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Business Combination | 9 Months Ended
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Sep. 30, 2022
Business Combinations [Abstract] |
Business Combination | 2. BUSINESS COMBINATION ADVA Optical Networking SE On August 30, 2021, ADTRAN and ADVA, entered into a Business Combination Agreement, pursuant to which both companies agreed to combine their respective businesses and each become subsidiaries of a new holding company, ADTRAN Holdings, Inc. (formerly known as Acorn HoldCo, Inc.) which was formed as a wholly-owned subsidiary of ADTRAN in order to consummate the transactions under the Business Combination Agreement. Under the terms of the Business Combination Agreement, on July 8, 2022, Acorn MergeCo, Inc, a Delaware corporation and wholly-owned direct subsidiary of the Company, merged with and into ADTRAN, Inc. with ADTRAN, Inc. surviving the merger as a wholly-owned direct subsidiary of the Company. Additionally, pursuant to the Business Combination Agreement, the Company made a public offer to exchange each issued and outstanding no-par value bearer share of ADVA for 0.8244 shares of Company Common Stock, par value $0.01 per share of the Company. The Exchange Offer was settled on Exchange Offer Settlement Date, on which date the Company acquired 33,957,538 bearer shares of ADVA, or 65.43% of ADVA’s outstanding bearer shares as of the Exchange Offer Settlement Date, in exchange for the issuance of an aggregate of 27,994,595 shares of Company Common Stock. Additionally, pursuant to the Business Combination Agreement, ADVA stock option holders were entitled to have their ADVA stock options assumed by ADTRAN Holdings, Inc. (applying the exchange ratio in the Business Combination Agreement), thereafter representing options to acquire stock of ADTRAN, Inc. The fair value of the ADVA stock options assumed by ADTRAN, Inc. was $12.8 million, estimated using the Monte Carlo method. ADTRAN, Inc. and ADVA became subsidiaries of ADTRAN Holdings, Inc. as a result of the Business Combination. ADTRAN was determined to be the accounting acquirer of ADVA based on ADTRAN shareholders’ majority equity stake in the combined company, the composition of the board of directors and senior management of the combined company, among other factors. The Business Combination of ADVA has been accounted for using the acquisition method of accounting as per the provisions of Accounting Standards Codification 805, “Business Combinations” (“ASC 805”). The Business Combination Agreement used a fixed exchange ratio of Company Common Stock for ADVA shares of common stock, which resulted in a 36% equity stake for ADVA stockholders and 64% equity stake for ADTRAN stockholders in the post-closing combined company (calculated on a fully diluted basis and utilizing the tender of 65.43% of ADVA’s current issued and outstanding share capital). Therefore, ADTRAN shareholders continue to hold a majority interest in the combined company after the Business Combination was completed. Additionally, the Board of Directors is comprised of six members from ADTRAN and three members from ADVA; the current ADTRAN chief executive officer acts as the chairman of the Board of Directors and the former ADVA chief executive officer as the vice chairman of the Board of Directors. Additionally, the current ADTRAN chief executive officer and ADTRAN chief financial officer hold these positions within the combined company. After these and other considerations as outlined in ASC 805, ADTRAN represents the accounting acquirer. The following table summarizes the purchase price for the ADVA business combination:
(In thousands, except shares, share price and exchange ratio) |  | Purchase Price |
ADVA shares exchanged |  |  | 33,957,538 |
Exchange ratio |  |  | 0.8244 |
ADTRAN Holdings, Inc. shares issued |  |  | 27,994,595 |
ADTRAN Holdings, Inc. share price on July 15, 2022 |  | $ | 20.20 |
Purchase price paid for ADVA shares |  | $ | 565,491 |
Equity compensation (1) |  | $ | 12,769 |
Total purchase price |  | $ | 578,260 |
(1) Represents the portion of replacement share-based payment awards that relates to pre-combination vesting. Assets acquired and liabilities assumed were recognized at their respective fair values as of July 15, 2022. The following table summarizes the preliminary purchase price allocation for each major class of assets acquired and liabilities assumed in the acquisition of ADVA (in thousands):
(In thousands) |  |  |
Total purchase price |  | $ | 578,260 |
Non-controlling interest |  | $ | 316,415 |
Net Assets: |  |  |
Cash and cash equivalents |  | $ | 44,003 |
Accounts receivable |  |  | 114,659 |
Other receivables |  |  | 1,457 |
Inventory |  |  | 200,532 |
Prepaid expenses and other current assets |  |  | 29,474 |
Property plant and equipment |  |  | 52,796 |
Deferred tax assets |  |  | 1,599 |
Intangibles |  |  | 405,385 |
Other non-current assets |  |  | 30,588 |
Accounts payable |  |  | (98,587 | )
Current unearned revenue |  |  | (26,047 | )
Accrued expenses and other liabilities |  |  | (59,600 | )
Current portion of notes payable |  |  | (25,254 | )
Income tax payable |  |  | (1,400 | )
Non-current unearned revenue |  |  | (11,498 | )
Pension liability |  |  | (6,820 | )
Other non-current liabilities |  |  | (6,094 | )
Non-current portion of revolving credit agreements and notes payable |  |  | (15,250 | )
Non-current lease obligations |  |  | (20,046 | )
Deferred tax liabilities |  |  | (74,379 | )
Total net assets acquired |  | $ | 535,518 |
Goodwill |  | $ | 359,157 |
The allocation of the purchase price and fair value assessment of goodwill, property, plant and equipment, intangible assets, inventory, deferred tax assets, and deferred tax liabilities is preliminary as a result of ongoing valuation procedures on the assets acquired and liabilities assumed. The acquisition accounting is subject to revision once the Company receives final information. It is possible that the final assessment of fair value may differ materially from the preliminary assessment. If the final assessment differs from this preliminary assessment, the measurement period adjustments will be recorded in the period in which they are determined as if they had been completed at the acquisition date. The preliminary fair value of the assets acquired include accounts receivable of $114.7 million and other receivables of $1.5 million. The unpaid principal balance under these receivables is $118.5 million and $1.5 million, respectively. The difference between the fair value and the unpaid principal balance primarily represents amounts expected to be uncollectible. The fair value of the intangible assets acquired as of the acquisition date:
(In thousands) | Estimated-average useful life (in years) (1) |  |  | Fair value |  |  | Income Statement Amortization Classification
Developed technology |  | 8.5 |  |  | $ | 293,530 |  |  | Cost of revenue - Network Solutions
Backlog |  | 1.4 |  |  |  | 52,165 |  |  | Cost of revenue - Network Solutions and Services & Support
Customer relationships |  | 10.5 |  |  |  | 32,704 |  |  | Selling, general and administrative expenses
Trade name |  | 2.8 |  |  |  | 26,986 |  |  | Selling, general and administrative expenses
Total |  |  |  | $ | 405,385 |  |  |
(1) Determination of the weighted average period of the individual categories of intangible assets was based on the nature of the applicable intangible asset and the expected future cash flows to be derived from the intangible asset. Amortization of intangible assets with definite lives is recognized over the period of time the assets are expected to contribute to future cash flows. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. Based on preliminary estimates, the ADVA acquisition resulted in the recognition of goodwill of $359.2 million, which the Company believes is attributable to the value driven by the Company’s expected growth of the business, synergies, and expanded market and product opportunities. Goodwill created as a result of the ADVA acquisition is not deductible for tax purposes. After the Business Combination, the chief operating decision maker assessed and will continue to assess the Company’s performance and allocate resources to its two segments (1) Network Solutions and (2) Services & Support. Based on preliminary estimates, the goodwill resulting from the Business Combination of $270.6 million was allocated to the Network Solutions segment, and $88.6 million was allocated to the Services & Support segment. See Note 18 of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Amendment No. 1 for more information about the Company’s segments. As of the acquisition date, the fair value of the non-controlling interest was approximately $316.4 million and determined using a market approach. As a portion of ADVA shares will remain trading after the Business Combination, the non-controlling interest was calculated using 17,941,496 ADVA shares held by non-controlling interest multiplied by the ADVA closing share price of €17.58 ($17.64 using the July 15, 2022 EUR to USD conversion rate of $1.00318) on July 15, 2022. The Company included the financial results of ADVA in its consolidated financial statements since July 15, 2022, the acquisition date. The net revenue and net loss from the ADVA business since July 15, 2022, were $163.8 million and $8.4 million, respectively, which are included in the Company’s Condensed Consolidated Statement of Loss. The net loss attributable to non-controlling interest from the ADVA business for the three and nine months ended September 30, 2022 was $2.9 million. As of September 30, 2022, the Company has incurred $25.2 million of transaction costs related to the Business Combination, of which $10.6 million and $5.1 million were incurred during the three months ended September 30, 2022 and 2021, respectively and $13.3 million and $6.4 million were incurred during the nine months ended September, 30 2022 and 2021, respectively. The Company expects to incur an estimated $1.1 million of additional transaction costs related to the Business Combination. These transaction costs are recorded in selling, general and administrative expense in the Condensed Consolidated Statements of Loss. Supplemental Pro Forma Information (Unaudited) The unaudited pro forma financial information in the table below summarizes the combined results of operations for ADTRAN and ADVA as though the Business Combination had occurred on January 1, 2021. The pro forma amounts have been adjusted for differences in basis of accounting which are determined before taking into effect the impacts of purchase accounting and Business Combination accounting impacts. The following unaudited pro forma information is presented for illustrative purposes only. It is not necessarily indicative of the results of operations of future periods, the results of operations that actually would have been realized had the entities been a single company as of January 1, 2021, or the future operating results of the combined entities. The unaudited pro forma information does not give effect to the potential impact of current financial conditions, regulatory matters or any anticipated synergies, operating efficiencies or cost savings that may be associated with the acquisition. The unaudited pro forma information also does not include any integration costs or remaining future transaction costs that the Company may incur related to the acquisition as part of combining the operations of the companies.
| Three Months Ended |  |  | Nine Months Ended |
| September 30, |  |  | September 30, |
(In thousands) | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Revenue | $ | 368,192 |  |  | $ | 317,067 |  |  | $ | 1,053,510 |  |  | $ | 942,003 |
Net income (loss) | $ | (48,084 | ) |  | $ | (44,154 | ) |  | $ | (60,494 | ) |  | $ | (133,321 | )

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent + Details
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