What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-11 compared with 2021-02-26 · 420 added, 602 removed, 1461 unchanged (41% of the section changed)

Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2021, 2020 and 2019

Consolidated Statements of Stockholders' Equity for the years ended December 31, 2021, 2020 and 2019

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In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, the Company adopted Accounting Standards Codification Topic 842, “Leases,” using the alternative transition approach on January 1, 2019.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 11, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

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• With the assistance of our data analytics specialists, we evaluated the estimated standalone selling price analyses prepared by the Company, including testing the underlying detail of standalone sales and the mathematical accuracy of the calculations.

Business Combinations – ECI Telecom Group Ltd.

Acquisition – Refer to Notes 2 and 3 to the financial statements

Goodwill – IP Optical Networks Reporting Unit — Refer to Notes 2 and 10 to the financial statements

Critical Audit Matter Description

The Company completed the acquisition of ECI Telecom Group Ltd.

(“ECI”) on March 3, 2020 by issuing to the ECI shareholders and certain others 32.5 million shares of the Company’s common stock with a fair value of $108.6 million and paying $322.5 million of cash.

The Company accounted for the acquisition under the acquisition method of accounting for business combinations.

Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including customer relationships, developed technology, and in-process research and development intangible assets with an aggregate fair value of approximately $116 million, $112 million, and $34 million, respectively.

The Company used an income approach to value the acquired in-process research and development, developed technology, and customer relationships intangible assets.

The fair value determination of these intangible assets required management to make significant estimates and assumptions related to forecasted future cash flows, including the selection of customer attrition rates, technology obsolescence, revenue growth rates, and discount rates.

We identified the intangible assets for ECI as a critical audit matter because of the significant estimates and assumptions management made to fair value these assets.

This required a high degree of auditor judgment and an increased extent of effort, including the involvement of our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s forecasts of future cash flows, including the selection of customer attrition rates, technology obsolescence, revenue growth rates, and discount rates.

The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value.

The Company used a combination of the income and market approaches to estimate reporting unit fair value.

With respect to the income approach, management is required to make significant estimates and assumptions related to discount rates and forecasts of future revenue.

Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both.

The goodwill balance was $417 million as of December 31, 2021, of which $192 million was allocated to the IP Optical Networks Reporting Unit (“IP Optical”).

The carrying value of IP Optical exceeded its fair value as of December 31, 2021, and, therefore, $116 million of impairment was recognized.

Given the significant judgments made by management to estimate the fair value of IP Optical, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the selection of the discount rate and forecasts of future revenue and profit margin required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the forecasts of future cash flows and the selection of the customer attrition rates, technology obsolescence, revenue growth rates, and discount rates for the intangible assets for ECI included the following, among others:

• We tested the effectiveness of controls over the valuation of the customer relationships, developed technology, and in-process research and development intangible assets, including management’s controls over forecasts of future cash flows and the selection of the customer attrition rates, technology obsolescence, revenue growth rates, and discount rates.

• We assessed the reasonableness of fiscal year 2020 forecasted cash flows of revenues and operating margins by comparing them to ECI’s actual 2020 cash flows.

• We assessed the reasonableness of the forecasted revenue growth rates over the cash flow forecast period by comparing them to ECI’s actual revenue growth rates during the most recent historical periods as well as certain peer companies, third-party industry forecasts, and internal communications to management and the board of directors.

• We performed sensitivity analyses of the significant assumptions used in the valuation model to evaluate the change in fair value resulting from changes in the significant assumptions.

• With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology;

(2) customer attrition rates by testing the mathematical accuracy of the rates used and comparing them to historical customer data;

(3) technology obsolescence by testing the source information;

(4) revenue growth rates by comparing them to industry growth rates and the projected nominal gross domestic product (GDP) growth rate;

and (5) discount rates, which included testing the source information underlying the determination of the discount rates, testing the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rates selected by management.

Our audit procedures related to the discount rate and forecasts of future revenue and profit margin, used by management to estimate the fair value of IP Optical, included the following, among others:

• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of IP Optical, such as controls related to management’s selection of the discount rate and forecasts of future revenue and profit margin.

• We evaluated management’s ability to accurately forecast future revenues and profit margins by comparing actual results to management’s historical forecasts.

• We evaluated the reasonableness of management’s revenue and profit margin forecasts by comparing the forecasts to:

◦ Historical revenues and profit margins.

◦ Internal communications to management and the Board of Directors.

◦ Forecasted information included in Company press releases as well as in analyst and industry reports for the Company and certain of its peer companies.

• We evaluated the impact of changes in management’s forecasts from the October 1, 2021, annual measurement date to December 31, 2021.

• With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rate by:

◦ Testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculation.

◦ Developing a range of independent estimates and comparing those to the discount rate selected by management.

/s/ Deloitte & Touche LLP

Dallas, Texas

February 26, 2021

March 11, 2022

We have served as the Company's auditor since 2005.

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Current portion of term debt $ 20,058 $ 15,531

Revolving credit facility — 8,000

Accounts payable 97,121 63,387

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Accumulated deficit ( 1,355,661 ) ( 1,178,476 )

Accumulated other comprehensive (loss) income ( 4,942 ) 2,527

Accumulated other comprehensive income (loss) 7,578 ( 4,942 )

Total stockholders' equity 527,166 686,853

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Service 147,209 145,916 112,680

Amortization of acquired technology 38,343 42,290 37,573

Total cost of revenue 400,297 392,978 246,027

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Total operating expenses 562,456 449,148 506,544

Income (loss) from operations 1,669 ( 189,460 ) ( 65,408 )

(Loss) income from operations ( 117,796 ) 1,669 ( 189,460 )

Interest expense, net ( 15,831 ) ( 21,042 ) ( 3,877 )

Other income (expense), net 112,690 70,444 ( 3,772 )

Income (loss) before income taxes 93,317 ( 122,893 ) ( 73,410 )

Income tax provision ( 4,726 ) ( 7,182 ) ( 3,400 )

Net income (loss) $ 88,591 $ ( 130,075 ) $ ( 76,810 )

Earnings (loss) per share:

Other (expense) income, net ( 74,516 ) 112,690 70,444

(Loss) income before income taxes ( 208,143 ) 93,317 ( 122,893 )

Income tax benefit (provision) 30,958 ( 4,726 ) ( 7,182 )

Net (loss) income $ ( 177,185 ) $ 88,591 $ ( 130,075 )

(Loss) earnings per share:

Basic $ ( 1.20 ) $ 0.64 $ ( 1.19 )

Diluted $ ( 1.20 ) $ 0.61 $ ( 1.19 )

Shares used to compute earnings (loss) per share:

Shares used to compute (loss) earnings per share:

Basic 147,575 138,967 109,734

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RIBBON COMMUNICATIONS INC.

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Comprehensive (Loss) Income

(in thousands)

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2021 2020 2019

Net income (loss) $ 88,591 $ ( 130,075 ) $ ( 76,810 )

Net (loss) income $ ( 177,185 ) $ 88,591 $ ( 130,075 )

Other comprehensive income (loss), net of tax:

Unrealized loss on interest rate swap, net of reclassifications ( 10,948 ) — —

Unrealized gain (loss) on interest rate swap, net of reclassifications 12,759 ( 10,948 ) —

Foreign currency translation adjustments ( 239 ) 894 194

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Employee retirement benefits — 2,585 ( 1,960 )

Other comprehensive (loss) income, net of tax ( 7,469 ) ( 1,176 ) 634

Comprehensive income (loss), net of tax $ 81,122 $ ( 131,251 ) $ ( 76,176 )

Other comprehensive income (loss), net of tax 12,520 ( 7,469 ) ( 1,176 )

Comprehensive (loss) income, net of tax $ ( 164,665 ) $ 81,122 $ ( 131,251 )

See notes to the consolidated financial statements.

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Balances, January 1, 2019 106,815,636 $ 11 $ 1,723,576 $ ( 1,136,992 ) $ 3,703 $ 590,298

Adoption of Accounting Standards Codification 606, Revenue from Contracts with Customers

12,244 12,244

Exercise of stock options 15,935 73 73

Vesting of restricted stock units 1,278,062 —

Vesting of performance-based stock awards and units 57,768 —

Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations ( 524,516 ) ( 2,024 ) ( 2,024 )

Shares issued as consideration in connection with the acquisition of Edgewater Networks, Inc.

4,235,531 1 29,999 30,000

Assumption of equity awards in connection with the acquisition of Edgewater Networks, Inc.

Stock-based compensation expense 10,013 10,013

Other comprehensive income 634 634

Net loss ( 76,810 ) ( 76,810 )

Balances, December 31, 2018 106,815,636 11 1,723,576 ( 1,136,992 ) 3,703 590,298

Issuance of common stock in connection with employee stock purchase plan 282,646 863 863

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Vesting of restricted stock awards and units 1,504,707 —

Vesting of performance-based stock units 9,466 —

Vesting of performance-based stock awards and units 9,466 —

Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations ( 240,673 ) ( 1,193 ) ( 1,193 )

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Repurchase and retirement of common stock ( 975,914 ) ( 4,536 ) ( 4,536 )

Reclassification of liability to equity for bonuses converted to stock awards 1,052 1,052

Stock-based compensation expense 12,601 12,601

Reclassification of liability to equity for bonuses converted to stock awards 1,052 1,052

Other comprehensive loss ( 1,176 ) ( 1,176 )

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32,500,000 $ 3 108,547 108,550

Shares issued as consideration in connection with the acquisition of Anova Data, Inc.

Shares issued as consideration in connection with acquisition of Anova Data, Inc.

316,551 1,630 1,630

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Balances, December 31, 2020 145,425,248 15 1,870,256 ( 1,178,476 ) ( 4,942 ) 686,853

Exercise of stock options 13,815 24 24

Vesting of restricted stock awards and units 3,653,552 —

Vesting of performance-based stock units 1,557,656 —

Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations ( 1,754,963 ) ( 14,464 ) ( 14,464 )

Stock-based compensation expense 19,418 19,418

Other comprehensive income 12,520 12,520

Net loss ( 177,185 ) ( 177,185 )

Balances, December 31, 2021 148,895,308 $ 15 $ 1,875,234 $ ( 1,355,661 ) $ 7,578 $ 527,166

See notes to the consolidated financial statements.

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Cash flows from operating activities:

Net income (loss) $ 88,591 $ ( 130,075 ) $ ( 76,810 )

Adjustments to reconcile net income (loss) to cash flows provided by (used in) operating activities:

Net (loss) income $ ( 177,185 ) $ 88,591 $ ( 130,075 )

Adjustments to reconcile net (loss) income to cash flows provided by operating activities:

Depreciation and amortization of property and equipment 16,962 17,188 11,949

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Gain on sale of business ( 2,772 ) ( 83,552 ) —

Increase in fair value of investments ( 30,296 ) — —

Decrease (increase) in fair value of investments 71,252 ( 30,296 ) —

Reduction to deferred purchase consideration — ( 70 ) ( 8,124 )

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Deferred revenue 6,904 ( 5,955 ) ( 2,111 )

Net cash provided by (used in) operating activities 101,564 55,685 ( 9,595 )

Net cash provided by operating activities 19,182 101,564 55,685

Cash flows from investing activities:

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Business acquisitions, net of cash acquired — ( 346,852 ) —

Proceeds from sale of business 2,944 — —

Sales/maturities of marketable securities — — 7,295

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Repurchase of common stock — — ( 4,536 )

Net cash provided by (used in) financing activities 319,303 ( 51,277 ) 31,773

Net cash (used in) provided by financing activities ( 33,683 ) 319,303 ( 51,277 )

Effect of exchange rate changes on cash and cash equivalents ( 523 ) 260 70

Net increase (decrease) in cash and cash equivalents 91,054 949 ( 13,379 )

Cash and cash equivalents, beginning of year 44,643 43,694 57,073

Net (decrease) increase in cash and cash equivalents ( 29,212 ) 91,054 949

Cash, cash equivalents and restricted cash, beginning of year 135,697 44,643 43,694

Cash, cash equivalents and restricted cash, end of year $ 106,485 $ 135,697 $ 44,643

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Business acquisition purchase consideration - deferred payments $ — $ 1,630 $ 1,700

Business acquisition purchase consideration - assumed equity awards $ — $ — $ 747

Supplemental disclosure of non-cash financing activities:

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("Ribbon" or the "Company") is a leading global provider of communications technology to service providers and enterprises.

The Company provides a broad range of software and high-performance hardware products, solutions and services that enable the secure delivery of data and voice communications for residential consumers and for small, medium, and large enterprises and industry verticals such as finance, education, government, utilities, and transportation.

The Company provides a broad range of software and high-performance hardware products, network solutions, and services that enable the secure delivery of data and voice communications, and high-bandwidth networking and connectivity for residential consumers and for small, medium, and large enterprises and industry verticals such as finance, education, government, utilities, and transportation.

Ribbon's mission is to create a recognized global technology leader providing cloud-centric solutions that enable the secure exchange of information, with unparalleled scale, performance, and elasticity.

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("AVCT") completed the purchase of the Company's cloud-based enterprise service business (the "Kandy Communications Business").

The revenue and expenses of the Kandy Communications Business are not included in the Company's consolidated financial statements for the period subsequent to the Kandy Sale Date.

The revenue and expenses of the Kandy Communications Business are excluded from the Company's consolidated financial statements for the period subsequent to the Kandy Sale Date.

On March 3, 2020 (the "ECI Acquisition Date"), the Company merged with ECI Telecom Group Ltd ("ECI") (the "ECI Acquisition").

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The financial results of Anova are included in the Company's consolidated financial statements for the period subsequent to the Anova Acquisition Date.

On August 3, 2018 (the "Edgewater Acquisition Date"), the Company completed the acquisition of Edgewater Networks, Inc.

("Edgewater" and such acquisition, the "Edgewater Acquisition").

The financial results of Edgewater are included in the Company's consolidated financial statements for the period subsequent to the Edgewater Acquisition Date.

Significant Accounting Policies

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Ribbon bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances.

Actual results could differ from those

Actual results could differ from those estimates.

RIBBON COMMUNICATIONS INC.

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Reclassifications

In the fourth quarter of 2020, the Company reclassified amounts recorded for amortization of acquired intangible assets in prior presentations from Cost of revenue - product and Sales and marketing to a separate line included in operating expenses in the consolidated statements of operations, as management believes this presentation enhances the comparability of the Company's financial statements with industry peers.

These reclassifications did not impact operating loss, net loss or loss per share for any historical periods.

In the fourth quarter of 2021, the Company reclassified amounts recorded for amortization of certain acquired intangible assets in prior presentations from Total operating expenses under the caption "Amortization of acquired intangible assets" to Cost of revenue under the caption "Amortization of acquired technology" in the consolidated statements of operations.

The Company's management believes this presentation aids in the comparability of its financial statements to industry peers.

These reclassifications did not impact operating income (loss), net income (loss) or earnings (loss) per share for any historical periods.

These reclassifications also did not impact the consolidated balance sheets or statements of cash flows for any historical periods.

The Company did not reclassify depreciation of property and equipment related to production activities from cost of revenue to other accounts.

The Company reports depreciation of property and equipment related to production activities as components of cost of revenue.

These reclassifications for the years ended December 31, 2020 and 2019 were as follows (in thousands):

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Cost of revenue - service 145,916 145,916 112,680 112,680

Amortization of acquired technology — 42,290 42,290 — 37,573 37,573

Total cost of revenue 350,688 42,290 392,978 208,454 37,573 246,027

Total gross profit 317,084 37,573 354,657 308,332 38,976 347,308

Gross profit 493,107 ( 42,290 ) 450,817 354,657 ( 37,573 ) 317,084

Research and development 194,525 194,525 141,060 141,060

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Total operating expenses 491,438 ( 42,290 ) 449,148 544,117 ( 37,573 ) 506,544

Operating loss $ ( 189,460 ) $ — $ ( 189,460 ) $ ( 65,408 ) $ — $ ( 65,408 )

In addition, certain other reclassifications, not affecting previously reported net loss, have been made to the previously issued financial statements to conform to the current year presentation.

Operating income (loss) $ 1,669 $ — $ 1,669 $ ( 189,460 ) $ — $ ( 189,460 )

In addition, certain other reclassifications, not affecting previously reported net income (loss), have been made to the previously issued financial statements to conform to the current year presentation.

Business Combinations

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Notes to Consolidated Financial Statements (Continued)

presented for any years prior to 2020, as this segment arose from the ECI Acquisition, and accordingly is not included in the Company's consolidated financial statements for the years ended December 31, 2019 and 2018.

Financial Instruments

The carrying amounts of Ribbon's financial instruments approximate their fair values and include accounts receivable, convertible debentures and warrants received as sale consideration, borrowings under a revolving credit facility, accounts payable and term debt.

Investments in marketable securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported, net of tax, in Accumulated other comprehensive income (loss), which is a component of stockholders' equity.

Unrealized losses that are determined to be other-than-temporary, based on current and expected market conditions, are recognized in earnings.

Declines in fair value determined to be credit-related are charged to earnings.

The cost of marketable securities sold is determined by the specific identification method.

Changes in fair value of investments classified as trading securities, such as the convertible debentures and warrants received as sale consideration, are recognized in earnings as components of Other income (expense), net.

The carrying amounts of Ribbon's financial instruments approximate their fair values and include accounts receivable, equity securities and convertible warrants received as sale consideration, borrowings under a revolving credit facility, accounts payable and term debt.

Financial instruments with remaining maturities or that are due within one year from the balance sheet date are classified as current.

Financial instruments with maturities or that are payable more than one year from the balance sheet date are classified as noncurrent.

Fair Value Option - Investment in AVCT

The Company received debentures and warrants as sale consideration in connection with the sale of the Kandy Communications Business.

On September 8, 2021 (the "Debenture Conversion Date"), the debentures were converted into 13,700,421 shares of AVCT common stock (the "Debenture Shares") (see Note 4 for a discussion of the valuation of the debentures, warrants and Debenture Shares).

In connection with the conversion of the debentures to the Debenture Shares, the Company elected to use the fair value option to account for its equity investment in AVCT as permitted under Accounting Standards Codification ("ASC") 825, Financial Instruments ("ASC 825"), which then refers to ASC 820, Fair Value Measurement ("ASC 820") to provide the fair value framework for valuing such investments.

In accordance with ASC 820, the Company is recording the investment in AVCT at fair value, with changes in fair value recorded as a component of Other (expense) income, net, in the consolidated statements of operations.

Restricted Cash

The Company classifies as restricted cash all cash pledged as collateral to secure long-term obligations and all cash whose use is otherwise limited by contractual provisions.

At December 31, 2021, the Company had $ 2.6 million of restricted cash, representing restricted short-term bank deposits pledged to secure certain performance and financial bonds as security for the Company's obligations under tenders, contracts and to one of its main subcontractors.

At December 31, 2020, the Company had $ 7.3 million of restricted cash, comprised of $ 4.6 million restricted in connection with a tax payment on certain fixed assets formerly held by ECI that were sold in connection with the ECI Acquisition, and $ 2.7 million of restricted short-term bank deposits pledged to secure certain performance and financial bonds as security for the Company's obligations under tenders, contracts and to one of its main subcontractors.

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During the year ended December 31, 2021, the Company received $ 118.5 million of cash from the sale of certain accounts receivable and recorded $ 0.8 million of interest expense in connection with these transactions.

During the year ended December 31, 2020, the Company received $ 119.8 million of cash from the sale of certain accounts receivable and recorded $ 0.9 million of interest expense in connection with these transactions.

Foreign Currency Translation

For foreign subsidiaries where the functional currency is the local currency, assets and liabilities are translated into U.S.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

dollars at the current exchange rate on the balance sheet date.

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Revenue and expense items are translated at average rates of exchange prevailing during each period.

Translation adjustments for these subsidiaries are included in Other income (expense), net.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Translation adjustments for these subsidiaries are included in Other expense (income), net.

Realized and unrealized foreign currency exchange gains and losses arising from transactions denominated in currencies other than the subsidiary's functional currency are reflected in earnings.

The Company records its foreign currency gains (losses) as a component of Other income (expense), net.

The Company recognized net foreign currency losses of $ 3.0 million for the year ended December 31, 2020, $ 1.1 million for the year ended December 31, 2019 and $ 4.6 million for the year ended December 31, 2018.

The Company records its foreign currency gains (losses) as a component of Other (expense) income, net.

The Company recognized net foreign currency losses of $ 5.0 million, $ 3.0 million and $ 1.1 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Inventory is recorded at the lower of cost or market value using the first-in, first-out convention.

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The Company classifies inventory that is not expected to be consumed within one year from the balance sheet date as noncurrent and includes such inventory as a component of Other assets.

Debentures and Warrants .

The Company has Debentures and Warrants that it received as sale consideration in connection with the sale of the Kandy Communications Business (see Note 4), which Ribbon accounts for in accordance with Accounting Standards Codification ("ASC") 820, Fair Value Measurement ("ASC 820)".

The Company calculates the fair value of the Debentures using a Lattice-based valuation approach, which utilizes a binomial tree to model the different paths the price of AVCT's common stock might take over the Debentures' life by using assumptions regarding the stock price volatility and risk-free interest rate.

These results are then used to calculate the fair value of the Debentures at each measurement date.

The Company uses the Black-Scholes valuation model for estimating the fair value of the Warrants at each measurement date.

The fair value of the Warrants is affected by AVCT's stock price as well as valuation assumptions, including the volatility of AVCT's stock price, expected term of the option, risk-free interest rate and expected dividends.

Both the Lattice and Black-Scholes valuation models are based on available market data, giving consideration to all of the rights and obligations of each instrument and precluding the use of "blockage" discounts or premiums in determining the fair value of a large lock of financial instruments.

The Company is calculating the fair value of the Debentures and Warrants at each quarter-end and recording any adjustments to the fair values in Other income (expense), net.

The fair values of the Debentures and Warrants are reported as Investments in the Company's consolidated balance sheet at December 31, 2020.

Property and Equipment

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Leasehold improvements are amortized over the lesser of the lease term or five years .

When an asset is sold or retired, the cost and related accumulated depreciation or amortization are eliminated, and the resulting gain or loss, if any, is recognized in income (loss) from operations in the consolidated statement of operations.

When an asset is sold or retired, the cost and related accumulated depreciation or amortization are eliminated, and the resulting gain or loss, if any, is recognized in (Loss) income from operations in the consolidated statement of operations.

The Company reviews property and equipment for impairment in the same manner as intangible assets discussed below.

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Internal use software is amortized on a straight-line basis over its estimated useful life of three years , beginning when the software is ready for its intended use.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Intangible Assets and Goodwill

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Estimated fair value is based on either discounted future operating cash flows or appraised values, depending on the nature of the asset.

The Company amortizes its intangible assets over their respective useful lives, with the exception of in-process research and development, which has an indefinite life until the product is generally available, at which time such asset is typically reclassified to developed technology, and the Company begins to amortize this asset.

The Company amortizes its intangible assets over their respective useful lives, with the exception of in-process research and development,

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

which has an indefinite life until the product is generally available, at which time such asset is typically reclassified to developed technology, and the Company begins to amortize this asset.

See Note 10 for additional information regarding the Company's intangible assets.

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The fair value of stock option awards is affected by the Company's stock price as well as valuation assumptions, including the volatility of Ribbon's stock price, expected term of the option, risk-free interest rate and expected dividends.

The Company may grant performance-based stock units ("PSUs") that include a market condition to certain of its executives.

The Company may grant to certain of its executives performance-based stock units ("PSUs") that include a market condition.

The Company uses a Monte Carlo simulation approach to model future stock price movements based upon the risk-free rate of return, the volatility of each entity and the pair-wise covariance between each entity.

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Historically, the Company has not experienced significant losses due to such bank depository concentration.

The Company's investments at December 31, 2020 consisted of securities of AVCT (see Note 4).

The Company did not hold any investments at December 31, 2019.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

The Company's investments at December 31, 2021 and 2020 consisted of securities of AVCT (see Note 4).

Certain components and software licenses from third parties used in Ribbon's products are procured from single sources of supply.

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Advertising expenses were $ 1.6 million for the year ended December 31, 2021, $ 0.8 million for the year ended December 31, 2020 and $ 0.5 million for the year ended December 31, 2019.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Loss Contingencies and Reserves

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At December 31, 2021, the Company's liability for product warranties was $ 13.1 million, of which $ 5.9 million was current and included in Accrued expenses and other and $ 7.2 million was long-term and included in Other long-term liabilities in the Company's consolidated balance sheet.

The Company did not have a warranty accrual at December 31, 2019.

At December 31, 2020, the Company's liability for product warranties was $ 14.9 million, of which $ 6.5 million was current and included in Accrued expenses and other, and $ 8.4 million was long-term and included in Other long-term liabilities in the Company's consolidated balance sheet.

Research and Development Grants

The Company records grants received from the Office of the Innovation Authority of the Israeli Ministry of Economics (the "IIA") as a reduction to Research and development expense.

Royalties payable to the IIA are recognized pursuant to sales of related products and are included in Cost of revenue - product.

Royalties payable to the IIA are recognized pursuant to sales of related products and are included in Cost of revenue - product (see Note 26).

Accounting for Leases

The Company accounts for its leases in accordance with Accounting Standards Codification ("ASC") 842, Leases ("ASC 842"), which was adopted effective January 1, 2019 using the alternative transition method, which allowed entities to initially apply ASC 842 at the adoption date with no adjustments to prior period lease costs for comparability (see Note 22).

The Company accounts for its leases in accordance with Accounting Standards Codification ("ASC") 842, Leases ("ASC 842") (see Note 21).

The Company has operating and finance leases for corporate offices, research and development facilities, and certain equipment.

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Lease agreements may include lease and non-lease components.

In such instances for all classes of underlying assets, the Company does not separate lease and

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

non-lease components but rather, accounts for the entire arrangement under leasing guidance.

In such instances for all classes of underlying assets, the Company does not separate lease and non-lease components but rather, accounts for the entire arrangement under leasing guidance.

Leases with an initial term of 12 months or less are not recorded on the balance sheet and lease expense for these leases is recognized on a straight-line basis over the lease term.

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Lease contracts may contain variable lease costs, such as common area maintenance, utilities and tax reimbursements that vary over the term of the contract.

Variable lease costs are not included in minimum fixed lease payments and as a result, are excluded from the measurement of the right-of-use assets and lease liabilities.

Variable lease costs are not included in minimum fixed lease payments and as a result, are excluded from the measurement of the right-of-use assets and lease

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Notes to Consolidated Financial Statements (Continued)

The Company expenses all variable lease costs as incurred.

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The deferred taxes are recorded on the entire outside basis differences related to the foreign subsidiaries, the largest of these differences being undistributed earnings.

At December 31, 2020, the Company had a deferred tax liability of $ 15.7 million related to withholding taxes in various countries.

The Company determines whether it is more likely than not that a tax position will be sustained upon examination.

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Recent Accounting Pronouncements

The Financial Accounting Standards Board ("FASB") has issued the following accounting pronouncements, all of which became effective for the Company in 2020 and none of which had a material impact on the Company's consolidated financial statements:

In March 2020, the FASB issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"), which provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria that reference LIBOR or another reference rate expected to be discontinued.

In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments ("ASU 2020-03"), which makes narrow-scope amendments related to topics regarding fair value option disclosures, applicability of the portfolio

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which modifies Accounting Standards Codification ("ASC") 740, Income Taxes (Topic 740) , to simplify the accounting for income taxes.

ASU 2019-12 addresses the accounting for hybrid tax regimes, tax basis step-up in goodwill obtained in a transaction that is not a business combination, separate financial statements of legal entities not subject to tax, intraperiod tax allocation exception to incremental approach, ownership changes in investments - changes from a subsidiary to an equity method investment, ownership changes in investments - changes from an equity method investment to a subsidiary, interim period accounting for enacted changes in tax law and year-to-date loss limitation in interim period tax accounting.

The adoption of ASU 2019-12 did not have a material impact on the Company's consolidated financial statements upon adoption.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08"), which amends ASC 805, Business Combinations (Topic 805) , to add contract assets and contract liabilities to the list of exceptions to the recognition and measurement principles that apply to business combinations and to require that an acquiring entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers (Topic 606) ("ASC 606").

Under current GAAP, an acquirer generally recognizes such items at fair value on the acquisition date.

While primarily related to contract assets and contract liabilities that were accounted for by the acquiree in accordance with ASC 606, ASU 2021-08 also applies to contract assets and contract liabilities from other contracts to which the provisions of ASC 606 apply, such as contract liabilities from the sale of nonfinancial assets within the scope of ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20) .

ASU 2021-08 is effective for the Company January 1, 2023, with early adoption permitted.

The Company believes that the adoption of ASU 2021-08 could have

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

exception in Accounting Standards Codification ("ASC") 820 to nonfinancial items, disclosures for depository and lending institutions, cross reference to guidance in ASC 470-50 on line of credit or revolving debt arrangements, cross reference to net asset value practical expedient in ASC 820-10, interaction between ASC 842 and ASC 326 and between ASC 326 and ASC 860-20.

In August 2018, the FASB issued ASU 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 (“ASU 2018-15”), which provides guidance on implementation costs incurred in a cloud computing arrangement (“CCA”) that is a service contract.

ASU 2018-15 amends ASC 350, Intangibles - Goodwill and Other (“ASC 350”) to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply the guidance in ASC 350-40 to determine which implementation costs should be capitalized in such a CCA.

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20):

Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”), which amends ASC 715, Compensation - Retirement Benefits , to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which changes the fair value measurement requirements of ASC 820, Fair Value Measurement.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which adds an impairment model that is based on expected losses rather than incurred losses.

Under ASU 2016-13, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses.

In April and May 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments ("ASU 2019-04") and ASU 2019-05 Financial Instruments - Credit Losses (Topic 326):

Targeted Transition Relief ("ASU 2019-05"), respectively.

ASU 2019-04 provides transition relief for entities adopting ASU 2016-13 and ASU 2019-05 clarifies certain aspects of the accounting for credit losses, hedging activities and financial instruments in connection with the adoption of ASU 2016-13.

The FASB has issued the following accounting pronouncement which became effective for the Company in 2021, which the Company does not believe will have a material impact on its consolidated financial statements upon adoption:

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which modifies ASC 740 to simplify the accounting for income taxes.

a material impact on its consolidated financial statements for periods including and subsequent to significant business acquisitions.

In January 2021 the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848):

Scope ("ASU 2021-01"), which refines the scope of ASC 848, Reference Rate Reform , and clarifies some of its guidance as part of the FASB's monitoring of global reference rate reform activities.

ASU 2021-01 permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, for computing variation margin settlements, and for calculating price alignment interest in connection with reference rate reform activities under way in global financial markets (the "discounting transition").

ASU 2021-01 is effective for the Company prospectively in any period through December 31, 2022 that a modification is made to the terms of the derivatives affected by the discounting transition.

The Company does not believe the adoption of ASU 2021-01 will have a material impact on its consolidated financial statements.

(3) BUSINESS ACQUISITIONS

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Prior to the ECI Acquisition Date, ECI was a privately-held global provider of end-to-end packet optical transport and software-defined networking ("SDN") and network function virtualization ("NFV") solutions for service providers, enterprises and data center operators.

Ribbon acquired ECI because it believed the ECI Acquisition would position the Company for growth and enhance

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

its competitive strengths by expanding its product portfolio beyond solutions primarily supporting voice applications to include data applications and optical networking.

As consideration for the ECI Acquisition, Ribbon issued the ECI shareholders and certain others 32.5 million shares of Ribbon common stock with a fair value of $ 108.6 million (the "Stock Consideration") and paid $ 322.5 million of cash (the "Cash Consideration"), comprised of $ 183.3 million to repay ECI's outstanding debt, including both principal and interest, and $ 139.2 million paid to ECI's selling shareholders.

As consideration for ECI, Ribbon issued the ECI shareholders and certain others 32.5 million shares of Ribbon common stock with a fair value of $ 108.6 million (the "Stock Consideration") and paid $ 322.5 million of cash (the "Cash Consideration"), comprised of $ 183.3 million to repay ECI's outstanding debt, including both principal and interest, and $ 139.2 million paid to ECI's selling shareholders.

In addition, ECI shareholders received $ 33.4 million from the sale of certain of ECI's real estate assets.

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The ECI Acquisition has been accounted for as a business combination and the financial results of ECI have been included in the Company's consolidated financial statements for the period subsequent to the ECI Acquisition.

The Company's financial results for the year ended December 31, 2020 include $ 260.5 million of revenue and $ 52.9 million of net loss attributable to ECI.

As of December 31, 2020, the valuation of acquired assets, identifiable intangible assets and certain assumed liabilities had been finalized.

During the fourth quarter of 2020, the Company reclassified the acquired assets held for employee' severance benefits of $ 13.2 million from other assets to other long-term liabilities.

This reclassification was recorded to conform to the Company's presentation and resulted in a net long-term liability for severance benefits of $ 4.7 million in the Company's consolidated balance sheet at December 31, 2020.

This amount reflects the net unfunded liability for the defined benefit plans assumed.

This reclassification did not impact purchase consideration or goodwill.

During the second quarter of 2020, the Company recorded changes to the initial preliminary purchase price allocation, including reductions of $ 10.4 million and $ 7.0 million to current and noncurrent inventory respectively, and increases to identifiable intangible assets aggregating $ 11.0 million, comprised of $ 3.0 million to in-process research and development, $ 5.0 million to developed technology, $ 2.0 million to customer relationships and $ 1.0 million to trade names.

These adjustments, as well as other immaterial adjustments to other balance sheet accounts, resulted in a net increase to goodwill of $ 2.5 million.

The allocation of purchase consideration to the fair value of assets acquired and liabilities assumed includes a noncurrent asset of $ 5.7 million that represents an indemnification receivable from ECI's selling shareholders for certain liabilities for uncertain tax positions in accordance with the Agreement and Plan of Merger.

The Company's financial results for the year ended December 31, 2020 included $ 260.5 million of revenue and $ 52.9 million of net loss attributable to ECI.

The Company finalized the valuation of acquired assets, identifiable intangible assets and certain assumed liabilities in the fourth quarter of 2020.

A summary of the allocation of the purchase consideration for ECI is as follows (in thousands):

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As of December 31, 2019, the valuation of acquired assets, identifiable intangible assets and certain assumed liabilities was final.

The finalization of this valuation resulted in a refinement of the allocation of purchase price between the identifiable intangible assets arising from the transaction, resulting in a $ 2.0 million reduction to the customer relationships intangible asset and an increase of $ 2.0 million to the developed technology intangible asset.

The purchase consideration aggregating $ 16.9 million has been allocated to $ 11.2 million of identifiable intangible assets, comprised of $ 5.2 million of customer relationships and $ 6.0 million of developed technology, and working capital items aggregating $ 0.2 million of net assets acquired.

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The goodwill is deductible for tax purposes.

Edgewater Networks, Inc.

On the Edgewater Acquisition Date, the Company completed its acquisition of Edgewater, a private company headquartered in San Jose, California.

The Edgewater Acquisition was completed in accordance with the terms and conditions

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

of the Agreement and Plan of Merger, dated as of June 24, 2018, by and among Ribbon, Merger Sub, Edgewater and Shareholder Representative Services LLC, a Colorado limited liability company, solely in its capacity as the initial holder representative (the "Edgewater Merger Agreement”).

The Company acquired Edgewater because it believed that Edgewater would allow Ribbon to offer its global customer base a complete core-to-edge product portfolio, end-to-end service assurance and analytics solutions, and a fully integrated software-defined SD-WAN service.

As consideration for the Edgewater Acquisition, Ribbon paid, in the aggregate, $ 46.4 million of cash, net of cash acquired, and issued 4.2 million shares of Ribbon common stock to Edgewater's selling shareholders and holders of vested in-the-money options and warrants to acquire common stock of Edgewater (the "Edgewater Selling Stakeholders") on the Edgewater Acquisition Date, with additional cash payments of $ 30 million, of which $ 15 million was to be paid 6 months from the closing date and the other $ 15 million was to be paid as early as 9 months from the closing date and no later than 18 months from the closing date (the exact timing of which would depend on the amount of revenue generated from the sales of Edgewater products in 2018) ("Edgewater Deferred Consideration").

On February 15, 2019, the Company and the Edgewater Selling Stakeholders agreed to reduce the amount of Edgewater Deferred Consideration from $ 30 million to $ 21.9 million and agreed that all such deferred consideration would be payable on March 8, 2019.

The Company paid the Edgewater Selling Stakeholders $ 21.9 million on March 8, 2019 and recorded the reduction to the Edgewater Deferred Consideration of $ 8.1 million in Other income (expense), net, in the Company's consolidated statement of operations and as a non-cash adjustment to reconcile net loss to cash flows provided by operating activities in the Company's consolidated statement of cash flows for the year ended December 31, 2019.

The Edgewater Acquisition has been accounted for as a business combination and the financial results of Edgewater have been included in the Company's consolidated financial statements for the period subsequent to its acquisition.

The Company finalized the valuation of acquired assets, identifiable intangible assets and certain assumed liabilities in the second quarter of 2019.

A summary of the allocation of the purchase consideration for Edgewater is as follows (in thousands):

Fair value of consideration transferred:

Cash consideration:

Cash paid to Edgewater Selling Stakeholders $ 51,162

Less cash acquired ( 4,773 )

Net cash consideration 46,389

Unpaid cash consideration 30,000

Fair value of Ribbon stock issued 30,000

Fair value of equity awards assumed (see Note 21) 747

Fair value of total consideration $ 107,136

Fair value of assets acquired and liabilities assumed:

Current assets, net of cash acquired $ 16,098

Property and equipment 245

Intangible assets:

Developed technology 29,500

Customer relationships 26,100

Trade names 1,100

Goodwill 48,053

Other noncurrent assets 103

Deferred revenue ( 2,749 )

Other current liabilities ( 9,926 )

Deferred revenue, net of current ( 669 )

Other long-term liabilities ( 719 )

The valuation of the acquired intangible assets is inherently subjective and relies on significant unobservable inputs.

The Company used an income approach to value the acquired developed technology, customer relationships and trade name

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

intangible assets.

The valuation for each of these intangible assets was based on estimated projections of expected cash flows to be generated by the assets, discounted to the present value at discount rates commensurate with perceived risk.

The valuation assumptions take into consideration the Company's estimates of customer attrition, technology obsolescence and revenue growth projections.

The Company is amortizing the identifiable intangible assets arising from the Edgewater Acquisition in relation to the expected cash flows from the individual intangible assets over their respective useful lives, which have a weighted average life of 8.38 years (see Note 10).

Goodwill resulting from the transaction is primarily due to expected synergies between the combined companies and is not deductible for tax purposes.

The Company's revenue for the year ended December 31, 2018 included $ 21.5 million of revenue and $ 4.3 million of net loss attributable to Edgewater since the Edgewater Acquisition Date.

The Company has not provided pro forma financial information, as the historical amounts are not significant to the Company's consolidated financial statements.

Acquisition-, Disposal- and Integration-Related Expenses

Acquisition-related expenses include those expenses related to acquisitions that would otherwise not have been incurred by the Company, including professional and services fees, such as legal, audit, consulting, paying agent and other fees, and expenses related to cash payments to certain former executives of the acquired businesses in connection with their employment agreements.

Disposal-related expenses are professional and services fees related to disposals of subsidiaries or portions of the business.

Disposal-related expenses are professional and services fees related to disposals of subsidiaries or portions of the

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Integration-related expenses represent incremental costs related to combining the Company and its business acquisitions, such as third-party consulting and other third-party services related to merging the previously separate companies' systems and processes.

The disposal-related expenses in the year ended December 31, 2021 relate to the Kandy Sale (as defined below).

The acquisition-related professional and services fees recorded in the year ended December 31, 2020 primarily related to the ECI Acquisition and the disposal-related expenses related to the Company's sale of the Kandy Communications Business.

The acquisition-related professional and services fees recorded in the year ended December 31, 2019 primarily related to the ECI Acquisition and, to a lesser extent, to the Anova Acquisition and other acquisition-related activities.

The acquisition-related professional and services fees recorded in the year ended December 31, 2018 primarily related to the 2017 merger between Sonus Networks, Inc.

and GENBAND (the "GENBAND Merger"), with nominal amounts related to the acquisition of Edgewater and other acquisition-related activities.

The components of Acquisition-, disposal- and integration-related expenses incurred in the years ended December 31, 2021, 2020 and 2019 were as follows (in thousands):

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Professional and services fees (acquisition-related) $ 165 $ 13,441 $ 8,657

Management bonuses (acquisition-related) — — 1,972

Professional and services fees (disposal-related) 329 1,890 —

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Under the Kandy Purchase Agreement, AVCT would purchase the assets and assume certain liabilities associated with the Kandy Communications Business, as well as all of the outstanding interests in Kandy Communications LLC, a subsidiary of the Company (the "Kandy Sale").

On December 1, 2020, the Company and AVCT entered into an amended and restated Purchase Agreement (the “Amended Kandy Agreement”).

Under the terms of the Amended Kandy Agreement, AVCT agreed to pay to Ribbon $ 45.0 million, subject to certain adjustments, in the form of units of AVCT’s securities (the “AVCT Units”), with each AVCT Unit consisting of:

On December 1, 2020, the Company completed the Kandy Sale.

The assets acquired and liabilities assumed by AVCT in connection with the Kandy Sale were primarily comprised of accounts receivable, property and equipment, trade accounts payable and employee-related accruals.

As consideration, AVCT paid Ribbon $ 45.0 million, subject to certain adjustments, in the form of units of AVCT’s securities (the “AVCT Units”), with each AVCT Unit consisting of:

(i) $ 1,000 in principal amount of AVCT’s Series A-1 convertible debentures (the “Debentures”);

and (ii) one warrant to

and (ii) one warrant to purchase 100 shares of AVCT common stock, $ 0.0001 par value (the “Warrants”).

The Company received 43,778 AVCT Units as sale consideration on the Kandy Sale Date (the "Kandy Sale Consideration").

The Debentures bore interest at a rate of 10 % per annum, which was added to the principal amount of the Debenture.

The entire principal amount of each Debenture, together with accrued and unpaid interest thereon, was due and payable on the earlier of the May 1, 2023 maturity date or the occurrence of a Change in Control as defined in the Kandy Purchase Agreement.

Each Debenture was convertible, in whole or in part, at any time at the Company's option into that number of shares of AVCT common stock, calculated by dividing the principal amount being converted, together with all accrued and unpaid interest thereon, by the applicable conversion price, initially $ 3.45 .

The Debentures were subject to mandatory conversion if the AVCT stock price was at or above $ 6.00 per share for 40 trading days in any 60 consecutive trading day period, subject to the satisfaction of certain other conditions.

The conversion price was subject to customary adjustments including, but not limited to, stock dividends, stock splits and reclassifications.

As of February 19, 2021, the stock price had traded above $ 6.00 for 40 days within a 60 consecutive trading day period, and accordingly, on September 8, 2021 (the "Debenture Conversion Date"), upon the completion of customary regulatory filings by AVCT, the Debentures were converted into 13,700,421 shares of AVCT common stock (the "Debenture Shares").

The Warrants were independent of the Debentures and entitle the Company to purchase 4,377,800 shares of AVCT common stock at an exercise price of $ 0.01 per share.

The Warrants expire on December 1, 2025, and were immediately exercisable on the Kandy Sale Date.

The Company had not exercised any of the Warrants as of December 31, 2021.

The Company was also subject to a lock-up provision which limited the Company's ability to sell any shares of the AVCT common stock underlying the AVCT Units prior to June 1, 2021 (the "Lock-Up Period"), except in certain transactions.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

purchase 100 shares of AVCT common stock, $ 0.0001 par value (the “Warrants”), as consideration for the Kandy Sale (the "Kandy Consideration").

The Company received 43,778 AVCT Units as sale consideration on the Kandy Sale Date.

The Debentures bear interest at a rate of 10 % per annum, which will be added to the principal amount of the Debentures, except upon maturity, in which case accrued and unpaid interest is payable in cash.

The entire principal of each Debenture, together with accrued and unpaid interest thereon, is due and payable on the earlier of the May 1, 2023 maturity date or the occurrence of a Change in Control as defined in the Amended Kandy Agreement.

Each Debenture is convertible, in whole or in part, at any time at the Company's option into that number of shares of AVCT common stock, calculated by dividing the principal amount being converted, together with all accrued and unpaid interest thereon, by the applicable conversion price, initially $ 3.45 .

The Debentures are subject to mandatory redemption if the AVCT stock price is at or above $ 6.00 per share for 40 trading days in any 60 consecutive trading day period, subject to the satisfaction of certain other conditions.

The conversion price is subject to customary adjustments including, but not limited to, stock dividends, stock splits and reclassifications.

At the Company's option, up to $ 5.0 million of the Debentures may be redeemed by AVCT at par in the event AVCT raises at least $ 50.0 million in its offering of AVCT Units.

As of February 19, 2021, the stock price had traded above $ 6.00 for 40 days within a 60 consecutive trading day period, and accordingly, the Debentures will be converted to shares of AVCT common stock upon the completion of customary regulatory filings by AVCT.

The Warrants are independent of the Debentures and entitle the Company to purchase 4,377,800 shares of AVCT common stock at an exercise price of $ 0.01 per share.

The Warrants expire on December 1, 2025, and were immediately exercisable on the Kandy Sale Date.

The Company had not redeemed any of the Debentures or exercised any of the Warrants as of December 31, 2020.

The Company is also subject to a lock-up provision which limits the Company's ability to sell any shares of AVCT common stock underlying the Debentures and the Warrants prior to June 1, 2021, except in certain transactions.

The Company determined that the AVCT Units had a fair value of $ 84.9 million at the Kandy Sale Date, comprised of the Debentures with a fair value of $ 66.3 million and the Warrants with a fair value of $ 18.6 million.

The value of the net assets sold to AVCT totaled $ 1.3 million, resulting in a gain on the sale of $ 83.6 million.

The gain on the Kandy Sale is included as a component of Other income (expense), net, in the consolidated statement of operations for the year ended December 31, 2020.

These results are then used to calculate the fair value of the Debentures at each measurement date.

The Company uses the Black-Scholes valuation model for estimating the fair value of the Warrants at each measurement date.

The gain on the Kandy Sale is included as a component of Other (expense) income, net, in the consolidated statement of operations for the year ended December 31, 2020.

The Company calculated the fair value of the Debentures using a Lattice-based valuation approach, which utilizes a binomial tree to model the different paths the price of AVCT's common stock might take over the Debentures' life by using assumptions regarding the stock price volatility and risk-free interest rate.

These results were then used to calculate the fair value of the Debentures at each measurement date.

The Company used the Black-Scholes valuation model for estimating the fair value of the Warrants at each measurement date.

The Company will calculate the fair value of the Debentures and Warrants at each quarter-end and record any adjustments to the fair values in Other income (expense), net.

At December 31, 2020, the aggregate fair value of the Debentures and Warrants was $ 115.2 million, resulting in a gain of $ 30.3 million arising from the increase in fair values of the Debentures and Warrants for the period from the Kandy Sale Date to December 31, 2020.

This gain is included as a component of Other income (expense), net, in the Company's consolidated statement of operations.

The fair values of the Debentures and Warrants are reported as Investments in the Company's consolidated balance sheet at December 31, 2020 and are classified as Level 2 fair value measurements within the fair value hierarchy (see Note 6).

The Company incurred $ 1.9 million of transaction costs, which are included as a component of Acquisition-, disposal- and integration-related expense in the consolidated statement of operations for the year ended December 31, 2020.

After the expiration of the Lock-Up Period and prior to the Debenture Conversion Date, the Company valued the AVCT Units at each measurement date by multiplying the closing stock price of AVCT common stock by the number of shares upon conversion of the Debentures and Warrants.

At December 31, 2021, the Company valued the Debenture Shares and Warrants (collectively, the "AVCT Investment") by multiplying the closing stock price of AVCT common stock by the number of Debenture Shares and Warrants it held.

At December 31, 2021, the fair value of the AVCT Investment was $ 43.9 million.

At December 31, 2020, the fair value of the AVCT Units was $ 115.2 million.

The Company recorded a loss of $ 74.8 million in the year ended December 31, 2021 arising from the change in the fair value of the AVCT Investment, and recorded a gain of $ 30.3 million in the year ended December 31, 2020 arising from the change in the fair value of the AVCT Units.

These amounts are included as components of Other (expense) income, net, in the Company's consolidated statements of operations.

The Company recorded $ 3.5 million of interest income in the year ended December 31, 2021, which was added to the principal amount of the Debentures prior to the Debenture Conversion Date, and which is included in Interest expense, net, in the consolidated statement of operations.

The fair value of the AVCT Investment at December 31, 2021 and the fair value of the AVCT Units at December 31, 2020 are reported as Investments in the Company's consolidated balance sheets.

The AVCT Investment is classified as a Level 1 fair value measurement at December 31, 2021 and the AVCT Units are classified as Level 2 fair value measurements within the fair value hierarchy at December 31, 2020 (see Note 6).

The Company evaluated the nature of its investment in AVCT for the period from the Debenture Conversion Date to December 31, 2021 and determined that it represented an approximate 15 % equity interest in AVCT on a diluted basis.

The Company determined that it is not the primary beneficiary of AVCT as it does not have the power to direct the activities that most significantly impact the AVCT Investment's economic performance, and therefore concluded that it had neither significant influence nor a controlling interest arising from the AVCT Investment that would require consolidation as of December 31, 2021.

The results of the Kandy Communications Business are excluded from the Company's consolidated results for the period subsequent to the Kandy Sale Date.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

(5) EARNINGS (LOSS) PER SHARE

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For periods in which the Company reports net income, diluted net income per share is determined by using the weighted average number of common and dilutive common equivalent shares outstanding during the period unless the effect is antidilutive.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

The calculations of shares used to compute basic and diluted earnings (loss) per share are as follows (in thousands):

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Weighted average shares outstanding—diluted 147,575 144,650 109,734

Options to purchase the Company's common stock and unvested restricted and performance-based stock units aggregating 10.6 million shares have not been included in the computation of diluted loss per share for the year ended December 31, 2021 because their effect would have been antidilutive.

Options to purchase the Company's common stock aggregating 0.2 million shares have not been included in the computation of diluted earnings per share for the year ended December 31, 2020 because their effect would have been antidilutive.

Options to purchase the Company's common stock and unvested shares of restricted and performance-based stock and stock units aggregating 4.6 million shares have not been included in the computation of diluted loss per share for the year ended December 31, 2019 because their effect would have been antidilutive.

Options to purchase the Company's common stock, unvested shares of restricted and performance-based stock and stock units, and shares in connection with future purchases under the Company's Amended and Restated 2000 Employee Stock Purchase Plan, as amended (the "ESPP"), aggregating 3.1 million shares have not been included in the computation of diluted loss per share for the year ended December 31, 2019 because their effect would have been antidilutive.

(6) INVESTMENTS AND FAIR VALUE HIERARCHY

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government-backed, municipal and corporate obligations, which management believes to be high quality (investment grade) credit instruments.

At December 31, 2020, the Company's investments were comprised of the Debentures and Warrants received as sale consideration for the Kandy Sale (see Note 4).

The Company did not hold any marketable securities at December 31, 2019, as its remaining available-for-sale marketable securities matured during the second quarter of 2019.

As a result of the Company no longer holding any marketable securities or investments at December 31, 2019, the remaining tax effect on the unrealized gain on available-for-sale marketable securities was realized in the second quarter of 2019 and is included in the income tax provision in the Company's consolidated statement of operations for the year ended December 31, 2019 as a reclassification from Unrealized gain on available-for-sale marketable securities in the Company's consolidated statement of comprehensive loss.

The Company had not sold any of its marketable securities in 2019 prior to their full maturity.

During the year ended December 31, 2019, the Company recognized nominal gross gains and losses on the maturities of its marketable securities.

At December 31, 2021, the Company's investments were comprised of the AVCT Investment.

At December 31, 2020, the Company's investments were comprised of the Debentures and Warrants (see Note 4).

On a quarterly basis, the Company reviews its investments, if any, to determine if there have been any events that could create a credit impairment.

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The fair value hierarchy is as follows:

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

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Applicable accounting guidance precludes the use of blockage factors or liquidity adjustments due to the quantity of securities held by an entity.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

The Company's marketable securities, when applicable, are valued with the assistance of valuations provided by third-party pricing services, as derived from such services' pricing models.

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2019 $ 669 $ 738 $ 68 $ ( 562 ) $ 913

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

(8) INVENTORY

5 unchanged sentences

Current portion $ 54,043 $ 45,750

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

(9) PROPERTY AND EQUIPMENT

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The Company recorded depreciation and amortization expense related to property and equipment of $ 17.0 million for the year ended December 31, 2021, $ 17.2 million for the year ended December 31, 2020 and $ 11.9 million for the year ended December 31, 2019.

During each of the years ended December 31, 2020, 2019 and 2018, the Company disposed of certain property and equipment that was fully depreciated at the time of disposal, which resulted in reductions in both Cost and Accumulated depreciation.

During each of these years, the Company disposed of certain property and equipment that was fully depreciated at the time of disposal, which resulted in reductions in both Cost and Accumulated depreciation.

Property and equipment under finance leases included in the amounts above were as follows (in thousands):

10 unchanged sentences

$ 47,685 $ 48,888

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

(10) INTANGIBLE ASSETS AND GOODWILL

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9.17 $ 614,250 $ 263,520 $ 350,730

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

December 31, 2020 Weighted average amortization period

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In the fourth quarter of 2020, the Company reclassified an in-process research and development intangible asset related to developed technology, as the associated product became generally available.

As previously discussed (see Note 2), for the year ended December 31, 2020, the Company reclassified amounts recorded for amortization of acquired intangible assets in prior period presentations from Cost of revenue - product and Sales and marketing expense to a separate line included in operating expenses in the consolidated statements of operations.

Amounts reported as Amortization of acquired intangible assets for the years ended December 31, 2020, 2019 and 2018 were $ 60.9 million, $ 49.2 million and $ 49.7 million, respectively.

As previously discussed (see Note 2), for the year ended December 31, 2021, the Company reclassified amounts recorded for amortization of acquired intangible assets in prior period presentations from Amortization of acquired intangible assets, a component of Operating expenses, to Amortization of acquired technology, a separate line included in Cost of revenue, in the consolidated statements of operations.

Total amortization of acquired intangible assets, comprised of the cost of revenue and operating expense components noted above, aggregated $ 66.6 million, $ 60.9 million and $ 49.2 million for the years ended December 31, 2021, 2020 and 2019 respectively.

Estimated future amortization expense for the Company's intangible assets at December 31, 2021 was as follows (in thousands):

3 unchanged sentences

Goodwill is recorded when the consideration for an acquisition exceeds the fair value of net tangible and identifiable intangible assets acquired.

Effective in 2020, the Company's annual test for impairment of goodwill is completed as of October 1.

Effective in 2020, the Company began to perform its annual test for impairment of goodwill as of October 1.

Previously, the Company's annual test for impairment of goodwill was completed as of November 30.

As previously discussed, effective in the fourth quarter of 2020, the Company determined that it has two operating segments:

The Company has determined that it has two operating segments:

Cloud and Edge, and IP Optical Networks.

For the purpose of testing goodwill for impairment, all goodwill is

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

assigned to a reporting unit, which may be either an operating segment or a portion of an operating segment.

For the purpose of testing goodwill for impairment, all goodwill is assigned to a reporting unit, which may be either an operating segment or a portion of an operating segment.

The Company's reporting units are its operating segments.

The Company determined that the goodwill assigned to the Cloud and Edge reporting unit was $ 224.9 million and the goodwill assigned to the IP Optical Networks reporting unit was $ 192.0 million.

Based on the results of the Company's recently completed impairment test, the Company determined that the carrying value of its IP Optical Networks segment exceeded its fair value.

The Company determined that the amount of the impairment was $ 116.0 million and recorded an impairment charge in the fourth quarter of 2021.

The impairment charge is reported separately in the Company's consolidated statement of operations for the year ended December 31, 2021.

The Company determined that there was no impairment of its Cloud and Edge segment.

Upon completion of the Company's 2020 annual test for goodwill impairment, the Company determined that there was no impairment of goodwill in either of its reporting units.

1 unchanged sentence

Based on the results of the Company's 2019 annual impairment test, the Company determined that its carrying value exceeded its fair value and accordingly, the Company recorded an impairment charge of $ 164.3 million.

The Company performed its assessment for the year ended December 31, 2018 and determined that its fair value was in excess of its carrying value and accordingly, there was no impairment of goodwill.

At certain times during the years ended December 31, 2020, 2019 and 2018, including at the Company's annual test date in 2018, the Company's market capitalization was below its book value.

While the Company had concluded that its fair value exceeded its carrying value at that date, the Company regularly monitored for changes in circumstances, including changes to the Company's performance, that could result in impairment of goodwill.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

At certain times during the years ended December 31, 2020 and 2019, the Company's market capitalization was below its book value.

The Company regularly monitors for changes in circumstances, including changes to the Company's performance, that could result in impairment of goodwill.

The changes in the carrying value of the Company's goodwill in the years ended December 31, 2021 and 2020 were as follows (in thousands):

Cloud and Edge IP Optical Networks Total

Balance at December 31, 2018 (1)

Balance at January 1, 2020 (1)

$ 224,896 $ — $ 224,896

Acquisition of Anova 5,541 — 5,541

Impairment of goodwill ( 164,300 ) — ( 164,300 )

Acquisition of ECI — 191,996 191,996

Balance at December 31, 2020 (1)

224,896 191,996 416,892

Acquisition of ECI — 191,996 191,996

Impairment of goodwill — ( 116,000 ) ( 116,000 )

Balance at December 31, 2021 (1)(2)

1 unchanged sentence

(1) Balance is presented net of accumulated impairment losses of $ 167.4 million for the Cloud and Edge segment.

(2) Balance is presented net of accumulated impairment losses of $ 167.4 million for the Cloud and Edge segment.

(2) Balance is presented net of an impairment loss of $ 116.0 million for the IP Optical Networks segment.

The components of goodwill at December 31, 2020 and 2021 were as follows (in thousands):

8 unchanged sentences

$ 224,896 $ 75,996 $ 300,892

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

(11) ACCRUED EXPENSES AND OTHER

1 unchanged sentence

Employee compensation and related costs $ 38,040 $ 66,039

Professional fees 11,451 13,331

Other 62,712 68,826

1 unchanged sentence

(12) WARRANTY

The changes in the Company's warranty accrual balance in the year ended December 31, 2020 were as follows (in thousands):

The changes in the Company's warranty accrual balance in the years ended December 31, 2021 and 2020 were as follows (in thousands):

Year ended December 31, Balance at

1 unchanged sentence

2021 $ 14,855 $ — $ 3,777 $ ( 5,512 ) $ 13,120

2020 $ — $ 16,251 $ 4,687 $ ( 6,083 ) $ 14,855

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

(13) RESTRUCTURING AND FACILITIES CONSOLIDATION INITIATIVES

The Company recorded restructuring and related expense aggregating $ 16.2 million in the year ended December 31, 2020, $ 16.4 million in the year ended December 31, 2019 and $ 17.0 million in the year ended December 31, 2018.

The Company recorded restructuring and related expense aggregating $ 11.7 million, $ 16.2 million and $ 16.4 million in the years ended December 31, 2021, 2020 and 2019, respectively.

Restructuring and related expense includes restructuring expense (primarily severance and related costs), estimated future variable lease costs for vacated properties with no intent or ability of sublease, and accelerated rent amortization expense.

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The Company may incur additional future expense if it is unable to sublease other locations included in the Facilities Initiative.

The components of restructuring and related expense for the year ended December 31, 2020 and 2019 were as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

The components of restructuring and related expense for the years ended December 31, 2021, 2020 and 2019 were as follows (in thousands):

Year ended December 31,

2021 2020 2019

Severance and related costs $ 4,618 $ 12,025 $ 11,179

2 unchanged sentences

$ 11,653 $ 16,235 $ 16,399

Prior to the adoption of ASC 842, the Company recorded restructuring accruals for future lease obligations related to vacated facilities at the time that it ceased usage of the respective facility.

The components of Restructuring and related expense recorded in the year ended December 31, 2018 were as follows (in thousands):

Severance and related costs 15,217

Facilities 1,798

2020 Restructuring Initiative

In 2020, the Company implemented a restructuring plan to eliminate certain positions and redundant facilities, primarily in connection with the ECI Acquisition, to further streamline the Company's global footprint and improve its operations (the "2020 Restructuring Initiative").

The 2020 Restructuring Initiative includes facility consolidations and a reduction in workforce, including three former executives of ECI for whom severance aggregating $ 1.1 million was recorded in the first quarter of 2020.

In connection with this initiative, the Company expects to eliminate duplicate functions arising from the ECI Acquisition and support its efforts to integrate the two companies.

The Company recorded restructuring expense of $ 14.0 million in connection with the 2020 Restructuring Initiative in the year ended December 31, 2020, comprised of $ 11.5 million for severance and related costs for approximately 190 employees, including the aforementioned former executives of ECI, $ 2.0 million for variable and other facilities-related costs, and $ 0.5 million for accelerated amortization of lease assets.

The 2020 Restructuring Initiative includes facility consolidations and a reduction in workforce In connection with this initiative, the Company is eliminating functions arising from the ECI Acquisition and supporting its efforts to integrate the two companies.

The Company recorded restructuring and related expense of $ 4.7 million and $ 14.0 million in connection with the 2020 Restructuring Initiative in the years ended December 31, 2021 and 2020, respectively.

The 2021 amount was comprised of $ 4.6 million for severance and related costs for approximately 60 employees and $ 0.1 million for variable and other facilities-related costs.

The 2020 amount was comprised of $ 11.5 million for severance and related costs for approximately 190 employees, $ 2.0 million for variable and other facilities-related costs, and $ 0.5 million for accelerated amortization of lease assets.

The Company expects these amounts will be fully paid in 2022.

The Company expects that it will record additional restructuring and related expense approximating $ 1 million under the 2020 Restructuring Initiative in the aggregate for severance and planned facility consolidations.

A summary of the 2020 Restructuring Initiative accrual activity for the year ended December 31, 2020 is as follows (in thousands):

Summaries of the 2020 Restructuring Initiative accrual activity for the years ended December 31, 2021 and 2020 are as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Year ended December 31, 2021 Balance at

2021 Initiatives

expense Adjustments for changes in estimate Cash

payments Balance at

Severance $ 5,237 $ 4,618 $ — $ ( 7,960 ) 1,895

Facilities 1,256 742 ( 670 ) ( 1,268 ) 60

$ 6,493 $ 5,360 $ ( 670 ) $ ( 9,228 ) $ 1,955

Year ended December 31, 2020 Balance at

2020 Initiatives

expense Transfer to operating lease liability accounts Cash

10 unchanged sentences

The Company expects that the actions under the Facilities Initiative will be completed in 2023.

In connection with the 2019 Restructuring Initiative, the Company recorded restructuring and related expense of $ 2.3 million and $ 11.2 million in the years ended December 31, 2020 and 2019, respectively.

The amount recorded in the

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

current year was comprised of $ 0.5 million for severance and related costs for approximately 5 employees, $ 1.7 million for variable and other facilities-related costs and $ 0.1 million for accelerated amortization of lease assets.

In connection with the 2019 Restructuring Initiative, the Company recorded restructuring and related expense of $ 7.0 million, $ 2.3 million and $ 11.2 million in the years ended December 31, 2021, 2020 and 2019, respectively.

The amount recorded in 2021 was comprised of $ 5.7 million for variable and other facilities-related costs and $ 1.3 million of net expense for accelerated amortization of lease assets.

The amount for accelerated amortization of lease assets includes income of $ 2.1 million related to a lease modification for one of the Company's restructured facilities.

The amount recorded in 2020 was comprised of $ 0.5 million for severance and related costs for approximately 5 employees, $ 1.7 million for variable and other facilities-related costs and $ 0.1 million for accelerated amortization of lease assets.

The amount recorded in the year ended December 31, 2019 was comprised of $ 6.1 million for severance and related costs for approximately 120 employees, $ 1.4 million for variable and other facilities-related costs and $ 3.7 million for accelerated amortization of lease assets.

The Company expects that all of the amount accrued for severance and related costs will be paid in 2021.

The Company estimates that it will record nominal, if any, additional restructuring and related expense related to severance and related costs under the 2019 Restructuring Initiative.

The amount accrued for severance and related costs was paid in 2021.

The Company estimates that it will record nominal, if any, future expense under the 2019 Restructuring Initiative.

Summaries of the 2019 Restructuring Initiative accrual activity for the years ended December 31, 2021 and 2020 are as follows (in thousands):

1 unchanged sentence

2021 Initiatives

expense Transfer to operating lease liability accounts Cash

expense Net transfer to operating lease liability accounts Cash

payments Balance at

2 unchanged sentences

$ 939 $ 9,006 $ ( 1,325 ) $ ( 4,983 ) $ 1,594

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Year ended December 31, 2020 Balance at

7 unchanged sentences

In connection with the GENBAND Merger, the Company implemented a restructuring plan in the fourth quarter of 2017 to eliminate certain redundant positions and facilities within the combined companies (the "Merger Restructuring Initiative").

In connection with this initiative, the Company recorded $ 5.2 million of restructuring and related expense in 2019, virtually all of which was for severance and related costs for approximately 40 employees.

The Company recorded $ 16.1 million of restructuring and related expense in 2018 in connection with this initiative, comprised of $ 14.7 million for severance for approximately 275 employees and $ 1.4 million for redundant facilities in the Czech Republic, Canada and the U.S.

The Company recorded $ 21.3 million in the aggregate in connection with this initiative, including $ 5.2 million of restructuring and related expense in 2019, virtually all of which was for severance and related costs for approximately 40 employees.

The Merger Restructuring Initiative was completed in 2020.

Summaries of the Merger Restructuring Initiative accrual activity for the years ended December 31, 2020 and 2019 are as follows (in thousands):

A summary of the Merger Restructuring Initiative accrual activity for the year ended December 31, 2020 is follows (in thousands):

Year ended December 31, 2020 Balance at

2 unchanged sentences

Severance $ 409 $ ( 58 ) $ ( 351 ) $ —

Year ended December 31, 2019 Balance at

2019 Initiatives

expense Adjustment for the impact of ASC 842 adoption Cash

payments Balance at

Severance $ 1,910 $ 5,076 $ — $ ( 6,577 ) $ 409

Facilities 771 156 ( 771 ) ( 156 ) —

$ 2,681 $ 5,232 $ ( 771 ) $ ( 6,733 ) $ 409

Assumed Restructuring Initiative

The Company assumed GENBAND's previously recorded restructuring liability, totaling $ 4.1 million, on the GENBAND Merger Date (the "GENBAND Restructuring Initiative").

Of this amount, $ 3.7 million related to severance and related costs

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

and $ 0.4 million related to facilities.

Subsequent to the GENBAND Merger, the Company recorded $ 0.6 million in the aggregate in connection with the GENBAND Restructuring Initiative, comprised of $ 0.9 million of restructuring and related expense in 2018 and a credit of $ 0.3 million to restructuring and related expense in 2017 for changes in estimated costs for this previously recorded and assumed restructuring initiative.

The GENBAND Restructuring Initiative was completed in 2019.

In connection with the adoption of ASC 842, which was effective on January 1, 2019, the Company wrote off the remaining restructuring accrual related to facilities, as indicated in the table below (in thousands):

Year ended December 31, 2019 Balance at

2019 Adjustment for the impact of ASC 842 adoption Balance at

Facilities $ 117 $ ( 117 ) $ —

2016 Restructuring Initiative

In July 2016, the Company announced a program (the "2016 Restructuring Initiative") to further accelerate its investment in new technologies to address the communications industry's migration to a cloud-based architecture and to support the Company's strategic initiatives, such as new products and an expanded go-to-market footprint in selected geographies and discrete vertical markets.

The Company recorded $ 2.0 million of restructuring and related expense in the aggregate in connection with this initiative, comprised of $ 1.9 million for severance and related costs and $ 0.1 million to abandon its facility in Rochester, New York (the "Rochester Facility").

The actions under the 2016 Restructuring Initiative were completed in 2019.

A summary of the 2016 Restructuring Initiative accrual activity for the year ended December 31, 2019 is as follows (in thousands):

Year ended December 31, 2019 Balance at

payments Balance at

Facilities $ 58 $ ( 58 ) $ —

Balance Sheet Classification

1 unchanged sentence

The long-term portions of accrued restructuring are included as components of Other long-term liabilities in the consolidated balance sheets.

The long-term portions of accrued restructuring were $ 0.8 million at December 31, 2020 and $ 0.9 million at December 31, 2019.

The amount recorded as long-term at December 31, 2018 represented future lease payments on restructured facilities.

The long-term portions of accrued restructuring were $ 1.6 million and $ 0.8 million at December 31, 2021 and 2020, respectively.

2018 Credit Facility

5 unchanged sentences

The Borrower could prepay all revolving loans under the 2018 Credit Facility at any time without premium or penalty (other than customary LIBOR breakage costs), subject to certain notice requirements.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Revolving loans under the 2018 Credit Facility bore interest at the Borrower’s option at either the Eurodollar (LIBOR) rate plus a margin ranging from 2.50 % to 3.00 % per year or the base rate (the highest of the Federal Funds rate plus 0.50 %, or the prime rate announced from time to time in The Wall Street Journal) plus a margin ranging from 1.50 % to 2.00 % per year (such margins being referred to as the “Applicable Margin”).

2 unchanged sentences

The Borrower was charged a commitment fee ranging from 0.25 % to 0.40 % per year on the daily amount of the unused portions of the commitments under the 2018 Credit Facility.

Additionally, with respect to all letters of credit outstanding under the 2018 Credit Facility, the Borrower was charged a fronting fee of 0.125 % per year and an outstanding letter of credit fee equal to the Applicable Margin for base rate loans ranging from 1.50 % to 2.00 % times the amount of the outstanding letters of credit.

The 2018 Credit Facility required compliance with certain financial covenants, including a minimum consolidated quick ratio, minimum consolidated interest coverage ratio and maximum consolidated leverage ratio, all of which were defined in the 2018 Credit Facility and tested on a quarterly basis.

In addition, the 2018 Credit Facility contained various covenants that, among other restrictions, limited the Company’s and its subsidiaries’ ability to enter into certain types of transactions, including, but not limited to:

incurring or assuming indebtedness, making acquisitions or engaging in mergers, making investments, repurchasing equity and paying dividends, selling or otherwise transferring assets, changing the nature of its business and amending or making prepayments on certain junior debt.

The 2018 Credit Facility contained events of default that are customary for a secured credit facility.

If an event of default relating to bankruptcy or other insolvency events with respect to a borrower occurred, all obligations under the 2018 Credit Facility would immediately become due and payable.

If any other event of default existed under the 2018 Credit Facility, the lenders could accelerate the maturity of the obligations outstanding under the 2018 Credit Facility and exercise other rights and remedies, including charging a default rate of interest equal to 2.00 % per year above the rate that would otherwise be applicable.

In addition, if any event of default existed under the 2018 Credit Facility, the lenders could commence foreclosure or other actions against the collateral.

If any default existed under the 2018 Credit Facility, or if the Borrower was unable to make any of the representations and warranties as stated in the 2018 Credit Facility at the applicable time, the Borrower would be unable to borrow funds or have letters of credit issued under the 2018 Credit Facility, which, depending on the circumstances prevailing at that time, could have a material adverse effect on the Borrower’s liquidity and working capital.

Additionally, with respect to all letters of credit outstanding under the 2018 Credit Facility, the Borrower was charged a fronting fee of 0.125 % per year and an outstanding letter of credit fee

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

equal to the Applicable Margin for base rate loans ranging from 1.50 % to 2.00 % times the amount of the outstanding letters of credit.

The 2018 Credit Facility was superseded by the 2019 Credit Facility, which was entered into on April 29, 2019 and which is discussed below.

7 unchanged sentences

The 2019 Credit Facility was secured by first-priority liens on substantially all of the assets of the Borrower and the Guarantors, including the Company.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

The 2019 Credit Facility required periodic interest payments on any outstanding borrowings under the facility.

3 unchanged sentences

The base rate and the LIBOR rate were each subject to a zero percent floor.

The 2019 Credit Facility required compliance with certain financial covenants, including a minimum consolidated quick ratio, minimum consolidated fixed charge coverage ratio and maximum consolidated leverage ratio, all of which were defined in the 2019 Credit Facility and tested on a quarterly basis.

The Company was in compliance with all covenants of the 2019 Credit Facility at December 31, 2019.

In addition, the 2019 Credit Facility contained various covenants that, among other restrictions, limited the Company’s and its subsidiaries’ ability to enter into certain types of transactions, including, but not limited to:

incurring or assuming indebtedness;

granting or assuming liens;

making acquisitions or engaging in mergers;

making dividend and certain other restricted payments;

making investments;

selling or otherwise transferring assets;

engaging in transactions with affiliates;

entering into sale and leaseback transactions;

entering into burdensome agreements;

changing the nature of its business;

modifying its organizational documents;

and amending or making prepayments on certain junior debt.

The 2019 Credit Facility contained events of default that are customary for a secured credit facility.

If an event of default relating to bankruptcy or other insolvency events with respect to a borrower occurred, all obligations under the 2019 Credit Facility would immediately become due and payable.

If any other event of default existed under the 2019 Credit Facility, the lenders could accelerate the maturity of the obligations outstanding under the 2019 Credit Facility and exercise other rights and remedies, including charging a default rate of interest equal to 2.00 % per year above the rate that would otherwise be applicable.

In addition, if any event of default existed under the 2019 Credit Facility, the lenders could commence foreclosure or other actions against the collateral.

If any default existed under the 2019 Credit Facility, or if the Borrower was unable to make any of the representations and warranties as stated in the 2019 Credit Facility at the applicable time, the Borrower would be unable to borrow funds or have letters of credit issued under the 2019 Credit Facility, which, depending on the circumstances prevailing at that time, could have had a material adverse effect on the Borrower’s liquidity and working capital.

The 2019 Credit Facility was superseded by the 2020 Credit Facility, which was entered into on March 3, 2020, and which is discussed below.

6 unchanged sentences

Under the 2020 Revolving Credit Facility, a $ 30 million sublimit is available for letters of credit and a $ 20 million submit is available for swingline loans.

Under the 2020 Credit Facility, the Company was originally required to make quarterly principal payments aggregating approximately $ 10 million in the first year, $ 20 million per year for the

Under the 2020 Credit Facility, the Company was originally required to make quarterly principal payments aggregating approximately $ 10 million in the first year, $ 20 million per year for the following three years, and $ 30 million in the last year, with the remaining balance due on the maturity date.

The 2020 Credit Facility also requires periodic interest payments until maturity.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

following three years, and $ 30 million in the last year, with the remaining balance due on the maturity date.

The 2020 Credit Facility also requires periodic interest payments until maturity.

The indebtedness and other obligations under the 2020 Credit Facility are unconditionally guaranteed on a senior secured basis by the Company, Edgewater Networks, Inc., a wholly-owned subsidiary of the Company, and GENBAND Inc., wholly-owned subsidiary of the Company (together, the "Guarantors").

24 unchanged sentences

The base rate and the LIBOR rate are each subject to a zero percent floor.

The Company is required to make quarterly principal payments on the Term A Loan aggregating approximately $ 10 million in the first year, $ 16 million per year in each of the next two years, $ 20 million in the fourth year and $ 16 million in the last year, with the final payment approximating $ 244 million due on the maturity date.

The Borrower can prepay all amounts under the Term A Loan and the 2020 Revolving Credit Facility at any time without premium or penalty (other than customary LIBOR breakage costs), subject to certain notice requirements.

The Term B Loan is scheduled to mature in March 2026 and bears interest, at the Borrower's option, at either the LIBOR rate plus a margin of 7.50 % per year, or the base rate (the highest of the Federal Funds Effective Rate (as defined in the First Amendment) plus 0.50 %, or the prime rate announced from time to time in The Wall Street Journal, plus a margin of 6.50 % per year.

The Term B Loan has a lower rate of amortization than the Term A Loan and is subject to a 1.0 % premium if voluntarily repaid in connection with a repricing transaction (as defined in the 2020 Credit Facility) occurring prior to the six month anniversary of the First Amendment Effective Date.

The Company is required to make quarterly principal payments totaling approximately $ 1 million in the first year and $ 8 million in the aggregate over the next four and a half years, with the final payment approximating $ 66 million.

The Company was required to make quarterly principal payments on the Term A Loan aggregating approximately $ 10 million in the first year, $ 16 million per year in each of the next two years, $ 20 million in the fourth year and $ 16 million in the last year, with the final payment approximating $ 244 million due on the maturity date.

The Borrower could prepay all amounts under the Term A Loan and the 2020 Revolving Credit Facility at any time without premium or penalty (other than customary LIBOR breakage costs), subject to certain notice requirements.

The Term B Loan was scheduled to mature in March 2026 and bore interest, at the Borrower's option, at either the LIBOR rate plus a margin of 7.50 % per year, or the base rate (the highest of the Federal Funds Effective Rate (as defined in the First Amendment) plus 0.50 %, or the prime rate announced from time to time in The Wall Street Journal, plus a margin of 6.50 % per year.

The Term B Loan had a lower rate of amortization than the Term A Loan and was subject to a 1.0 % premium if voluntarily repaid in connection with a repricing transaction (as defined in the 2020 Credit Facility) occurring prior to the six month anniversary of the First Amendment Effective Date.

The Company was required to make quarterly principal payments totaling approximately $ 1 million in the first year and $ 8 million in the aggregate over the next four and a half years, with the final payment approximating $ 66 million.

The First Amendment reduced the Borrower's ability to incur new tranches of term loans, or increases in commitments under the Amended 2020 Term Loan Facility or the 2020 Revolving Credit Facility.

Specifically, such indebtedness could be

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

The First Amendment reduced the Borrower's ability to incur new tranches of term loans, or increases in commitments under the Amended 2020 Term Loan Facility or the 2020 Revolving Credit Facility.

Specifically, such indebtedness can be incurred up to an aggregate dollar amount equal to 75 % of the Company's Consolidated Adjusted EBITDA (as defined in the 2020 Credit Facility), reduced from 100 % prior to the First Amendment, as of the most recently ended fiscal quarter for which financial statements have been delivered to the lenders, plus additional amounts, so long as the Borrower's Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility) does not exceed 2.25 :1.00, reduced from 2.75 :1.00 under the 2020 Credit Facility.

incurred up to an aggregate dollar amount equal to 75 % of the Company's Consolidated Adjusted EBITDA (as defined in the 2020 Credit Facility), reduced from 100 % prior to the First Amendment, as of the most recently ended fiscal quarter for which financial statements had been delivered to the lenders, plus additional amounts, so long as the Borrower's Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility) does not exceed 2.25 :1.00, reduced from 2.75 :1.00 under the 2020 Credit Facility.

The First Amendment also reduced the amount of Unrestricted Cash (as defined in the 2020 Credit Facility) used in calculating the Borrower's Consolidated Net Leverage Ratio from $ 25 million to $ 10 million.

2 unchanged sentences

The 2020 Revolving Credit Facility did not have an outstanding balance but had $ 5.6 million of letters of credit outstanding with an interest rate of 2.5 %.

The Company was in compliance with all covenants of the 2020 Credit Facility at December 31, 2020.

On March 3, 2021 (the "Third Amendment Effective Date"), the Company, the Borrower and certain of its subsidiaries entered into a Third Amendment to Credit Agreement (the "Third Amendment"), which further amended the 2020 Credit Facility.

The Third Amendment provided for an incremental term loan facility to the Borrower in the original principal amount of $ 74.6 million, the proceeds of which were used on the Third Amendment Effective Date to consummate an open market purchase of all outstanding amounts under the Term B Loan.

Upon the consummation of the open market purchase, the Term B Loans were assigned to the Borrower and immediately cancelled, such that the outstanding amount under the Term A Loan and incremental term loan facility were combined and held by the Lenders (the "2020 Term Loan") with the same terms as the Term A Loan.

The Company wrote off $ 2.5 million of capitalized debt issuance costs in connection with the Third Amendment, which is included in Interest expense, net, in the Company's consolidated statement of operations for the year ended December 31, 2021.

The Company is required to make quarterly principal payments on the 2020 Term Loan aggregating approximately $ 20 million per year in the first three years and $ 30 million in the fourth year, with the final payment approximating $ 300 million due on the maturity date.

The Third Amendment increased the Borrower's ability to incur new incremental revolving commitments or term loans.

Such indebtedness can be incurred up to an aggregate dollar limit equal to 100 % of the Company's Consolidated Adjusted EBITDA (as defined in the 2020 Credit Facility) as of the most recently ended fiscal quarter for which financial statements have been delivered to the Lenders, plus additional amounts, so long as the Borrower's Consolidated Net Leverage Ratio (as defined in the Credit Agreement) does not exceed 2.75 :1.00, increased from 2.25 :1.00 under the First Amendment.

The Third Amendment also increased the amount of Unrestricted Cash (as defined in the 2020 Credit Facility) used in calculating the Borrower's Consolidated Net Leverage Ratio from $ 10 million to $ 25 million.

On March 10, 2022, the Borrowers entered into a Fourth Amendment to the 2020 Credit Facility (the "Fourth Amendment") to increase the Maximum Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility) to 4.25 :1.00 for the first quarter of 2022 and 4.50 :1.00 for the second quarter of 2022, with reductions in subsequent quarters through the third quarter of 2023, when the ratio will be fixed at 3.00 :1.00.

In connection with the Fourth Amendment, the Company made a $ 15.0 million prepayment that was applied to the final payment due on the maturity date.

At December 31, 2021, the Company had an outstanding 2020 Term Loan balance of $ 375.5 million at an average interest rate of 3.4 % and $ 4.3 million of letters of credit outstanding with an interest rate of 2.5 %.

The Company was in compliance with all covenants of the 2020 Credit Facility at both December 31, 2021 and 2020.

Short-Term Loan

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These loans expired and were paid in full at various dates in June and July 2020.

In July 2020, the Company entered into an uncommitted and unsecured short-term loan in the amount of $ 0.7 million at an interest rate of 4.0 % with Bank of Communications Hangzhou Branch.

In July 2020, the Company entered into an uncommitted and unsecured short-term loan in the amount of $ 0.7 million at an interest rate of 4.0 % with Bank of

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Communications Hangzhou Branch.

This loan expired and was paid in full in November 2020.

The Company did not have any such short-term loans outstanding at December 31, 2021 and 2020.

Letters of Credit and Performance and Bid Bonds

The Company uses letters of credit and performance and bid bonds in the course of its business.

At December 31, 2020, the Company had $ 32.6 million of letters of credit, bank guarantees, and performance and bid bonds outstanding (collectively, "Guarantees"), comprised of the $ 5.6 million of letters of credit under the 2020 Credit Agreement described above and $ 27.0 million of Guarantees under various uncommitted facilities.

At December 31, 2020, the Company had cash collateral of $ 2.7 million supporting the Guarantees under its uncommitted facilities, which is included in Restricted cash in the consolidated balance sheet at December 31, 2020.

At December 31, 2021, the Company had $ 30.1 million of letters of credit, bank guarantees, and performance and bid bonds outstanding (collectively, "Guarantees"), comprised of the $ 4.3 million of letters of credit under the 2020 Credit Agreement described above (the "Letters of Credit") and $ 25.8 million of bank guarantees and performance and bid bonds (collectively, the "Other Guarantees") under various uncommitted facilities.

At December 31, 2020, the Company had $ 32.6 million of Guarantees, comprised of the $ 5.6 million of Letters of Credit and $ 27.0 million of Other Guarantees under various uncommitted facilities.

At December 31, 2021 and 2020, the Company had cash collateral of $ 2.6 million and $ 2.7 million, respectively, supporting the Guarantees under its uncommitted facilities, which are reported in Restricted cash in the consolidated balance sheets.

Promissory Note

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The Company did not incur any early termination penalties in connection with this repayment.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

(15) OTHER LONG-TERM LIABILITIES

Other long-term liabilities consisted of the following (in thousands):

Finance lease obligations $ 1,469 $ 3,149

Restructuring 7,432 3,510

Pension obligations 11,132 9,954

Taxes payable 13,835 1,991

Interest rate swap 10,948 —

Warranty 14,855 —

Other 6,082 1,683

65,753 20,287

Current portion ( 17,472 ) ( 3,698 )

Long-term liabilities, net of current portion $ 48,281 $ 16,589

The current portions of long-term liabilities are included as components of Accrued expenses and other in the Company's consolidated balance sheets.

(15) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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Cash Flow Hedge of Interest Rate Risk

The Amended 2020 Term Loan Facility had an outstanding balance of $ 393.1 million at December 31, 2020.

The 2020 Revolving Credit Facility was undrawn at December 31, 2020.

The credit facilities under the 2020 Credit Agreement have variable interest rates based on LIBOR (see Note 14).

As a result of exposure to interest rate movements, during March 2020, the Company entered into an interest rate swap arrangement, which effectively converted its $ 400 million term loan with its variable interest rate based upon one-month LIBOR to an aggregate fixed rate of 0.904 %, plus a leverage-based margin as defined in the 2020 Credit Agreement.

The Term A Loan continues to have a leverage-based margin and the Term B Loan has a fixed margin as defined in the 2020 Credit Agreement.

The notional amount of this swap at December 31, 2020 was $ 400 million, and the swap matures on March 3, 2025, the same date the Term A Loan matures.

The 2020 Term Loan Facility had outstanding balances of $ 375.5 million and $ 393.1 million at December 31, 2021 and 2020, respectively.

The 2020 Revolving Credit Facility was undrawn at both December 31, 2021 and 2020.

Borrowings under the 2020 Credit Agreement have variable interest rates based on LIBOR (see Note 14).

As a result of exposure to interest rate movements, during March 2020, the Company entered into an interest rate swap arrangement, which effectively converted its

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

$ 400 million term loan with its variable interest rate based upon one-month LIBOR to an aggregate fixed rate of 0.904 %, plus a leverage-based margin as defined in the 2020 Credit Facility.

The notional amount of this swap at December 31, 2021 and 2020 was $ 400 million, and the swap matures on March 3, 2025, the same date the 2020 Credit Facility matures.

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements.

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Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The effective portion of changes in the fair value of designated derivatives that qualify as cash flow hedges is recorded in accumulated other comprehensive (loss) income in the consolidated balance sheet and is subsequently reclassified into earnings in the period that the hedged forecasted transactions affect earnings.

During the year ended December 31, 2020, such a derivative was used to hedge the variable cash flows associated with the credit facilities under the 2020 Credit Agreement, and the Company has accounted for this derivative as an effective hedge.

The effective portion of changes in the fair value of designated derivatives that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) in the consolidated balance sheet and is subsequently reclassified into earnings in the period that the hedged forecasted transactions affect earnings.

During the years ended December 31, 2021 and 2020, such a derivative was used to hedge the variable cash flows associated with the credit facilities under the 2020 Credit Facility, and the Company has accounted for this derivative as an effective hedge.

Any ineffective portion of the change in the fair value of the derivative would be recognized directly in earnings.

Amounts reported in accumulated other comprehensive (loss) income related to the Company's derivative will be reclassified to interest expense as interest is accrued on the Company’s variable-rate debt.

Based upon projected forward rates, the Company estimates as of December 31, 2020 that $ 3.2 million may be reclassified as an increase to interest expense over the next twelve months.

The impact of the Company’s derivative financial instrument on its consolidated statement of comprehensive income (loss) for the year ended December 31, 2020 was as follows (in thousands):

Loss recognized in other comprehensive loss on derivative (effective portion) $ ( 12,671 )

Amount reclassified from accumulated other comprehensive loss to interest expense (effective portion) 1,723

The fair values and locations in the consolidated balance sheet at December 31, 2020 of the Company's derivative liability designated as a hedging instrument were as follows (in thousands):

Amounts reported in accumulated other comprehensive income (loss) related to the Company's derivative are reclassified to interest expense as interest is accrued on the Company’s variable-rate debt.

Based upon projected forward rates, the Company estimates that as of December 31, 2021, $ 2.1 million may be reclassified as an increase to interest expense over the next twelve months.

The impact of the Company’s derivative financial instrument on its consolidated statement of comprehensive income (loss) for the years ended December 31, 2021 and 2020 was as follows (in thousands):

Year ended December 31,

Gain (loss) recognized in other comprehensive income (loss) on derivative (effective portion) $ 9,505 $ ( 12,671 )

Amount reclassified from accumulated other comprehensive income (loss) to interest expense (effective portion) 3,254 1,723

$ 12,759 $ ( 10,948 )

The fair values and locations in the consolidated balance sheet at December 31, 2021 and 2020 of the Company's derivative assets (liabilities) designated as a hedging instrument were as follows (in thousands):

Balance sheet location 2021 2020

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Interest rate derivative - liability derivative Other long-term liabilities — ( 7,791 )

The Company has classified the interest rate derivative aggregating $ 10.9 million at December 31, 2020 as a Level 2 fair value measurement within the fair value hierarchy (see Note 6).

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Interest rate derivative - asset derivative Other assets 3,865 —

$ 1,811 $ ( 10,948 )

The Company has classified the interest rate derivative net asset of $ 1.8 million at December 31, 2021 and a liability of $ 10.9 million at December 31, 2020 respectively, as Level 2 fair value measurements within the fair value hierarchy (see Note 6).

(16) REVENUE RECOGNITION

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Balance at December 31, 2020 $ 179,331 $ 58,407 $ 96,824 $ 26,010

The Company recognized approximately $ 99 million of revenue in the year ended December 31, 2020 that was recorded as deferred revenue at December 31, 2019 and approximately $ 94 million of revenue in the year ended December 31, 2019 that

The Company recognized approximately $ 94 million of revenue in the year ended December 31, 2021 that was recorded as deferred revenue at December 31, 2020 and approximately $ 99 million of revenue in the year ended December 31, 2020 that was recorded as deferred revenue at December 31, 2019.

Of the Company's deferred revenue reported as long-term in its

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

was recorded as deferred revenue at December 31, 2018.

Of the Company's deferred revenue reported as long-term in its consolidated balance sheet at December 31, 2020, the Company expects that approximately $ 15 million will be recognized as revenue in 2022, approximately $ 6 million will be recognized as revenue in 2023 and approximately $ 5 million will be recognized as revenue in 2024 and beyond.

consolidated balance sheet at December 31, 2021, the Company expects that approximately $ 12 million will be recognized as revenue in 2023, approximately $ 6 million will be recognized as revenue in 2024 and approximately $ 3 million will be recognized as revenue in 2025 and beyond.

All freight-related customer invoicing is recorded as revenue, while the shipping and handling costs that occur after control of the promised goods or services transfer to the customer are reported as fulfillment costs, a component of Cost of revenue - product in the Company's consolidated statements of operations.

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Sales commissions earned by the Company's employees are considered incremental and recoverable costs of obtaining a contract with a customer.

Under ASC 605, the costs associated with obtaining a customer contract were expensed in the period the revenue was earned.

Under ASC 606, these payments have been deferred on our consolidated balance sheet and are being amortized over the expected life of the customer contract, which is five years .

The payments related to these costs have been deferred on our consolidated balance sheet and are being amortized over the expected life of the customer contract, which is five years .

At December 31, 2021 and 2020, the Company had $ 3.8 million and $ 4.1 million, respectively, of deferred sales commissions capitalized.

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Ribbon's Cloud and Edge product portfolio consists of our Session Border Controller ("SBC") products and our Network Transformation ("NTR") products.

The IP Optical Networks segment provides high-performance, secure and reliable hardware and software products solutions for IP networking, switching, routing and optical transport designed to support and enable technologies like 5G, distributed cloud computing and corresponding applications by delivering ultra-low cost-per-bit transport and multi-service flexibility.

The IP Optical Networks portfolio offers multiple solutions, including 5G-native solutions for mobile backhaul, metro and edge aggregation, core networking, data center interconnect, legacy NTR and transport solutions for wholesale carriers.

The IP Optical Networks segment provides high-performance, secure solutions for IP networking and optical transport, supporting wireless networks including 5G, metro and edge aggregation, core networking, data center interconnect, legacy network transformation and transport solutions for wholesale carriers.

This portfolio is offered to service provider, enterprise and industry verticals with critical transport network infrastructures including utilities, government, defense, transportation, and education and research.

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Please see Note 10 for information regarding the allocation of goodwill between segments.

The CODM utilizes revenue, adjusted gross margin (revenue divided by gross profit) and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) to measure and assess each segment's performance.

The Company calculates adjusted gross margin by excluding from cost of revenue:

stock-based compensation, acquisition-related inventory adjustments and acquisition-related facilities adjustments.

The Company calculates adjusted EBITDA by excluding from income (loss) from operations:

depreciation;

amortization of acquired intangible assets;

stock-based compensation;

acquisition-related inventory adjustments;

acquisition-related facilities adjustments;

certain litigation costs;

impairment of goodwill;

settlement expense;, cancelled debt offering costs;

acquisition-, disposal- and integration-related expense;

and restructuring and related expense.

These adjusted measures may also exclude other items in future periods that the Company believes are not part of the Company's core business.

Adjusted gross profit and adjusted EBITDA are not financial measures determined in accordance with U.S.

GAAP and may not be comparable to similarly titled measures used by other companies and should not be considered a substitute for income (loss) from operations or gross profit or other results reported in accordance with U.S.

The CODM utilizes revenue and adjusted gross profit to measure and assess each segment's performance.

The Company calculates adjusted gross profit by excluding from cost of revenue:

amortization of acquired technology, stock-based compensation, acquisition-related inventory adjustments and acquisition-related facilities adjustments, and may also exclude other items in future periods that the Company believes are not part of the Company's core business.

Adjusted gross profit is not a financial measure determined in accordance with U.S.

GAAP, may not be comparable to similarly titled measures used by other companies;

and should not be considered a substitute for gross profit or other results reported in accordance with U.S.

See below for a reconciliation of adjusted gross profit to gross profit which is the most directly comparable U.S.

GAAP measure.

Financial information for the IP Optical Networks segment is not presented for the year ended December 31, 2019, as this segment arose from the ECI Acquisition in 2020.

The tables below provide revenue, adjusted gross profit and depreciation expense by reportable segment for the years ended December 31, 2021, 2020 and 2019 (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

See below for a reconciliation of adjusted gross profit to gross profit and adjusted EBITDA to income (loss) from operations, as those are the most directly comparable U.S.

GAAP measures.

Financial information for the IP Optical Networks segment is not presented for any years prior to 2020, as this segment arose from the ECI Acquisition, and accordingly is not included in the Company's consolidated financial statements for the years December 31, 2019 and 2018.

The tables below provide net sales, adjusted gross profit, adjusted EBITDA and depreciation expense by reportable segment for the years ended December 31, 2020, 2019 and 2018 (in thousands):

Year ended December 31,

2020 2019 2018

Revenue 2021 2020 2019

Segment revenue:

1 unchanged sentence

IP Optical Networks 288,301 260,525 —

Revenue $ 843,795 $ 563,111 $ 577,905

Total revenue $ 844,957 $ 843,795 $ 563,111

Year ended December 31,

2020 2019 2018

Adjusted gross profit 2021 2020 2019

Segment adjusted gross profit:

3 unchanged sentences

Stock-based compensation expense ( 1,997 ) ( 875 ) ( 554 )

Amortization of acquired technology ( 38,343 ) ( 42,290 ) ( 37,573 )

Acquisition-related inventory and facilities adjustments — ( 2,000 ) —

Gross profit $ 444,660 $ 450,817 $ 317,084

Segment adjusted EBITDA:

Cloud and Edge $ 135,678 $ 85,701 $ 51,934

IP Optical Networks ( 4,512 ) — —

Total segment adjusted EBITDA 131,166 85,701 51,934

Depreciation ( 17,188 ) ( 11,949 ) ( 11,200 )

Amortization of intangible assets ( 60,910 ) ( 49,225 ) ( 49,723 )

Stock-based compensation ( 13,899 ) ( 12,601 ) ( 11,072 )

Acquisition-related inventory and facilities adjustments ( 2,000 ) — ( 966 )

Litigation costs ( 2,101 ) ( 7,734 ) ( 7,682 )

Impairment of goodwill — ( 164,300 ) —

Settlement expense — — ( 1,730 )

Cancelled debt offering costs — — ( 1,003 )

Acquisition-, disposal- and integration-related expense ( 17,164 ) ( 12,953 ) ( 16,951 )

Restructuring and related expense ( 16,235 ) ( 16,399 ) ( 17,015 )

Income (loss) from operations $ 1,669 $ ( 189,460 ) $ ( 65,408 )

Year ended December 31,

Depreciation expense 2021 2020 2019

Segment depreciation expense:

Cloud and Edge $ 12,269 $ 12,111 $ 11,949

IP Optical Networks 4,693 5,077 —

Depreciation expense $ 17,188 $ 11,949 $ 11,200

Total depreciation expense $ 16,962 $ 17,188 $ 11,949

(18) MAJOR CUSTOMERS

The following customers contributed 10% or more of the Company's revenue in at least one of the years ended December

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

31, 2020, 2019 and 2018:

The following customers contributed 10% or more of the Company's revenue in at least one of the years ended December 31, 2021, 2020 and 2019:

Year ended December 31,

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* Less than 10% of total revenue.

At December 31, 2020, one customer accounted for 10% or more of the Company's accounts receivable balance, representing approximately 12 % in the aggregate of total accounts receivable.

At December 31, 2021, one customer accounted for 10% or more of the Company's accounts receivable balance, representing approximately 15 % of total accounts receivable.

At December 31, 2020, one customer accounted for 10% or more of the Company's accounts receivable balance, representing approximately 12 % of total accounts receivable.

The Company performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable.

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(19) COMMON STOCK REPURCHASES

In the second quarter of 2019, the Company's Board of Directors (the "Board") approved a stock repurchase program (the "Repurchase Program") pursuant to which the Company may repurchase up to $ 75 million of its common stock prior to April 18, 2021.

Repurchases under the Repurchase Program may be made in the open market, in privately negotiated transactions or otherwise, with the amount and timing of repurchases depending on market conditions and corporate discretion.

The Repurchase Program does not obligate the Company to acquire any particular amount of common stock and may be extended, modified, suspended or discontinued at any time at the Board's discretion.

The stock repurchases are being funded using the Company's working capital.

In the second quarter of 2019, the Company's Board of Directors (the "Board") approved a stock repurchase program (the "Repurchase Program") pursuant to which the Company could repurchase up to $ 75 million of its common stock prior to April 18, 2021 (the "Program Expiration Date").

The stock repurchases were funded using the Company's working capital.

During the year ended December 31, 2019, the Company spent $ 4.5 million, including transaction fees, to repurchase and retire 1.0 million shares of its common stock under the Repurchase Program.

The Company did not repurchase any common stock during the year ended December 31, 2020.

At December 31, 2020, the Company had $ 70.5 million remaining under the Repurchase Program for future repurchases.

The Company did not repurchase any common stock during the year ended December 31, 2020 or in the period from January 1, 2021 through the Program Expiration Date.

The Company had $ 70.5 million remaining for future repurchases upon the expiration of the Repurchase Program.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

(20) STOCK-BASED COMPENSATION PLANS

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Awards can be granted under the 2019 Plan to the Company's employees, officers and non-employee directors, as well as consultants and advisors of the Company and its subsidiaries.

At December 31, 2020, there were 8.9 million shares available for future issuance under the 2019 Plan.

At December 31, 2021, there were 3,985,451 shares available for future issuance under the 2019 Plan.

The Company's 2007 Plan provided for the award of stock options, SARs, RSAs, RSUs, PSAs, PSUs and other stock-based awards to employees, officers, non-employee directors, consultants and advisors of the Company and its subsidiaries.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

following June 5, 2019, with the exception of shares underlying awards outstanding as of that date, no additional shares may be granted under the 2007 Plan.

On and following June 5, 2019, with the exception of shares underlying awards outstanding as of that date, no additional shares may be granted under the 2007 Plan.

2002 Stock Option Plan

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The Company recorded $ 0.7 million as additional purchase consideration for the fair value of the Assumed Options.

The fair value of the Ribbon Replacement Options attributable to future service totaled $ 1.0 million, which will be fully expensed by the end of 2021.

The fair value of the Ribbon Replacement Options attributable to future service totaled $ 1.0 million, which will be fully expensed in 2022.

At December 31, 2021, there were 105,495 shares available for future grant as stock options.

2012 Stock Incentive Plan

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In December 2014, all of the unissued shares under the 2008 Plan were transferred to the 2007 Plan.

Any outstanding awards under the 2008 Plan that in the future expire, terminate, are canceled, surrendered or forfeited, or are repurchased by the Company will be returned to the 2019 Plan.

Any outstanding awards under the 2008 Plan that in

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

the future expire, terminate, are canceled, surrendered or forfeited, or are repurchased by the Company will be returned to the 2019 Plan.

Accordingly, at December 31, 2021 there were no shares available for future issuance under the 2008 Plan.

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McClelland") commencement of employment, the Company awarded Mr.

McClelland sign-on equity grants, comprised of an RSU grant and a PSU grant with both market service conditions (the "Inducement PSUs") on March 16, 2020.

Subject to Mr.

McClelland's continued employment, 462,963 RSUs are eligible to vest on the earlier of March 16, 2021 or the date of the consummation of a change in control of the Company and, upon vesting, will be settled in shares of Ribbon's common stock.

The RSUs had a grant date fair value of $ 1.0 million on the date of grant.

McClelland sign-on equity grants, comprised of 462,963 RSUs and a PSU grant with both market service conditions (the "Inducement PSUs") on March 16, 2020.

The RSUs vested and were released to Mr.

McClelland on March 16, 2021.

Subject to Mr.

McClelland's continued employment, the PSUs are eligible to vest and be settled in up to 4,750,000 shares of Ribbon common stock upon the achievement of specified share price thresholds on or prior to September 1, 2024.

These grants are reported in the applicable tables below.

McClelland's continued employment, the Inducement PSUs are eligible to vest and be settled in up to 4,750,000 shares of Ribbon common stock upon the achievement of specified share price thresholds on or prior to September 1, 2024.

The first share price threshold for Mr.

McClelland's Inducement PSUs was achieved on February 26, 2021, and accordingly, 1,333,333 shares were released to him.

These releases are included in the applicable tables below.

Performance-Based Stock Grants

In addition to granting RSAs and RSUs and the aforementioned Inducement PSUs, to its executives and certain of its employees, the Company also grants PSUs to certain of its executives.

PSU Grants - 2020 and 2019 .

In both 2020 and 2019, the Company granted certain of its executives (the "2020 PSUs" and "2019 PSUs", respectively), of which 60 % of each executive's PSU grant had both performance service conditions (the "Performance PSUs") and 40 % had both market and service conditions (the "Market PSUs").

Each executive's Performance PSU grant is comprised of three consecutive fiscal year performance periods beginning in the year of grant (each, a "Fiscal Year Performance Period"), with one-third of the Performance PSUs attributable to each Fiscal

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Year Performance Period.

In 2021, 2020 and 2019, the Company granted certain of its executives (the "2021 PSUs", "2020 PSUs" and "2019 PSUs", respectively), of which 60 % of each executive's PSU grant had both performance service conditions (the "Performance PSUs") and 40 % had both market and service conditions (the "Market PSUs").

The number of shares that will be vest for each Fiscal Year Performance Period, if any, will be based on the achievement of certain metrics related to the Company's financial performance for the applicable year on a standalone basis (each, a "Fiscal Year Performance Condition").

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The price share threshold was met on February 12, 2021 and the shares vested and were released on February 15, 2021.

From June through September 2020, the Company granted certain of its executives an aggregate of 823,369 PSUs, of which 494,020 PSUs had both performance and service conditions (the “2020 Performance PSUs”) and 329,349 had both market and service conditions (the “2020 Market PSUs”).

This release is included in the applicable table below.

In the year ended December 31, 2021, the Company granted certain of its executives an aggregate of 684,425 PSUs, of which 341,359 PSUs had both performance and service conditions (the "2020 Performance PSUs"), 227,571 PSUs

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

had both market and service conditions (the "2021 Market PSUs"), and 115,495 PSUs had both revenue performance and service conditions (the "2021 Revenue PSUs").

The three Fiscal Year Performance Periods for the 2021 Performance PSUs are the years ended December 31, 2021, 2022 and 2023 (respectively, the "2021 Performance Period", "2022 Performance Period" and "2023 Performance Period").

As of December 31, 2020, the Company determined that the grant date criteria for the 2021 Performance Period and the 2022 Performance Period had not been met, as the goals for these performance periods had not been established by the Company, and accordingly, no expense has been recorded related to these performance periods.

The 2021 Revenue PSUs had a one-year performance period, the year ended December 31, 2021, and shares earned, if any, will vest on March 15, 2022.

In 2020, the Company granted certain of its executives an aggregate of 823,369 PSUs, of which 494,020 PSUs had both performance and service conditions (the “2020 Performance PSUs”) and 329,349 had both market and service conditions (the “2020 Market PSUs”).

The three Fiscal Year Performance Periods for the 2020 Performance PSUs are the years ended December 31, 2020, 2021 and 2022 (respectively, the “2020 Performance Period”, “2021 Performance Period” and “2022 Performance Period”).

In March and April 2019, the Company granted certain of its executives an aggregate of 872,073 PSUs, of which 523,244 PSUs had both performance and service conditions (the "Performance PSUs") and 348,829 PSUs had both market and service conditions (the "Market PSUs").

2 unchanged sentences

There was no incremental expense in connection with this modification.

In March 2020, the Compensation Committee determined that the performance conditions for the 2019 Performance Period had been satisfied at the 30.493 % level.

As of December 31, 2020, the Company determined that the grant date criteria for the 2021 Fiscal Year Performance Period had not been met, as the goals for the 2021 Performance Period had not been established by the Company, and accordingly, no expense has been recorded related to this performance period.

PSU Grants - 2018 .

In May 2018, the Company granted its then-current President and Chief Executive Officer ("Mr.

Hobbs") 195,000 PSUs with both performance and service conditions (the “2018 PSUs”).

Of the 195,000 2018 PSUs, one-half each would vest based on the achievement of two separate metrics related to the Company’s 2018 financial performance (the “2018 Performance Conditions”).

The Company’s achievement of the 2018 Performance Conditions (and the shares of Company common stock to vest as a result thereof) were measured on a linear sliding scale in relation to specific threshold, target and stretch performance conditions.

The number of shares of common stock to be received upon vesting of the 2018 PSUs would in no event exceed 150 % of the 2018 PSUs.

The Compensation Committee ultimately determined that the performance conditions for the 2018 PSUs had been achieved at the 150 % level, for a total of 292,500 shares eligible to be issued (the "2018 Shares Earned"), pending Mr.

Hobbs' continued employment with the Company through December 31, 2020.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

In connection with his separation from the Company effective December 31, 2019, the vesting schedule for the 2018 Shares Earned was accelerated and the shares were released on January 30, 2020.

The release of these shares is included in the PSU table below.

At December 31, 2021, the Company determined that the grant date criteria for the 2022 Performance Period and 2023 Performance Period had not been met, as the goals for these performance periods had not been established by the Company.

Accordingly, no expense has been recorded related to these performance periods.

Accounting for Performance PSUs .

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The Company is required to record expense for the PSUs with market conditions through their respective final vesting dates regardless of the number of shares that are ultimately earned.

Stock-for-Cash Bonus Election

In connection with the Company’s annual incentive program, certain executives of the Company were given the choice to receive a portion of their fiscal year 2018 bonuses (the “2018 Bonus”), if any were earned, in the form of shares of the Company’s common stock (the “2018 Bonus Shares”).

Each executive could also elect not to participate in this program and to earn his or her 2018 Bonus, if any, in the form of cash.

The Company determined that the grant date criteria for the 2018 Bonus Shares had not been met as of December 31, 2018, as the number of shares to be granted to each executive had not been determined.

The Company recorded stock-based compensation expense totaling $ 1.1 million in connection with the Stock Bonus Program in 2018 and recorded a liability in connection with the future issuance of the 2018 Bonus Shares.

This liability was reclassified to equity at the time the shares were granted on March 15, 2019.

Employee Bonus Program

For the year ended December 31, 2021, the Company added an equity component to its cash bonus program for eligible employees, under which RSUs with a grant date fair value equal to 50 % of each employee's target cash bonus were granted to each such employee ("Bonus RSUs").

Correspondingly, cash target bonuses for eligible employees were reduced by 50 %.

The Company implemented this program to expand the opportunities for stock ownership more broadly throughout the Company.

The Bonus RSUs will vest over three years , with the final vest occurring on March 15, 2024.

The Bonus RSU grants are included in the applicable table below.

Accelerated Vesting of Stock Units

In connection with the separation of several executives from the Company in the years ended December 31, 2020 and 2019, the Company accelerated the vesting of certain of their outstanding RSUs and PSUs in accordance with their respective terms of employment with the Company, with the potential for a portion of certain other PSUs aggregating approximately 43,000 shares to be released to two of these former executives on a pro rata basis subject to achievement of the related performance or market conditions for the performance periods through their respective 2020 separation dates.

In connection with the separation of several executives from the Company in the years ended December 31, 2021, 2020 and 2019, the Company accelerated the vesting of certain of their outstanding RSUs and PSUs in accordance with their respective terms of employment with the Company.

At December 31, 2021, there was the potential for a portion of certain other PSUs aggregating approximately 40,000 shares to be released to two of these former executives on a pro rata basis subject

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

to achievement of the related performance or market conditions for the performance periods through their respective 2021 separation dates.

Stock Options

4 unchanged sentences

The activity related to the Company's outstanding stock options during the year ended December 31, 2021 was as follows:

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Shares Weighted

5 unchanged sentences

Outstanding at January 1, 2021 207,710 $ 12.69

Granted — $ —

Exercised ( 13,815 ) $ 1.76

Forfeited ( 6,055 ) $ 2.78

Expired ( 9,726 ) $ 17.60

2 unchanged sentences

Exercisable at December 31, 2021 184,134 $ 13.26 2.59 $ 174

The total intrinsic values of options exercised were $ 0.1 million for the year ended December 31, 2020, $ 0.5 million for the year ended December 31, 2019 and approximately $ 39,000 for the year ended December 31, 2018.

The Company received cash from option exercises of $ 0.1 million in the year ended December 31, 2020, $ 0.2 million in the year ended December 31, 2019 and $ 0.1 million in the year ended December 31, 2018.

The total intrinsic values of options exercised were $ 0.1 million for the year ended December 31, 2021, $ 0.1 million for the year ended December 31, 2020 and $ 0.5 million for the year ended December 31, 2019.

The Company received cash from option exercises of approximately $ 24,000 in the year ended December 31, 2021, $ 0.1 million in the year ended December 31, 2020 and $ 0.2 million in the year ended December 31, 2019.

Restricted Stock Grants - Restricted Stock Awards and Restricted Stock Units

8 unchanged sentences

Unvested balance at January 1, 2021 86,983 $ 7.04

Granted — $ —

Vested ( 86,983 ) $ 7.04

Forfeited ( 40,789 ) $ 6.96

Unvested balance at December 31, 2021 — $ —

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

The activity related to the Company's RSUs for the year ended December 31, 2021 was as follows:

6 unchanged sentences

The total grant date fair value of vested restricted stock grant shares was $ 12.5 million in the year ended December 31, 2021, $ 11.2 million in the year ended December 31, 2020 and $ 9.9 million in the year ended December 31, 2019.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Performance-Based Stock Units

10 unchanged sentences

The total grant date fair value of vested performance-based stock grant shares was $ 1.7 million in the year ended December 31, 2021, $ 1.8 million in the year ended December 31, 2020 and $ 0.1 million in the year ended December 31, 2019.

The ESPP was designed to provide eligible employees of the Company and its participating subsidiaries an opportunity to purchase common stock of the Company through accumulated payroll deductions.

The last purchase under the ESPP was on November 29, 2019, and the ESPP expired on May 20, 2020.

Stock-Based Compensation

8 unchanged sentences

$ 19,418 $ 13,899 $ 12,601

There was an income tax benefit for employee stock-based compensation expense for the year ended December 31, 2020, but no income tax benefit for the years ended December 31, 2019 and 2018 due to the valuation allowance recorded.

In the year ended December 31, 2019, the Company recorded nominal incremental expense related to the accelerated vesting of RSUs and PSUs held by certain former executives of the Company in connection with their separations from the Company.

Stock-based compensation expense recorded for the year ended December 31, 2019 included $ 1.6 million of incremental expense related to the accelerated vesting of RSUs and PSUs held by the former President and Chief Executive Officer in connection with his separation from the Company.

At December 31, 2020, there was $ 19.3 million, net of expected forfeitures, of unrecognized stock-based compensation expense related to unvested stock options, RSAs, RSUs and PSUs.

There was an income tax benefit for employee stock-based compensation expense for the years ended December 31, 2021 and 2020.

There was no income tax benefit for the year ended December 31, 2019 due to the valuation allowance recorded.

At December 31, 2021, there was $ 25.4 million, net of expected forfeitures, of unrecognized stock-based compensation expense related to unvested stock options, RSUs and PSUs.

This expense is expected to be recognized over a weighted average period of approximately two years .

2 unchanged sentences

Common Stock Reserved

At December 31, 2020, there were 8,888,677 shares of common stock reserved for future issuance under the 2019 Plan.

The Company's policy is to issue authorized but unissued shares upon the exercise of stock options, to grant restricted common stock, to settle restricted stock units and performance-based stock units, and to authorize the purchase of shares of the Company's common stock under the ESPP.

At December 31, 2021, there were 4,090,946 total shares of common stock reserved for future issuance under the Company's equity plans.

However, of that amount 105,495 shares are only authorized for issuance as stock options.

The Company has operating and finance leases for corporate offices, research and development facilities, and certain equipment.

18 unchanged sentences

The Company expenses all variable lease costs as incurred.

In connection with the 2020 Restructuring Initiative, the Company accelerated amortization totaling $ 0.8 million in the year ended December 31, 2021 for leased facilities that were vacated in 2021 as part of the consolidation of certain sites following the ECI Acquisition.

The Company did not record estimated future variable lease costs in the year ended December 31, 2021 related to the 2020 Restructuring Initiative.

The Company did not record any accelerated amortization or estimated future variable lease costs in the year ended December 31, 2020 related to the 2020 Restructuring Initiative.

In connection with the 2019 Restructuring Initiative, certain lease assets related to facilities are being partially or fully vacated as the Company consolidates its facilities.

The Company has no plans to enter into sublease agreements for certain facilities.

The Company ceased use of these facilities in the first and fourth quarters of 2020 and in the third quarter of 2019.

Accordingly, the Company accelerated the amortization of the associated lease assets through the planned cease-use date of each facility, resulting in additional amortization expense of $ 0.6 million and $ 3.7 million in the years ended December 31, 2020 and 2019, respectively.

The Company also recorded a liability aggregating $ 0.9 million in 2019 for all future estimated variable lease costs related to these facilities.

This incremental accelerated amortization and accrual for all estimated future variable lease costs are included in Restructuring and related expense in the Company's consolidated statements of operations for the years ended December 31, 2020 and 2019.

The Company may incur additional future expense if it is unable to sublease

The Company has no plans to enter into sublease agreements for certain

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

other locations included in the Facilities Initiative.

The Company accelerated amortization of $ 3.4 million, $ 0.6 million and $ 3.7 million in the years ended December 31, 2021, 2020 and 2019, respectively, for leased facilities that were vacated in the respective years.

The Company also recorded liabilities aggregating $ 1.4 million and $ 0.9 million in the years ended December 31, 2021 and 2019, respectively, for all future estimated variable lease costs related to these facilities.

The Company did not record liabilities for future estimated variable lease costs in the year ended December 31, 2020.

At December 31, 2021 and 2020, the Company had accruals of $ 1.6 million and $ 0.8 million, respectively, for all future anticipated variable lease costs related to these facilities.

The Company may incur additional future expense if it is unable to sublease other locations included in the Facilities Initiative.

In addition, in the year ended December 31, 2021, this accelerated amortization and provision for future estimated variable lease costs was partially offset by the recognition of $ 2.1 million of income in conjunction with lease amendments that modified the Company's obligation and rentable square footage at a site in North Carolina.

The Company leases its corporate offices and other facilities under operating leases, which expire at various times through 2032.

The Company's corporate headquarters is located in a leased facility in Westford, Massachusetts under a lease that expires in August 2028.

The Company's finance leases primarily consist of equipment.

In December 2020, the Company began relocating from its leased Plano, Texas facility to the recently constructed building space in North Dallas, Texas as part of its 2019 Restructuring and Facilities Consolidation Initiative.

The Company's relocation from its leased Plano, Texas facility is expected to be completed in the first quarter of 2021.

The Company's right-of-use lease assets and lease liabilities at December 31, 2020 and December 31, 2019 were as follows (in thousands):

In December 2020, the Company began relocating from its former leased Plano, Texas facility to its new leased facility on Chase Oaks Boulevard, also located in Plano, Texas.

The Company's relocation to the new corporate headquarters was completed in the first quarter of 2021.

The Company's right-of-use lease assets and lease liabilities at December 31, 2021 and 2020 were as follows (in thousands):

Classification 2021 2020

8 unchanged sentences

* Finance lease assets were recorded net of accumulated depreciation of $ 1.8 million and $ 1.9 million at December 31, 2021 and December 31, 2020, respectively.

The components of lease expense for the year ended December 31, 2020 and 2019 were as follows (in thousands):

The components of lease expense for the years ended December 31, 2021, 2020 and 2019 were as follows (in thousands):

Year ended December 31,

2021 2020 2019

Operating lease cost* $ 21,828 $ 19,582 $ 13,865

6 unchanged sentences

Net lease cost $ 38,374 $ 43,268 $ 37,586

* Operating lease cost for the years ended December 31, 2020 and 2019 include $ 0.6 million and $ 3.7 million, respectively, of accelerated amortization for certain assets partially or fully vacated with no intent or ability to sublease.

** Variable lease costs for the year ended December 31, 2019 included an accrual of $ 0.9 million for all future estimated variable expenses related to certain assets partially or fully vacated with no intent or ability to sublease.

No such variable costs were accrued in the year ended December 31, 2020.

The Company elected to use the alternative transition method upon adoption of ASC 842 on January 1, 2019.

This method allowed entities to initially apply the standard at the adoption date with no subsequent adjustments to prior period lease costs for

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

comparability.

As a result, operating leases in periods prior to the Company's adoption of ASC 842 were not recorded on the consolidated balance sheet.

Prior to the adoption of ASC 842, rent expense (including any escalation clauses, free rent and other lease concessions) on operating leases was recognized on a straight-line basis over the minimum lease term, and this remains consistent with the Company's application of ASC 842.

Rent expense was $ 11.9 million, interest expense for finance leases was approximately $ 52,000 , and amortization expense for finance leases was $ 0.6 million for the year ended December 31, 2018.

* Operating lease costs for the years ended December 31, 2021, 2020 and 2019 include $ 3.4 million, $ 0.6 million, and $ 3.7 million, respectively, of accelerated amortization for certain assets partially or fully vacated with no intent or ability to sublease.

Operating lease cost for the year ended December 31, 2021 also includes $ 2.1 million of income related to a lease modification for one of these assets.

** Variable lease costs for the years ended December 31, 2021 and 2019 included accruals of $ 1.4 million and $ 0.9 million, respectively, for all future estimated variable expenses related to certain assets partially or fully vacated with no intent or ability to sublease.

No such variable costs were accrued in the year ended December 31, 2020.

Cash flow information related to the Company's leases for the years ended December 31, 2021 and 2020 was as follows (in thousands):

Year ended December 31,

2021 2020 2019

Cash paid for amounts included in the measurement of lease liabilities:

16 unchanged sentences

2024 10,503 —

2024 10,420 —

2027 and beyond 24,477 —

5 unchanged sentences

The Company matches 50 % of each employee's contributions to the 401(k) program up to 4 % of the employee's eligible earnings, for a maximum match of 2 % of eligible earnings.

The Company recorded expense related to its employee defined contribution plans aggregating $ 3.4 million in the year ended December 31, 2020, $ 4.0 million in the year ended December 31, 2019 and $ 3.2 million in the year ended December 31, 2018.

The Company recorded expense related to its employee defined contribution plans aggregating $ 3.5 million, $ 3.4 million and $ 4.0 million in the years ended December 31, 2021, 2020 and 2019, respectively.

RIBBON COMMUNICATIONS INC.

15 unchanged sentences

In 2020, regulatory changes occurred in the Netherlands that changed the Company's defined benefit pension plan there from a participating plan to a non-participating plan.

This plan amendment triggered settlement accounting, resulting in a gain of $ 1.6 million, which is included in Other income (expense), net, in the Company's consolidated statement of operations for the year ended December 31, 2020.

This plan amendment triggered settlement accounting, resulting in a gain of $ 1.6 million, which is included in Other (expense) income, net, in the Company's consolidated statement of operations for the year ended December 31, 2020.

Prior to the amendment, the Company's Netherlands pension plan provided defined benefit accruals which were financed by insurance contracts that had a profit sharing feature.

6 unchanged sentences

During the year ended December 31, 2019, in conjunction with the 2019 Restructuring Initiative, there were reductions in force that significantly reduced benefits that can be earned under the plan in one of our international locations that resulted in an immaterial curtailment loss.

Settlement accounting was triggered in the year ended December 31, 2019 related to a reduction in force in one of our locations in 2018, resulting in an immaterial settlement gain.

During the year ended December 31, 2018, in conjunction connection with the Merger Restructuring Initiative, there were reductions in force that significantly reduced benefits that can be earned under the defined benefit plans in several international locations that resulted in curtailment accounting.

A curtailment gain of $ 0.5 million was recognized in 2018 and included as a component of Other income (expense), net, in the Company's consolidated statement of operations.

In the year ended December 31, 2018, settlement accounting was triggered in only one of these locations, resulting in an immaterial settlement charge.

Settlement accounting was triggered in the year ended December 31, 2019 related to a reduction in force in one of the Company's locations in 2018, resulting in an immaterial settlement gain.

A reconciliation of the changes in the benefit obligations and fair value of the assets of the defined benefit plans for the years ended December 31, 2021 and 2020, the funded status of the plans, and the amounts recognized in the consolidated balance sheets as of December 31, 2021 and 2020 were as follows (in thousands):

11 unchanged sentences

Net actuarial loss on obligation 4,868 231

Curtailment — 82

Settlement — ( 660 )

Projected benefit obligation, end of year $ 26,938 $ 25,067

6 unchanged sentences

Participant contributions 23 21

Administrative expenses — ( 21 )

Benefits paid ( 1,040 ) ( 1,976 )

7 unchanged sentences

Net amount recognized $ ( 11,635 ) $ ( 10,717 )

The increase in the underfunded status of the Company's defined benefit plans at December 31, 2020 compared to December 31, 2019 was the result of the assumption of the ECI plans in connection with the ECI Acquisition, and a general decrease in discount rates which resulted in increases in projected benefit obligations, partially offset by the effect of the change in the benefit structure of the Netherlands plan from the plan amendment that occurred in 2020 as a result of regulatory changes.

The increase in the underfunded status of the Company's defined benefit plans at December 31, 2021 compared to December 31, 2020 was primarily the result of the larger net actuarial loss in the current year, partially offset by lower benefit payments.

Plans with underfunded or non-funded accumulated benefit obligations at December 31, 2021 and 2020 were as follows (in thousands):

2 unchanged sentences

Aggregate fair value of plan assets $ 15,303 $ 14,350

Net periodic benefit costs for the years ended December 31, 2020, 2019 and 2018 were as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Net periodic benefit costs for the years ended December 31, 2021, 2020 and 2019 were as follows (in thousands):

Year ended December 31,

6 unchanged sentences

Settlement (credit) charge — ( 1,557 ) 115

Amortization of net loss 81 — —

Net periodic benefit costs $ 1,611 $ ( 375 ) $ 610

The Company made benefit payments of $ 1.0 million, $ 2.0 million and $ 0.7 million in the years ended December 31, 2021, 2020 and 2019, respectively.

These benefit payments included $ 0.7 million and $ 0.3 million of one-time lump sum payments to participants in the years ended December 31, 2019 and 2018, respectively.

No one-time lump sum payments were made to participants in the year ended December 31, 2020.

These benefit payments included $ 0.7 million of one-time lump sum payments to participants in the year ended December 31, 2019.

No one-time lump sum payments were made to participants in the years ended December 31, 2021 and 2020.

Expected benefit payments for the next ten years are as follows (in thousands):

41 unchanged sentences

(24) INCOME TAXES

The components of income (loss) from continuing operations before income taxes consisted of the following (in thousands):

The components of (loss) income from continuing operations before income taxes consisted of the following (in thousands):

Year ended December 31,

2021 2020 2019

Income (loss) before income taxes:

(Loss) income before income taxes:

United States $ ( 29,985 ) $ 123,817 $ ( 132,887 )

1 unchanged sentence

$ ( 208,143 ) $ 93,317 $ ( 122,893 )

The provision for income taxes from continuing operations consisted of the following (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

The (benefit) provision for income taxes from continuing operations consisted of the following (in thousands):

Year ended December 31,

2021 2020 2019

Provision (benefit) for income taxes:

(Benefit) provision for income taxes:

Federal $ 5,033 $ 677 $ 11

31 unchanged sentences

Capital loss carryforward 79,716 71,182

Research and development tax credits 45,031 32,879

Other tax credits 6,400 —

Research and development and other tax credits 41,556 51,431

Deferred revenue 3,472 3,184

3 unchanged sentences

Fixed assets 2,710 4,613

Lease liabilities 15,250 —

Mark-to-market investments 1,714 —

Other temporary differences 3,839 4,051

3 unchanged sentences

Intangible assets ( 65,647 ) ( 75,794 )

Operating lease right-of-use assets ( 10,370 ) —

Mark-to-market investments — ( 17,631 )

6 unchanged sentences

$ 39,171 $ ( 6,191 )

The largest increases in the year ended December 31, 2020 compared to the year ended December 31, 2019, including net operating loss carryforwards, intangible assets and the valuation allowance were primarily the result of the ECI Acquisition.

The change in mark-to-market securities in the year ended December 31, 2020 was related to the Debentures and Warrants received as sale consideration in connection with the Kandy Sale.

The largest changes in the year ended December 31, 2021 compared to the year ended December 31, 2020 include an increase in recognized U.S.

deferred tax assets due to a release of a portion of the valuation allowances, as well as a change in mark-to-market securities related to the AVCT Investment.

At December 31, 2021, the Company had cumulative net operating losses ("NOLs") in the U.S.

3 unchanged sentences

The Israel NOLs do not expire.

The Company also has available federal, state and foreign income tax credit carryforwards of $ 51.4 million that expire at various dates from 2021 through 2039.

The Company also has available federal, state and foreign income tax credit carryforwards of $ 23.4 million that expire in various periods.

The Company has provided for income taxes on the undistributed earnings of its non-U.S.

subsidiaries as of December 31, 2021, excluding Ireland and Israel.

These subsidiaries, excluding Ireland and Israel, are cost-plus or limited risk distributors that are not anticipated to need to use excess funds locally.

Accordingly, the Company is required to recognize and record deferred taxes in 2021.

The deferred taxes are recorded on the entire outside basis differences related to the foreign subsidiaries, the largest of these differences being undistributed earnings.

Undistributed profits of Ireland and Israel, as well as other outside basis differences in foreign subsidiaries, were indefinitely reinvested in foreign operations.

Quantification of the deferred tax liability, if any, associated with indefinitely reinvested earnings and outside basis differences was not practicable.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Under the provisions of the Internal Revenue Code, the net operating losses and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service.

1 unchanged sentence

As a result of the Edgewater Acquisition in 2018, the Company acquired approximately $ 34 million of net operating loss carryforwards and approximately $ 6 million of tax credit carryforwards.

Edgewater incurred an ownership change as a result of its acquisition by the Company;

however, the Company does not expect that any of the net operating losses or tax credits related to Edgewater will expire unused.

As a result of the ECI Acquisition, an additional $ 129.6 million of NOL was acquired related to the ECI U.S.

incurred an ownership change as a result of its acquisition by the

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Company and the Company expects that, due to the limitations under Sections 382 and 383, all but approximately $ 8 million of the NOLs related to ECI U.S.

will expire unused.

Edgewater and ECI U.S.

incurred ownership changes as a result of their acquisition by the Company, and thus the acquired net operating losses and credits are subject to limitations under IRC Sections 382 and 383.

During 2021 and 2020, the Company performed an analysis to determine if, based on all available evidence, it considered it more likely than not that some portion or all of the recorded deferred tax assets will not be realized in a future period.

As a result of the Company's evaluation, the Company concluded that there was insufficient positive evidence to overcome the more objective negative evidence related to its cumulative losses and other factors.

As a result of the Company's evaluation, the Company concluded that there was sufficient positive evidence to release a portion of the Company's valuation allowance on its U.S.

federal deferred tax assets, as the Company expects to have sufficient taxable income in future periods to utilize a portion of its net operating losses.

Accordingly, the Company has maintained a valuation allowance against its U.S.

deferred tax asset amounting to $ 30.5 million at December 31, 2021 and $ 73.0 million at December 31, 2020.

A similar analysis and conclusion were made with regard to the valuation allowance on the deferred tax assets of the Company's Ireland subsidiary.

The Ireland subsidiary's business model changed in 2020 to a limited risk distributor.

As a result, the decision was made to release a portion of the valuation allowance because of the future income resulting in a tax benefit of $ 4.1 million.

The valuation allowance for the capital loss carryforward of $ 8.8 million will remain, since there are no current plans to generate capital gains.

In analyzing the deferred tax assets related to the Company's Canada subsidiaries at such time, the Company concluded that it was more likely than not that the Canadian federal credits would not be realized in a future period.

This resulted in the Company's maintaining a valuation allowance of $ 12.3 million.

In addition, because of continued losses, a valuation allowance of $ 2.3 million was maintained for the Company's Brazil subsidiary.

The ECI Acquisition resulted in valuation allowances of $ 429.0 million against some of the acquired subsidiaries, comprised of $ 380.0 million related to the ECI Israel subsidiaries, $ 29.8 million related to ECI in the U.S., $ 13.7 million related to ECI Netherlands and $ 5.5 million in the aggregate related to other ECI subsidiaries.

The deferred tax assets recognized with no valuation allowance at December 31, 2020 and 2019 primarily relate to foreign subsidiaries where recoverability is concluded to be more likely than not based on the Company's cost-plus compensation policy, as well as a state credit in the U.S.

The Company also maintains a valuation allowance against certain of its foreign deferred tax assets, predominantly Israel, amounting to approximately $ 441 million at December 31, 2021 and $ 423 million at December 31, 2020.

The deferred tax assets recognized with no valuation allowance at December 31, 2021 and 2020 primarily relate to other foreign subsidiaries where recoverability is concluded to be more likely than not based on the Company's cost-plus compensation policy, as well as net operating losses and credits in the U.S.

that are expected to be utilized prior to expiration.

A reconciliation of the Company's unrecognized tax benefits is as follows (in thousands):

18 unchanged sentences

Management believes that an adequate provision has been recorded for any adjustments that may result from tax examinations.

The ECI Acquisition was accounted for as a non-taxable business combination.

federal and state deferred taxes were recorded as part of the business combination based on the differences between the tax basis of the acquired assets and assumed liabilities and their reported amounts for financial reporting purposes.

The Company concluded that there was insufficient positive evidence to overcome the more objective negative evidence related to cumulative losses and other factors.

The Company recorded identifiable intangible assets in Israel as part of the purchase accounting for the acquisition.

(25) RELATED PARTIES

As a portion of the consideration for the GENBAND Merger, on October 27, 2017, the Company issued a promissory note for $ 22.5 million to certain of GENBAND's equity holders who, following the GENBAND Merger.

As described in Note 14

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

purposes, the future amortization of these identifiable intangible assets will be non-deductible, thereby creating income.

ECI Israel has $ 1.6 billion of NOLs that will be utilizable against the future tax income from these identifiable intangible assets.

The Company is required to determine its ability to use the assets and analyze the valuation allowance previously established.

The Company has determined it is not more likely that some of these net tax assets, mainly in Israel, will be recognized.

As a result, a valuation allowance of $ 429.0 million has been established against ECI's deferred taxes.

The Anova Acquisition was accounted for as a business combination and the financial results of Anova have been included in the Company's consolidated financial statements for the period subsequent to the Anova Acquisition Date.

The transaction is considered an asset acquisition for tax purposes.

Accordingly, Ribbon recorded a stepped up basis in the assets.

The Edgewater Acquisition was accounted for as a non-taxable business combination.

As a result, the valuation allowance has been reduced for the assumed net deferred tax liabilities, resulting in an income tax benefit of $ 0.7 million.

This benefit was included as a component of the Company's tax provision for the year ended December 31, 2018.

In 2019, an adjustment of $ 0.2 million was recorded, reducing the income tax benefit from the Edgewater Acquisition to $ 0.5 million.

(26) RELATED PARTIES

As described in Note 14 above, the promissory note did not amortize and the principal thereon was payable in full on the third anniversary of its execution.

above, the promissory note did not amortize and the principal thereon was payable in full on the third anniversary of its execution.

Interest on the promissory note was payable quarterly in arrears and accrued at a rate of 7.5 % per year for the first six months after issuance, and thereafter at a rate of 10 % per year.

The failure to make any payment under the promissory note when due and, with respect to payment of any interest, the continuation of such failure for a period of thirty days thereafter, constituted an event of default under the promissory note.

If an event of default occurs under the promissory note, the payees could have declared the entire balance of the promissory note due and payable (including principal and accrued and unpaid interest) within five business days of the payees' notification to the Company of such acceleration.

At December 31, 2018, the Promissory Note balance was $ 24.1 million, comprised of $ 22.5 million of principal, plus $ 1.6 million of interest converted to principal.

On April 29, 2019, the Company repaid in full all outstanding amounts under the Promissory Note, aggregating $ 24.7 million.

13 unchanged sentences

and (iii) have requested the applicable courts to dismiss the Lawsuits.

The $ 63.0 million gain from the settlement is included in Other income (expense), net, in the Company's consolidated statement of operations for the year ended December 31, 2019, and had notes receivable for future payments of $ 25.5 million, comprised of $ 8.5 million in Other current assets and $ 17.0 million in Other assets in the consolidated balance sheet.

The $ 63.0 million gain from the settlement is included in Other (expense) income, net, in the Company's consolidated statement of operations for the year ended December 31, 2019, and had notes receivable for future payments of $ 25.5 million, comprised of $ 8.5 million in Other current assets and $ 17.0 million in Other assets in the consolidated balance sheet.

The Company received $ 37.5 million of aggregate payments from Metaswitch in the second quarter of 2019 and $ 9.5 million, including $ 1.0 million of interest, in the second quarter of 2020.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

On July 6, 2020, the Company and Metaswitch signed a First Supplemental Agreement to the Settlement and Cross-License Agreement (the "Supplemental Agreement") under which Metaswitch could elect to repay the outstanding amounts under the Royalty Agreement early in exchange for a reduction of $ 0.25 million to the outstanding principal, from $ 17.0 million to $ 16.75 million, and the payment of no further interest by Metaswitch effective June 26, 2020.

8 unchanged sentences

At December 31, 2021, the Company's maximum possible future royalties commitment, including $ 4.3 million of unpaid royalties accrued at December 31, 2021, was $ 34.2 million, including interest of $ 1.9 million, based on estimates of future product sales, grants received from the IIA and not yet repaid, and management's estimation of products still to be sold.

On November 8, 2018, Ron Miller, a purported stockholder of the Company, filed a Class Action Complaint (the "Miller Complaint") in the United States District Court for the District of Massachusetts (the "Massachusetts District Court") against the Company and three of its former officers (collectively, the "Defendants"), claiming to represent a class of purchasers of Sonus common stock during the period from January 8, 2015 through March 24, 2015 and alleging violations of the federal securities laws.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Sonus common stock during the period from January 8, 2015 through March 24, 2015 and alleging violations of the federal securities laws.

Similar to a previous complaint entitled Sousa et al.

6 unchanged sentences

The Defendants filed a reply to such opposition on November 1, 2019.

There was an oral argument on the motion to dismiss on February 12, 2020.

There was an oral argument on the motion to dismiss on February 12, 2020, but to date, the court has not ruled on the motion.

In addition, the Company is often a party to disputes and legal proceedings that it considers routine and incidental to its business.

Management does not expect the results of any of these actions to have a material effect on the Company's business or consolidated financial statements.

(27) SUBSEQUENT EVENT

On February 14, 2022, the Company's Board of Directors approved a strategic restructuring program (the "2022 Restructuring Plan") to streamline the Company's operations in order to support the Company's investment in critical growth areas.

The 2022 Restructuring Plan is expected to include, among other things, charges related to a consolidation of facilities and a workforce reduction.

Any potential positions eliminated in countries outside the United States will be subject to local law and consultation requirements.

The Company currently expects to record approximately $ 20 million of restructuring and related expense associated with the 2022 Restructuring Plan, including approximately $ 6 million related to employee severance arrangements and approximately $ 14 million related to the facilities consolidation.

The Company expects the 2022 Restructuring Plan will be substantially completed in 2022.

(28) QUARTERLY RESULTS (UNAUDITED)

38 unchanged sentences

(1) Includes the results of ECI for the period subsequent to March 3, 2020.

(2) Includes the results of Anova for the period subsequent to February 28.

(3) Reflects the reductions to Cost of revenue arising from the reclassification of amortization of acquired intangible assets to operating expenses in 2020 of $ 9.0 million in the first quarter, $ 11.0 million in the second quarter and $ 11.6 million in the third quarter;

(2) Reflects the increases to Cost of revenue arising from the reclassification of amortization of acquired technology from amortization of acquired intangible assets within operating expenses in 2021 of $ 10.1 million in the first quarter, $ 9.7 million in the second quarter and $ 9.7 million in the third quarter;

and in 2020 of $ 9.0 million in the first quarter, $ 11.0 million in the second quarter, $ 11.6 million in the third quarter and $ 10.7 million in the fourth quarter.

See Note 2 for a discussion of the reclassification.

(3) (Loss) earnings per share is calculated independently for each of the quarters presented;

accordingly, the sum of the quarterly (loss) earnings per share amounts may not equal the total calculated for the year.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data