Exhibit F. Financial Projections

Transcription

1 Exhibit F Financial Projections

2 Financial Projections In connection with the Disclosure Statement, 1 the Debtors management team ( Management ) prepared financial projections ( Financial Projections ) for the Avaya Enterprise for fiscal years 2017 through 2021 (the Projection Period ). The Financial Projections were prepared by Management and are based on a number of assumptions made by Management with respect to the future performance of the Avaya Enterprise s operations. Although Management has prepared the Financial Projections in good faith and believes the assumptions to be reasonable, there can be no assurance that such assumptions will be realized. As described in detail in the Disclosure Statement, a variety of risk factors could affect the Avaya Enterprise s financial results and must be considered. Accordingly, the Financial Projections should be reviewed in conjunction with a review of the risk factors set forth in the Disclosure Statement and the assumptions described herein, including all relevant qualifications and footnotes. The Debtors believe that the Plan meets the feasibility requirements set forth in section 1129(a)(11) of the Bankruptcy Code, as confirmation is not likely to be followed by liquidation or the need for further financial reorganization of the Debtors or any successor under the Plan. In connection with the planning and development of a plan of reorganization and for the purposes of determining whether such plan would satisfy this feasibility standard, the Debtors analyzed their ability to satisfy their financial obligations while maintaining sufficient liquidity and capital resources. These Financial Projections were not prepared with a view toward compliance with published guidelines of the United States Securities and Exchange Commission or guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. An independent auditor has not examined, compiled or performed any procedures with respect to the prospective financial information contained in this Exhibit and, accordingly, it does not express an opinion or any other form of assurance on such information or its achievability. The Avaya Enterprise s independent auditor assumes no responsibility for, and denies any association with, the prospective financial information. Principal Assumptions for the Financial Projections The Financial Projections are based on, and assume the successful implementation of, the Avaya Enterprise s business plan ( Business Plan ). Both the Business Plan and the Financial Projections reflect numerous assumptions, including various assumptions regarding the anticipated future performance of the Avaya Enterprise, industry performance, general business and economic conditions, and other matters, many of which are beyond the control of the Avaya Enterprise. In addition, the assumptions do not take into account the uncertainty and disruption of business that may accompany a restructuring in Bankruptcy Court. Therefore, although the Financial Projections are necessarily presented with numerical specificity, the actual results achieved during the Projection Period will likely vary from the projected results. These variations may be material. Accordingly, no definitive representation can be or is being made with respect to the accuracy of the Financial Projections or the ability of the Avaya Enterprise to achieve the projected results of operations. See Risk Factors. In deciding whether to vote to accept or reject the Plan, creditors must make their own determinations as to the reasonableness of such assumptions and the reliability of the Financial Projections. See Risk 1 All capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Disclosure Statement for the First Amended Joint Chapter 11 Plan of Reorganization of Avaya Inc. and Its Debtor Affiliates (the Disclosure Statement ).

3 Factors. Moreover, the Financial Projections were prepared solely in connection with the restructuring pursuant to the Plan. Under Accounting Standards Codification ASC 852, Reorganizations ( ASC 852 ), the Debtors note that the Financial Projections reflect the operational emergence from chapter 11 but not the impact of fresh start accounting that will likely be required upon emergence. Fresh start accounting requires all assets, liabilities, and equity instruments to be valued at fair value. The Financial Projections account for the reorganization and related transactions pursuant to the Plan. While the Debtors expect that they will be required to implement fresh start accounting upon emergence, they have not yet completed the work required to quantify the impact to the Financial Projections. When the Debtors fully implement fresh start accounting, differences are anticipated and such differences could be material. Safe Harbor Under The Private Securities Litigation Reform Act of 1995 The Financial Projections contain statements which constitute forward-looking statements within the meaning of the Securities Act of 1933, as amended (the Securities Act ) and the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995 (the Exchange Act ). Forward-looking statements in the Financial Projections include the intent, belief, or current expectations of the Debtors and members of its management team with respect to the timing of, completion of, and scope of the current restructuring, Plan, Business Plan, bank financing, and debt and equity market conditions and the Avaya Enterprise s future liquidity, as well as the assumptions upon which such statements are based. While the Debtors believe that the expectations are based on reasonable assumptions within the bounds of their knowledge of their business and operations, parties in interest are cautioned that any such forward-looking statements are not guarantees of future performance, and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Select Risk Factors Related to the Financial Projections The Financial Projections are subject to inherent risks and uncertainties, most of which are difficult to predict and many of which are beyond Management s control. Many factors could cause actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. A description of the risk factors associated with the Plan, the Disclosure Statement, and the Financial Projections is included in Article IX of the Disclosure Statement. Financial Projection General Assumptions Basis of presentation (non-gaap) Non-GAAP P&L excludes certain expenses including intangibles amortization, stock-based compensation, restructuring charges, and impairment charges, as well as interest expense and taxes Fiscal 2017 projections include fiscal Q1 and Q2 actual results as well as fiscal Q3 preliminary results The Company s Networking business, for modeling purposes, is assumed to be sold on 6/30/17 (quarter-end Q3 fiscal 2017) Fiscal projections including expenses, cash flows, Adjusted EBITDA addbacks and balance sheet items reflect the at-emergence termination of the Avaya Pension Plan for Salaried Employees (APPSE)

4 Balance sheet projections include adjustments for fresh start accounting and other emergence sources and uses for illustrative purposes only; projections are non-gaap and not created in accordance with American Institute of Certified Public Accountants Statement of Position 90-7 Non-GAAP P&L Revenue Includes hardware and software product offerings across the Company s UC, CC, and Networking businesses; also includes related maintenance and professional services revenue, as well as APCS revenue for managed communications services. The Company s offerings are ultimately sold to end-users through a combination of direct sales and indirect sales through channel partners. Standard cost Primarily consists of outsourced manufacturing costs associated with hardware product revenues, as well as software royalty costs Other cost of goods sold (OCOGS) Primarily consists of salaries and related overhead costs of personnel engaged in manufacturing, logistics and procurement and other supply chain provisioning activities including freight, warranty costs Services cost of goods sold (SCOGS) Primarily consists of salaries and related overhead costs of personnel engaged in support and services, as well as APCS platform costs and other outsourced costs. Research and development expense (R&D) Primarily include personnel costs, outside engineering costs, professional services, prototype costs, test equipment, software usage fees and related overhead expenses. Sales, marketing, general and administrative expense (SG&A) Sales and marketing expenses primarily include personnel costs, sales commissions, travel, marketing promotional and lead generation programs, trade shows, professional services fees and related overhead expenses. General and administrative expenses consist primarily of salary and benefit costs for executive and administrative staff, the use and maintenance of administrative offices, including depreciation expense, logistics, information systems and legal, financial, human resources, and other corporate functions. Adjusted EBITDA addbacks for Non-GAAP P&L Primarily consists of depreciation expense addbacks and other comprehensive income (OCI) addback; the OCI addback comprises of amortization expense (gain) related to the pension and other post-employment benefits (OPEB )

5 Adjusted EBITDAP Cash Flows Reflects Adjusted EBITDA less OCI addback plus pension/opeb/ltd/fas112 expense; The Adjusted EBITDAP metric removes non-cash components from Adjusted EBITDA, including adjusting to remove the OCI addback, which is a non-cash boost to Adjusted EBITDA in the projection period, as well as to remove the net pension and OPEB expense, which is a non-cash deduction to Adjusted EBITDA in the projection period. Working capital Driven by ordinary course changes in accounts receivable, accounts payable, inventory and deferred revenue Restructuring payments Payments associated with severance for headcount reductions due to termination or relocation of job functions and exiting and consolidation of facilities; primarily reflects payments for initiatives already executed as of year-end fiscal 2017 Pension and OPEB contributions Primarily reflects US and non-us pension contributions required to satisfy minimum applicable amounts under existing law and regulations, as well as payments for other postretirement liabilities Other operating cash flow Primarily reflects adjustments to Adjusted EBITDA to remove non-cash components, including adjusting to remove the OCI addback, which is a non-cash boost to Adjusted EBITDA in the projection period, as well as to remove the net pension and OPEB expense, which is a non-cash deduction to Adjusted EBITDA in the projection period. Other items reflect timing differences between recognition of expense in the P&L vs. actual timing of cash payments related to prepaid expenses, business partner rebates, payroll and benefits, other assets and liabilities, etc. Cash Interest and Cash Taxes Cash Interest is based on pro forma debt of $2.925 billion and cash interest rate of 6.00%; presented without debt paydowns for illustrative purposes in the projection period. Cash Taxes based on analyses conducted by the Company s tax advisors in conjunction with the Joint Chapter 11 Plan of Reorganization of Avaya Inc. and its Debtor affiliates, and reflect the usage of post-emergence US NOLs Capital expenditures Other Primarily reflects corporate IT, real estate, APCS and other investments

6 Proceeds from sale of assets Reflects net cash proceeds from the expected sale of Networking IP monetization Reflects expected proceeds from certain non-core IP assets Other activities Reflects payments associated with existing sale-leaseback and property contracts Selected Balance Sheet Items Accounts Receivable Inventory Accounts receivable are recorded net of reserves for sales returns and allowances and provisions for doubtful accounts. Allowances are based on analyses of historical trends, aging of accounts receivable balances and the creditworthiness of customers. Inventory includes goods awaiting sale (finished goods), equipment that is being installed at customer locations for various installations that are not yet complete and goods to be used in connection with providing maintenance services. Deferred Tax Assets Projections are illustrative and reflect the value of tax-deductible future US pension contributions as well as post-emergence NOLs. Plant Property & Equipment Intangibles Goodwill Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is determined using a straight-line method over the estimated useful lives of the assets. Intangible assets include acquired 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 assets, which range from two to fifteen years. Includes illustrative fresh start accounting adjustment at emergence (pro forma year end fiscal 2017). Goodwill is held constant over the projection period for illustrative purposes. Deferred Revenue

7 Reflects amounts related to prepaid maintenance, deferred projects, advance payments and other items. Pension and OPEB Book value of US pension plans, non-us pension plans and the postretirement plans (OPEB). Projections based on estimates from the Company s actuarial advisors. Business Restructuring Reserve Liability recorded for business restructuring activities. A business restructuring is defined as an exit or disposal activity that is planned and controlled by management and materially changes either the scope of a business or the manner in which that business is conducted. Includes headcount and real estate footprint reductions.

8 Non-GAAP P&L Actual Proj ABP ABP ABP ABP $ in millions FY16 FY17 FY18 FY19 FY20 FY21 Revenue Product $1,755 $1,376 $1,116 $1,091 $1,116 $1,152 y-o-y growth (14%) (22%) (19%) (2%) 2% 3% Services $1,947 $1,829 $1,663 $1,601 $1,577 $1,569 y-o-y growth (5%) (6%) (9%) (4%) (1%) (1%) Total Revenue $3,702 $3,205 $2,778 $2,691 $2,693 $2,721 y-o-y growth (9%) (13%) (13%) (3%) 0% 1% Non-GAAP Gross Margin $2,278 $1,967 $1,738 $1,702 $1,712 $1,740 GM % 62% 61% 63% 63% 64% 64% Non-GAAP Operating Costs R&D $273 $227 $186 $174 $167 $162 SG&A $1,249 $1,094 $951 $897 $861 $834 Non-GAAP Operating Income $756 $647 $601 $630 $684 $743 Depreciation / other addbacks $121 $102 $93 $80 $77 $78 OCI addbacks $62 $95 $14 $20 $19 $17 Adjusted EBITDA $940 $844 $708 $731 $781 $839 Margin % 25% 26% 25% 27% 29% 31% Memo Adjusted EBITDAP $906 $796 $712 $731 $777 $833 Margin % 24% 25% 26% 27% 29% 31%

9 Cash Flow Metrics Actual Proj ABP ABP ABP ABP $ in millions FY16 FY17 FY18 FY19 FY20 FY21 Adjusted EBITDA $940 $844 $708 $731 $781 $839 Change in Working Capital $110 ($51) ($49) ($24) ($13) ($21) Restructuring Payments ($121) ($76) ($57) ($40) ($24) ($20) Pension / OPEB Payments ($160) ($100) ($93) ($86) ($65) ($60) Other Operating Activities ($175) ($237) ($20) ($24) ($21) ($25) Cash Interest ($428) ($339) ($176) ($176) ($176) ($176) Cash Taxes ($51) ($43) ($48) ($100) ($161) ($181) Operating Cash Flow $114 ($2) $266 $282 $322 $355 Capital Expenditures ($95) ($63) ($67) ($66) ($64) ($63) Acquisitions ($20) ($4) $0 $0 $0 $0 Divestitures $0 $0 $0 $0 $0 $0 Proceeds from Sale of Assets $16 $70 $10 $0 $0 $0 IP Monetization Proceeds $0 $0 $125 $0 $0 $0 Other Activities ($24) ($22) ($24) ($1) $0 $0 Total Other Cash Flow ($123) ($19) $44 ($67) ($64) ($63) FX ($10) $0 $0 $0 $0 $0 Total Cash Flow ($19) ($21) $310 $215 $258 $292 Memo Total Cash $350 $660 $874 $1,132 $1,424 Total Debt $2,925 $2,925 $2,925 $2,925 $2,925

10