avatar Avaya Inc. Services
  • Location: California 
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    2018 Annual Report


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    Mission Avaya is a transformative force in digital communications software, services and devices designed for businesses of all sizes. Through our open and innovative solutions, Avaya is taking intelligent experiences to new heights for our customers, partners, and their customers – in the cloud, on-premise or hybrid. Vision Avaya elevates communications to the next generation of engagement, connecting organizations to their customers, workforce and communities with secure, intelligent experiences that matter. #1 Global leader in Contact Center solutions #2 Global leader in Unified Communications FY18 Establishing Momentum* Key Accomplishments Revenue Strengthened 82% 57% 58% 11% foundation for growth Sofware & Recurring Software as a Cloud services % of product Made strategic investments 3.5M $2.4B 63% Upheld best-in-class business model Cloud Total contract Gross Grew Cloud business seats value margin significantly *Non-GAAP numbers


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    April 3, 2019 Dear Avaya Investor: Fiscal 2018 marked an important milestone in Avaya’s history as the company rejoined the ranks of public companies. We set out a strategy to drive growth, innovation and to become a customer-led organization. We are operationalizing and executing against this strategy, and most importantly, we are focused on delivering on our commitments to our customers, partners, employees and investors. Fiscal 2018: A Year of Transition * In fiscal 2018, Avaya achieved annual revenues of $3.06 billion, record gross margin of 62.5% and adjusted EBITDA margin of 24.4%. We made notable progress in our ongoing business model transformation, generating 82.2% of our revenue from software & services and 57.5% from recurring sources, up meaningfully from the prior year. We also made important progress in stabilizing our quarterly revenues as we exited fiscal 2018 and reversed a ten-year trend of high single-digit year-over-year revenue declines. At the same time, we increased investments Adjusted EBITDA in technology and our people. We acquired differentiated cloud capabilities, established an innovation incubator to address emerging 22.1% 25.4% 26.5% 24.4% technologies – launching several new Artificial Intelligence (AI) powered solutions and added world-class talent to our executive management team to help support our ongoing transformation. Our commitment to innovation and our ability to FY15 FY16 FY17 FY18 execute was validated by industry analysts, like Gartner, who returned Avaya to a leadership position in their Magic Quadrants for Unified Communications and Contact Center. Recurring Revenue I am also proud that we were able to enhance our financial flexibility. We strengthened our balance sheet and improved our liquidity, giving 48.1% 51.3% 56.1% 57.5% us future flexibility to pursue strategic investment opportunities to accelerate our path forward. Laying the Foundation for Growth We have built velocity and momentum in our business and made strategic investments that FY15 FY16 FY17 FY18 have translated to results. Additionally, we set the foundation for future growth by focusing on four key growth initiatives.


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    Innovating in Our Core First, there is considerable opportunity in our core offerings. We have the world’s largest installed base of Unified Communications and Contact Center solutions at a time when customers are increasingly demanding converged communications platforms from a single provider. Our installed base is the envy of the industry and our solutions are already being used at the core of most global enterprises. The benefit of incumbency is a massive opportunity for Avaya. Delivering Emerging Technologies Second, in addition to innovating in our core offerings, Avaya is at the forefront of emerging technologies, like AI and Mobility. We have solutions installed in production environments today, setting us apart from many of our competitors. Our solutions address compelling use cases, like harnessing the power of data to enable differentiated customer experiences and utilizing mobility to provide better, more efficient and cheaper customer service. These are disruptive solutions that only we can deliver. I am incredibly excited about the long-term potential of these solutions. Breadth and Depth of Cloud Third, our investments in cloud have put us in a position to benefit from secular growth trends in our industry. Avaya is no longer playing defense when it comes to cloud. While cloud represents 11% of our revenue today, we expect this to increase to 25% of total revenue in the next few years. Our ability to offer private, public and hybrid cloud solutions is a key differentiator, giving Avaya the benefit of helping customers migrate their entire communications platform at whatever pace makes the most sense for them. No other company can provide this. Software & Services Providing High-Value Services Fourth, services are not only a critical part of our offering but also a key differentiator. Services are not simple. We have highly trained 71.3% 74.9% 78.1% 82.2% staff, depth of expertise, and the ability to deliver differentiated solutions for customers. Our services team works with customers to drive value from their investments, day in and day out. It took decades to build these trusted relationships and others simply cannot replicate these overnight. Driving to Sustainable Value Creation FY15 FY16 FY17 FY18 In summary, we have stabilized our revenue trajectory while accelerating investments in our solutions, services and our people. We implemented meaningful changes that touched every part of our company. We understand that transformations don’t happen Non-GAAP Gross Profit overnight, but we acted quickly, decisively and with purpose to address the challenges of today to prepare for future success. Our work ahead is to build on this foundation to create long-term, 61.4% 61.9% 62.0% 62.5% sustainable value for our stockholders. I am honored to lead this company and excited about Avaya’s future. We value your support and thank you for your continued commitment to Avaya. FY15 FY16 FY17 FY18 Sincerely, Jim Chirico President and Chief Executive Officer


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    Forward-Looking Statements Certain statements in this report are forward-looking statements. Such forward-looking statements reflect the current view of Avaya’s management with respect to future events. Subsequent developments may cause these views to change and we specifically disclaim any obligation to publicly update any forward-looking statement, except as otherwise required by law. As such, these forward-looking statements should not be relied upon as of any date subsequent to the date of this report. These statements are subject to risks and uncertainties that could cause actual events or results to differ materially from those in the forward-looking statements. See Avaya’s filings with the Securities and Exchange Commission (SEC), including its most recent filings on Forms 10-K and 10-Q and any reports on Form 8-K, for a discussion of important risk factors. *Financial performance metrics presented herein, such as revenue, gross margin and adjusted EBITDA margin amounts, are not calculated and presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”). These non-GAAP financial measures may provide information that is not directly comparable to that provided by other companies in our industry as those companies may calculate or use non-GAAP financial measures differently. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures in our consolidated financial statements are included in our proxy statement for our 2019 Annual Meeting of Stockholders, which is available on our website at investors.avaya.com.


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    3$57 , ,WHP  Business On January 19, 2017 (the "Petition Date"), Avaya Holdings Corp., together with certain off 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 d States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). On November 28, 2017, the Bankruptcy Court entered an order confirming the Second Amended Joint Plan of Reorganization filed by the Debtors on October 24, 2017 (the "Plan of Reorganization"). On December 15, 2017 (the "Emergence Date"), the Plan of Reorganization became effective and the Debtors emerged from bankruptcy. Beginning on the Emergence Date, the Company applied fresh start accounting, which resulted in a new basis of accounting and the Company becoming a new entity for financial reporting purposes. As a result of the application of fresh start accounting and the effects of the implementation of the Plan of Reorganization, the consolidated financial statements after December 15, 2017 are not comparable with the consolidated financial statements on orr prior to that date. Our financial results for the period from October 1, 2017 through December 15, 2017 are referred to as those of the “Predecessor” period. Our financial results for the period from December 16, 2017 through September 30, 2018 are referred to as those of the “Successor” period or periods. Our results of operations as reported in our Consolidated Financial Statements for these periods are in accordance with accounting principles generally acceptedd in the United States of America (“GAAP”). Although GAAP requires that we report on our results for the period from October 1, 2017 through December 15, 2017 and the period from December 16, 2017 through September 30, 2018 separately, we have in certain instances in this report presented operating results for the fiscal year ended September 30, 2018 by combining the results of the Predecessor and Successor periods because such presentation provides the most meaningful comparison of our results to prior periods. For a more detailed discussion of our bankruptcy proceedings (the “Restructuring”), see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 8, Note 5, "Fresh Start Accounting," to our Consolidated d Financial Statements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³*&6´ DQG$YD\D*OREDO6HUYLFHV ³$*6´ VHJPHQWVWR 3URGXFWV 6ROXWLRQVDQG6HUYLFHVUHVSHFWLYHO\7KHVHZHUHQDPHFKDQJHVRQO\DQGGLGQRWKDYHDQLPSDFWRQWKH RSHUDWLQJUHVXOWVRIHDFKVHJPHQW$YD\DDOVRSUHYLRXVO\KDGD1HWZRUNLQJEXVLQHVVZKLFKZDVVROGRQ-XO\ Products & Solutions 3URGXFWV 6ROXWLRQVHQFRPSDVVHVRXUXQLILHGFRPPXQLFDWLRQVDQGFRQWDFWFHQWHUSODWIRUPVDSSOLFDWLRQVDQGGHYLFHV G ‡ Unified Communications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¶VFDSDELOLWLHVLQWRWKHFXVWRPHU V H[LVWLQJLQIUDVWUXFWXUHDQGEXVLQHVVDSSOLFDWLRQV ‡ Contact Center ("CC"):$YD\D¶VLQGXVWU\-OHDGLQJRPQLFKDQQHOFRQWDFWFHQWHUVROXWLRQVHQDEOHFXVWRPHUVWREXLOGD FXVWRPL]HGSRUWIROLRRIDSSOLFDWLRQVGULYLQJVWURQJHUFXVWRPHUHQJDJHPHQWDQGKLJKHUFXVWRPHUOLIHWLPHYDOXH2XU U UHOLDEOHVHFXUHDQGVFDODEOHFRPPXQLFDWLRQVVROXWLRQVLQFOXGHYRLFHHPDLOFKDWVRFLDOPHGLDYLGHRSHUIRUPDQFH PDQDJHPHQWDQGHDVHRIWKLUG-SDUW\LQWHJUDWLRQWKDWFDQLPSURYHFXVWRPHUVHUYLFHDQGKHOSFRPSDQLHVFRPSHWHPRUH HIIHFWLYHO\ 2


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    ,WHP $ Risk Factors 5LVNV5HODWHGWR2XU%XVLQHVV Our Operations, Markets and Competition If we do not successfully execute our strategic operating plan, or if our strategic operating plan l is flawed, our business, operating results and financial condition could be materially and adversely affected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he market opportunity for business communications solutions and services may not develop in the ways that we anticipate, and we may not succeed in developing new, innovative solutions and services, which could harm our business, operating results and financial condition. 7KHGHPDQGIRURXUVROXWLRQVDQGVHUYLFHVFDQFKDQJHTXLFNO\DQGLQZD\VWKDWZHPD\QRWDQWLFLSDWHEHFDXVHWKHPDUNHWLQ ZKLFKZHRSHUDWHLVFKDUDFWHUL]HG E\UDSLGDQGVRPHWLPHVGLVUXSWLYHWHFKQRORJLFDOGHYHORSPHQWVHYROYLQJLQGXVWU\ X VWDQGDUGVIUHTXHQWQHZSURGXFWLQWURGXFWLRQVDQGHQKDQFHPHQWVFKDQJHVLQFXVWRPHUUHTXLUHPHQWVDQGDOLPLWHGDELOLW\WR DFFXUDWHO\IRUHFDVWIXWXUHFXVWRPHURUGHUV2XURSHUDWLQJUHVXOWVPD\EHDGYHUVHO\DIIHFWHGLIWKHPDUNHWRSSRUWXQLW\IRURXU VROXWLRQVDQGVHUYLFHVGRHVQRWGHYHORSLQWKHZD\VWKDWZHDQWLFLSDWHRULIRWKHUWHFKQRORJLHVEHFRPHPRUHDFFHSWHGRU VWDQGDUGLQRXULQGXVWU\RUGLVUXSWRXUWHFKQRORJ\SODWIRUPV We face formidable competition from providers of unified communications and contact center solutions and services, including cloud- d based solutions, and this competition may negatively impact our business and limit our growth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‡ (QWHUSULVH8& &LVFR0LFURVRIW1(&&RUSRUDWLRQ8QLI\*PE+ &R.J$OFDWHO-/XFHQW(QWHUSULVHDQG+XDZHL ‡ 0LGPDUNHW8&0LWHODQG6KRUH7HO DFTXLUHGE\0LWHO \ &LVFR0LFURVRIWDQG1(& ‡ &ORXG3URGXFWVDQG6HUYLFHV &LVFR%URDGVRIW QRZDGLYLVLRQRI&LVFR Q )X]H7ZLOLR0LFURVRIW[ 5LQJ&HQWUDO0LWHODQG6KRUH7HO DFTXLUHGE\0LWHO  ‡ 9LGHR3URGXFWVDQG6ROXWLRQV&LVFR3RO\FRP QRZDGLYLVLRQRI3ODQWURQLFV +XDZHL=RRP=7(%OXH-HDQVDQG /LIH6L]H QRZDGLYLVLRQRI/RJLWHFK,QWHUQDWLRQDO6$  ‡ (QWHUSULVH&RQWDFW&HQWHU3URGXFWVDQG6HUYLFHV*HQHV\V7HOHFRPPXQLFDWLRQV/DERUDWRULHV *HQHV\V &LVFR +XDZHL(QJKRXVH,QWHUDFWLYH0LWHODQG1,&( ‡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    5LVNV5HODWHGWR2XU)LQDQFLDO5HVXOWV)LQDQFHVDQG&DSLWDO6WUXFWXUH Financial Performance Following the Restructuring, our historical financial information may not be indicative of our future financial performance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n addition to experiencing some seasonall trends, our quarterly and 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    ‡ OLPLWLQJRXUDELOLW\WRPDNHVWUDWHJLFDFTXLVLWLRQVDQGLQYHVWPHQWV ‡ OLPLWLQJRXUDELOLW\WRUHILQDQFHRXULQGHEWHGQHVVDVLWEHFRPHVGXHDQG ‡ OLPLWLQJRXUDELOLW\WRDGMXVWTXLFNO\RUDWDOOWRFKDQJLQJPDUNHWFRQGLWLRQVDQGSODFLQJXVDWDFRPSHWLWLYH GLVDGYDQWDJHFRPSDUHGWRRXUFRPSHWLWRUVZKRDUHOHVVKLJKO\OHYHUDJHG 2XUDELOLW\WRFRQWLQXHWRIXQGRXUREOLJDWLRQVDQGWRUHGXFHGHEWPD\EHDIIHFWHGE\JHQHUDOHFRQRPLFILQDQFLDOPDUNHW FRPSHWLWLYHOHJLVODWLYHDQGUHJXODWRU\IDFWRUVDPRQJRWKHUWKLQJV$QLQDELOLW\WRIXQGRXUGHEWUHTXLUHPHQWVRUUHGXFHGHEW FRXOGKDYHDPDWHULDODGYHUVHHIIHFWRQRXUEXVLQHVVRSHUDWLQJUHVXOWVFDVKIORZVDQGILQDQFLDOFRQGLWLRQ Despite our level of indebtedness, we and our subsidiaries may be able to incur additional d indebtedness. This could further exacerbate the risks associated with our degree of leverage. :HDQGRXUVXEVLGLDULHVPD\EHDEOHWRLQFXUDGGLWLRQDOLQGHEWHGQHVVLQWKHIXWXUH$OWKRXJKRXU7HUP/RDQDQG$%/&UHGLW $JUHHPHQWVFRQWDLQUHVWULFWLRQVRQWKHLQFXUUHQFHRIDGGLWLRQDOLQGHEWHGQHVVWKHVHUHVWULFWLRQVDUHVXEMHFWWRDQXPEHURI VLJQLILFDQWTXDOLILFDWLRQVDQGH[FHSWLRQVDQGDQ\LQGHEWHGQHVVLQFXUUHGLQFRPSOLDQFHZLWKWKHVHUHVWULFWLRQVFRXOGEH VXEVWDQWLDO,QDGGLWLRQWKHLQGHQWXUHIRUWKH&RQYHUWLEOH1RWHVGRHVQRWUHVWULFWXVIURPLQFXUULQJDGGLWLRQDOGHEW7RWKH H[WHQW QHZGHEWLVDGGHGWRRXUDQGRXUVXEVLGLDULHV¶FXUUHQWO\DQWLFLSDWHGGHEWOHYHOVWKHUHODWHGULVNVWKDWZHDQGRXUVXEVLGLDULHV IDFHFRXOGLQWHQVLI\ Our financing agreements contain restrictions that limit, in certain respects, our flexibility in operating our business. 2XUILQDQFLQJDJUHHPHQWVFRQWDLQYDULRXVFRYHQDQWVWKDWOLPLWRXUDELOLW\WRHQJDJHLQVSHFLILFW\SHVRIWUDQVDFWLRQV7KHVH FRYHQDQWVOLPLWRXUDQGRXUVXEVLGLDULHV¶DELOLW\WR ‡ LQFXURUJXDUDQWHHDGGLWLRQDOGHEWDQGLVVXHRUVHOOFHUWDLQSUHIHUUHGVWRFN ‡ SD\GLYLGHQGVRQUHGHHPRUUHSXUFKDVHRXUFDSLWDOVWRFN ‡ PDNHFHUWDLQDFTXLVLWLRQVRULQYHVWPHQWV ‡ LQFXURUDVVXPHFHUWDLQOLHQV ‡ HQWHULQWRWUDQVDFWLRQVZLWKDIILOLDWHVDQG ‡ VHOODVVHWVWRRUPHUJHRUFRQVROLGDWHZLWKDQRWKHUFRPSDQ\ $EUHDFKRIDQ\RIWKHVHFRYHQDQWVFRXOGUHVXOWLQDGHIDXOWXQGHURXUGHEWLQVWUXPHQWV 7KHUHLVQRDVVXUDQFHZHZLOOEHDEOHWRUHSD\RUUHILQDQFHDOORUDQ\SRUWLRQRIRXURURXUVXEVLGLDULHV¶GHEWLQWKHIXWXUH,IZH ZHUHXQDEOHWRUHSD\RURWKHUZLVHUHILQDQFHWKHVHERUURZLQJVDQGORDQVZKHQGXHWKHDSSOLFDEOHVHFXUHGOHQGHUVFRXOG SURFHHGDJDLQVWWKHFROODWHUDOJUDQWHGWRWKHPWRVHFXUHWKDWLQGHEWHGQHVVZKLFKFRXOGIRUFHXVLQWREDQNUXSWF\RUOLTXLGDWLRQ ,QWKHHYHQWRXUOHQGHUVDFFHOHUDWHWKHUHSD\PHQWRIRXURURXUVXEVLGLDULHV¶ERUURZLQJVZHDQGRXUVXEVLGLDULHVPD\QRWKDYH U VXIILFLHQWDVVHWVWRUHSD\WKDWLQGHEWHGQHVV We may not be able to generate sufficient cash to service all of our indebtedness and our other ongoing liquidity needs, and we may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful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¶VFUHGLWIDFLOLWLHVUHVWULFWWKH DELOLW\RI $YD\D,QFDQGFHUWDLQRILWVVXEVLGLDULHVWRGLVSRVHRI DVVHWVDQGXVHWKHSURFHHGVIURPWKHGLVSRVLWLRQ$FFRUGLQJO\ZHPD\QRWEHDEOHWRFRQVXPPDWHWKRVHGLVSRVLWLRQVRUWR REWDLQDQ\SURFHHGVRQWHUPVDFFHSWDEOHWRXVRUDWDOODQGDQ\VXFKSURFHHGVPD\QRWEHDGHTXDWHWRPHHWDQ\GHEWVHUYLFH REOLJDWLRQVZKHQGXH A ratings downgrade or other negative action by a ratings organization could adversely affect our cost of capital. &UHGLWUDWLQJDJHQFLHVFRQWLQXDOO\UHYLVHWKHLUUDWLQJVIRUFRPSDQLHVWKH\IROORZ7KHFRQGLWLRQRIWKHILQDQFLDODQGFUHGLW PDUNHWVDQGSUHYDLOLQJLQWHUHVWUDWHVKDYHEHHQDQGZLOOFRQWLQXHWREHVXEMHFWWRIOXFWXDWLRQ,QDGGLWLRQDQ\DGYHUVH GHYHORSPHQWVLQRXUEXVLQHVVDQGRSHUDWLRQVFRXOGOHDGWRDUDWLQJVGRZQJUDGHIRU$YD\D+ROGLQJV&RUSDQGRU$YD\D,QF  $Q\VXFKIOXFWXDWLRQLQRXUFUHGLWUDWLQJPD\LPSDFWRXUDELOLW\WRDFFHVVGHEWPDUNHWVLQWKHIXWXUHRULQFUHDVHRXUFRVWRI 34


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    IXWXUHGHEWZKLFKFRXOGKDYHDPDWHULDODGYHUVHHIIHFWRQRXURSHUDWLQJUHVXOWVDQGILQDQFLDOFRQGLWLRQ ZKLFKLQUHWXUQPD\ DGYHUVHO\DIIHFWWKHWUDGLQJSULFHRIVKDUHVRIRXUFRPPRQVWRFN Risks Related to Ownership of Our Common Stock and Convertible Notes An active trading market for our common stock may not be sustained. $OWKRXJKRXUFRPPRQVWRFNLVFXUUHQWO\TXRWHGRQWKH1HZ<RUN6WRFN([FKDQJHDQDFWLYHWUDGLQJPDUNHWIRURXUFRPPRQ VWRFNPD\QRWEHVXVWDLQHG,IWKHPDUNHWLVQRWVXVWDLQHGLWPD\EHGLIILFXOWIRUVKDUHKROGHUVWRVHOOVKDUHVRIRXUFRPPRQ VWRFNDWDSULFHWKDWLVDWWUDFWLYHRUDWDOO,QDGGLWLRQDQ LQDFWLYHPDUNHWPD\LPSDLURXUDELOLW\WRUDLVHFDSLWDOE\VHOOLQJVKDUHV DQGPD\LPSDLURXUDELOLW\WRDFTXLUHRWKHUFRPSDQLHVE\XVLQJRXUVKDUHVDVFRQVLGHUDWLRQZKLFKLQWXUQFRXOGPDWHULDOO\ DGYHUVHO\DIIHFWRXUEXVLQHVV The price of our common stock t and/or Convertible Notes may be volatile and fluctuate substantially. 2XUFRPPRQVWRFNLVOLVWHGRQWKH1HZ<RUN6WRFN([FKDQJHDQGWKHSULFHIRURXUFRPPRQVWRFNKDVKLVWRULFDOO\EHHQ YRODWLOH7KHPDUNHWSULFHRIRXUFRPPRQVWRFNDVZHOODVRXU&RQYHUWLEOH1RWHV DVWKH\DUH FRQYHUWLEOHLQWRRXUFRPPRQ VWRFN PD\FRQWLQXHWREHKLJKO\YRODWLOHDQGPD\IOXFWXDWHVXEVWDQWLDOO\GXHWRWKHIROORZLQJIDFWRUV LQDGGLWLRQWRWKHRWKHU ULVNIDFWRUVGHVFULEHGLQWKLVVHFWLRQ  ‡ JHQHUDOHFRQRPLFFRQGLWLRQV ‡ IOXFWXDWLRQVLQRXURSHUDWLQJUHVXOWV ‡ YDULDQFHLQRXUILQDQFLDOSHUIRUPDQFHIURPWKHH[SHFWDWLRQVRIHTXLW\DQGRUGHEWUHVHDUFKDQDO\VWV ‡ FRQGLWLRQVDQGWUHQGVLQWKHPDUNHWVZHVHUYH ‡ DQQRXQFHPHQWVRIVLJQLILFDQWQHZVHUYLFHVRUSURGXFWVE\XVRU Z RXUFRPSHWLWRUV ‡ DGGLWLRQVRIRUFKDQJHVWRNH\HPSOR\HHV ‡ FKDQJHVLQPDUNHWYDOXDWLRQVRUHDUQLQJVRIRXUFRPSHWLWRUV ‡ WUDGLQJYROXPHVRIRXUFRPPRQVWRFNDQGRU&RQYHUWLEOH1RWHV ‡ IXWXUHVDOHVRIRXUHTXLW\VHFXULWLHVDQGRUIXWXUHLVVXDQFHVRILQGHEWHGQHVV ‡ FKDQJHVLQWKHHVWLPDWLRQRIWKHIXWXUHVL]HVDQGJURZWKUDWHVRIRXUPDUNHWV ‡ OHJLVODWLRQRUUHJXODWRU\SROLFLHVSUDFWLFHVRUDFWLRQV ‡ KHGJLQJRUDUELWUDJHWUDGLQJDFWLYLW\E\WKLUGSDUWLHVLQFOXGLQJE\WKHFRXQWHUSDUWLHVWRWKHQRWHKHGJHDQGZDUUDQW WUDQVDFWLRQVWKDWZHHQWHUHGLQWRLQFRQQHFWLRQZLWKWKHLVVXDQFHRIWKH&RQYHUWLEOH1RWHVDQG ‡ GLOXWLRQWKDWPD\RFFXUXSRQDQ\FRQYHUVLRQRIWKH&RQYHUWLEOH 1RWHVRUWKHH[HUFLVHRIWKHZDUUDQWVZHLVVXHGLQ FRQQHFWLRQZLWKWKHLVVXDQFHRIWKH&RQYHUWLEOH1RWHV ,QDGGLWLRQWKHVWRFNPDUNHWVLQJHQHUDOKDYHH[SHULHQFHGH[WUHPHSULFHDQGYROXPHIOXFWXDWLRQVWKDWKDYHDWWLPHVEHHQ XQUHODWHGRUGLVSURSRUWLRQDWHWRWKHRSHUDWLQJSHUIRUPDQFHRIWKHSDUWLFXODUFRPSDQLHVDIIHFWHG7KHVHPDUNHWDQGLQGXVWU\ W IDFWRUVPD\PDWHULDOO\KDUPWKHPDUNHWSULFHRIRXUFRPPRQVWRFNDQGRU&RQYHUWLEOH1RWHVLUUHVSHFWLYHRIRXURSHUDWLQJ SHUIRUPDQFH If securities or industry analysts discontinue publishing research or reports about our business, i or publish negative reports about our business, our share price and trading volume could decline. 7KHWUDGLQJPDUNHWIRURXUFRPPRQVWRFNGHSHQGVLQSDUWRQWKH UHVHDUFKDQGUHSRUWVWKDWVHFXULWLHVRULQGXVWU\DQDO\VWV SXEOLVKDERXWXVRXUEXVLQHVVRXUPDUNHWDQGRXUFRPSHWLWRUV:HGRQRWKDYHDQ\FRQWURORYHUWKHVHDQDO\VWV,IRQHRUPRUH RIWKHDQDO\VWVZKRFRYHUXVGRZQJUDGHRXUVKDUHVRUFKDQJHWKHLURSLQLRQRIRXUVKDUHVRXUVKDUHSULFHZRXOGOLNHO\GHFOLQH ,IRQHRUPRUHRIWKHVHDQDO\VWVFHDVHFRYHUDJHRIRXUFRPSDQ\RUIDLOWRUHJXODUO\SXEOLVKUHSRUWVRQXVZHFRXOGORVH YLVLELOLW\LQWKHILQDQFLDOPDUNHWVZKLFKFRXOGFDXVHRXUVKDUHSULFHRUWUDGLQJYROXPHWRGHFOLQH We currently do not intend to pay dividends on our common stock. :HGRQRWDQWLFLSDWHSD\LQJDQ\FDVKGLYLGHQGVRQVKDUHVRIRXUU FRPPRQVWRFNIRUWKHIRUHVHHDEOHIXWXUH$Q\GHWHUPLQDWLRQWR SD\GLYLGHQGVLQWKHIXWXUHZLOOEHDWWKHGLVFUHWLRQRIRXUERDUGRIGLUHFWRUVDQGZLOOGHSHQGRQRSHUDWLQJUHVXOWVILQDQFLDO FRQGLWLRQFRQWUDFWXDOUHVWULFWLRQVUHVWULFWLRQVLPSRVHGE\DSSOLFDEOHODZDQGRWKHUIDFWRUVRXUERDUGRIGLUHFWRUVGHHPV UHOHYDQW The conditional conversion feature of the Convertible Notes, if triggered, may adversely d affect our fiinancial condition and operating results and/or the market for our common stock. ,QWKHHYHQWWKHFRQGLWLRQDOFRQYHUVLRQIHDWXUHRIRXU&RQYHUWLEOH1RWHVLVWULJJHUHGKROGHUVRI&RQYHUWLEOH1RWHVZLOOEH HQWLWOHGWRFRQYHUWWKH&RQYHUWLEOH1RWHVDWDQ\WLPHGXULQJVSHFLILHGSHULRGVDWWKHLURSWLRQ,IRQHRUPRUHKROGHUVHOHFWWR 35


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    FRQYHUWWKHLU&RQYHUWLEOH1RWHVXQOHVVZHHOHFWWRVDWLVI\RXUFRQYHUVLRQREOLJDWLRQE\GHOLYHULQJVROHO\VKDUHVRIRXUFRPPR U Q VWRFN RWKHUWKDQSD\LQJFDVKLQOLHXRIGHOLYHULQJDQ\IUDFWLRQDOVKDUH ZHZRXOGEHUHTXLUHGWRVHWWOHDSRUWLRQRUDOORIRXU FRQYHUVLRQREOLJDWLRQWKURXJKWKHSD\PHQWRIFDVKZKLFKFRXOGDGYHUVHO\DIIHFWRXUOLTXLGLW\,QDGGLWLRQHYHQLIKROGHUVGR QRWHOHFWWRFRQYHUWWKHLU&RQYHUWLEOH1RWHVZHFRXOGEHUHTXLUHGXQGHUDSSOLFDEOHDFFRXQWLQJUXOHVWRUHFODVVLI\DOORUD SRUWLRQRIWKHRXWVWDQGLQJSULQFLSDORIWKH&RQYHUWLEOH1RWHVDVDFXUUHQWUDWKHUWKDQORQJ-WHUPOLDELOLW\ZKLFKZRXOGUHVXOWLQD PDWHULDOUHGXFWLRQRIRXUQHWZRUNLQJFDSLWDO The convertible note hedge and warrant transactions may affect the value of the Convertible Notes and our common stock. ,QFRQQHFWLRQZLWKWKHSULFLQJRIWKH&RQYHUWLEOH1RWHVZHHQWHUHGLQWRDFRQYHUWLEOHQRWHKHGJH %RQG+HGJH WUDQVDFWLRQ ZLWKHDFKRI%DUFOD\V%DQN3/&&UHGLW6XLVVH&DSLWDO//&DQG-30RUJDQ&KDVH%DQN1DWLRQDO$VVRFLDWLRQ WKH³&DOO 6SUHDG&RXQWHUSDUWLHV´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ignificant exercises of equity awards or warrants orr conversion of convertible debt could adversely affect the market price of the Company’s common stock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¶VFRPPRQ VWRFNZLOOUHGXFHWKHSHUFHQWDJHRIFRPPRQVWRFNKHOGE\WKH&RPSDQ\¶VFXUUHQWVWRFNKROGHUVDQGPD\FDXVHLWVFXUUHQW VWRFNKROGHUVWRVXIIHUVLJQLILFDQWGLOXWLRQZKLFKPD\DGYHUVHO\DIIHFWWKHPDUNHW Our amended and restated certificate of incorporation and our amended and restatedd bylaws may impede or discourage a takeover, which could reduce the market price of our common stock and the value off the Convertible Notes. &HUWDLQSURYLVLRQVLQRXUDPHQGHGDQGUHVWDWHGFHUWLILFDWHRILQFRUSRUDWLRQDQGRXUDPHQGHGDQGUHVWDWHGE\ODZVPD\GHOD\RU SUHYHQWDWKLUGSDUW\IURPDFTXLULQJFRQWURORIXVHYHQLIDFKDQJHLQFRQWUROZRXOGEHEHQHILFLDOWRRXUH[LVWLQJVWRFNKROGHUV 2XUJRYHUQLQJGRFXPHQWVLQFOXGHSURYLVLRQVWKDW ‡ DXWKRUL]HRXUERDUGRIGLUHFWRUVWRFUHDWHDQGLVVXHZLWKRXWVWRFNKROGHUDSSURYDOXSWRVKDUHVRI XQGHVLJQDWHGSUHIHUUHGVWRFNZKLFKFRXOGEHXVHGWRGLOXWHWKHRZQHUVKLSRIDKRVWLOHDFTXLUHU ‡ JUDQWWKHERDUGRIGLUHFWRUVWKHH[FOXVLYHULJKWWRILOODYDFDQF\RQWKHERDUGRIGLUHFWRUVZKHWKHUVXFKYDFDQF\LVGXH WRDQLQFUHDVHLQWKHQXPEHURIGLUHFWRUVRUGHDWKUHVLJQDWLRQ Q RUUHPRYDORIDGLUHFWRUZKLFKSUHYHQWVVWRFNKROGHUV IURPEHLQJDEOHWRILOOVXFKYDFDQFLHVRQWKHERDUGRIGLUHFWRUVDQG ‡ UHTXLUHVWRFNKROGHUVWRIROORZFHUWDLQDGYDQFHQRWLFHSURFHGXUHVWREULQJDSURSRVDOEHIRUHDQDQQXDOPHHWLQJ LQFOXGLQJSURSRVLQJQRPLQHHVIRUHOHFWLRQDVGLUHFWRUVZKLFKPD\GLVFRXUDJHDSRWHQWLDODFTXLUHUIURPVROLFLWLQJ SUR[LHVWRHOHFWWKHDFTXLUHU¶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    ,WHP % Unresolved Staff Comments 1RQH ,WHP  Properties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³&RPPLWPHQWV DQG&RQWLQJHQFLHV´WRRXU&RQVROLGDWHG)LQDQFLDO6WDWHPHQWVLQFOXGHGHOVHZKHUHLQWKLV$QQXDO5HSRUWRQ)RUP-. ,WHP  Legal Proceedings 7KHLQIRUPDWLRQVHWIRUWKXQGHU1RWH &RPPLWPHQWVDQG&RQWLQJHQFLHVLQ1RWHVWR&RQVROLGDWHG)LQDQFLDO6WDWHPHQWVLQ 3DUW,,,WHP RIWKLV$QQXDO5HSRUWRQ)RUP -.LVLQFRUSRUDWHGKHUHLQE\UHIHUHQFH ,WHP  Mine Safety Disclosures 1RWDSSOLFDEOH 37


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    3$57,, ,WHP  Market for Registrant’s Common Equity, i Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information 7KHFRPPRQVKDUHVRI$YD\D+ROGLQJV&RUSDUHOLVWHGRQWKH1HZ<RUN6WRFN([FKDQJH 1<6( DQGEHJDQWUDGLQJRQWKH 1<6(RQ-DQXDU\XQGHUWKHV\PERO$9<$ Number of Holders of Common Shares 7KHQXPEHURIUHFRUGKROGHUVRIFRPPRQVKDUHVDVRI1RYHPEHU ZDV7KDWQXPEHUGRHVQRWLQFOXGHWKHEHQHILFLDO RZQHUVRIVKDUHVKHOGLQ³VWUHHW´QDPHRUKHOGWKURXJKSDUWLFLSDQWVLQGHSRVLWRULHVVXFKDV7KH'HSRVLWRU\7UXVW&RPSDQ\ Dividends 1RGLYLGHQGVZHUHSDLGE\$YD\D+ROGLQJV&RUSRYHUWKHSDVWWZRILVFDO\HDUV:HFXUUHQWO\LQWHQGWRUHWDLQDOODYDLODEOH IXQGVDQGDQ\IXWXUHHDUQLQJVWRIXQGWKHGHYHORSPHQWDQGJURZWKRIRXUEXVLQHVVDQGWKHUHIRUHZHGRQRWDQWLFLSDWHSD\LQJ DQ\FDVKGLYLGHQGVLQWKHIRUHVHHDEOHIXWXUH Purchases of Equity Securities by the Issuer 7KHIROORZLQJWDEOHSURYLGHVLQIRUPDWLRQZLWKUHVSHFWWRSXUFKDVHVE\WKH&RPSDQ\RIVKDUHVRIFRPPRQVWRFNGXULQJWKH TXDUWHUHQGHG6HSWHPEHU ,VVXHU3XUFKDVHVRI(TXLW\6HFXULWLHV D E F G 0D[LPXP1XPEHU RU 7RWDO1XPEHURI6KDUHV $SSUR[LPDWH'ROODU RU8QLWV 3XUFKDVHGDV 9DOXH RI6KDUHV RU8QLWV  7RWDO1XPEHURI $YHUDJH3ULFH 3DUWRI3XEOLFO\ 7KDW0D\<HW%H 6KDUHV RU8QLWV 3DLGSHU6KDUH RU $QQRXQFHG3ODQVRU 3XUFKDVHG8QGHU3ODQVRU 3HULRG 3XUFKDVHG  8QLW 3URJUDPV 3URJUDPV -XO\ - ²  ² 1$ 1$ $XJXVW - ²  ² 1$ 1$ 6HSWHPEHU-    1$ 1$ 7RWDO  1$ 1$  5HSUHVHQWVVKDUHVRIFRPPRQVWRFNZLWKKHOGIRUWD[HVRQUHVWULFWHGVWRFNXQLWVWKDWYHVWHG Recent Sales of Unregistered Securities 1RQH 38


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    Stock Performance Graph 7KHIROORZLQJJUDSKFRPSDUHVWKHFXPXODWLYHWRWDOUHWXUQRQRXUU FRPPRQVWRFNIRUWKHSHULRGIURP'HFHPEHUWKH GDWHWKHFRPPRQVWRFNEHJDQWUDGLQJWKURXJK6HSWHPEHUZLWKWKHWRWDOUHWXUQRYHUWKHVDPHSHULRGRQWKH5XVVHOO ,QGH[DQGWKH1$6'$4&RPSXWHU,QGH[7KHJUDSKDVVXPHVWKDWZDVLQYHVWHGRQ'HFHPEHULQWKH &RPSDQ\ VFRPPRQVWRFNDQGLQHDFKRIWKHLQGLFHVDQGDVVXPHVUHLQYHVWPHQWRIGLYLGHQGVLIDQ\7KHJUDSKLVEDVHGRQ KLVWRULFDOGDWDDQGLVQRWQHFHVVDULO\LQGLFDWLYHRIIXWXUHSULFHSHUIRUPDQFH Comparision of Total Return $150 $140 $130 Index Value $120 $110 $100 $90 7 7 8 8 8 8 8 8 8 8 8 /19/1 /29/1 /31/1 /28/1 /29/1 /30/1 /31/1 /29/1 /31/1 /31/1 /28/1 12 12 01 02 03 04 05 06 07 08 09 Avaya Holdings Corp. Russell 2000 Index NASDAQ Computer Index            $YD\D+ROGLQJV&RUS                       5XVVHOO,QGH[                       1$6'$4&RPSXWHU ,QGH[                       7KLV3HUIRUPDQFH*UDSKZLOOQRWEHGHHPHGWREHLQFRUSRUDWHGE\UHIHUHQFHLQWRDQ\ILOLQJXQGHUWKH6HFXULWLHV$FWRIRU \ WKH6HFXULWLHV([FKDQJH$FWRIH[FHSWWRWKHH[WHQWWKDWWKH&RPSDQ\VSHFLILFDOO\LQFRUSRUDWHVLWE\UHIHUHQFH,Q DGGLWLRQWKH3HUIRUPDQFH*UDSK K ZLOOQRWEHGHHPHGWREH³VROLFLWLQJPDWHULDO´RUWREH³ILOHG´ZLWKWKH6(&RUVXEMHFWWR 5HJXODWLRQ$RU&RWKHUWKDQDVSURYLGHGLQ5HJXODWLRQ6-.RUWRWKHOLDELOLWLHVRIVHFWLRQRIWKH6HFXULWLHV([FKDQJH $FWRIH[FHSWWRWKHH[WHQWWKDWWKH&RPSDQ\VSHFLILFDOO\UHTXHVWVWKDWVXFKLQIRUPDWLRQEHWUHDWHGDVVROLFLWLQJPDWHUL \ DO RUVSHFLILFDOO\LQFRUSRUDWHVLWE\UHIHUHQFHLQWRDILOLQJXQGHUWKH6HFXULWLHV$FWRUWKH([FKDQJH$FW 39


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