankruptcy
On January 19, 2017 (the "Petition Date"), Avaya Holdings Corp., together with certain of its affiliates (collectively, the "Debtors"), filed voluntary petitions for relief (the "Bankruptcy Filing") under Chapter 11 of the United States Bankruptcy


Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court").
On November 28, 2017, the Bankruptcy Court entered an order confirming the Second Amended Joint Plan of Reorganization filed by the Debtors on October 24, 2017 (the "Plan of Reorganization"). On December 15, 2017 (the "Emergence Date"), the Plan of Reorganization became effective and the Debtors emerged from bankruptcy.
In accordance with the Plan of Reorganization, the following significant transactions occurred on the Emergence Date:
The Company paid in full amounts outstanding under the debtor-in-possession credit agreement (the "DIP Credit Agreement").
The Debtors' obligations under stock certificates, equity interests, and / or any other instrument or document directly or indirectly evidencing or creating any indebtedness or obligation of, or ownership interest in, the Debtors or giving rise to any claim or equity interest were cancelled, except as provided under the Plan of Reorganization;
The Company's certificate of incorporation was amended and restated to authorize the issuance of 605.0 million shares of stock, consisting of 55.0 million shares of preferred stock, par value $0.01 per share, and 550.0 million shares of common stock, par value $0.01 per share;
The Company entered into a term loan credit agreement (the "Term Loan Credit Agreement") with a principal amount of $2,925 million and a $300 million asset-based revolving credit facility (the "ABL Credit Agreement");
The Company issued 99.3 million shares of Successor Company common stock to the holders of the Predecessor's first lien obligations that was extinguished in the bankruptcy. In addition, these holders received $2,061 million in cash;
The Company issued 4.4 million shares of Successor Company common stock to the holders of the Predecessor's second lien obligations that was extinguished in the bankruptcy. In addition, these holders received warrants to purchase 5.6 million shares of Successor Company common stock at an exercise price of $25.55 per warrant (the "Warrants");
The Company issued 6.1 million shares of Successor Company common stock to the Pension Benefit Guaranty Corporation ("PBGC"). In addition, the PBGC received $340 million in cash; and
The Debtors established a liquidating trust in the amount of $58 million for the benefit of general unsecured creditors. In addition, the Company issued 0.2 million additional shares of Successor Company common stock for the benefit of its former general unsecured creditors. The general unsecured creditors will receive a total of $58 million in cash and these shares of common stock. Any excess cash and / or common stock not distributed to the general unsecured creditors will be distributed to the holders of the Predecessor first lien obligations.
Upon emergence from bankruptcy on December 15, 2017, the Company applied fresh start accounting, which resulted in a new basis of accounting and the Company becoming a new entity for financial reporting purposes. As a result of the application of fresh start accounting and the effects of the implementation of the Plan of Reorganization, the consolidated financial statements after December 15, 2017 are not comparable with the consolidated financial statements on or prior to that date. Refer to Note 5, "Fresh Start Accounting," to our unaudited interim Condensed Consolidated Financial Statements for further details.
Financial Results Summary
Our financial results for the period October 1, 2017 through December 15, 2017 are referred to as those of the “Predecessor” period. Our financial results for the period December 16, 2017 through December 31, 2017 are referred to as those of the “Successor” period. Our results of operations as reported in our Condensed Consolidated Financial Statements for these periods are in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Although GAAP requires that we report on our results for the periods October 1, 2017 through December 15, 2017 and December 16, 2017 through December 31, 2017 separately, management views the Company’s operating results for the three months ended December 31, 2017 by combining the results of the Predecessor and Successor periods because such presentation provides the most meaningful comparison of our results to prior periods.
The Company cannot adequately benchmark the operating results of the 16-day period ended December 31, 2017 against any of the previous periods reported in its Condensed Consolidated Financial Statements and does not believe that reviewing the results of this period in isolation would be useful in identifying any trends in or reaching any conclusions regarding the Company’s overall operating performance. Management believes that the key performance metrics such as revenue, gross margin and operating income for the Successor period when combined with the Predecessor period from October 1, 2017 through December 15, 2017 provide more meaningful comparisons to other periods and are useful in identifying current business trends. Accordingly, in addition to presenting our results of operations as reported in our Condensed Consolidated Financial Statements in accordance with GAAP, the table below also presents the combined results for the three months ended December 31, 2017, which is considered non-GAAP.


The combined results for the three months ended December 31, 2017 represent the sum of the reported amounts for the Predecessor period from October 1, 2017 through December 15, 2017 and the Successor period from December 16, 2017 through December 31, 2017. These combined results do not comply with GAAP and have not been prepared as pro forma results under applicable regulations, but are presented because we believe they provide the most meaningful comparison of our results to prior periods. The combined operating results may not reflect the actual results we would have achieved absent our emergence from bankruptcy and may not be indicative of future results.
The following table displays our consolidated net income (loss)loss for the periods indicated:
 Successor  Predecessor Non-GAAP Combined Predecessor
(In millions)Period from December 16, 2017 through December 31, 2017  Period from October 1, 2017 through December 15, 2017 Three Months Ended December 31, 2017 Three months ended December 31, 2016
REVENUE        
Products$71
  $253
 $324
 $401
Services77
  351
 428
 474
 148
  604
 752
 875
COSTS        
Products:        
Costs33
  84
 117
 145
Amortization of technology intangible assets7
  3
 10
 5
Services30
  155
 185
 190
 70
  242
 312
 340
GROSS PROFIT78
  362
 440
 535
OPERATING EXPENSES        
Selling, general and administrative50
  264
 314
 336
Research and development9
  38
 47
 62
Amortization of intangible assets7
  10
 17
 57
Restructuring charges, net10
  14
 24
 10
 76
  326
 402
 465
OPERATING INCOME2
  36
 38
 70
Interest expense(9)  (14) (23) (174)
Other (expense) income, net(2)  (2) (4) 4
Reorganization items, net—
  3,416
 3,416
 —
(LOSS) INCOME BEFORE INCOME TAXES(9)  3,436
 3,427
 (100)
Benefit from (provision for) income taxes246
  (459) (213) (3)
NET INCOME (LOSS)$237
  $2,977
 $3,214
 $(103)
Three Months Endedthree months ended December 31, 2017 combined results compared to the 2020 and 2019:
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Three months ended
December 31,
(In millions)20202019
REVENUE
Products$266 $298 
Services477 417 
743 715 
COSTS
Products:
Costs105 104 
Amortization of technology intangible assets43 43 
Services179 174 
327 321 
GROSS PROFIT416 394 
OPERATING EXPENSES
Selling, general and administrative255 283 
Research and development55 52 
Amortization of intangible assets40 41 
Restructuring charges, net4 3 
354 379 
OPERATING INCOME62 15 
Interest expense(56)(58)
Other income, net— 14 
INCOME (LOSS) BEFORE INCOME TAXES6 (29)
Provision for income taxes(10)(25)
NET LOSS$(4)$(54)

Three Months Endedmonths ended December 31, 20162020 Results Compared with the Three months ended December 31, 2019
Revenue
Revenue decreased infor the first three months ended December 31, 2020 was $743 million compared to $715 million for the three months ended December 31, 2019. The increase was primarily driven by higher revenue from the Company's subscription offerings; revenue from the fulfillment of fiscal 2018 primarilycertain obligations related to a new government contract; revenue growth from the Company's Avaya Cloud Office offering which launched on March 31, 2020; higher demand for remote agent licenses for the Company's CC solutions as thea result of the COVID-19 pandemic; and the favorable impact of foreign currency exchange rates. The increase was partially offset by lower demand for products and services due to extended procurement cycles resulting from the Bankruptcy Filing, the sale of the Networking business in July 2017 and the impact of fresh start accounting following the Emergence Date. The lower demand for ourCompany's on-premise unified communications contact center and networking products has contributed, in part, to lower maintenance services revenue and private cloud and managed services revenue.solutions.



The following table displays revenue and the percentage of revenue to total sales by operating segment for the periods indicated:
Percentage of Total RevenueYr. to Yr. Percentage ChangeYr. to Yr. Percentage Change, net of Foreign Currency Impact
Three months ended
December 31,		Three months ended
December 31,
(In millions)2020201920202019
Products & Solutions$266 $298 36 %42 %(11)%(12)%
Services477 419 64 %58 %14 %13 %
Unallocated amounts— (2)— %— %(1)(1)
Total revenue$743 $715 100 %100 %4 %3 %
          Percentage of Total Revenue    
 Successor  Predecessor Non-GAAP Combined Predecessor Non-GAAP Combined Predecessor   Yr. to Yr. Percentage Change, net of Foreign Currency Impact
(In millions)Period from December 16, 2017 through December 31, 2017  Period from October 1, 2017 through December 15, 2017 Three Months Ended December 31, 2017 Three Months Ended December 31, 2016 Three Months Ended December 31, 2017 Three Months Ended December 31, 2016 Yr. to Yr. Percentage Change 
GCS$71
  $253
 $324
 $343
 43% 39% (6)% (7)%
Networking—
  —
 —
 58
 0% 7% (100)% (100)%
Total ECS product revenue71
  253
 324
 401
 43% 46% (19)% (20)%
AGS77
  351
 428
 474
 57% 54% (10)% (11)%
Total revenue$148
  $604
 $752
 $875
 100% 100% (14)% (15)%
(1)Not meaningful.
Our
Products & Solutions revenue for the three months ended December 31, 20172020 was $752$266 million compared to $875$298 million for the three months ended December 31, 2016.2019. The decrease was primarily attributable to lower demand for the Company's on-
GCS
31
Table of Contents

premise unified communications 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; higher demand for remote agent licenses for the Company's contact center solutions as a result of the COVID-19 pandemic; and the favorable impact of foreign currency exchange rates.
Services revenue for the three months ended December 31, 20172020 was $324$477 million compared to $343$419 million for the three months ended December 31, 2016.2019. The decrease in GCS revenueincrease was primarily attributable to uncertainties, procurement slowdowns and extended procurement cycles resultingdriven by higher revenue from the Bankruptcy Filing. AsCompany's subscription offerings; revenue from the fulfillment of certain obligations related to a result, there was a lower demand for endpoints, gateways, legacy Nortelnew government contract; and Tenovis products, SME Telephony products and servers. The decrease in GCS revenue was also due to the favorable impact of fresh start accounting onforeign currency exchange rates, partially offset by the balance of deferred revenue upon emergence from bankruptcyplanned declines in hardware maintenance and subsequentlysoftware support services which continue to face headwinds driven by lower new product sales over the recognition of revenue in the Successor period.past several years.
Networking revenueUnallocated amounts for the three months ended December 31, 2016 was $58 million. The Networking business was sold2019 represent the fair value adjustment to Extreme in July 2017.
AGSdeferred revenue for the three months ended December 31, 2017 was $428 million compared to $474 million for the three months ended December 31, 2016. The decrease in AGS revenue was primarily due to lower maintenance services revenue as a result of the lower product sales discussed above and lower professional services revenue. The decrease in AGS revenue was also due to the impact of fresh start accounting on the balance of deferred revenuerecognized upon emergence from bankruptcy and subsequently the recognition of related revenue in the Successor period.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    Percentage of Total RevenueYr. to Yr. Percentage ChangeYr. to Yr. Percentage Change, net of Foreign Currency Impact
Successor  Predecessor Non-GAAP Combined Predecessor Non-GAAP Combined Predecessor   Yr. to Yr. Percentage Change, net of Foreign Currency ImpactThree months ended
December 31,		Three months ended
December 31,
(In millions)Period from December 16, 2017 through December 31, 2017  Period from October 1, 2017 through December 15, 2017 Three Months Ended December 31, 2017 Three Months Ended December 31, 2016 Three Months Ended December 31, 2017 Three months ended December 31, 2016 Yr. to Yr. Percentage Change (In millions)2020201920202019
U.S.$71
  $331
 $402
 $466
 53% 53% (14)% (14)%U.S.$414 $394 56 %55 %5 %5 %
International:                International:
EMEA42
  166
 208
 234
 28% 27% (11)% (15)%EMEA195 186 26 %26 %5 %2 %
APAC - Asia Pacific19
  57
 76
 90
 10% 10% (16)% (17)%APAC - Asia Pacific75 77 10 %11 %(3)%(3)%
Americas International - Canada and Latin America16
  50
 66
 85
 9% 10% (22)% (25)%Americas International - Canada and Latin America59 58 8 %8 %2 %— %
Total International77
  273
 350
 409
 47% 47% (14)% (17)%Total International329 321 44 %45 %2 %— %
Total revenue$148
  $604
 $752
 $875
 100% 100% (14)% (15)%Total revenue$743 $715 100 %100 %4 %3 %
Revenue in the U.S. for the three months ended December 31, 2017 was $402 million compared to $466$414 million for the three months ended December 31, 2016. The decrease in U.S.2020 compared to $394 million for three months ended December 31, 2019. Higher revenue was primarily attributablefrom the Company's subscription offerings; revenue from the fulfillment of certain obligations related to a new government contract; revenue growth from the impactCompany's Avaya Cloud Office offering which launched on March 31, 2020; and higher demand for remote agent licenses for the Company's contact center solutions as a result of fresh start accounting on the balance of deferred revenue upon emergence from bankruptcy and subsequentlyCOVID-19 pandemic were partially offset by lower demand for the recognition of related revenue in the Successor period, a decrease in global support services and lower sales ofCompany's on-premise unified communications products including endpoints, SME Telephony, and gateways, as well as the impact of the sale of the Networking business in July 2017.


solutions. Revenue in EMEA (Europe,Europe, Middle East Africa)and Africa ("EMEA") for the three months ended December 31, 20172020 was $208$195 million compared to $234$186 million for the three months ended December 31, 2016.2019. The decreaseincrease in EMEA revenue was primarily attributable tomainly driven by higher revenue from the impact ofCompany's subscription offerings; revenue growth from the sale of the Networking business in July 2017, partially offset byCompany's Avaya Cloud Office offering; and the favorable impact of foreign currency.currency exchange rates. Revenue in APACAsia Pacific ("APAC") for the three months ended December 31, 20172020 was $76$75 million compared to $90$77 million for the three months ended December 31, 2016.2019. The decrease in APAC revenue was primarily attributable to lower demand for the impact ofCompany's on-premise unified communications solutions, partially offset by higher revenue from the sale of the Networking business in July 2017 and lower revenue associated with professional and support services.Company's subscription offerings. Revenue in Americas International for the three months ended December 31, 20172020 was $66$59 million compared to $85$58 million for the three months ended December 31, 2016.2019. The decreaseincrease in Americas International revenue was primarily attributable todriven by higher revenue from the saleCompany's subscription offerings and the favorable impact of foreign currency exchange rates, partially offset by the Networking business in July 2017 and lower sales ofdemand for the Company's on-premise unified communications products including endpoints, SME Telephony, and gateways.
We sell our products directly to end users and through an indirect sales channel. The following table sets forth a comparison of revenue from sales of products by channel and the percentage of product revenue from sales of products by channel for the periods indicated:
          Percentage of Total Revenue    
 Successor  Predecessor Non-GAAP Combined Predecessor Non-GAAP Combined Predecessor   Yr. to Yr. Percentage Change, net of Foreign Currency Impact
(In millions)Period from December 16, 2017 through December 31, 2017  Period from October 1, 2017 through December 15, 2017 Three Months Ended December 31, 2017 Three Months Ended December 31, 2016 Three Months Ended December 31, 2017 Three months ended December 31, 2016 Yr. to Yr. Percentage Change 
Direct$17
  $80
 $97
 $99
 30% 25% (2)% (5)%
Indirect54
  173
 227
 302
 70% 75% (25)% (25)%
Total ECS product revenue$71
  $253
 $324
 $401
 100% 100% (19)% (20)%
solutions.
Gross Profit
The following table sets forth gross profit and gross margin by operating segment for the periods indicated:
Gross MarginChange
Three months ended
December 31,		Three months ended
December 31,
(In millions)2020201920202019AmountPercent
Products & Solutions$161 $194 60.5 %65.1 %$(33)(17)%
Services298 246 62.5 %58.7 %52 21 %
Unallocated amounts(43)(46)(1)(1)3 (1)
Total$416 $394 56.0 %55.1 %$22 6 %
(1)Not meaningful.

32
          Gross Margin    
 Successor  Predecessor Non-GAAP Combined Predecessor Non-GAAP Combined Predecessor Change
(In millions)Period from December 16, 2017 through December 31, 2017  Period from October 1, 2017 through December 15, 2017 Three Months Ended December 31, 2017 Three Months Ended December 31, 2016 Three Months Ended December 31, 2017 Three months ended December 31, 2016 Amount Percent
GCS$41
  $169
 $210
 $231
 64.8% 67.3% $(21) (9.1)%
Networking—
  —
 —
 25
 —
 43.1% (25) (100.0)%
  ECS41
  169
 210
 256
 64.8% 63.8% (46) (18.0)%
AGS50
  196
 246
 284
 57.5% 59.9% (38) (13.4)%
Unallocated amounts(13)  (3) (16) (5) 
(1) 

 
(1) 

 (11) 
(1) 

Total$78
  $362
 $440
 $535
 58.5% 61.1% $(95) (17.8)%
Table of Contents
(1)Not meaningful
Gross profit for the three months ended December 31, 20172020 was $440$416 million compared to $535$394 million for the three months ended December 31, 2016.2019. The decreaseincrease was attributable toprimarily driven by the impact of the sale of the Networking business in July 2017, the decrease in sales of global support services, the impact of applying fresh start accounting upon emergence from bankruptcy and lower sales of unified communications products including endpoints, SME Telephony, and gateways.revenue growth described above.
GCSProducts & Solutions gross profit for the three months ended December 31, 20172020 was $210$161 million compared to $231$194 million for the three months ended December 31, 2016.2019. The decrease was mainly attributable to the lower sales of unified communications products including endpoints, SME Telephony, and gateways, as well asdecline in revenue described above. Products & Solutions gross margin decreased from 65.1% to 60.5% for the impact of applying fresh start accounting upon emergence from bankruptcy.three months ended December 31, 2020 mainly driven by less favorable product mix.
NetworkingServices gross profit for the three months ended December 31, 20162020 was $25 million. The Networking business was sold to Extreme in July 2017.
AGS gross profit for the three months ended December 31, 2017 was $246$298 million compared to $284$246 million for the three months ended December 31, 2016.2019. The decreaseincrease was mainly driven by the growth in AGSrevenue described above. Services gross profit wasmargin increased from 58.7% to 62.5% for the three months ended December 31, 2020 due to a decrease in sales of global support services and the favorable impact of applying fresh start accounting upon emergencehigher revenue from bankruptcy.


the Company's subscription offerings.
Unallocated amounts for the three months ended December 31, 20172020 and 2016 included the effect of2019 include the amortization of technology intangiblesintangibles; 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 RevenueChange
Three months ended
December 31,		Three months ended
December 31,
(In millions)2020201920202019AmountPercent
Selling, general and administrative$255 $283 34.3 %39.6 %$(28)(10)%
Research and development55 52 7.4 %7.3 %3 6 %
Amortization of intangible assets40 41 5.4 %5.7 %(1)(2)%
Restructuring charges, net4 3 0.5 %0.4 %1 33 %
Total operating expenses$354 $379 47.6 %53.0 %$(25)(7)%
          Percentage of Revenue    
 Successor  Predecessor Non-GAAP Combined Predecessor Non-GAAP Combined Predecessor Change
(In millions)Period from December 16, 2017 through December 31, 2017  Period from October 1, 2017 through December 15, 2017 Three Months Ended December 31, 2017 Three Months Ended December 31, 2016 Three Months Ended December 31, 2017 Three months ended December 31, 2016 Amount Percent
Selling, general and administrative$50
  $264
 $314
 $336
 41.7% 38.4% $(22) (7)%
Research and development9
  38
 47
 62
 6.3% 7.1% (15) (24)%
Amortization of intangible assets7
  10
 17
 57
 2.3% 6.5% (40) (70)%
Restructuring charges, net10
  14
 24
 10
 3.2% 1.1% 14
 140 %
Total operating expenses$76
  $326
 $402
 $465
 53.5% 53.1% $(63) (14)%
SG&ASelling, general and administrative expenses for the three months ended December 31, 2017 was $3142020 were $255 million compared to $336$283 million for the three months ended December 31, 2016.2019. The decrease was primarily attributable to higher advisory fees incurred in the prior year period to assist inassociated with executing the assessmentstrategic partnership with RingCentral; lower travel costs as a result of strategicthe COVID-19 pandemic; and financial alternatives to improve the Company’s capital structurelower bad-debt expense, partially offset by higher channel compensation and results from the Networking business, that was sold to Extreme in July 2017, as well as an unfavorable impact of foreign currency.other third-party costs.
R&DResearch and development expenses for the three months ended December 31, 2017 was $472020 were $55 million compared to $62$52 million for the three months ended December 31, 2016.2019. The decreaseincrease was primarily attributable to the results from the Networking business incurredinvestments in the prior year period as that business was sold to Extreme in July 2017.cloud technology development.
Amortization of acquired intangible assets for the three months ended December 31, 2017 was $172020 were $40 million compared to $57$41 million for the three months ended December 31, 2016. The decrease was primarily attributable to certain customer relationships and other intangible assets that were fully amortized during the Predecessor period. The carrying value of intangible assets was adjusted upon the application of fresh start accounting. See Note 6, “Goodwill and Intangible Assets - Intangible Assets” to our unaudited interim Condensed Consolidated Financial Statements for further details, including potential future amortization expense related to intangible assets.2019.
Restructuring charges, net for the three months ended December 31, 2017 was $24 million compared to $10were $4 million for the three months ended December 31, 2016.2020 compared to $3 million for the three months ended December 31, 2019. Restructuring charges recorded during the three months ended December 31, 2017 included employee separation2020 consisted of $3 million for facility exit costs of $13 million primarily associated with employee severance actions in the U.S. and EMEA and lease obligations of $11 million primarily in the U.S. and EMEA. The increase was primarily related to charges$1 million for employee separation costs and payments made under lease termination agreements associated with vacated facilities, particularlyactions in EMEA and the U.S.EMEA. Restructuring charges recorded during thefor three months ended December 31, 2016 included employee separation costs of $8 million2019 primarily associated with employee severance actions in the U.S. and EMEA and lease obligations of $2 million primarily in EMEA.related to exited leased facilities.
Operating Income
Operating income for the three months ended December 31, 20172020 was $38$62 million compared to $70$15 million for the three months ended December 31, 2016.2019. Our operating results for the three months ended December 31, 20172020 as compared to the three months ended December 31, 20162019 reflect, among other things:
•higher revenue and gross profit for the impact of applying fresh start accounting upon emergence from bankruptcy onthree months ended December 15, 2017;31, 2020, as described above; and
•lower selling, general and administrative costs during the three months ended December 31, 2016, the Company recognized $49 million in advisory fees incurred to assist in the assessment of strategic and financial alternatives to improve the Company’s capital structure;
operating results from the Networking business for the three months ended December 31, 2016;


higher restructuring charges for the three months ended December 31, 2017 primarily related to employee separation charges and lease termination agreements associated with vacated facilities particularly in Europe and the U.S.;
a favorable impact of foreign currency on our operating results; and
Operating income includes depreciation and amortization of $53 million and non-cash share-based compensation of $1 million for the three months ended December 31, 2017 compared to depreciation and amortization of $90 million and non-cash share-based compensation of $2 million for the three months ended December 31, 2016.2020, as described above.
Interest Expense
Interest expense for the three months ended December 31, 20172020 was $23$56 million as compared to $174$58 million for the three months ended December 31, 2016.2019. The three months ended December 31, 2016 included non-cash interest expense of $61 million related to the accelerated amortization of debt issuance costs and accretion of debt discount. Our Bankruptcy Filing, which constituted an event of default under our Predecessor first lien obligations and Predecessor second lien obligations, accelerated the Company's payment obligations under those instruments. Consequently, all debtdecrease was mainly driven by lower average principal amounts outstanding under our Predecessor first lien obligations and Predecessor second lien obligations were classified as liabilities subject to compromise and related unamortized deferred financing costs and debt discounts in the amount of $61 million were expensed during the three months ended December 31, 2016. Effective January 19, 2017, the Company ceased recording interest expense on outstanding pre-petition debt classified as liabilities subject to compromise. Contractual interest expense represents amounts due under the contractual terms2020.
33
Table of outstanding debt, including debt subject to compromise. For the period from October 1, 2017 through December 15, 2017, contractual interest expense of $94 million has not been recorded, as it was not expected to be an allowed claim under the Bankruptcy Filing. Cash interest expense for the three months ended December 31, 2017 and 2016 was $23 million and $113 million, respectively, a decrease of $90 million.Contents

Other (Expense) Income, Net
Other (expense) income, net for the three months ended December 31, 20172020 was $(4)$0 million as compared to $4$14 million for the three months ended December 31, 2016.2019. Other expense,income, net for the three months ended December 31, 2017 includes2020 consisted of other pension and post-retirement benefit costscredits of $7 million, and a changepartially offset by an increase in the fair value of the Warrant liabilitywarrants issued in accordance with the Company's bankruptcy plan ("Emergence Date Warrants") of $5 million partially offset by income from the Extreme Transition Services Agreement of $3 million, interest income of $2 million and net foreign currency gainslosses of $2 million. Other income, net for the three months ended December 31, 2016 includes net foreign currency2019 consisted of gains on RingCentral shares received by the Company under the strategic partnership of $11 million partially offset by$12 million; other pension and post-retirement benefit costscredits of $6 million.
Beginning in fiscal 2018, the Company adopted ASU No. 2017-07, "Improving the Presentation$5 million; interest income of Net Periodic Pension Cost$3 million and Net Periodic Post-retirement Benefit Cost." This amendment requires that the service cost component be disaggregated from the other componentssublease income of $2 million, partially offset by net benefit costs on the income statement. The service cost component is reportedforeign currency losses of $4 million; an increase in the same line items as other compensation costs and the other components of net benefit costs are reported in Other (expense) income, net in the Company's Condensed Consolidated Financial Statements. Changes to the Company's Condensed Financial Statements have been applied retrospectively. As a result, the Company reclassified $6 million of other pension and post-retirement benefit costs to Other (expense) income, net for the three months ended December 31, 2016. For the three months ended December 31, 2017, the Company recorded $7 million of other pension and post-retirement benefit costs in Other (expense) income, net. See Note 3, "Recent Accounting Pronouncements - Recently Adopted Accounting Pronouncements," to our unaudited interim Condensed Consolidated Financial Statements for further details.
Reorganization Items, Net
Reorganization items, net for the three months ended December 31, 2017 was $3,416 million. Reorganization items, net consistsfair value of the Emergence Date Warrants of $3 million and other, net gain from the consummation of the Plan of Reorganization and the related settlement of liabilities. Reorganization items, net also represent amounts incurred subsequent to the Bankruptcy Filing as a direct result of the Bankruptcy Filing and is comprised of professional service fees, DIP Credit Agreement financing costs and contract rejection fees.$1 million.
Provision for Income Taxes
The provision for income taxes was $213$10 million for the three months ended December 31, 20172020 compared with a provision for income taxes of $3to $25 million for the three months ended December 31, 2016.2019.
ForThe Company's effective income tax rate for the Successor periodthree months ended December 31, 2017,2020 differed from the difference between the Company’s recorded provision and the benefit that would result from applying the new U.S. statutoryfederal tax rate of 24.5%, is primarily attributable to: (1) income and losses taxed at different foreign tax rates, (2) lossesby 146% or $9 million principally related to deferred 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 unrecognizedand nondeductible expenses.
The Company's effective income tax positions, (5) U.S. state and local income taxes, and (6)rate for the impact of the Tax Cuts and Jobs  Act.
For the Predecessor periodthree months ended December 15, 2017, the difference between the Company’s recorded provision and the provision that would result31, 2019 differed from applying the U.S. statutoryfederal tax rate of 35% is primarily attributable to: (1) income and losses taxed


at different foreign tax rates, (2) lossesby (107)% or $(31) million principally related to deferred 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, and (6) the impact of reorganization and fresh start adjustments.
The Company’s effective income tax rate for fiscal 2016 differs from the statutory U.S. Federal income tax rate primarily due to (1) the effect of tax rate differentials on foreign income/loss, (2) changes in the valuation allowance established against the Company’s deferred tax assets, and (3) tax positions taken during the current period offset by reductions for unrecognized tax benefits resulting from the lapse of statute of limitations.nondeductible expenses.
Net Income (Loss)Loss
Net incomeloss was $3,214$4 million for the three months ended December 31, 20172020 compared to a net loss of $103$54 million for the three months ended December 31, 2016, primarily due to2019, as a result of the reorganization gain of $3,416 million resulting from our emergence from bankruptcy.items discussed above.
Liquidity and Capital Resources
We expect our existing cash balances,balance, cash generated by operations and borrowings available under our ABL Credit Agreement to be our primary sources of short-term liquidity. Based on our current level of operations, we believe these sources will be adequate to meet our liquidity needs for at least the next twelve months. Our ability to meet our cash requirements will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. However, there can be no assuranceBased on our current level of operations, as well as our current estimates of the impact that the COVID-19 pandemic will have on our business will generate sufficientand cash flow, from operations or that future borrowingswe believe these sources will be availableadequate to us undermeet our credit facilities in an amount sufficient to enable us to repay our indebtedness, or to fund our other liquidity needs.
Sources and Uses of Cash
The following reflectsneeds for at least the net cash payments recorded as of the Emergence Date as a result of implementing the Plan of Reorganization:
(In millions) 
Sources: 
Proceeds from Term Loan Credit Agreement, net of original issue discount$2,896
Release of restricted cash76
Total sources of cash2,972
Uses: 
Repayment of DIP Credit Agreement(725)
Payment of DIP accrued interest(1)
Cash paid to Predecessor first lien debt-holders(2,061)
Cash paid to PBGC(340)
Payment for professional fees escrow account(56)
Funding payment for Avaya represented employee pension plan(49)
Payment of accrued professional & administrative fees(27)
Payments of debt issuance costs(59)
Payment for general unsecured claims(58)
Total uses of cash(3,376)
Net uses of cash$(404)


next twelve months.
Cash Flow Activity
The following table provides a summary of the condensed statements of cash flows for the periods indicated:
  Successor  Predecessor Non-GAAP Combined Predecessor
(In millions) Period from December 16, 2017 through December 31, 2017  Period from October 1, 2017 through December 15, 2017 Three months ended December 31, 2017 Three months ended December 31, 2016
Net cash provided by (used for):         
Net income (loss) $237
  $2,977
 3,214
 $(103)
Adjustments to net income (loss) for non-cash items (225)  (3,410) (3,635) 141
Changes in operating assets and liabilities 54
  (7) 47
 (82)
Operating activities 66
  (440) (374) (44)
Investing activities 8
  8
 16
 (15)
Financing activities —
  (102) (102) (57)
Effect of exchange rate changes on cash and cash equivalents 3
  (2) 1
 (11)
Net increase (decrease) in cash and cash equivalents 77
  (536) (459) (127)
Cash and cash equivalents at beginning of period 340
  876
 876
 336
Cash and cash equivalents at end of period $417
  $340
 417
 $209
Three months ended
December 31,
(In millions)20202019
Net cash provided by (used for):
Operating activities$48 $12 
Investing activities(27)268 
Financing activities(6)(271)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash9 5 
Net increase in cash, cash equivalents, and restricted cash24 14 
Cash, cash equivalents, and restricted cash at beginning of period731 756 
Cash, cash equivalents, and restricted cash at end of period$755 $770 
Operating Activities
Cash (used for)provided by operating activities was $(374) million and $(44) million for the three months ended December 31, 20172020 and 2016, respectively.
Adjustments to reconcile net income (loss) to net cash (used for) operations for the three months ended December 31, 2017 and 2016 were $(3,635)2019 was $48 million and $141$12 million, respectively. The adjustmentsincrease was primarily due to higher advisory fees incurred in the currentprior year period primarily consisted ofassociated with executing the gain related to fresh start accounting of $1,671 million, a non-cash reorganization gain of $1,804 millionstrategic partnership with RingCentral; lower interest payments; higher cash earnings; lower income tax payments; and cash paymentslower contributions to the PBGC, for general unsecured creditor claimsCompany's pension and to the APP pension trust of $340 million, $58 million and $49 million, respectively. For the three months ended December 31, 2017, other adjustments included deferred income taxes of $210 million, depreciation and amortization of $53 million, unrealized gain on foreign currency exchange of $4 million, and share-basedpost-retirement benefit plans, partially offset by higher incentive compensation of $1 million. For the three months ended December 31, 2016, other adjustments included depreciation and amortization of $90 million, non-cash interest expense of $61 million, unrealized gain on foreign currency exchange of $8 million, share-based compensation of $2 million and deferred income taxes of $(1) million.
During the three months ended December 31, 2017, changes in our operating assets and liabilities resulted in a net increase in cash and cash equivalents of $47 million. The net increase was driven by increases in deferred revenuepayments and the timing of payments to our vendors, partially offset by timing of collection of accounts receivablecustomer and payments associated with our business restructuring reserves established in previous periods.
During the three months ended December 31, 2016, changes in our operating assets and liabilities resulted in a net decrease in cash and cash equivalents of $(82) million. The net decreases were driven by payments associated with the timing of payments to vendors, our employee incentive programs, and business restructuring reserves. These decreases were partially offset by collection of accounts receivable, increases in accrued interest, increases in deferred revenues and lower inventory.vendor payments.
Investing Activities
Cash provided by (used for)used for investing activities for the three months ended December 31, 2017 and 20162020 was $16$27 million and $(15) million, respectively. During the three months ended December 31, 2017,compared to cash provided by investing activities included the release of restricted cash of $21 million as a result of implementing the Plan of Reorganization, partially offset by capital expenditures of $15 million. During the three months ended December 31, 2016, cash used for investing activities included capital expenditures of $14 million and acquisitions of businesses, net of cash acquired of $4 million, as we continue to enhance our technology portfolio.


Financing Activities
Cash used for financing activities was $102 million and $57$268 million for the three months ended December 31, 2017 and 2016, respectively.2019. The change was primarily due to
Cash flows from financing activities for
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proceeds in the three months ended December 31, 2017 included proceeds of $2,896 millionprior year period from the Term Loan Credit Agreement, offsetsale of shares of RingCentral common stock, which shares were received by repayments of the DIP Credit Agreement of $725 million andCompany upon entry into the first lien debt holders of $2,061 million.strategic partnership in October 2019.
Financing Activities
Cash used for financing activities for the three months ended December 31, 2016 included $45 million of repayments in excess of borrowings under our revolving credit facilities,2020 and 2019 was $6 million of scheduled debt repayments and $5$271 million, repaymentrespectively.
Cash used for financing activities for the three months ended December 31, 2020 included:
•repayments in connection with financing leases of $7 million;
•debt issuance costs of $2 million related to the useCompany's senior notes issuance in the fourth quarter of equipmentfiscal 2020; and
•other financing activities, net of $2 million; partially offset by
•proceeds from the Company's Employee Stock Purchase Plan of $4 million; and
•proceeds from other financing arrangements of $1 million.
Cash used for financing activities for the performance of servicesthree months ended December 31, 2019 included:
•a principal prepayment under our agreement with HP Enterprise Services, LLC ("HP").
Credit Facilities
See Note 9, “Financing Arrangements,” to our unaudited interim Condensed Consolidated Financial Statements for a discussion of ourthe Term Loan Credit Agreement of $250 million;
•repurchases of shares of common stock under the Company's share repurchase program of $132 million;
•payment of acquisition-related contingent consideration of $5 million;
•repayments in connection with financing leases of $3 million; and ABL Credit Agreement.
•other financing activities, net of $2 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.
As of December 31, 2017,2020, the Company was not in defaultcompliance 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 20182021 to be as follows:
•Debt service—We expect to make payments of $160approximately $158 million during the remainder of fiscal 20182021 in principal and interest associated with the Term Loan Credit Agreement, Senior Notes and Convertible Notes, and interest and fees associated with our ABL Credit 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 $70 million to $80 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 $47 million during the remainder of fiscal 2021. These payments include $18 million to satisfy the minimum statutory funding requirements of our U.S. qualified pension plans; $21 million for our non-U.S. benefit plans, which are predominantly not pre-funded; and $8 million for salaried and represented retiree post-retirement benefits. 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 $25$20 million to $30$25 million during the remainder of fiscal 20182021 for employee separation costs and lease termination obligations associated with restructuring actions we have taken through December 31, 2017 and additional actions we may take in fiscal 2018.actions. The Company continues to evaluate opportunities to streamline its operations and identify additional cost savings globally.
Capital expenditures—We expect to spend approximately $50 million to $60 million for capital expenditures and capitalized software development costs during the remainder of fiscal 2018.
Benefit obligations—We estimate we will make payments in respect of our pension and post-retirement benefit obligations totaling $80 million during the remainder of fiscal 2018. These payments include $43 million for the Avaya Pension Plan for represented employees; $24 million for our non-U.S. benefit plans, which are predominately not pre-funded; $1 million for our U.S. retiree medical benefit plan, which is not pre-funded and $12 million for represented retiree post-retirement health trusts. See discussion in Note 13, “Benefit Obligations” to our unaudited interim Condensed Consolidated Financial Statements for further details of our benefit obligations.
Acquisitions—The acquisition of Spoken Communications is expected to close within the next two months and be funded by cash on hand, however the ultimate purchase price and certain other terms are subject to further negotiation.
In addition to the matters identified above, in the ordinary course of business, the Company is involved in litigation, claims, government inquiries, investigations and proceedings, including, but not limited to, those identified in Note 20, "Commitments and Contingencies," to our unaudited interim Condensed Consolidated Financial Statements, relating to intellectual property, commercial, employment, environmental and regulatory matters.
These and other legal matters, couldwhich may require us to make cash payments. 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 manner in which the Company does business and the Company's financial position, results of operations or cash flowsflows.
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We and liquidity.
For the three months ended December 31, 2017, the Company recognized $37 million of costs incurredour subsidiaries and affiliates may from time to time seek to repurchase or prepay our outstanding equity (common stock and warrants) and/or debt (including our Term Loans, Senior Notes and Convertible Notes) through cash purchases and/or exchanges, in connection with the resolution of certain legal matters.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 balances,balance, cash generated by operations and borrowings available under our ABL Credit Agreement to be our primary sources of short-term liquidity.



As of December 31, 20172020 and September 30, 2017,2020, our cash and cash equivalent balances held outside the U.S. were $149$248 million and $246$227 million, respectively. As of December 31, 2017,2020, the Company's cash and cash equivalents held outside the U.S. in excess of in-country needs and, which couldare not expected to be distributedneeded to be repatriated to fund the Company's operations in the U.S. without restriction, were not material.based on our expected future sources of liquidity.
Under the terms of the ABL Credit Agreement, the Company can issue letters of credit up to $150 million. At December 31, 2017,2020, the Company had issued and outstanding letters of credit and guarantees of $74 million.$41 million under the ABL Credit Agreement and had no borrowings outstanding. The aggregate additional principal amount that may be borrowed under the ABL Credit Agreement, based on the borrowing base less $74$41 million of outstanding letters of credit and guarantees, was $139$115 million at December 31, 2017.2020.
We believe that our existing cash and cash equivalents of $417$750 million as of December 31, 2017,2020, 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 future. However, the challenges posed by COVID-19 on our business 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"Commitments and Contingencies,”" to our unaudited interim Condensed Consolidated Financial Statements for further details.
Debt Ratings
On the Emergence Date, the Company obtained ratings from Moody’s Investors Service (“Moody’s”), Standard and Poor's ("S&P") and Fitch Ratings Inc. (“Fitch”). Moody’s issued a corporate family rating of “B2” with a stable outlook and a rating of the 7-year $2,925 million Term Loan Credit Agreement of “B2”. S&P issued a definitive corporate credit rating of "B" with a stable outlook and a rating of the Term Loan Credit Agreement of "B". Fitch issued a Long-Term Issuer Default Rating of “B” with a stable outlook and a rating of the Term Loan Credit Agreement of “B+”.
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 December 31, 2020, 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 Senior Notes and the Term Loan Credit 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; 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.
Critical Accounting Policies and Estimates
Management has reassessed the critical accounting policies asand estimates disclosed in our Registration Statementthe Company's Annual Report on Form 10 Amendment No. 310-K filed with the SECSecurities and Exchange Commission on January 10, 2018November 25, 2020 and determined that there were no significant changes to our critical accounting policies forand estimates during the period from December 16, 2017 throughthree months ended December 31, 2017 and the period from October 1, 2017 through December 15, 2017,2020, except for recently adopted accounting policy changes as discussed in Note 2, “Accounting Policy Changes,”"Recent Accounting Pronouncements," to our unaudited interim Condensed Consolidated Financial Statements.
New Accounting Pronouncements
See discussion in the Company's NotesNote 2, "Recent Accounting Pronouncements," to theour unaudited interim Condensed Consolidated Financial Statements for the fiscal year ended September 30, 2017, included in Amendment No. 3 to the Company’s Form 10 filed with the SEC on January 10, 2018, for further details.

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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 items that are outside the control of management,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 measuresprovides 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 ittherefore presents our financial performance in a way that can be more easily compared to prior quarters or fiscal years. In addition, Adjusted EBITDA serves as a basis for determining certain management and employee compensation. We also present EBITDA and Adjusted EBITDA because we believe analysts and investors utilize these measures in analyzing our results. Under the Company's debt agreements, the ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is tied in part to ratios based on a measure of Adjusted EBITDA.
EBITDA and Adjusted EBITDA have limitations as analytical tools. EBITDA measures do not represent net 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. Generally,Further, Adjusted EBITDA excludes the impact of earnings or charges resulting from matters that we consider not to be indicative of our ongoing operations.operations that still affect our net income. In particular, our formulation of Adjusted EBITDA allows adjustmentadjusts 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, certain fees payable to our Predecessor private equity sponsors and other advisors,impairment charges, resolution of certain legal matters and a portion of our pension costs and post-employmentpost-retirement benefits costs, which represents the amortization of pension service costs and actuarial gain (loss) associated with these benefits. However, these are expenses that may recur, may vary and areand/or may be difficult to predict.
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, is presented below: indicated:
Three months ended
December 31,
(In millions)20202019
Net loss$(4)$(54)
Interest expense56 58 
Interest income— (3)
Provision for income taxes10 25 
Depreciation and amortization103 107 
EBITDA165 133 
Restructuring charges(a)
4 1 
Advisory fees(b)
— 39 
Share-based compensation14 6 
 Change in fair value of Emergence Date Warrants5 3 
Loss on foreign currency transactions2 4 
Gain on investments in equity securities(c)
— (12)
Adjusted EBITDA$190 $174 
(a)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.
(b)Advisory fees represent costs incurred to assist in the assessment of strategic and financial alternatives to improve the Company's capital structure.
(c)Realized and unrealized gains on investments in equity securities

37
 Successor  Predecessor
(In millions)Period from December 16, 2017 through December 31, 2017  Period from October 1, 2017 through December 15, 2017 Three months ended December 31, 2016
Net income (loss)$237
  $2,977
 $(103)
Interest expense (a)
9
  14
 174
Interest income—
  (2) —
(Benefit from) provision for income taxes(246)  459
 3
Depreciation and amortization22
  31
 90
EBITDA22
  3,479
 164
Impact of fresh start accounting adjustments (b)
27
  —
 —
Restructuring charges, net10
  14
 10
Sponsors’ and other advisory fees (c)
8
  3
 51
Reorganization items, net—
  (3,416) —
Non-cash share-based compensation1
  —
 2
Loss on disposal of long-lived assets—
  1
 —
Resolution of certain legal matters (d)
—
  37
 —
Change in fair value of warrant liability5
  —
 —
Gain on foreign currency transactions(2)  —
 (11)
Pension/OPEB/nonretirement postemployment benefits and long-term disability costs (e)
—
  17
 21
Other—
  —
 1
Adjusted EBITDA$71
  $135
 $238
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(a)
Effective January 19, 2017, the Company ceased recording interest expense on outstanding pre-petition debt classified as liabilities subject to compromise. Contractual interest expense represents amounts due under the contractual terms of outstanding debt, including debt subject to compromise. For the period from October 1, 2017 through December 15, 2017, contractual interest expense related to debt subject to compromise of $94 million has not been recorded, as it was not expected to be an allowed claim under the Bankruptcy Filing.
(b)
The impact of fresh start accounting adjustments in connection with the Company's emergence from bankruptcy.
(c)
Sponsors’ fees represent monitoring fees payable to affiliates of two private equity firms, Silver Lake Partners (“Silver Lake”) and TPG Capital (“TPG”, together with Silver Lake, the “Sponsors”) that each had an ownership interest in the Predecessor Company and their designees pursuant to a management services agreement. Upon emergence, the Company no longer has affiliations with the Sponsors. Other advisory fees represent costs incurred to assist in the assessment of strategic and financial alternatives to improve the Company's capital structure.
(d)
Costs in connection with certain legal matters includes reserves and settlements, as well as associated legal costs.
(e)
Represents that portion of our pension and post-employment benefit costs which represent the amortization of prior service costs and net actuarial gain (loss) associated with these benefits.


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this quarterly report,Quarterly Report on Form 10-Q, including statements containing words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would”"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"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. Some of the keyRisks, uncertainties and other factors that couldmay cause actual resultsthese forward-looking statements to differ from our expectations include:
we face formidable competition from providersbe inaccurate include, among others: the risks and factors discussed in Part I, Item 2 "Management's Discussion and Analysis of unified communicationsFinancial Condition and contact center productsResults of Operations" and related services;
market opportunity for business communications products and services may not developPart II, Item 1A "Risk Factors" in the ways that we anticipate;
our ability to relythis Quarterly Report on our indirect sales channel;
our products and services may fail to keep pace with rapidly changing technology and evolving industry standards;
we rely on third-party contract manufacturers and component suppliers, some of which are sole source and limited source suppliers,Form 10-Q as well as warehousingPart I, Item 1A "Risk Factors" and distribution logistics providers;
recently completed bankruptcy proceedings may adversely affectPart II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our operations in the future;
our actual financial results may vary significantly from the financial projectionsAnnual Report on Form 10-K filed with the Bankruptcy Court;SEC on November 25, 2020.
our historical financial information may not be indicative of our future financial performance;
our quarterly and annual revenues and operating results have historically fluctuated and the results of one period may not provide a reliable indicator of our future performance;
operational and logistical challenges as well as changes in economic or political conditions, in a specific country or region;
our revenues are dependent on general economic conditions and the willingness of enterprises to invest in technology;
the potential that we may not be able to protect our proprietary rights or that those rights may be invalidated or circumvented;
certain software we use is from open source code sources, which, under certain circumstances, may lead to unintended consequences;
changes in our tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities;
cancellation of indebtedness income is expected to result in material reductions in, or elimination of, tax attributes;
tax examinations and audits;
fluctuations in foreign currency exchange rates;
business communications products are complex, and design defects, errors, failures or “bugs” may be difficult to detect and correct;
if we are unable to integrate acquired businesses effectively;
failure to realize the benefits we expect from our cost-reduction initiatives;
liabilities incurred as a result of our obligation to indemnify, and to share certain liabilities with, Lucent Technologies, Inc. ("Lucent") (now Nokia Corporation) in connection with our spin-off from Lucent in September 2000;
transfers or issuances of our equity may impair or reduce our ability to utilize our net operating loss carryforwards and certain other tax attributes in the future;
our ability to retain and attract key personnel;


our ability to establish and maintain proper and effective internal control over financial reporting;
if we do not adequately remediate our material weaknesses, or if we experience additional material weaknesses in the future;
potential litigation in connection with our emergence from bankruptcy;
breach of the security of our information systems, products or services or of the information systems of our third-party providers;
business interruptions, whether due to catastrophic disasters or other events;
claims that were not discharged in the Plan of Reorganization could have a material adverse effect on our results of operations and profitability;
potential litigation and infringement claims, which could cause us to incur significant expenses or prevent us from selling our products or services;
the composition of our board of directors has changed significantly;
we have entered into many related party transactions with a significant number of our foreign subsidiaries, which could adversely affect us in the event of their bankruptcy or similar insolvency proceeding; and
environmental, health and safety, laws, regulations, costs and other liabilities.
Any of the assumptions underlying forward-looking statements could be inaccurate. All forward-looking statements are made as of the date of this quarterly reportQuarterly Report on Form 10-Q and the risk that actual results will differ materially from the expectations expressed in this quarterly reportQuarterly 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,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,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 reportQuarterly Report will be achieved.

Item 3.Quantitative and Qualitative Disclosures About Market Risk.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 bearbears interest at variable rates based on LIBOR. As of December 31, 2017,2020, the Company had $1,643 million of variable rate loans outstanding and maintained interest rate swap agreements, which mature on December 15, 2022, to pay a 25 bps increasefixed rate of 2.935% on $1,543 million of the variable rate loans outstanding (the "Swap Agreements"). A hypothetical one percent change in LIBORinterest rates for the $100 million of unhedged variable rate debt as of December 31, 2020 would result in a $7 million increase in ourhave affected annual interest expense by approximately $1 million.
The Company maintains additional interest rate swap agreements, to fix a portion of the variable rate interest due on its Term Loan Credit Agreement (the "Forward Swap Agreements") from December 15, 2022 (the maturity date of the Swap Agreements) through December 15, 2024. Under the terms of the Forward Swap Agreements, the Company will pay a fixed rate of 0.7047% and receive a 25bps decreasevariable rate of interest based on one-month LIBOR. The Forward Swap Agreements have a total notional amount of $1,400 million.
It is management's intention that the net notional amount of interest rate swap agreements be less than the variable rate loans outstanding during the life of the derivatives. For the three months ended December 31, 2020 and 2019, the Company recognized a loss on its interest rate swap agreements of $12 million and $5 million, respectively, which is reflected in LIBOR would resultInterest expense in the Condensed Consolidated Statements of Operations. At December 31, 2020, the Company maintained a $7$80 million decreasedeferred loss on its interest rate swap agreements designated as highly effective cash flow hedges within Accumulated other comprehensive loss in the Condensed Consolidated Balance Sheets.
See Note 10, “Derivative Instruments and Hedging Activities,” to our annualCondensed Consolidated Financial Statements included in Part I, Item I of this quarterly report on Form 10-Q for additional information related to the Company’s interest expense.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, Australian Dollars and Indian Rupee.
Non-U.S. denominated revenue was $176 million for the three months ended December 31, 2020. We estimate a 10% change in the value of the U.S. dollar relative to all foreign currencies would have affected our revenue for the three months ended December 31, 2020 by $18 million.
The Company, from time-to-time, utilizes foreign currency forward contracts primarily to hedge fluctuations associated with certain monetary assets and liabilities including receivables, payables and certain intercompany balances. These foreign currency forward contracts are not designated for hedge accounting treatment. As a result, changes in the fair value of these contracts are recorded as a component of Other income, net to offset the change in the value of the underlying assets and liabilities. As of December 31, 2020, the Company maintained open foreign exchange contracts with a total notional value of $369 million, primarily hedging the British Pound Sterling, Chinese Renminbi, Euro and Indian Rupee. At December 31, 2020, the fair value of open foreign exchange contracts was a net unrealized gain of $1 million, with $2 million recorded in Other current assets and $1 million recorded in Other current liabilities in the Condensed Consolidated Balance Sheets. For both the three months ended December 31, 2020 and 2019, the Company's gain on foreign exchange contracts was $5 million and was recorded within Other income, net in the Condensed Consolidated Statement of Operations.

Item 4.Controls and Procedures.Procedures

Evaluation of Disclosure Controls and Procedures.Procedures
As of December 31, 2020, the end of the period covered by this report, management,the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Chief Financial Officer, that evaluated the effectiveness of the design and operation of the Company’sCompany'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.)amended). Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’sCompany's disclosure controls and procedures were not effective as of December 31, 2017, because of2020 to provide reasonable assurance that information required to be disclosed by the material weaknessesCompany in reports filed or submitted under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Company's internal control over financial reporting described below.
Material Weaknesses in Internal Control Over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement ofSecurities and Exchange Commission's rules and forms and (ii) accumulated and communicated to the Company's annual or interim financial statements will not be prevented or detected on amanagement, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely basis.
In connection with the preparation of the Company’s consolidated financial statements for the quarter ended June 30, 2017, the Company identified control deficiencies that constituted material weaknesses in its internal control over financial reporting. Specifically, the Company did not maintain the appropriate complement of resources in its tax department commensurate with the volume and complexity of accounting for income taxes subsequent to the Company’s Bankruptcy Filing. This material weakness contributed to the following control deficiencies, each of which are individually considered to be material weaknesses, relating to the completeness and accuracy of the Company’s accounting for income taxes, including the related tax assets and liabilities:


Control activities over the completeness and accuracy of interim forecasts by tax jurisdiction used in accounting for the Company’s interim income tax provision were not performed at the appropriate level of precision. This control deficiency resulted in an adjustment to the Company’s income tax provision for the quarter ended June 30, 2017.
Control activities over the completeness and accuracy of the allocation of the tax provision calculations (the “intraperiod allocation”) were insufficient to ensure that the intraperiod allocation balances were accurately determined. This control deficiency resulted in an adjustment to the Company’s income tax provision for the quarter ended June 30, 2017.
These control deficiencies resulted in material adjustments to our income tax provision for the quarter ended June 30, 2017. These adjustments were detected and corrected prior to the release of the related financial statements. However, the existence of these control deficiencies could result in misstatement of the aforementioned accounts and disclosures in the future that could result in a material misstatement of the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, our management has determined that these control deficiencies constitute material weaknesses.
Plan for Remediation
Management has begun implementing a remediation plan to address the control deficiencies that led to the material weaknesses referenced above. The remediation plan includes the following:
Implementing specific additional review procedures over the income tax provision calculations for interim quarters to ensure that the results of such calculations are not inconsistent with the actual results and trends being observed in the business. The deficiency, and the related remediation, applies only to interim quarters in which the income tax provision is based on forecast results for the year. The controls and processes related to the income tax provision for our fiscal year-end are not affected as they are based on actual results for the year.
Hiring additional personnel, including a Vice President of Tax, with the appropriate experience and technical expertise in income taxes.
Notwithstanding the identified material weaknesses, management believes the Condensed Consolidated Financial Statements as included in Part I of the Quarterly Report on Form 10-Q fairly represent, in all material respects, the Company's financial condition, results of operations and cash flows as of and for the periods presented in accordance with generally accepted accounting principles in the United States.decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There werehave 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 most recent fiscal quarter ended December 31, 2020 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.Proceedings
The information included inset forth under Note 20, “Commitments"Commitments and Contingencies,”" to the unaudited interim Condensed Consolidated Financial Statements is incorporated herein by reference.

Item 1A.Risk Factors.Factors
There have been no material changes during the quarterly period ended December 31, 20172020 to the risk factors previously disclosed in the Company’s Registration Statement on Company's Form 10 Amendment No. 310-K filed with the SECSecurities and Exchange Commission on November 25, 2020 other than as shown below:
A breach of the security of our information systems, products or services or of the information systems of our third-party providers could adversely affect our business, operating results and financial condition.
We rely on the security of our information systems and, in certain circumstances, those of our third-party providers, such as channel partners, vendors, consultants and contract manufacturers, to protect our proprietary information and information of our customers. In addition, the growth of bring your own device ("BYOD") programs has increased the need for enhanced security measures. IT security system failures, including a breach of our or our third-party providers’ data security systems, could disrupt our ability to function in the normal course of business by potentially causing, among other things, delays in the fulfillment or cancellation of customer orders, disruptions in the manufacture or shipment of products or delivery of services or an unintentional disclosure of customer, employee or our information. Additionally, despite our security procedures or those of our third-party providers, information systems and our products and services may be vulnerable to threats such as computer hacking, cyber-terrorism or other unauthorized attempts by third parties to access, modify or delete our or our customers’ proprietary information.
Cyberattacks and similar threats are constantly evolving, increasing the difficulty of detecting and successfully defending against them. Computer malware, viruses, scraping and general hacking have become more prevalent in our industry, have occurred on our systems in the past, and may occur on our systems in the future.
We are investigating, with a third-party digital-forensics/incident response firm and external counsel with subject matter expertise, suspicious activity that we believe resulted in unauthorized access to our email system. There is evidence of access to a limited number of Company email messages. In addition, there is no current evidence of unauthorized access to our other internal systems, including those used to support customer offerings and code repositories. Throughout the investigation, which we expect is nearing completion, we have taken a number of remedial actions to strengthen the security of our systems. While any cybersecurity incident could have a material adverse effect on the Company, we do not believe that this incident has had or will have a material adverse impact on our business or operations.
We take cybersecurity seriously and devote significant resources and tools to protect our systems, products and data and the data of our customers from intrusions and to ensure compliance with our contractual and regulatory obligations. However, these security efforts are costly to implement and may not be successful. There can be no assurance that we will be able to prevent, detect and adequately address or mitigate cyberattacks or security breaches. We investigate potential data breach issues identified through our security procedures and terminate, mitigate and remediate such issues as appropriate. Past incidents have involved outside actors and issues stemming from certain internal configuration and migration issues of our applications to other platforms. A breach of our systems could have a material adverse effect on our reputation as a provider of business communications products and services and could cause irreparable damage to us or our systems regardless of whether we or our third-party providers are able to adequately recover critical systems following a systems failure, either or both of which could, in turn, have a material adverse effect on our operating results and financial conditions. In addition, regulatory or legislative action related to cybersecurity, privacy and data protection worldwide, such as the European General Data Protection Regulation (“GDPR”), which went into effect in May 2018, and that of the United Kingdom, which went into effect in January 10, 2018.2021, may increase the costs to develop, implement or secure our products and services. We expect cybersecurity regulations to continue to evolve and be costly to implement. Furthermore, we may need to increase or change our cybersecurity systems and expenditures to support expansion of sales into new industry segments or new geographic markets. If we violate or fail to comply with such regulatory or legislative requirements, we could be fined, which fines could be substantial, or otherwise sanctioned. Any such fines or penalties could have a material adverse effect on our business and operations.

Failure to comply with laws and contractual obligations related to data privacy and protection could have a material adverse effect on our business, operating results and financial condition.
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We are subject to the data privacy and protection laws and regulations adopted by federal, state and foreign governmental agencies, including but not limited to, the European Union's ("EU") GDPR and the United Kingdom’s (“UK”) GDPR (collectively, “GDPR”) and California’s Consumer Privacy Act (“CCPA”). Data privacy and protection is highly regulated and the GDPR imposes new obligations on companies, including us, who process personal data of data subjects who are in the EU or UK, regardless of whether or not that processing takes place in the EU or UK. These requirements substantially increase potential liability for all such companies for failure to comply with data protection rules.
Privacy laws restrict our storage, use, processing, disclosure, transfer and protection of personal information, including credit card data, provided to us by our customers as well as data we collect from our customers and employees. We strive to comply with all applicable laws, regulations, policies and legal obligations relating to privacy and data protection. Our privacy compliance program is based on our binding corporate rules which have been approved by EU regulatory authorities. We endeavor to apply uniform data handling practices, based on GDPR standards, on a global basis throughout all Avaya entities which process personal data, and have signed on to our binding corporate rules. We have dedicated significant time, capital and other resources to craft binding corporate rules that meet GDPR requirements, as well as requirements from other laws such as CCPA. We expect that as privacy laws continue to evolve and become more prevalent throughout the world, we will be required to dedicate additional resources to ensure continued compliance.
From time to time we have notified authorities in the EU and UK of potential personal data breaches and privacy issues, and we keep them appropriately updated. If the authorities determine that we have not complied with applicable laws and regulations, we may be subject to fines, penalties and lawsuits, and our reputation may suffer. Fines imposed on other companies by various data privacy regulatory authorities from the EU or UK for violations of the GDPR have been significant in amount. Furthermore, we may be subject to increased scrutiny going forward and we may also be required to make modifications to our data practices that could have an adverse impact on our business.
These data privacy risks are particularly relevant and applicable to us as a technology company because we process vast amounts of personal and non-personal data on behalf of our customers and we also host significant and increasing amounts of data in our cloud solutionsand in the cloud solutions of other companies. We believe that regulations pertaining to the solicitation, collection, processing, and/or use of personal, financial, and consumer information will continue to expand globally. In addition, the interpretation and application of existing consumer and data protection laws and industry standards in the U.S., Europe and elsewhere is often uncertain and in flux. The application of existing laws to cloud-based solutions is particularly uncertain and cloud-based solutions may be subject to further regulation, the impact of which cannot be fully understood at this time. Moreover, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data and privacy practices. Complying with such laws and regulations may cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business.
We are also subject to the privacy and data protection-related obligations in contracts with our customers, channel partners and other third parties. Any failure, or perceived failure, by us to comply with federal, state, or international laws, including laws and regulations regulating privacy, data or consumer protection, or to comply with our contractual obligations related to privacy, could result in proceedings or actions against us by governmental entities, contractual parties or others, which could result in significant liability to us as well as harm to our reputation. Additionally, third parties on which we rely enter into contracts to protect and safeguard our customers' data. Should such parties violate these agreements or suffer a security breach, we could be subject to proceedings or actions against us by governmental entities, contractual parties or others, which could result in significant liability to us as well as harm to our reputation.

The United Kingdom's withdrawal from the EU may adversely impact our operations in the United Kingdom and elsewhere.
On January 31, 2020, the United Kingdom (the "UK") formally left the European Union (the "EU") and the transition period provided for in the withdrawal agreement entered into by the UK and the EU ended on December 31, 2020. On December 24, 2020, the European Commission reached a trade and corporation agreement with the UK (the "Trade Agreement") that applies provisionally after the end of the transition period until it is ratified by the parties to the agreement. The U.K. House of Commons formally approved the Trade Agreement on December 30, 2020 and the European Union legislature is expected approve the Trade Agreement by March 2021. The Trade Agreement offers UK and EU companies preferential access to each other’s markets, ensuring imported goods will be free of tariffs and quotas; however, economic relations between the UK and the EU will now be on more restricted terms than they were previously. On January 1, 2021, the UK left the EU Single Market and Customs Union, as well as all EU policies and international agreements. As a result, the free movement of persons, goods, services and capital between the UK and the EU ended, and the EU and the UK formed two separate markets and two distinct regulatory and legal spaces.
While the Trade Agreement has removed some uncertainty and a significant amount of financial risk associated with the UK’s exit from the EU, we are still assessing its details and related impact on our EU and UK operations. In addition, there are still a number of areas of uncertainty in connection with the future of the UK and its relationship with the EU and the application and interpretation of the Trade Agreement, and Brexit-related matters may take several years to be clarified and resolved. In
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particular, the Trade Agreement only covers the trade of goods and, therefore, uncertainly remains over the UK's long-term trading of services relationship with the EU. At this time, we cannot predict the impact the Trade Agreement and any future agreements will have on our operations or financial results or on those our clients, and it is possible that new terms may adversely affect our operations and financial results.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.Proceeds
None.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 December 31, 2020:
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)
October 1 - 31, 202071,997 $15.0600 — $185,000,003 
November 1 - 30, 202035,383 $18.7200 — $185,000,003 
December 1 - 31, 2020— $— — $185,000,003 
Total107,380 $16.2660 — 
(1)All purchases included in the column for the periods indicated represent shares of common stock withheld for taxes on restricted stock units that vested.
(2)The Company maintains a warrant repurchase program authorizing 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)The Company maintains a share repurchase program authorizing 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.


Item 3.Defaults Upon Senior Securities.Securities
Not Applicable.None.

Item 4.Mine Safety Disclosures.Disclosures
Not Applicable.applicable.

Item 5.Other Information.Information
None.

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Item 6.Exhibits.
Exhibit NumberItem 6.Exhibits

10.1Exhibit NumberExhibit Description
10.1*
10.231.1
31.1
Certification of James M. Chirico, Jr. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
32.1
32.2
101.INSXBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema
101.CALXBRL Taxonomy Extension Calculation Linkbase
101.DEFXBRL Taxonomy Extension Definition Linkbase
101.LABXBRL Taxonomy Extension Labels Linkbase
101.PREXBRL Taxonomy Extension Presentation Linkbase
104Cover 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.
AVAYA HOLDINGS CORP.
By:
/s/ L. DAVID DELL'OssoKEVIN SPEED
Name:
L. David Dell'Osso
Kevin Speed
Title:Vice President, Corporate Controller &and Chief Accounting Officer
(Principal Accounting Officer)

February 9, 2021
March 2, 2018



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