What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-31 compared with 2022-03-11 · 405 added, 598 removed, 1283 unchanged (44% of the section changed)

1 unchanged sentence

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

Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Balance Sheets as of December 31, 202 2 an d 20 21

Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020

31 unchanged sentences

When an arrangement contains more than one performance obligation, the Company will allocate the transaction price to each performance obligation on a relative standalone selling price basis.

The Company utilizes the observable price of goods and services when they are sold separately to similar customers in order to estimate standalone selling price.

The Company utilizes the observable price of goods and services, including when they are sold separately to similar customers, in order to estimate standalone selling price.

Management is required to use judgment to develop its estimates of standalone selling price.

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• We evaluated whether management’s significant accounting policies related to the estimation of standalone selling price were appropriate.

• 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.

• 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 customer arrangements and the mathematical accuracy of the calculations.

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

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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.

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

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 $301 million as of December 31, 2022, of which $76 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.

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• 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 management’s ability to accurately forecast future revenues and profit margin 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:

2 unchanged sentences

◦ 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:

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Accumulated deficit ( 1,453,744 ) ( 1,355,661 )

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

Accumulated other comprehensive income 30,585 7,578

Total stockholders' equity 518,427 527,166

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Other comprehensive income (loss), net of tax:

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

Unrealized gain (loss) on interest rate swap, net of reclassifications and amortization into earnings 19,321 12,759 ( 10,948 )

Foreign currency translation adjustments ( 792 ) ( 239 ) 894

Unrealized gain on available-for-sale marketable securities, net of reclassification adjustments for realized amounts — — 590

Employee retirement benefits 4,478 — 2,585

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(in thousands, except share data)

Shares Amount Additional paid-in capital Accumulated deficit Accumulated other comprehensive income (loss) Total stockholders' equity

Additional other Total

Common stock paid-in Accumulated comprehensive stockholders'

Shares Amount capital deficit (loss) income equity

Balances, January 1, 2020 110,471,995 $ 11 $ 1,747,784 $ ( 1,267,067 ) $ 2,527 $ 483,255

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

Exercise of stock options 38,288 70 70

Vesting of restricted stock awards and units 2,246,690 1 1

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

Vesting of performance-based stock units 323,752 —

Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations ( 472,028 ) ( 1,674 ) ( 1,674 )

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

Shares issued as consideration in connection with the acquisition of ECI Telecom Group Ltd.

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

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

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

316,551 1,630 1,630

Stock-based compensation expense 13,899 13,899

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

Other comprehensive loss ( 7,469 ) ( 7,469 )

Net loss ( 130,075 ) ( 130,075 )

Net income 88,591 88,591

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

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

Shares issued as consideration in connection with the acquisition of ECI Telecom Group Ltd.

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

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

316,551 1,630 1,630

Stock-based compensation expense 19,418 19,418

Other comprehensive loss ( 7,469 ) ( 7,469 )

Net income 88,591 88,591

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

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Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations ( 897,059 ) ( 2,784 ) ( 2,784 )

Common stock issued in equity offering 17,071,311 2 52,065 52,067

Issuance costs related to equity offering ( 1,654 ) ( 1,654 )

Stock-based compensation expense 18,707 18,707

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Net (loss) income $ ( 98,083 ) $ ( 177,185 ) $ 88,591

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

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

Depreciation and amortization of property and equipment 15,295 16,962 17,188

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Deferred revenue 3,455 6,904 ( 5,955 )

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

Net cash (used in) provided by operating activities ( 26,364 ) 19,182 101,564

Cash flows from investing activities:

Purchases of property and equipment ( 10,254 ) ( 17,132 ) ( 26,721 )

Purchases of software licenses ( 3,300 ) — —

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

Proceeds from sale of business 1,418 2,944 —

Sales/maturities of marketable securities — — 7,295

Proceeds from the sale of fixed assets — — 43,500

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Proceeds from issuance of long-term debt — 74,625 478,500

Principal payment of debt, related party — — ( 24,716 )

Principal payments of term debt ( 45,058 ) ( 92,176 ) ( 134,188 )

Payment of deferred purchase consideration — — ( 21,876 )

Principal payments of finance leases ( 595 ) ( 903 ) ( 1,258 )

Payment of debt issuance costs ( 1,046 ) ( 789 ) ( 14,147 )

Proceeds from the sale of common stock in connection with employee stock purchase plan — — 863

Proceeds from equity offering 52,067 — —

Payment of equity offering issuance costs ( 1,654 ) — —

Proceeds from the exercise of stock options 1 24 70

Payment of tax withholding obligations related to net share settlements of restricted stock awards ( 2,784 ) ( 14,464 ) ( 1,674 )

Net cash provided by (used in) financing activities 931 ( 33,683 ) 319,303

Effect of exchange rate changes on cash and cash equivalents ( 1,654 ) ( 523 ) 260

Net (decrease) increase in cash and cash equivalents ( 39,223 ) ( 29,212 ) 91,054

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

RIBBON COMMUNICATIONS INC.

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2022 2021 2020

Payment of tax withholding obligations related to net share settlements of restricted stock awards ( 14,464 ) ( 1,674 ) ( 1,193 )

Repurchase of common stock — — ( 4,536 )

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 (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 $ 67,262 $ 106,485 $ 135,697

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Capital expenditures incurred, but not yet paid $ 2,559 $ 2,269 $ 3,749

Property and equipment acquired under finance leases $ — $ — $ 1,442

Inventory transfers to property and equipment $ 2,896 $ 676 $ 818

Software license acquired through investment disposal $ 1,886 $ — $ —

Business acquisition purchase consideration - common stock issued $ — $ — $ 108,550

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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.

The Company is headquartered in Plano, Texas, and has a global presence with research and development, or sales and support locations in over thirty-five countries around the world.

The Company is headquartered in Plano, Texas, and has a global presence with research and development, or sales and support locations in over thirty countries around the world.

(2) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

On February 28, 2019 (the "Anova Acquisition Date"), the Company acquired the business and technology assets of Anova Data, Inc.

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

Equity Offering

On August 12, 2022, the Company entered into a Securities Purchase Agreement with certain investors for the sale (the "Equity Offering") in a private placement by the Company of 17,071,311 shares (the "Shares") of the Company’s common stock, par value $ 0.0001 per share, at a price of $ 3.05 per share.

The aggregate gross proceeds from the Equity Offering were approximately $ 52.1 million, including $ 10.0 million from existing related party shareholders, before deducting offering expenses paid by the Company of approximately $ 1.7 million.

The Company intends to continue to use the net proceeds from the Equity Offering to fund general corporate purposes, including capital expenditures, working capital and repayment of debt.

The original issuance of the Shares in the Equity Offering was exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”).

The Company subsequently filed a registration statement on Form S-3 (the “Registration Statement”) with the SEC registering the Shares, which Registration Statement was declared effective by the SEC on September 23, 2022.

Significant Accounting Policies

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The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.

Significant estimates and judgments relied upon in preparing these consolidated financial statements include accounting for business combinations, revenue recognition for multiple element arrangements, inventory valuations, assumptions used to determine the fair value of stock-based compensation, intangible assets, goodwill, debentures and warrants, legal contingencies and recoverability of Ribbon's net deferred tax assets and the related valuation allowances.

Significant estimates and

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

judgments relied upon in preparing these consolidated financial statements include accounting for business combinations, revenue recognition for multiple element arrangements, inventory valuations, assumptions used to determine the fair value of stock-based compensation, intangible assets, goodwill, debentures and warrants, legal contingencies and recoverability of Ribbon's net deferred tax assets and the related valuation allowances.

Ribbon regularly assesses these estimates and records changes in estimates in the period in which they become known.

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Actual results could differ from those estimates.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Reclassifications

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 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):

Year ended December 31, 2020 Year ended December 31, 2019

Prior presentation Amounts reclassified Revised presentation Prior presentation Amounts reclassified Revised presentation

Product revenue $ 467,912 $ 467,912 $ 262,030 $ 262,030

Service revenue 375,883 375,883 301,081 301,081

Total revenue 843,795 — 843,795 563,111 — 563,111

Cost of revenue - product 204,772 204,772 95,774 95,774

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

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

Sales and marketing 139,318 139,318 106,310 106,310

General and administrative 63,286 63,286 53,870 53,870

Amortization of acquired intangible assets 60,910 ( 42,290 ) 18,620 49,225 ( 37,573 ) 11,652

Impairment of goodwill — — 164,300 164,300

Acquisition-, disposal- and integration-related 17,164 17,164 12,953 12,953

Restructuring and related 16,235 16,235 16,399 16,399

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

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.

Certain 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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Upon the conclusion of the measurement period or final determination of the values of assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Revenue Recognition

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When an arrangement contains more than one performance obligation, the Company will allocate the transaction price to each performance obligation on a relative standalone selling price basis.

The Company utilizes the observable price of goods and services when they are sold separately to similar customers in order to estimate standalone selling price.

The Company utilizes the observable price of goods and services, including when they are sold separately to similar customers, in order to estimate standalone selling price.

The Company's software licenses typically provide a perpetual right to use the Company's software.

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The Company does not allow and has no history of accepting product returns.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Services revenue includes revenue from customer support and other professional services.

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The Company's chief operating decision maker (the "CODM") is its president and chief executive officer.

Effective in the fourth quarter of 2020 and in connection with the ECI Acquisition, the CODM began to assess the Company's performance based on the performance of two separate organizations within Ribbon:

Effective in the fourth quarter of 2020 and in connection with the ECI Acquisition, the CODM began to assess the Company's performance based on the performance of two separate lines of business within Ribbon:

the Cloud and Edge segment ("Cloud and Edge") and the IP Optical Networks segment ("IP Optical Networks").

Financial information for the IP Optical Networks segment is not

RIBBON COMMUNICATIONS INC.

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 year ended December 31, 2019.

Financial Instruments

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.

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

Ribbon's term debt balance as of December 31, 2022 of $ 330.4 million had a fair value of approximately $ 323.0 million.

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

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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.

In accordance with ASC 820, the Company recorded 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.

On August 29, 2022, the Company and AVCT entered into a settlement agreement which provided for, amongst other things, the cancellation of the Company's investment in the Debenture Shares and the Warrants with an aggregate fair value of $ 2.6 million.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

granted a non-exclusive perpetual license to use and modify certain intellectual property owned by AVCT comprising WebRTC gateway technology that is integrated with Ribbon’s SBCs and Application Servers.

As consideration, the Company paid AVCT $ 2.5 million in cash, the Debenture Shares were redeemed and canceled, and the Warrants were terminated and canceled.

The perpetual license granted by AVCT is classified as Intangible assets, net in the Company's consolidated balance sheet as of December 31, 2022 in the amount of $ 3.9 million.

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, 2022, the Company had $ 0.2 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, and contracts.

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.

Transfers of Financial Assets

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

The Company reduces the carrying value of inventory for those items that are potentially excess, obsolete or slow-moving based on changes in customer demand, technology developments or other economic factors.

The Company reduces the carrying value of inventory for those items that are potentially excess, obsolete or slow-moving based on changes in customer

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

demand, technology developments or other economic factors.

Ribbon writes down evaluation equipment (equipment at customer sites for testing and evaluation) at the time of shipment to its customers, as it is probable that the inventory value will not be realized.

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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,

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.

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.

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

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Goodwill is not amortized, but instead is tested for impairment at least annually, or more frequently if indicators of potential impairment exist, by comparing the fair value of the Company's reporting unit to its carrying value.

Prior to 2020, the Company's annual test for impairment of goodwill was completed as of November 30.

Effective in 2020, the Company changed its annual goodwill impairment test date from November 30 to October 1.

This change did not have a material impact on the Company's consolidated financial statements.

The Company's annual test for impairment of goodwill is completed as of October 1.

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

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Stock-Based Compensation

The Company's stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which generally represents the vesting period, and includes an estimate of the awards that will be forfeited.

The Company uses the Black-Scholes valuation model for estimating the fair value on the date of grant of stock options.

The Company's stock-based compensation cost is measured at the grant date based on the fair value of the award and is

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

recognized as expense over the requisite service period, which generally represents the vesting period, and includes an estimate of the awards that will be forfeited.

The Company uses the Black-Scholes valuation model for estimating the fair value of stock options on the grant date.

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

The Company may grant to certain of its executives and certain other employees 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.

These results are then used to calculate the grant date fair values of the PSUs.

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.

Once the grant date criteria have been met for a fiscal year performance period, the Company records stock-based compensation expense based on its assessment of the probability that the respective performance condition will be achieved and the level, if any, of such achievement.

The Compensation Committee determines the number of shares earned, if any, after the Company's financial results for each fiscal year performance period are finalized.

Upon the determination by the Compensation Committee of the number of shares that will be received upon vesting, such number of shares becomes fixed and the unamortized expense is recorded through the remainder of the service period, at which time any Performance PSUs earned, will vest pending each executive's continued employment with the Company through that date.

Concentration of Risk

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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, 2021 and 2020 consisted of securities of AVCT (see Note 4).

The Company's investments at December 31, 2021 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 costs are expensed as incurred and included as a component of Sales and marketing expense in the Company's consolidated statements of operations.

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)

Advertising expenses were $ 1.5 million, $ 1.6 million and $ 0.8 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Loss Contingencies and Reserves

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Ribbon evaluates these claims and accrues amounts when it is probable that the obligation has been incurred and the amounts are reasonably estimable.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

The Company records warranty liabilities for estimated costs of fulfilling its obligations under standard limited hardware and software warranties at the time of sale.

The specific warranty terms and conditions vary depending upon the country in which the Company does business, but generally includes material costs, technical support, labor and associated overhead over a period ranging from one to three years .

The Company assumed ECI's warranty liability in connection with the ECI Acquisition.

At December 31, 2022, the Company's liability for product warranties was $11.9 million of which $ 5.3 million was current and included in Accrued expenses and other and $ 6.6 million was long-term and included in Other long-term liabilities in the Company's consolidated balance sheet.

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Operating leases are reported separately in the Company's consolidated balance sheets at December 31, 2022 and 2021.

Assets acquired under finance leases are included in Property and equipment, net, in the consolidated balance sheets at December 31, 2021 and 2020.

The Company has no finance leases as of December 31, 2022.

Assets acquired under finance leases are included in Property and equipment, net, in the consolidated balance sheets at December 31, 2021.

The Company determines if an arrangement is a lease at inception.

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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

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

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.

The Company expenses all variable lease costs as incurred.

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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.

subsidiaries as of December 31, 2022, excluding Ireland and Israel, which are indefinitely reinvested.

Accordingly, the Company is required to recognize and record deferred taxes for 2022 on the entire outside basis differences related to the foreign subsidiaries, the largest of these differences being undistributed earnings.

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

If it is not more likely than not that a position will be sustained, no amount of the benefit attributable to the position is recognized.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

The tax benefit to be recognized of any tax position that meets the more likely than not recognition threshold is calculated as the largest amount that is more than 50 % likely of being realized upon resolution of the contingency.

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Recent Accounting Pronouncements

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 March 2022, the Financial Accounting Standards Board (the "FASB") issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which eliminates the accounting guidance on troubled debt restructurings ("TDRs") for creditors in ASC 310, Receivables (Topic 310) , and requires entities to provide disclosures about current period gross write-offs by year of origination.

Also, ASU 2022-02 updates the requirements related to accounting for credit losses under ASC 326, Financial Instruments – Credit Losses (Topic 326) , and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty.

ASU 2022-02 is effective for the Company January 1, 2023.

The Company believes that the adoption of ASU 2022-02 will not have a material impact on its consolidated financial statements upon adoption.

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

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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)

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

ASU 2021-08 is effective for the Company January 1, 2023.

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

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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.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 ("ASU 2022-06") which extends the date through which companies can utilize optional expedients and exceptions allowed in Topic 848 from December 31, 2022 to December 31, 2024.

The adoption of ASU 2021-01 and ASU 2022-06 did not have a material impact on the Company's consolidated financial statements.

(3) BUSINESS ACQUISITIONS

On the ECI Acquisition Date, Ribbon completed its merger transaction with ECI in accordance with the terms of the Agreement and Plan of Merger, dated as of November 14, 2019, by and among Ribbon, ECI, an indirect wholly-owned subsidiary of Ribbon ("Merger Sub"), Ribbon Communications Israel Ltd.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

subsidiary of Ribbon ("Merger Sub"), Ribbon Communications Israel Ltd.

and ECI Holding (Hungary) Kft pursuant to which Merger Sub merged with and into ECI, with ECI surviving such merger as a wholly-owned subsidiary of Ribbon.

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

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Fair value of consideration transferred:

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

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

commensurate with perceived risk.

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

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Pro Forma Results

The following unaudited pro forma information presents the combined results of operations of Ribbon and ECI for the years ended December 31, 2020 and 2019 as if the ECI Acquisition had been completed on January 1, 2019, with adjustments to give effect to pro forma events that are directly attributable to the ECI Acquisition.

The following unaudited pro forma information presents the combined results of operations of Ribbon and ECI for the years ended December 31, 2020 as if the ECI Acquisition had been completed on January 1, 2019, with adjustments to give effect to pro forma events that are directly attributable to the ECI Acquisition.

These pro forma adjustments include an increase in research and development expense related to the conformance of ECI's cost capitalization policy to Ribbon's, additional amortization expense for the acquired identifiable intangible assets, a decrease in historical ECI interest expense reflecting the extinguishment of certain of ECI's debt as a result of the ECI Acquisition, and an increase in interest expense reflecting the new debt entered into by the Company in connection with the ECI Acquisition.

Pro forma adjustments also include the elimination of acquisition- and integration-related costs directly attributable to the acquisition from the year ended December 31, 2020 and inclusion of such costs in the year ended December 31, 2019.

Pro forma adjustments also include the elimination of acquisition- and integration-related costs directly attributable to the acquisition from the year ended December 31, 2020.

The unaudited pro forma results do not reflect any operating efficiencies or potential cost savings that may result from the consolidation of the operations of Ribbon and ECI.

Accordingly, these unaudited pro forma results are presented for illustrative purposes and are not intended to represent or be indicative of the actual results of operations of the combined

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

company that would have been achieved had the ECI Acquisition occurred at January 1, 2019, nor are they intended to represent or be indicative of future results of operations (in thousands, except per share amounts):

Accordingly, these unaudited pro forma results are presented for illustrative purposes and are not intended to represent or be indicative of the actual results of operations of the combined company that would have been achieved had the ECI Acquisition occurred at January 1, 2019 , nor are they intended to represent or be indicative of future results of operations (in thousands, except per share amounts):

Year ended December 31,

Revenue $ 869,002

Net income (loss) $ 97,036 $ ( 250,337 )

Diluted earnings (loss) per share $ 0.65 $ ( 1.76 )

Anova Data, Inc.

On the Anova Acquisition Date, the Company acquired the business and technology assets of Anova, a private company headquartered in Westford, Massachusetts that provides advanced analytics solutions (the "Anova Acquisition").

The Anova Acquisition was completed in accordance with the terms and conditions of an asset purchase agreement, dated as of January 31, 2019 (the "Anova Asset Purchase Agreement").

The Company acquired Anova because it believed that the Anova Acquisition would reinforce and extend Ribbon's strategy to expand into network optimization, security and data monetization via big data analytics and machine learning.

As consideration for the Anova Acquisition, Ribbon issued 2.9 million shares of Ribbon common stock with a fair value of $ 15.2 million to Anova's sellers and equity holders on the Anova Acquisition Date and held back an additional 0.3 million shares with a fair value of $ 1.7 million, of which 316,551 shares were issued after post-closing adjustments on March 4, 2020.

The Anova Deferred Consideration was included as a component of Accrued expenses and other current liabilities in the Company's consolidated balance sheet at December 31, 2019.

The Anova Acquisition has been 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 results for the year ended December 31, 2019 are not significant to the Company's consolidated financial statements.

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

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

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.

The remaining unallocated amount of $ 5.5 million has been recorded as goodwill.

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 intangible assets relating to developed technology and customer relationships.

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 in relation to the expected cash flows from the individual intangible assets over their respective useful lives, which have a weighted average life of 6.25 years (see Note 10).

The excess of purchase consideration over net tangible and identifiable intangible assets acquired was recorded as goodwill.

The goodwill is deductible for tax purposes.

Net income $ 97,036

Diluted earnings per share $ 0.65

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

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

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

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, 2022 primarily relate to costs incurred from the sale of one of our foreign subsidiaries.

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 components of Acquisition-, disposal- and integration-related expenses incurred in the years ended December 31, 2022, 2021 and 2020 were as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Year ended December 31,

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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 were independent of the Debentures and entitled 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.

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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)

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.

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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 block of financial instruments.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

fair value of a large block of financial instruments.

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.

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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.

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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 fair value of the AVCT Investment at December 31, 2021 is 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 (see Note 6).

The Company evaluated the nature of the AVCT Investment at December 31, 2021, and determined that it represented an equity interest on a diluted basis of approximately 15 %.

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

Pursuant to the settlement agreements, the Company and AVCT also entered into a Wind Down Agreement, pursuant to which a Reseller Agreement between the parties, as previously amended, was terminated, and the Company was granted a non-exclusive perpetual license to use and modify certain intellectual property owned by AVCT comprising WebRTC gateway technology that is integrated with Ribbon’s SBCs and Application Servers.

As consideration, the Company paid AVCT $ 2.5 million in cash, the Debenture Shares were redeemed and canceled, and the Warrants were terminated and canceled.

The perpetual license granted by AVCT is classified as Intangible assets, net in the Company's consolidated balance sheet as of December 31, 2022 in the amount of $ 3.9 million.

The Company had no investment in AVCT as of December 31, 2022 due to the settlement agreement entered into on August 29, 2022.

The Company recorded losses of $ 41.3 million in the year ended December 31, 2022, representing the change in the fair value of the AVCT Investment.

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

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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 156,668 147,575 144,650

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.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Options to purchase the Company's common stock and unvested restricted and performance-based stock units aggregating 14.5 million shares and 10.6 million shares were excluded from the computation of diluted loss per share for the years ended December 31, 2022 and 2021, respectively, because their effect would have been antidilutive.

Options to purchase the Company's common stock aggregating 0.2 million shares were excluded from the computation of diluted earnings per share for the year ended December 31, 2020 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, 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).

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

Inputs to the models may include, but are not limited to, reported trades, executable bid and asked prices, broker/dealer quotations, prices or yields of securities with similar characteristics, benchmark curves or information pertaining to the issuer, as well as industry and economic events.

The pricing services may use a matrix approach, which considers information regarding securities with similar characteristics to determine the valuation for a security.

The Company is ultimately responsible for the consolidated financial statements and underlying estimates.

Accordingly, the Company assesses the reasonableness of the valuations provided by the third-party pricing services by reviewing actual trade data, broker/dealer quotes and other similar data, which are obtained from quoted market prices or other sources.

(7) ACCOUNTS RECEIVABLE, NET

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The Company's allowance for doubtful accounts activity was as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Year ended December 31, Balance at

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Current portion $ 75,423 $ 54,043

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

(9) PROPERTY AND EQUIPMENT

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Property and equipment under finance leases, net $ — $ 287

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

The net book values of the Company's property and equipment by geographic area were as follows (in thousands):

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carrying value

In-process research and development * $ 34,000 $ — $ 34,000

Developed technology 7.84 $ 340,380 $ 212,448 $ 127,932

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Trade names 3.88 5,000 4,658 342

Internal use software 3.00 730 730 —

Software licenses 3.00 5,186 487 4,699

9.51 $ 618,706 $ 323,978 $ 294,728

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

December 31, 2021 Weighted average amortization period

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

* An in-process research and development intangible asset has an indefinite life until the product is generally available, at which time such asset is typically reclassified to developed technology, at which time the Company begins to amortize the asset.

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, 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.

In the fourth quarter of 2022, the Company reclassified an in-process research and development intangible asset to developed technology, as the associated products and features related to 5G technology became generally available.

Estimated future amortization expense for the Company's intangible assets at December 31, 2022 was as follows (in thousands):

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Thereafter 70,222

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 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.

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 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.

Prior to the fourth quarter of 2020, the Company operated as a single operating segment with one reporting unit and consequently evaluated goodwill for impairment based on an evaluation of the fair value of the Company as a whole.

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.

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

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.

intangible assets acquired.

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 determined in the fourth quarter of 2020 that it had two operating segments:

Cloud and Edge, and IP Optical Networks, at which time it was determined that the goodwill assigned to these two segments was $ 224.9 million and $ 192.0 million, respectively.

The Company's reporting units are its operating segments.

Our annual testing for impairment of goodwill is completed as of October 1.

Upon completion of the 2022 annual test for goodwill impairment, the Company determined that there was no impairment of goodwill in either of its reporting units.

Based on the results of the 2021 impairment test, the Company determined that the carrying value of its IP Optical Networks segment exceeded its fair value and the amount of the impairment was $ 116.0 million.

This impairment charge was recorded in the fourth quarter of 2021 and is reported separately in the Company's consolidated statement of operations.

In the 2021 impairment test, the Company determined that there was no impairment of its Cloud and Edge segment.

The changes in the carrying value of the Company's goodwill in the years ended December 31, 2022 and 2021 were as follows (in thousands):

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$ 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)

224,896 75,996 300,892

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

Activity — — —

Balance at December 31, 2022 (1)(2)

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Employee compensation and related costs $ 25,994 $ 38,040

Professional fees 17,195 14,365

Other 42,081 48,347

$ 85,270 $ 100,752

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

(12) WARRANTY

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Year ended December 31, Balance at

of year Assumed liability in connection with ECI Acquisition Provision Settlements Balance at

of year Provision Settlements Balance at

2022 $ 13,120 $ 4,605 $ ( 5,868 ) $ 11,857

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

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

(13) RESTRUCTURING AND FACILITIES CONSOLIDATION INITIATIVES

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$ 10,833 $ 11,653 $ 16,235

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Accelerated Rent Amortization

Accelerated amortization of lease assets is recognized from the date that the Company commences the plan to fully or partially vacate a facility, for which there is no intent or ability to enter into a sublease, through the final vacate date.

The liability for the total lease payments for each respective facility is included as a component of Operating lease liabilities in the Company's consolidated balance sheets at December 31, 2022 and 2021, both current and noncurrent (see Note 20).

The Company may incur additional future expense if it is unable to sublease other locations included in its restructuring initiatives.

2022 Restructuring Plan

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 positions eliminated in countries outside the United States are subject to local law and consultation requirements.

The Company recorded restructuring and related expense of $10.2 million in connection with the 2022 Restructuring Initiative in the year ended December 31, 2022.

The amount for the year ended December 31, 2022 was comprised of $ 5.3 million for severance and related costs for approximately 70 employees, $ 3.3 million for variable and other facilities-related costs and $ 1.6 million for accelerated amortization of lease assets no longer being used with no ability or intent to sublease.

The Company estimates that it will record approximately $ 8.0 million of future expense under the 2022 Restructuring Plan.

A summary of the 2022 Restructuring Plan accrual activity for the year ended December 31, 2022 is as follows (in thousands):

2022 Initiatives

payments Net transfer to operating lease accounts Balance at

Severance $ — $ 5,287 $ ( 4,123 ) $ — $ 1,164

Variable and other facilities-related costs — 3,299 ( 2,409 ) — 890

Accelerated amortization of lease assets due to cease-use — 1,611 — ( 1,611 ) —

$ — $ 10,197 $ ( 6,532 ) $ ( 1,611 ) $ 2,054

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 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 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 less than $ 0.1 million and $ 4.7 million in connection with the 2020 Restructuring Initiative in the years ended December 31, 2022 and 2021 , 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 2023.

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.

The Company estimates that it will record nominal, if any, future expense under the 2020 Restructuring Initiative.

Summaries of the 2020 Restructuring Initiative accrual activity for the years ended December 31, 2022 and 2021 are as follows (in thousands):

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2021 Initiatives

expense Transfer to operating lease liability accounts Cash

expense Adjustments for changes in estimate Cash

payments Balance at

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In connection with the 2019 Restructuring Initiative, the Company recorded restructuring and related expense of $ 0.7 million, $ 7.0 million, and $ 2.3 million in the years ended December 31, 2022, 2021 and 2020, respectively.

The amount recorded in 2022 was for facilities related costs.

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.

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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 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.

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2021 Initiatives

expense Transfer to operating lease liability accounts Cash

payments Balance at December 31, 2020

expense Adjustments for changes in estimate Net transfer to operating lease liability accounts Cash

payments Balance at

Severance $ 173 $ — $ — $ — $ ( 173 ) $ —

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$ 939 $ 9,006 $ ( 2,043 ) $ ( 1,325 ) $ ( 4,983 ) $ 1,594

Merger Restructuring Initiative

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").

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.

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

2020 Adjustments for changes in estimate Cash

payments Balance at

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

Balance Sheet Classification

3 unchanged sentences

2019 Credit Facility

On June 24, 2018, the Company amended its previous outstanding credit facility to, among other things, permit the Edgewater Acquisition and related transactions (the "2018 Credit Facility").

The indebtedness and other obligations under the 2018 Credit Facility were unconditionally guaranteed on a senior secured basis by the Company and each other material U.S.

domestic subsidiary of the Company (collectively, the "Guarantors").

The 2018 Credit Facility was secured by first-priority liens on substantially all of the assets of the Borrower and the Guarantors, including the Company.

The 2018 Credit Facility required periodic interest payments on outstanding borrowings until maturity.

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.

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”).

The Applicable Margin varied depending on the Company’s consolidated leverage ratio (as defined in the 2018 Credit Facility).

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

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

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.

2019 Credit Facility

On April 29, 2019, the Company, as guarantor, and Ribbon Communications Operating Company, Inc., as borrower, entered into a syndicated, amended and restated credit facility (the "2019 Credit Facility"), which provided for a $ 50 million term loan facility that was advanced in full on April 29, 2019, and a $ 100 million revolving line of credit.

The 2019 Credit Facility also included procedures for additional financial institutions to become syndicate lenders, or for any existing lender to increase its commitment under either the term loan facility or the revolving loan facility, subject to an aggregate increase of $ 75 million for incremental commitments under the 2019 Credit Facility.

The 2019 Credit Facility was scheduled to mature in April 2024.

At December 31, 2019, the Company had an outstanding term loan debt balance of $ 48.8 million and an outstanding revolving line of credit balance of $ 8.0 million with a combined average interest rate of 3.30 %, and $ 5.4 million of outstanding letters of credit at an interest rate of 1.50 %.

The indebtedness and other obligations under the 2019 Credit Facility were unconditionally guaranteed on a senior secured basis by the Company and each other material U.S.

domestic subsidiary of the Company (collectively, the “Guarantors”).

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.

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

The Borrower could prepay all revolving loans under the 2019 Credit Facility at any time without premium or penalty (other than customary LIBOR breakage costs), subject to certain notice requirements.

Revolving loans under the 2019 Credit Facility bore interest at the Borrower’s option at either the Eurodollar (LIBOR) rate plus a margin ranging from 1.50 % 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 0.50 % to 2.00 % per year (such margins being referred to as the “Applicable Margin”).

The Applicable Margin varied depending on the Company’s consolidated leverage ratio (as defined in the 2019 Credit Facility).

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

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

1 unchanged sentence

On March 3, 2020, the Company entered into a Senior Secured Credit Facilities Credit Agreement (as amended, the "2020 Credit Facility"), by and among the Company, as a guarantor, Ribbon Communications Operating Company, Inc., as the borrower ("Borrower"), Citizens Bank, N.A.

("Citizens"), as administrative agent, a lender, issuing lender, swingline lender, joint lead arranger and bookrunner, Santander Bank, N.A., as a lender, joint lead arranger and bookrunner, and the other lenders party thereto (each, together with Citizens Bank, N.A.

and Santander Bank, N.A., referred to individually as a "Lender", and collectively, the "Lenders").

("Citizens"), Santander Bank, N.A., and others as lenders, ("Lenders").

The proceeds of the Credit Agreement were used, in part, to pay off in full all obligations of the Company under the 2019 Credit Facility.

1 unchanged sentence

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 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)

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") .

The facilities under the 2020 Credit Facility are secured by first-priority liens on substantially all of the assets of the Borrower and the Guarantors, including substantially all of the assets of the Company.

The 2020 Credit Facility is secured by first-priority liens on substantially all of the assets of the Borrower and the Guarantors , including substantially all of the assets of the Company.

The 2020 Credit Facility requires compliance with certain financial covenants, including a minimum Consolidated Fixed Charge Coverage Ratio and a maximum Consolidated Net Leverage Ratio (each as defined in the 2020 Credit Facility, and each tested on a quarterly basis).

In addition, the 2020 Credit Facility contains various covenants that, among other restrictions, limit the Company's and its subsidiaries' ability to incur or assume indebtedness;

grant or assume liens;

make acquisitions or engage in mergers;

sell, transfer, assign or convey assets;

repurchase equity and make dividend and certain other restricted payments;

make investments;

engage in transactions with affiliates;

enter into sale and leaseback transactions;

enter into burdensome agreements;

change the nature of its business;

modify their organizational documents;

and amend or make prepayments on certain junior debt.

The 2020 Credit Facility contains 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 the Company or any of its subsidiaries occurs, all obligations under the 2020 Credit Facility will immediately become due and payable.

If any other event of default occurs under the 2020 Credit Facility, the lenders may accelerate the maturity of the obligations outstanding under the 2020 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 exists under the 2020 Credit Facility, the lenders can commence foreclosure or other actions against the collateral.

On August 18, 2020 (the "First Amendment Effective Date"), the Borrowers entered into a First Amendment to the 2020 Credit Facility (the "First Amendment").

Pursuant to an assignment and assumption agreement entered into by Citizens and certain affiliates of Whitehorse Capital on the First Amendment Date (collectively, "HIG Whitehorse"), and consented to by Citizens and the Borrower, $ 75 million of the 2020 Term Loan Facility, designated as the Term B Loan (the "Term B Loan"), was assigned from Citizens to HIG Whitehorse as of August 18, 2020.

The remaining $ 325 million of the 2020 Term Loan Facility that was not assigned to HIG Whitehorse was deemed the Term A Loan (the "Term A Loan" and, together with the Term B Loan, the "Amended 2020 Term Loan Facility").

The Term A Loan and the 2020 Revolving Credit Facility mature in March 2025.

The Term A Loan and 2020 Revolving Credit Facility bear interest at the Borrower's option at either the LIBOR rate plus a margin ranging from 1.50 % to 3.50 % per year, or the base rate (the highest of the Federal Funds Effective Rate (as defined in the 2020 Credit Facility) plus 0.50 %, or the prime rate announced from time to time in The Wall Street Journal) plus a margin ranging from 0.50 % to 2.50 % per year (the "Applicable Margin").

The Applicable Margin varies depending on the Company's Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility).

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

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

On August 18, 2020, the Company entered into the First Amendment to the 2020 Credit Facility in which $ 75 million of the 2020 Term Loan Facility was assigned from Citizens to a new lender and designated as the Term B Loan.

The remaining $ 325 million of the 2020 Term Loan Facility was deemed the Term A Loan.

The Term A Loan and the 2020 Revolving Credit Facility mature in March 2025 and bore interest at the Borrower's option at either the LIBOR rate plus a margin ranging from 1.50 % to 3.50 % per year, or the base rate plus 0.50 %, or the prime rate

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

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.

On December 1, 2020, the Borrowers entered into a Second Amendment to the 2020 Credit Facility to obtain consent for an equity exchange with AVCT in connection with the Kandy Sale, as well as to amend certain other provisions of the 2020 Credit Facility.

At December 31, 2020, the Company had an outstanding Term A Loan balance of $ 318.5 million at an average interest rate of 3.4 %, and an outstanding Term B Loan balance of $ 74.6 million at an average interest rate of 8.4 %.

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 %.

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.

plus a margin ranging from 0.50 % to 2.50 % per year (the "Applicable Margin").

The Applicable Margin varies depending on the Company's Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility).

On December 1, 2020, the Company entered into the Second Amendment to the 2020 Credit Facility to obtain consent for an equity exchange with AVCT in connection with the Kandy Sale, as well as to amend certain other provisions of the 2020 Credit Facility.

On March 3, 2021, the Company entered into the Third Amendment to the 2020 Credit Facility which provided for an incremental term loan facility in the principal amount of $ 74.6 million, the proceeds of which were used to consummate an open market purchase of all outstanding amounts under the Term B Loan, resulting in the assignment and immediate cancellation of the Term B Loan, 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 %.

On March 10, 2022, the Company entered into the Fourth Amendment to the 2020 Credit Facility to increase the Maximum Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility) and in conjunction the Company made a $ 15.0 million prepayment that was applied to the final payment due on the maturity date.

On June 30, 2022, the Company entered into the Fifth Amendment to the 2020 Credit Facility (the "Fifth Amendment") to increase the Maximum Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility) for 2022, with the fourth quarter of 2022 increased to 4.75 :1.00.

In the 1st and 2nd quarters of 2023, the Maximum Consolidated Net Leverage Ratio allowed declines to 3.25 :1.00 and in all subsequent quarters the ratio will be fixed at 3.00 :1.00.

Also, the Fifth Amendment reduced the minimum Consolidated Fixed Charge Coverage Ratio (as defined in the 2020 Credit Facility) in 2022, with the fourth quarter of 2022 reduced to 1.10 :1.00 and in all subsequent quarters the ratio will be fixed at 1.25 :1.00.

In addition, the Fifth Amendment increased the maximum rate at which loans bear interest if the Company's Consolidated Net Leverage Ratio for any quarter is greater than 4.50 :1.00.

Specifically, loans incurred bear interest, at the Borrower’s option, at either LIBOR plus a margin ranging from 1.50 % to 4.50 % per year, or the base rate plus 0.50 %, or the prime rate plus a margin ranging from 0.50 % to 3.50 % per year.

In addition, the Fifth Amendment allows the Company to incur junior secured or unsecured debt in an amount no less than $ 50 million, subject to certain conditions, including the requirement that 50 % of the aggregate amount of such incurred debt (net of certain costs, fees and other amounts) must be applied to prepay the 2020 Credit Facility, and compliance with certain leverage ratio-based covenant exceptions.

In connection with the Fifth Amendment, the Company made a $ 10.0 million voluntary prepayment that was applied to the final payment due on the maturity date.

Subsequent to the Fifth Amendment, the Company is required to make quarterly principal payments on the 2020 Term Loan aggregating approximately $ 5.0 million per quarter through March 31, 2024 and $ 10.0 million in each of the three quarters thereafter, with the final payment approximating $ 275 million due on the maturity date in March 2025.

At December 31, 2022, the Company had an outstanding balance under the 2020 Term Loan of $ 330.4 million at an average interest rate of 5.4 % and $ 3.3 million of letters of credit outstanding with an interest rate of 4.5 %.

At December 31, 2021, the Company had an outstanding balance under the 2020 Term Loan 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, 2022 and 2021 .

Short-Term Loan

From time to time, the Company may enter into uncommitted and unsecured short-term loans which it uses for financing exports in China.

Three of these loans, aggregating $ 3.5 million at a weighted average interest rate of 3.97 %, were entered into in March 2020, two of which were with China Zheshang Bank and one of which was with Bank of Communications Hangzhou Branch.

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

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

1 unchanged sentence

At December 31, 2022, the Company had $ 8.3 million of letters of credit, bank guarantees, and performance and bid bonds outstanding (collectively, "Guarantees"), comprised of the $ 3.3 million of letters of credit under the 2020 Credit Agreement described above (the "Letters of Credit") and $ 5.0 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

In connection with the GENBAND Merger, on October 27, 2017, the Company issued a promissory note for $ 22.5 million to certain of GENBAND's equityholders (the "Promissory Note").

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.

Interest that was not paid on the interest payment date would increase the principal amount of the Promissory Note.

On April 29, 2019, concurrently with the closing of the 2019 Credit Facility as discussed above, the Company repaid in full all outstanding amounts under the Promissory Note, aggregating $ 24.7 million.

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

At December 31, 2021, the Company had Guarantees aggregating $ 30.1 million, comprised of the $ 4.3 million of Letters of Credit and $ 25.8 million of Other Guarantees.

At December 31, 2022 and 2021 , the Company

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

had cash collateral of $ 0.2 million and $ 2.6 million, respectively, supporting the Guarantees, which are reported in Restricted cash in the consolidated balance sheets.

(15) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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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.

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 Facility.

On July 22, 2022, the Company sold $ 30 million of the notional amount of its interest rate swap back to its counterparty for $ 1.5 million, reducing the notional amount of this swap to $ 370 million.

On August 16, 2022 the Company sold another $ 30 million of the notional amount of its interest rate swap back to its counterparty for $ 1.6 million, reducing the notional amount to $ 340 million, which approximates the current level of our term loan debt outstanding.

The gain in accumulated other comprehensive (loss) income related to the $ 60 million notional amount sold of $ 3.1 million is being released into earnings on a straight line basis over the remaining term of the 2020 Credit Facility as a decrease to interest expense, the amortization of which totaled $ 0.5 million for the year ended December 31, 2022.

The notional amount of this swap at December 31, 2022 and 2021 was $ 340 million and $ 400 million, respectively.

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.

2 unchanged sentences

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.

During the years ended December 31, 2022 and 2021 , such a derivative was used to hedge the variable cash flows associated with the credit facilities under the 2020 Credit Facility,

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

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 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):

Based upon projected forward rates, the Company estimates that as of December 31, 2022, $ 13.2 million may be reclassified as a decrease 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, 2022 and 2021 was as follows, net of tax (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 )

Gain recognized in other comprehensive income (loss) on interest rate swap, net of tax $ 22,456 $ 9,505

Amount reclassified from accumulated other comprehensive income (loss) to interest expense ( 3,135 ) 3,254

Unrealized gain (loss) on interest rate swap, net of reclassifications and amortization $ 19,321 $ 12,759

The fair values and locations in the consolidated balance sheet at December 31, 2022 and 2021 of the Company's derivative assets (liabilities) designated as a hedging instrument were as follows (in thousands):

Balance sheet location 2022 2021

Interest rate derivative - asset derivative Other current assets $ 13,212 $ —

Interest rate derivative - asset derivative Other assets 12,216 3,865

Interest rate derivative - liability derivative Accrued expenses and other — ( 2,054 )

Interest rate derivative - liability derivative Other long-term liabilities — —

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

$ 25,428 $ 1,811

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).

The Company has classified the interest rate derivative net asset of $ 25.4 million and $ 1.8 million at December 31, 2022 and 2021 , respectively, as Level 2 fair value measurements within the fair value hierarchy (see Note 6).

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

(16) REVENUE RECOGNITION

108 unchanged sentences

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

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 .

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 generally five years .

At December 31, 2022 and 2021 , the Company had $ 3.6 million and $ 3.8 million, respectively, of deferred sales commissions capitalized.

14 unchanged sentences

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.

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, 2022, 2021 and 2020 (in thousands):

29 unchanged sentences

15 % 16 % 15 %

* Less than 10% of total revenue.

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, 2022, no customer accounted for 10% or more of the Company's accounts receivable balance.

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.

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

The Company maintains an allowance for doubtful accounts and such losses have been within management's expectations.

(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 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 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)

The Company maintains an allowance for doubtful accounts and such losses have historically been within management's expectations.

(19) STOCK-BASED COMPENSATION PLANS

2019 Stock Incentive Plan

At the Company's annual meeting of stockholders held on June 5, 2019, the Company's stockholders approved the Ribbon Communications Inc.

Incentive Award Plan (the "2019 Plan").

The 2019 Plan had previously been approved by the Board, subject to stockholder approval.

At the Company's annual meeting of stockholders held on June 2, 2020, the Company's stockholders approved an amendment to the 2019 Plan to increase the number of shares of the Company's common stock authorized for issuance under the 2019 Plan by 7.5 million shares.

Under the 2019 Plan, the Company may grant awards aggregating up to 14.5 million shares of common stock (subject to adjustment in the event of stock splits and other similar events), plus 5.1 million shares of common stock that remained available for issuance under the Company's Amended and Restated Stock Incentive Plan (the "2007 Plan") on June 5, 2019, plus any shares covered by awards under the 2007 Plan (or the Company's other prior equity compensation plans) that again become available for grant pursuant to the provisions of the 2007 Plan.

The 2019 Plan provides for the grant of options to purchase the Company's common stock ("stock options"), stock appreciation rights ("SARs"), restricted stock awards ("RSAs"), performance-based stock awards ("PSAs"), restricted stock units ("RSUs"), performance-based stock units ("PSUs") and other stock- or cash-based awards.

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, 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.

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

In connection with the Edgewater Acquisition, the Company assumed Edgewater's Amended and Restated 2002 Stock Option Plan, converted all then-outstanding options to purchase Edgewater common stock (the "Assumed Options") to Ribbon stock options (the "Ribbon Replacement Options"), and subsequently renamed it the 2002 Stock Option Plan (the "2002 Plan").

The Ribbon Replacement Options are vesting under the same schedules as the respective Edgewater Options.

The fair values of the Assumed Options were estimated using a Black-Scholes option pricing model.

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 in 2022.

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

2012 Stock Incentive Plan

In connection with the acquisition of Performance Technologies, Inc.

("PT"), the Company assumed PT's 2012 Amended Performance Technologies, Incorporated Omnibus Incentive Plan, and subsequently renamed it the 2012 Stock Incentive Plan (the "2012 Plan").

In December 2014, all of the unissued shares under the 2012 Plan were transferred to the 2007 Plan.

Any outstanding awards under the 2012 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.

Accordingly, at December 31, 2021 there were no shares available for future issuance under the 2012 Plan.

2008 Stock Incentive Plan

In connection with the acquisition of Network Equipment Technologies, Inc.

("NET"), the Company assumed NET's 2008 Equity Incentive Plan and subsequently renamed it the 2008 Stock Incentive Plan (the "2008 Plan").

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 Company grants stock-based compensation to employees, officers and non-employee directors, as well as consultants and advisors of the Company and its subsidiaries under its Amended and Restated 2019 Incentive Award Plan (the "2019 Plan") which provides for the award of stock options, stock appreciation rights ("SARs"), restricted stock awards ("RSAs"), performance-based stock awards ("PSAs"), restricted stock units ("RSUs"), performance-based stock units ("PSUs") and other stock- or cash-based awards.

At the Company's annual meeting of stockholders held on May 25, 2022, the Company's stockholders approved an amendment to the 2019 Plan to increase the number of shares of the Company's common stock authorized for issuance under

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.

the 2019 Plan by 10.0 million shares.

Executive Equity Arrangements

Inducement Awards

In connection with his appointment as President and Chief Executive Officer of Ribbon, and as an inducement for Bruce McClelland's ("Mr.

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

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 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.

In connection with his appointment as President and Chief Executive Officer of Ribbon on March 16, 2020, the Company awarded Bruce McClelland sign-on equity grants, comprised of RSUs and a PSU grant with both market and service conditions (the "Inducement PSUs").

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.

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").

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 Year Performance Period.

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").

The Company's achievement of the goals for each Fiscal Year Performance Condition (and the number of shares of Company common stock to vest as a result thereof) are being measured on a linear sliding scale in relation to specific threshold, target and stretch performance conditions, with any shares earned vesting in the first quarter of the fiscal year following the third Performance Period of the grant, pending each executive's continued employment with the Company through that date.

The number of shares of common stock underlying the Performance PSUs that can be earned will in no event exceed 200 % of the Performance PSUs.

Shares subject to the Performance PSUs that fail to be earned will be forfeited.

The Market PSUs have one three-year performance period, beginning January 1 in the year of grant and ending on December 31, three years thereafter (the "Market Performance Period").

The number of shares subject to the Market PSUs that will vest, if any, will be dependent upon the Company's total shareholder return ("TSR") compared with the TSR of the companies included in the Nasdaq Telecommunications Index for the applicable Market Performance Period, measured by the Compensation Committee after the Market Performance Period ends, with any shares earned vesting in the first quarter of the fiscal year following the respective Market Performance Period, pending each executive's continued employment with the Company through that date.

The number of shares of common stock underlying the Market PSUs that can be earned will in no event exceed 200 % of the Market PSUs.

Shares subject to the Market PSUs that fail to be earned will be forfeited.

In addition, in connection with his appointment as Executive Vice President and General Manager, Packet Optical Networking, the Company granted Sam Bucci 133,333 PSUs (the "Bucci Stock Price PSUs") with both market and service conditions.

Subject to Mr.

Bucci's continued employment, the Bucci Stock Price PSUs were eligible to vest and be settled in shares of Ribbon common stock upon the achievement of a specific share price threshold on or prior to January 31, 2022.

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

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").

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").

The three Fiscal Year Performance Periods for the 2019 Performance PSUs are the years ended December 31, 2019, 2020 and 2021 (respectively, the “2019 Performance Period”, “2020 Performance Period” and “2021 Performance Period”).

In the third quarter of 2019, the Company adjusted the goals for the 2019 Performance Period to reflect the changes to the Company's calculation of certain metrics.

There was no incremental expense in connection with this modification.

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 .

Once the grant date criteria have been met for a Fiscal Year Performance Period, the Company records stock-based compensation expense for the respective shares underlying the PSUs based on its assessment of the probability that the respective performance condition will be achieved and the level, if any, of such achievement.

The Compensation Committee determines the number of shares earned, if any, after the Company's financial results for each Fiscal Year Performance Period are finalized.

Upon the determination by the Compensation Committee of the number of shares that will be received upon vesting of the related Performance PSUs, such number of shares becomes fixed and the unamortized expense is recorded through the remainder of the service period, at which time such Performance PSUs earned, if any, will vest, pending each executive's continued employment with the Company through that date.

Accounting for Market PSUs .

PSUs that include a market condition require the use of 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.

These results are then used to calculate the grant date fair values of the respective PSUs.

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.

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, 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

The Company has not granted stock options since 2017.

Outstanding stock options granted under the Company's plans expire either seven or ten years from the date of grant.

The grant date fair value of stock options, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period.

Forfeitures are estimated based on historical experience.

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

Shares Weighted

Exercise Price Weighted

Contractual Term

(years) Aggregate

Intrinsic Value

(in thousands)

Outstanding at January 1, 2021 207,710 $ 12.69

Exercised ( 13,815 ) $ 1.76

Expired ( 9,726 ) $ 17.60

Outstanding at December 31, 2021 184,169 $ 13.25 2.59 $ 174

Vested or expected to vest at December 31, 2021 184,169 $ 13.25 2.59 $ 174

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, 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

The Company's outstanding restricted stock grants consist of both RSAs and RSUs.

Holders of unvested RSAs have voting rights and rights to receive dividends, if declared;

however, these rights are forfeited if the underlying unvested RSA shares are forfeited.

Holders of unvested RSUs do not have such voting and dividend rights.

The grant date fair value of restricted stock grants, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the requisite service period.

The fair value of restricted stock grants is determined based on the market value of the Company's shares on the date of grant.

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

Shares Weighted

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

Vested ( 86,983 ) $ 7.04

Unvested balance at December 31, 2021 — $ —

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

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

Vesting periods for RSAs, RSUs, and PSUs granted range from one to three years.

PSUs granted consist of 60 % that have both performance and service conditions (the "Performance PSUs") and 40 % that have both market and service conditions (the "Market PSUs").

Each Performance PSU is comprised of three consecutive fiscal year performance periods beginning in the year of grant, with one-third of the Performance PSUs attributable to each fiscal year performance period.

The Market PSUs have one three-year performance period, beginning January 1 in the year of grant and ending on December 31, three years thereafter.

The number of shares of common stock underlying the PSUs that can be earned will not exceed 200 % of the Performance or Market PSUs.

Shares subject to PSUs that fail to be earned will be forfeited.

Restricted Stock Units

The activity related to the Company's RSUs for the year ended December 31, 2022 was as follows:

5 unchanged sentences

Unvested balance at December 31, 2022 7,649,747 $ 3.96

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.

The total grant date fair value of restricted stock underlying RSUs that vested was $ 18.1 million in the year ended December 31, 2022, $ 12.5 million in the year ended December 31, 2021 and $ 11.2 million in the year ended December 31, 2020.

Performance-Based Stock Units

Holders of unvested PSUs do not have voting and dividend rights.

The Company recognizes stock-based compensation expense for PSUs without market conditions on a straight-line basis, with the amount recorded based upon the expected level of achievement as of each period-end, recording cumulative adjustments in the period when the expected level of achievement changes.

The Company recognizes the grant date fair value of PSUs on a graded attribution basis through the vest date of the respective awards so long as it remains probable that the related service conditions will be satisfied.

The activity related to the Company's PSUs for the year ended December 31, 2022 was as follows:

5 unchanged sentences

Unvested balance at December 31, 2022 6,653,503 $ 2.52

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 total grant date fair value of restricted stock underlying PSUs that vested was $ 0.9 million in the year ended December 31, 2022, $ 1.7 million in the year ended December 31, 2021 and $ 1.8 million in the year ended December 31, 2020.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Stock-Based Compensation

9 unchanged sentences

There was an income tax benefit for employee stock-based compensation expense for the years ended December 31, 2022, 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.

At December 31, 2022, there was $ 23.0 million, net of expected forfeitures, of unrecognized stock-based compensation expense related to unvested RSUs and PSUs.

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

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Common Stock Reserved

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'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.

The Company issues authorized and unissued shares under its equity plans and at December 31, 2022, there were 5,027,305 total shares of common stock reserved for that purpose with 105,495 of those shares authorized only for issuance of shares upon exercise of stock options.

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

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For operating leases, lease expense for minimum fixed lease payments is recognized on a straight-line basis over the lease term.

The expense for finance leases includes both interest and amortization expense components, with the interest component calculated based on the effective interest method and the amortization component calculated based on straight-line amortization of the right-of-use asset over the lease term.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

of the right-of-use asset over the lease term.

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

1 unchanged sentence

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.

Certain leased facilities are being partially or fully vacated as part of the 2022 Restructuring Plan and for some of those facilities, the Company has no plans to enter into sublease agreements.

Accordingly, the Company accelerated the amortization of those lease assets through the planned cease-use date of each facility, resulting in additional amortization expense of $ 1.6 million in the year ended December 31, 2022.

The Company also recorded expense of $ 1.0 million in the year ended December 31, 2022 for all estimated future variable lease costs related to those facilities.

In connection with the 2020 Restructuring Plan, 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 Plan.

The Company did not record any accelerated amortization or estimated future variable lease costs in the year ended December 31, 2022 or 2022 related to the 2020 Restructuring Plan.

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

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

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

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

The Company also recorded liabilities aggregating $ 1.4 million in the year ended December 31, 2021 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.

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, 2021, 2020 and 2019.

The Company did not accelerate amortization or record liabilities for future estimated variable lease costs in the year ended December 31, 2022.

All 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, 2022, 2021 and 2020.

At December 31, 2022 and 2021 , the Company had accruals of $ 2.0 million and $ 1.6 million, respectively, for all future anticipated variable lease costs related to these facilities.

2 unchanged sentences

The Company leases its corporate offices and other facilities under operating leases, which expire at various times through 2032.

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, 2022 and 2021 were as follows (in thousands):

8 unchanged sentences

Total lease liabilities $ 61,599 $ 73,166

* 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.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

* Finance lease assets were fully depreciated at December 31, 2022 and were recorded net of accumulated depreciation of $ 1.8 million at December 31, 2021.

The components of lease expense for the years ended December 31, 2022, 2021 and 2020 were as follows (in thousands):

9 unchanged sentences

Net lease cost $ 37,990 $ 38,374 $ 43,268

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

* Operating lease costs for the years ended December 31, 2022, 2021 and 2020 include $ 1.6 million, $ 3.4 million, and $ 0.6 million, respectively, of accelerated amortization for certain assets partially or fully vacated with no intent or ability to sublease.

17 unchanged sentences

Future minimum fixed lease payments under noncancelable leases at December 31, 2022 were as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

December 31, 2022

3 unchanged sentences

2024 15,380 —

2024 10,503 —

2028 and beyond 18,210 —

6 unchanged sentences

The Company recorded expense related to its employee defined contribution plans aggregating $ 3.3 million, $ 3.5 million and $ 3.4 million in the years ended December 31, 2022, 2021 and 2020, respectively.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

(22) NON-U.S.

6 unchanged sentences

In the year ended December 31, 2020, the Company assumed ECI's defined benefit plans in connection with the ECI Acquisition.

These plans exist in several international locations where severance pay is either required by law for voluntary terminations or upon reaching a statutory retirement age.

These plans exist in several international locations where severance pay is either required by law for voluntary or involuntary terminations or upon reaching a statutory retirement age.

The Company adopted ECI's policy to fund notional accounts each month in the name of each employee to satisfy not only the severance amounts required by the applicable laws and regulations in certain countries, but also to satisfy severance for other types of terminations not necessarily required by law, but paid in accordance with company policy.

3 unchanged sentences

The range of assumptions that are utilized for these plans reflects the different economic environments within each country where such severance indemnities are required.

The Company expanded its actuarial valuation of defined benefit plans beginning with the year ended December 31, 2021 to include the severance plan for employees in India that are unaffiliated with the 2020 acquisition of ECI, thereby increasing the projected benefit obligation by $ 1.5 million as of December 31, 2021.

In addition, the Company aligned the benefits for all employees in India in the year 2021 for consistency, including those employees assumed in the ECI Acquisition in 2020.

This benefit alignment was considered a plan amendment for those former ECI employees, resulting in the establishment of a $( 3.8 ) million prior service credit in the year ended December 31, 2021.

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 (expense) income, 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

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

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.

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Therefore, Ribbon has no current or future obligation to pay pension benefits promised in the Netherlands beyond the payment of premiums to the insurance company.

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 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, 2022 and 2021, the funded status of the plans, and the amounts recognized in the consolidated balance sheets as of December 31, 2022 and 2021 were as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Year ended December 31,

1 unchanged sentence

Projected benefit obligation, beginning of year $ 26,938 $ 25,067

Business combination — 17,963

Service cost 1,355 1,321

2 unchanged sentences

Plan amendments — ( 3,801 )

Net actuarial (gain) loss on obligation ( 5,604 ) 4,868

Settlement ( 1,063 ) —

Benefits and expenses paid ( 932 ) ( 1,040 )

Net actuarial loss on obligation 4,868 231

Projected benefit obligation, end of year $ 21,257 $ 26,938

1 unchanged sentence

Fair value of plan assets, beginning of year $ 15,303 $ 14,350

Business combination — 13,188

Actual return on plan assets ( 672 ) 981

Plan amendments — ( 588 )

Employer contributions 1,954 989

3 unchanged sentences

Funded status at end of year $ ( 6,628 ) $ ( 11,635 )

Amounts recognized in accumulated other comprehensive loss consist of:

Net actuarial loss $ ( 4,045 ) $ ( 102 )

Amounts recognized in accumulated other comprehensive income consist of:

Prior service (credit) cost $ ( 3,481 ) $ ( 3,801 )

Net actuarial (gain) loss ( 1,704 ) 4,045

$ ( 5,185 ) $ 244

Amounts recognized in the consolidated balance sheets consist of:

Other assets (non-current pension asset) $ 552 $ —

Accrued expenses and other (current pension liability) ( 803 ) ( 461 )

1 unchanged sentence

Net amount recognized $ ( 6,628 ) $ ( 11,635 )

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.

The decrease in the underfunded status of the Company's defined benefit plans at December 31, 2022 compared to December 31, 2021 was primarily the result of the increase in the discount rates in the various countries, partially offset by continued benefit accruals.

The source of the projected benefit obligation ("PBO") actuarial (gain) loss differed in each country.

However, in aggregate, the effect of discount rate changes in 2022 represented the most significant contributor to the PBO actuarial (gain) loss.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Plans with underfunded or non-funded accumulated benefit obligations at December 31, 2022 and 2021 were as follows (in thousands):

2 unchanged sentences

Aggregate fair value of plan assets $ 2,270 $ 15,303

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Plans with overfunded accumulated benefit obligations at December 31, 2022 and 2021 were as follows (in thousands):

Aggregate projected benefit obligation $ 11,807 $ —

Aggregate accumulated benefit obligation $ 9,547 $ —

Aggregate fair value of plan assets $ 12,359 $ —

Net periodic benefit costs for the years ended December 31, 2022, 2021 and 2020 were as follows (in thousands):

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Plan asset expenses — — —

Curtailment charge (credit) — — 13

Settlement (credit) charge — ( 1,557 ) 115

Settlement charge (credit) 808 — ( 1,557 )

Amortization of prior service cost ( 320 ) — —

Amortization of net loss 275 81 20

Net periodic benefit costs $ 2,415 $ 1,611 $ ( 375 )

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 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):

5 unchanged sentences

Net (gain) loss $ ( 4,666 ) $ 4,201 $ ( 503 )

Settlement gain — ( 1,557 ) —

Total recognized in comprehensive income (loss) $ 4,045 $ ( 2,115 ) $ 2,526

Prior service (credit) cost — ( 3,801 ) —

Amortization of net gain (loss) ( 275 ) ( 81 ) ( 20 )

Amortization of prior service credit (cost) 320 — —

Settlement (charge) credit ( 808 ) — ( 1,557 )

Total recognized in other comprehensive income (loss) $ ( 5,429 ) $ 319 $ ( 2,080 )

The Company defers all actuarial gains and losses resulting from variances between actual results and economic estimates or actuarial assumptions.

The unrecognized actuarial gains and losses are recorded as unrealized pension actuarial gains (losses) in the Company's consolidated balance sheets as a component of Accumulated other comprehensive income.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

These unrecognized gains and losses are amortized as a component of net periodic benefit cost when the net gains and losses exceed 10 % of the greater of the market value of plan assets or the projected benefit obligation at the beginning of the year.

Amortization of the amount included in Accumulated other comprehensive income into net periodic benefit cost is expected to total $ 0.1 million for the year ended December 31, 2022.

The principal weighted average assumptions used to determine the benefit obligation at December 31, 2022 and 2021 were as follows:

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The principal weighted average assumptions used to determine net period benefit cost for the years ended December 31, 2022, 2021 and 2020 were as follows:

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Year ended December 31,

13 unchanged sentences

Due to the plan amendment in 2020 that changed the benefit structure of the Netherlands plan, the Company no longer has any obligation related to this plan beyond the payment of insurance premiums.

Therefore, there is no projected benefit obligation and no plan assets in the Netherlands as of December 31, 2020.

Plan assets for the Netherlands plan totaled $ 0.6 million at December 31, 2019.

Therefore, there is no projected benefit obligation and no plan assets in the Netherlands as of December 31, 2022, 2021 or 2020.

The Company classifies the fair value of its plan assets as Level 2 in the fair value hierarchy as discussed in Note 6.

During the years ended December 31, 2021, 2020 and 2019, employees in the Netherlands and Switzerland made contributions to the respective pension plans aggregating $ 23,000 , $ 21,000 and $ 24,000 , respectively.

Employee contributions to these plans are based on a fixed 5 % of the relevant pensionable earnings.

The Company funds these plans by contributing at least the minimum amount required by applicable regulations and as recommended by an independent actuary.

During the years ended December 31, 2021, 2020 and 2019, the Company contributed $ 1.0 million, $ 0.8 million and $ 0.1 million, respectively, to its pension plans.

The Company expects to contribute $ 1.2 million to its defined benefit plans in 2022.

During the years ended December 31, 2022 and 2021, employees in Switzerland made contributions to their pension plan aggregating $ 39,000 and $ 23,000 , respectively.

Employee contributions to this plan are based on a fixed 5 % of the relevant pensionable earnings.

The Company funds this plan by contributing at least the minimum amount required by applicable regulations and as recommended by an independent actuary.

During the years ended December 31, 2022, 2021 and 2020, the Company contributed $ 2.0 million, $ 1.0 million and $ 0.8 million, respectively, to all of its pension plans.

The Company expects to contribute $ 1.5 million to all of its defined benefit plans in 2023.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

(23) INCOME TAXES

6 unchanged sentences

$ ( 112,599 ) $ ( 208,143 ) $ 93,317

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

The (benefit) provision for income taxes from continuing operations consisted of the following (in thousands):

9 unchanged sentences

Foreign ( 3,873 ) ( 7,558 ) ( 6,558 )

Change in valuation allowance ( 25,148 ) ( 18,972 ) ( 6,504 )

Total deferred ( 18,251 ) ( 45,488 ) ( 4,616 )

Total $ ( 14,516 ) $ ( 30,958 ) $ 4,726

A reconciliation of the Company's effective tax rate for continuing operations to the statutory federal rate is as follows:

A reconciliation of the Company's effective tax rate for continuing operations to the U.S.

statutory federal rate is as follows:

Year ended December 31,

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Foreign income taxes ( 1.4 ) 0.5 0.2

Foreign deemed dividends 1.9 ( 2.7 ) ( 0.4 )

Stock-based compensation ( 2.4 ) ( 0.1 ) 1.0

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Valuation allowance ( 3.8 ) 2.5 ( 20.3 )

Goodwill amortization — 0.6 0.4

Tax reform — — ( 0.1 )

Goodwill impairment ( 11.7 ) — ( 25.4 )

Non-deductible goodwill impairment — ( 11.7 ) —

Other permanent adjustments ( 2.6 ) 0.9 1.8

Permanent adjustments - foreign exchange 0.5 1.8 —

Permanent foreign exchange adjustments ( 1.4 ) 0.5 1.8

Other, net ( 1.8 ) ( 0.1 ) 0.8

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Net operating loss carryforwards $ 413,773 $ 437,669

Capital loss carryforward 79,716 71,182

Research and development and other tax credits 41,556 51,431

Capital loss carryforwards 99,505 79,716

Tax credit carryforwards 28,902 23,450

Capitalized research and development expenses 40,668 18,106

Deferred revenue 3,510 3,472

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Operating lease right-of-use assets ( 8,519 ) ( 10,370 )

Mark-to-market investments — ( 17,631 )

Interest rate swap ( 6,168 ) —

Unremitted foreign income ( 8,441 ) ( 11,519 )

2 unchanged sentences

The deferred tax assets and liabilities based on tax jurisdictions are presented in the Company's consolidated balance sheets as follows:

Deferred income taxes - noncurrent assets $ 47,287 $ 10,651

Deferred income taxes - noncurrent liabilities ( 8,116 ) ( 16,842 )

Deferred income taxes - net noncurrent assets $ 53,649 $ 47,287

Deferred income taxes - net noncurrent liabilities ( 3,750 ) ( 8,116 )

$ 49,899 $ 39,171

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.

of $ 224.6 million.

The Company, through the ECI Acquisition, also has $ 1.6 billion of Israel NOLs.

NOL carryforwards expire at various dates from 2022 through 2037.

At December 31, 2022, the Company had U.S.

federal net operating losses ("NOLs") of $ 152.5 million.

The Company also had U.S.

state NOLs of $ 18.8 million.

In addition, the Company had $ 1.6 billion of Israel NOLs through the ECI Acquisition.

federal NOL carryforwards expire between 2023 and 2037.

state NOLs begin to expire in 2023, and the Company also has indefinite-lived state NOLs.

The Israel NOLs do not expire.

The Company also has available federal, state and foreign income tax credit carryforwards of $ 23.4 million that expire in various periods.

The Company also has available federal, state and foreign income tax credit carryforwards of $ 28.9 million.

The federal foreign tax credit carryforwards expire between 2030 and 2032.

The state tax credits, which are primarily research and development credits, begin to expire in 2023, while others can be carried forward until exhausted.

The foreign income tax credits expire in various periods.

The Company has provided for income taxes on the undistributed earnings of its non-U.S.

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Accordingly, the Company is required to recognize and record deferred taxes in 2022.

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

The deferred taxes, which are primarily future withholding 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.

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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.

Net operating losses and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership of significant shareholders over a three-year period in excess of 50 %, as defined under Sections 382 and 383 of the Internal Revenue Code, as well as a similar state provision.

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.

As a result of the ECI Acquisition, an additional $ 129.6 million of NOL was acquired related to the ECI U.S.

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 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.

Net operating losses and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership of significant shareholders over a three-year period in excess of 50 %, as defined under sections 382 and 383 of the Internal Revenue Code, as well as similar state provisions.

As a result of the Sonus and GENBAND merger in 2017, the Company has $ 112.3 million of U.S.

federal net operating loss carryforwards remaining as of December 31, 2022 with an annual section 382 limitation of $ 9.7 million.

The Company believes these NOLs are fully realizable.

As a result of the ECI Acquisition, the Company has $ 41.9 million of U.S.

federal NOLs remaining as of December 31, 2022 with an annual section 382 limitation of $ 1.1 million.

The Company does not believe all of these NOLs are realizable and, therefore, have recorded a partial valuation allowance against these NOLs.

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.

Accordingly, the Company has recorded a valuation allowance against its U.S.

deferred tax assets of $ 25.5 million at December 31, 2022 and $ 30.5 million at December 31, 2021.

The Company also maintains a valuation allowance against certain of its foreign deferred tax assets, predominantly Israel, amounting to approximately $ 463 million at December 31, 2022 and $ 441 million at December 31, 2021.

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.

The deferred tax assets recognized with no valuation allowance at December 31, 2022 and 2021 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 NOLs and tax credits in the U.S.

that are expected to be utilized prior to expiration.

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Increases related to prior period tax positions 40 3,168 11,209

Decreases related to the lapse of the applicable statute of limitations ( 560 ) ( 3,087 ) ( 122 )

Decreases related to prior period tax positions $ ( 5,448 ) $ ( 339 ) $ ( 450 )

3 unchanged sentences

Of these amounts, $ 11.2 million, $ 12.7 million and $ 13.9 million represent the amount of unrecognized tax benefits that, if recognized, would impact the effective income tax rate for the years ended December 31, 2022, 2021 and 2020, respectively.

The Company recorded liabilities for potential penalties and interest of $ 1.9 million, $ 0.5 million and $ 0.1 million for the years ended December 31, 2021, 2020 and 2019, respectively.

The Company recorded income tax expense (benefit) for potential penalties and interest of $( 0.3 ) million, $ 1.9 million and $ 0.5 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The Company had $ 2.9 million and $ 3.2 million accrued in Other long-term liabilities for penalties and interest at December 31, 2022 and 2021, respectively.

The Company believes that it is reasonably possible that certain tax positions related to its unrecognized tax benefits will be effectively settled within the next twelve months.

The Company believes that it is reasonably possible that $(0.6) million in tax positions related to its unrecognized tax benefits will be recognized within the next twelve months.

The Company and its subsidiaries file income tax returns in the U.S.

federal jurisdiction as well as various state and foreign jurisdictions.

Generally, the tax years 2017 through 2020 remain open to examination by the major taxing jurisdictions to which the Company is subject.

The Company's federal NOLs generated prior to 2017 could be adjusted on examination even though the year in which the loss was generated is otherwise closed by the statute of limitations.

Generally, the tax years 2018 through 2021 remain open to examination by the major taxing jurisdictions in which the Company operates.

The Company's federal and state NOLs generated prior to 2018 could be adjusted on examination even though the year in which the loss was generated is otherwise closed by the statute of limitations.

As of December 31, 2022, the Company had ongoing income tax audits in certain foreign countries.

Management believes that an adequate provision has been recorded for any adjustments that may result from tax examinations.

(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

Under the Tax Cuts and Jobs Act of 2017, research and development costs are no longer fully deductible and are required to be capitalized and amortized for U.S.

tax purposes effective January 1, 2022.

The mandatory capitalization requirement increases our deferred tax assets and cash tax liabilities.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

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.

On April 29, 2019, the Company repaid in full all outstanding amounts under the Promissory Note, aggregating $ 24.7 million.

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

On August 16, 2022, Congress passed the Inflation Reduction Act of 2022 which introduced the 15% corporate alternative minimum tax on book income and a 1% excise tax on stock repurchases which are both effective January 1, 2023.

We do not currently anticipate these new laws to have a material effect on the Company's financial position in the near term.

A change in tax laws is one of many factors that impact the Company’s effective tax rate.

and other jurisdictions where the Company does business have had an extended focus on issues related to the taxation of multinational corporations.

As a result, the tax laws in the U.S.

and other countries in which the Company does business could change, and any such changes could adversely impact our effective tax rate, financial condition and results of operations.

The Organization for Economic Co-operation and Development ("OECD"), an international association of 38 countries including the United States, has proposed changes to numerous long-standing tax principles (e.g.

Pillar 1 and Pillar 2).

These proposals, if finalized and adopted by the associated countries, will likely increase tax uncertainty and may adversely affect our provision for income taxes.

(24) RELATED PARTIES

The Company recognized revenue in the years ended December 31, 2022, 2021 and 2020 of $ 6.6 million, $ 4.5 million and $ 3.3 million, respectively, from its largest shareholder.

Additionally, as discussed in Note 2, certain related party shareholders participated in the Equity Offering on August 12, 2022.

(25) COMMITMENTS AND CONTINGENCIES

19 unchanged sentences

Prior to the ECI Acquisition, ECI had received research and development grants from the IIA.

The Company assumed ECI's contract with the IIA, which requires the Company to pay royalties to the IIA on proceeds from the sale of products which the Israeli government has supported by way of research and development grants.

The Company assumed

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

ECI's contract with the IIA, which requires the Company to pay royalties to the IIA on proceeds from the sale of products which the Israeli government has supported by way of research and development grants.

The royalties for grants prior to 2017 were calculated at the rates of 1.3 % to 5.0 % of the aggregated proceeds from the sale of such products developed at certain of the Company's R&D centers, up to an amount not exceeding 100 % of such grants plus interest at LIBOR.

1 unchanged sentence

At December 31, 2022, the Company's maximum possible future royalties commitment, including $ 3.8 million of unpaid royalties accrued at December 31, 2022, was $ 28.4 million, including interest of $ 1.4 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

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.

Miller Complaint.

Similar to a previous complaint entitled Sousa et al.

5 unchanged sentences

On August 30, 2019, the Defendants filed a motion to dismiss the Miller Complaint and, on October 4, 2019, the Lead Plaintiffs filed an opposition to the motion to dismiss.

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, but to date, the court has not ruled on the motion.

There was an oral argument on the motion to dismiss on February 12, 2020, and on October 20, 2022 the court denied the motion to dismiss.

Discovery and class certification determination are on-going.

Charter Complaints.

On September 19, 2022, Charter Communications Operating, LLC (“Charter”) filed two complaints against two of the Company’s subsidiaries (Sonus Networks, Inc.

and Ribbon Communications Operating Company, Inc.) alleging breach of contract with respect to indemnification obligations purportedly owed to Charter in connection with Charter’s legal dispute with Sprint Communications Company L.P., which was settled by Charter in March 2022.

One complaint was filed in the Supreme Court of the State of New York, New York County;

the other was filed by Charter as well as co-Plaintiffs Charter Communications Holding Company, LLC and Bright House Networks, LLC, in the Superior Court of the State of Delaware in and for New Castle County.

In both suits, Charter is seeking monetary damages.

The Company filed its answer in the New York Case on December 7, 2022 and in the Delaware case on January 9, 2023.

Discovery is on-going and the court in the Delaware case has set a preliminary trial date of January 2025.

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

(26) SUBSEQUENT EVENTS

2023 Restructuring

On February 22, 2023 , the Company's Board of Directors approved a strategic restructuring program (the "2023 Restructuring Plan") to streamline the Company's operations in order to support the Company's investment in critical growth areas.

1 unchanged sentence

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 currently expects to record approximately $ 10 million of restructuring and related expense associated with the 2023 Restructuring Plan, almost entirely related to employee severance arrangements.

The Company expects the 2023 Restructuring Plan will be substantially completed in 2023 .

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Issuance of Preferred Stock and Warrants, Sale of Interest Rate Swap, and Amendment of the 2020 Credit Facility

On March 28 , 2023, the Company issued 55,000 shares of newly designated Series A Preferred Stock (the "Preferred Stock") to investors in a private placement offering at a price of $ 970 per share, along with 4.9 million warrants to purchase shares of the Company's common stock, par value $ 0.0001 per share (the "Private Placement").

The proceeds from the Private Placement were approximately $ 53.4 million, including approximately $ 10 million from existing related party shareholders.

On March 24 , 2023, the Company sold $ 170 million of its $ 340 million notional amount interest rate swap back to its counterparty for $ 9.4 million, reducing the notional amount to $ 170 million.

On March 27 , 2023, the Company sold the remaining $ 170 million of its interest rate swap back to its counterparty for $ 9.8 million.

On March 24, 2023, the Company also entered into an amendment to its 2020 Credit Facility (the “Sixth Amendment”) effective March 30, 2023.

The Sixth Amendment, among other things, increased the Maximum Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility), with the first, second and third quarters of 2023 increasing to 4.50 :1.00.

In the fourth quarter of 2023 and the first quarter of 2024, the Maximum Consolidated Net Leverage Ratio allowed then declines to 4.25 :1.00 and 4.00 :1.00, respectively.

In all subsequent quarters, the Maximum Consolidated Senior Net Leverage Ratio will be fixed at 3.00 :1.00 and the Maximum Consolidated Net Leverage Ratio will be fixed at 4.00 :1.00 .

Also, the Sixth Amendment reduced the minimum Consolidated Fixed Charge Coverage Ratio (as defined in the 2020 Credit Facility) to 1.10 :1.00 through the first quarter of 2024 and in all subsequent quarters the ratio will be fixed at 1.25 :1.00.

The Sixth Amendment reduced the maximum borrowings allowed under the 2020 Revolving Credit Facility from $ 100 million to $ 75 million.

In addition, the Sixth Amendment replaced LIBOR with the Secured Overnight Financing Rate, or SOFR, as the alternative rate that may be used by the Company for calculating interest owed under the 2020 Credit Facility.

In conjunction with the Sixth Amendment, the Company made a $ 75 million prepayment that was applied to the final payment due on the maturity date.

The prepayment was almost entirely funded with the net proceeds from the Private Placement and the sales of our interest rate swap.

(27) QUARTERLY RESULTS (UNAUDITED)

2 unchanged sentences

In the opinion of management, all necessary adjustments, consisting only of normal recurring adjustments, have been included to present fairly the unaudited consolidated quarterly results when read in conjunction with the Company's audited consolidated financial statements and related notes.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Quarter Second

14 unchanged sentences

Diluted 149,167 150,190 158,921 172,213

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Quarter Second

15 unchanged sentences

__________________________________

(1) Includes the results of ECI for the period subsequent to March 3, 2020.

(1) 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.

1 unchanged sentence

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