• | Infinera’s unaudited historical condensed consolidated financial statements included in Infinera’s Quarterly Report on Form 10-Q as of and for the three and six months ended June 30, 2018 filed with the SEC on August 8, 2018 (the “Quarterly Report”); |
• | the unaudited historical condensed consolidated financial statements of Coriant as of and for the six months ended June 30, 2018 filed with the SEC on September 5, 2018; |
• | Infinera’s audited historical consolidated financial statements included in Infinera’s Annual Report on Form 10-K as of and for the year ended December 30, 2017 as filed with the SEC on February 28, 2018 (the “Annual Report”); and |
• | the audited historical consolidated financial statements of Coriant as of December 31, 2016 and 2017 and for the years ended December 31, 2015, 2016 and 2017 filed with the SEC on September 5, 2018. |
Historical | Pro Forma | |||||||||||||||||||||||
Infinera (as reported) | Coriant (as adjusted) | Acquisition Adjustments | Notes | Financing Adjustments | Notes | Combined | ||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 63 | $ | 23 | $ | (163 | ) | (a) | $ | 338 | (r) | $ | 261 | |||||||||||
Short-term investments | 59 | — | — | — | 59 | |||||||||||||||||||
Accounts receivable, net of allowance for doubtful accounts | 148 | 159 | 2 | (b) | — | 309 | ||||||||||||||||||
Inventory | 219 | 123 | 12 | (c) | — | 354 | ||||||||||||||||||
Prepaid expenses and other current assets | 46 | 47 | (3 | ) | (d) | — | 90 | |||||||||||||||||
Total current assets | 535 | 352 | (152 | ) | 338 | 1,073 | ||||||||||||||||||
Property, plant and equipment, net | 137 | 161 | (104 | ) | (e) | — | 194 | |||||||||||||||||
Intangible assets, net | 72 | 23 | 204 | (f) | — | 299 | ||||||||||||||||||
Goodwill | 179 | — | 36 | (g) | — | 215 | ||||||||||||||||||
Long-term investments | 7 | — | — | — | 7 | |||||||||||||||||||
Other non-current assets | 11 | 42 | (13 | ) | (h) | — | 40 | |||||||||||||||||
Total assets | $ | 941 | $ | 578 | $ | (29 | ) | $ | 338 | $ | 1,828 | |||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||
Accounts payable | $ | 80 | $ | 135 | $ | 10 | (b) | $ | — | $ | 225 | |||||||||||||
Accrued expenses | 48 | 91 | (11 | ) | (i) | — | 128 | |||||||||||||||||
Accrued compensation and related benefits | 44 | 20 | — | — | 64 | |||||||||||||||||||
Short-term debt, net | — | 106 | (106 | ) | (j) | — | — | |||||||||||||||||
Accrued warranty | 14 | 5 | — | — | 19 | |||||||||||||||||||
Deferred revenue | 55 | 21 | (3 | ) | (k) | — | 73 | |||||||||||||||||
Total current liabilities | 241 | 378 | (110 | ) | — | 509 | ||||||||||||||||||
Accrued warranty, non-current | 17 | 4 | — | — | 21 | |||||||||||||||||||
Deferred revenue, non-current | 15 | 45 | (6 | ) | (k) | — | 54 | |||||||||||||||||
Deferred tax liability | 16 | 1 | 29 | (l) | — | 46 | ||||||||||||||||||
Other long-term liabilities | 15 | 51 | 30 | (m) | — | 96 | ||||||||||||||||||
Long-term debt | — | — | — | 261 | (s) | 261 | ||||||||||||||||||
Long-term shareholder loans | — | 430 | (430 | ) | (n) | — | — | |||||||||||||||||
Long-term financing lease obligation | — | 186 | (176 | ) | (o) | — | 10 | |||||||||||||||||
Commitments and contingencies | ||||||||||||||||||||||||
Stockholders’ equity: | ||||||||||||||||||||||||
Preferred stock, $0.001 par value Authorized shares – 25,000 and no shares issued and outstanding | ||||||||||||||||||||||||
Common stock, $0.001 par value | ||||||||||||||||||||||||
Authorized shares – 500,000 as of June 30, 2018 | ||||||||||||||||||||||||
Issued and outstanding shares – 152,940 as of June 30, 2018 | — | — | — | — | — | |||||||||||||||||||
Additional paid-in capital | 1,450 | 358 | (228 | ) | (p) | 80 | (t) | 1,660 | ||||||||||||||||
Accumulated other comprehensive loss | (22 | ) | (61 | ) | 61 | (q) | — | (22 | ) | |||||||||||||||
Accumulated deficit | (791 | ) | (814 | ) | 801 | (q) | (3 | ) | (r) | (807 | ) | |||||||||||||
Total stockholders’ equity | 637 | (517 | ) | 634 | 77 | 831 | ||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 941 | $ | 578 | $ | (29 | ) | $ | 338 | $ | 1,828 |
Historical | Pro Forma | |||||||||||||||||||||||||
Infinera (as reported) | Coriant (as adjusted) | Acquisition Adjustments | Notes | Financing Adjustments | Notes | Combined | Notes | |||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||
Product | $ | 347 | $ | 239 | $ | (10 | ) | (u) | $ | — | $ | 576 | ||||||||||||||
Services | 64 | 98 | 5 | (u) | — | 167 | ||||||||||||||||||||
Total revenue | 411 | 337 | (5 | ) | — | 743 | ||||||||||||||||||||
Cost of revenue: | ||||||||||||||||||||||||||
Cost of product | 218 | 216 | 1 | (v) | — | 435 | ||||||||||||||||||||
Cost of services | 26 | 53 | — | — | 79 | |||||||||||||||||||||
Total cost of revenue | 244 | 269 | 1 | — | 514 | |||||||||||||||||||||
Gross profit | 167 | 68 | (6 | ) | — | 229 | ||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||
Research and development | 115 | 56 | (2 | ) | (v) | — | 169 | |||||||||||||||||||
Sales and marketing | 60 | 38 | 9 | (v) | — | 107 | ||||||||||||||||||||
General and administrative | 36 | 29 | 5 | (v) | — | 70 | ||||||||||||||||||||
Restructuring and other related costs | 2 | 8 | — | — | 10 | |||||||||||||||||||||
Transition and management fees | — | 4 | — | — | 4 | |||||||||||||||||||||
Transaction costs | — | 7 | — | 7 | ||||||||||||||||||||||
Total operating expenses | 213 | 142 | 12 | — | 367 | |||||||||||||||||||||
Loss from operations | (46 | ) | (74 | ) | (18 | ) | — | (138 | ) | |||||||||||||||||
Other income (expense), net: | ||||||||||||||||||||||||||
Interest income | 1 | — | — | — | 1 | |||||||||||||||||||||
Interest expense | (6 | ) | (43 | ) | 41 | (w) | (14 | ) | (y) | (22 | ) | |||||||||||||||
Other gain (loss), net | 2 | (3 | ) | — | — | (1 | ) | |||||||||||||||||||
Total other income (expense), net | (3 | ) | (46 | ) | 41 | (14 | ) | (22 | ) | |||||||||||||||||
Income (loss) before income taxes | (49 | ) | (120 | ) | 23 | (14 | ) | (160 | ) | |||||||||||||||||
Provision for (benefit from) income taxes | (1 | ) | 7 | (2 | ) | (x) | — | (x) | 4 | |||||||||||||||||
Net income (loss) | (48 | ) | (127 | ) | 25 | (14 | ) | (164 | ) | |||||||||||||||||
Net loss per common share: | ||||||||||||||||||||||||||
Basic | $ | (0.32 | ) | $ | (0.95 | ) | (z) | |||||||||||||||||||
Diluted | $ | (0.32 | ) | $ | (0.95 | ) | (z) | |||||||||||||||||||
Weighted average shares used in computing net loss per common share: | ||||||||||||||||||||||||||
Basic | 151 | 172 | (z) | |||||||||||||||||||||||
Diluted | 151 | 172 | (z) |
Historical | Pro Forma | |||||||||||||||||||||||||
Infinera (as reported) | Coriant (as adjusted) | Acquisition Adjustments | Notes | Financing Adjustments | Notes | Combined | Notes | |||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||
Product | $ | 611 | $ | 526 | $ | — | $ | — | $ | 1,137 | ||||||||||||||||
Services | 130 | 226 | (5 | ) | (u) | — | 351 | |||||||||||||||||||
Total revenue | 741 | 752 | (5 | ) | — | 1,488 | ||||||||||||||||||||
Cost of revenue: | ||||||||||||||||||||||||||
Cost of product | 427 | 447 | 2 | (v) | — | 876 | ||||||||||||||||||||
Cost of services | 51 | 113 | — | — | 164 | |||||||||||||||||||||
Restructuring and other related costs | 19 | 10 | — | — | 29 | |||||||||||||||||||||
Total cost of revenue | 497 | 570 | 2 | — | 1,069 | |||||||||||||||||||||
Gross profit | 244 | 182 | (7 | ) | — | 419 | ||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||
Research and development | 224 | 119 | (4 | ) | (v) | — | 339 | |||||||||||||||||||
Sales and marketing | 116 | 78 | 19 | (v) | — | 213 | ||||||||||||||||||||
General and administrative | 71 | 65 | 9 | (v) | — | 145 | ||||||||||||||||||||
Restructuring and other related costs | 16 | 11 | — | — | 27 | |||||||||||||||||||||
Transition and management fees | — | 12 | — | — | 12 | |||||||||||||||||||||
Total operating expenses | 427 | 285 | 24 | — | 736 | |||||||||||||||||||||
Loss from operations | (183 | ) | (103 | ) | (31 | ) | — | (317 | ) | |||||||||||||||||
Other income (expense), net: | ||||||||||||||||||||||||||
Interest income | 3 | — | — | — | 3 | |||||||||||||||||||||
Interest expense | (14 | ) | (59 | ) | 59 | (w) | (27 | ) | (y) | (41 | ) | |||||||||||||||
Other gain (loss), net | (2 | ) | (5 | ) | — | — | (7 | ) | ||||||||||||||||||
Total other income (expense), net | (13 | ) | (64 | ) | 59 | (27 | ) | (45 | ) | |||||||||||||||||
Income (loss) before income taxes | (196 | ) | (167 | ) | 28 | (27 | ) | (362 | ) | |||||||||||||||||
Provision for (benefit from) income taxes | (1 | ) | 8 | (3 | ) | (x) | — | (x) | 4 | |||||||||||||||||
Net income (loss) | $ | (195 | ) | $ | (175 | ) | $ | 31 | $ | (27 | ) | $ | (366 | ) | ||||||||||||
Net loss per common share: | ||||||||||||||||||||||||||
Basic | $ | (1.32 | ) | $ | (2.17 | ) | (z) | |||||||||||||||||||
Diluted | $ | (1.32 | ) | $ | (2.17 | ) | (z) | |||||||||||||||||||
Weighted average shares used in computing net loss per common share: | ||||||||||||||||||||||||||
Basic | 148 | 169 | (z) | |||||||||||||||||||||||
Diluted | 148 | 169 | (z) |
• | an increase of $5 million in prepaid expenses and other current assets related to contract assets due to transfer of control of Coriant's performance obligations to customers prior to billings; |
• | an increase of $3 million and $6 million in current and non-current deferred revenue, respectively, as a result of allocating on a stand-alone selling price basis for products sold in combination with services and the impact of significant financing components of certain revenue arrangements; |
• | a decrease of $10 million in product revenue and an increase of $9 million in services revenue related to the allocation of stand-alone selling price for products sold in combination with services; and |
• | an increase of $2 million in interest expense related to significant financing components of certain revenue arrangements. |
Preliminary Purchase | |||
Consideration | |||
(in millions) | |||
Cash consideration | $ | 230 | |
Less: deductions from purchase price | (76 | ) | |
Adjusted cash consideration | 154 | ||
Equity consideration(1) | 130 | ||
Total preliminary purchase price | $ | 284 |
(1) | Based on the closing price of Infinera common stock of $6.18 on October 1, 2018, the $130 million equity consideration represents the fair value of 21 million shares of Infinera common stock to be issued to Coriant shareholders in accordance with the purchase agreement. |
Preliminary Purchase Consideration Allocation | |||
(in millions) | |||
Assets Acquired | |||
Cash and cash equivalents | $ | 23 | |
Accounts receivable, net of allowance for doubtful accounts | 161 | ||
Inventory | 135 | ||
Prepaid expenses and other current assets | 39 | ||
Property, plant and equipment, net | 57 | ||
Intangible assets, net | 227 | ||
Other non-current assets | 29 | ||
Total Assets Acquired | $ | 671 | |
Liabilities Assumed | |||
Accounts payable | $ | 145 | |
Deferred revenue, current | 15 | ||
Other liabilities, current | 105 | ||
Deferred revenue, non-current | 33 | ||
Other liabilities, non-current | 125 | ||
Total Liabilities Assumed | $ | 423 | |
Net Assets Acquired (a) | 248 | ||
Total Estimated Purchase Consideration (b) | 284 | ||
Estimated Goodwill (b - a) | $ | 36 |
Fair Value of Intangible Assets Acquired | Estimated Useful Lives | ||||||
(in millions) | (in years) | ||||||
Customer Relationships | $ | 155 | 8 | ||||
Developed Technology | 64 | 5 | |||||
IPR&D Technology | 5 | n/a | |||||
Trade Name | 3 | 2 | |||||
Total acquired intangible assets | $ | 227 |
(a) | To record a reduction for (i) $154 million of cash paid for the Acquisition after certain deductions specified in the purchase agreement, including $109 million repayment of Coriant historical debt and payment of closing transaction costs, and (ii) $9 million of estimated transaction costs to be incurred and paid subsequent to the balance sheet date. |
(b) | To reflect the following adjustments: |
• | to reclassify $2 million of accounts receivable from related parties to trade accounts receivable as these represent third-party receivables to Infinera that are expected to be fully collected; and |
• | to reclassify $10 million of accounts payable to related parties to trade accounts payable as these represent third-party payables that will be settled by Infinera after the Acquisition. |
(c) | To record the estimated fair value of assets and liabilities of Coriant associated with applying the acquisition method of accounting, which resulted in an increase of $12 million to inventory. |
(d) | To reflect the following adjustments: |
• | to reclassify $7 million of accounts receivable from related parties to trade accounts receivable of which $2 million of these represent third-party receivables to Infinera, which are expected to be fully collected and $5 million to goodwill; |
• | to eliminate short-term prepaid rent of $1 million in connection with the derecognition of the capital lease described in (e) below; and |
• | a $5 million increase resulting from the impact of ASC 606 adoption as set forth in Note 1. |
(e) | To eliminate a capital lease asset of $104 million derecognized in accordance with a lease amendment entered into by Coriant, which will be executed upon the Acquisition. In connection with this amendment, Infinera will record a $33 million estimated liability related to the obligation due at the contractual amount specified in the lease amendment. |
(f) | To record the estimated fair value of $227 million of acquired intangible assets as described in Note 3 above net of $23 million write-off of prior acquired intangible assets, resulting in an adjustment of $204 million to intangible assets. |
(g) | To record the preliminary estimate of goodwill as a result of the Acquisition, which represents the amount by which the estimated consideration transferred exceeds the fair value of Coriant’s assets acquired and liabilities assumed as set forth in Note 3. |
(h) | To eliminate a $7 million deferred tax asset that is not expected to be realizable following the close of the transaction and long-term prepaid rent of $6 million in connection with the capital lease that will be derecognized upon the Acquisition as described in (e) above. |
(i) | To reflect the following adjustments: |
• | the reduction related to the repayment of $1 million of accrued interest related to the historical debt of Coriant that was repaid concurrent with the closing of the Acquisition; |
• | the reduction related to the reclassification of $10 million of accounts payable to related parties to trade accounts payable as these represent third-party payables, which will be settled by Infinera after the Acquisition; |
• | the reduction related to the elimination of $3 million short-term portion of the financing lease obligation that will be derecognized; and |
• | an increase related to the $3 million short-term portion of the contractual obligation related to the amended lease. |
(j) | To reflect the repayment of $106 million of Coriant debt, net of debt issuance costs of $3 million. |
(k) | To reflect the following adjustments: |
• | the estimated fair value of asset and liabilities of Coriant associated with applying the acquisition method of accounting, which resulted in a decrease of $6 million to current deferred revenue and $12 million to non-current deferred revenue; and |
• | the increases in current and non-current deferred revenue by $3 million and $6 million, respectively, due to the impact of ASC 606 as set forth in Note 1. |
(l) | To record a net deferred tax liability of $29 million related primarily to the step-up in fair value of acquired intangible assets. |
(m) | To record the $30 million long-term portion of the contractual obligation related to the amended lease. |
(n) | To reflect the settlement of $250 million of related-party debt in connection with the Acquisition, and the forgiveness of $180 million of related-party debt that will be contractually cancelled and forgiven upon the Acquisition. |
(o) | To reflect the derecognition of a $176 million capital lease financing obligation in connection with a lease amendment entered into by Coriant prior to the Acquisition, which will become executed upon the Acquisition date. |
(p) | To record the following: |
• | the issuance of $130 million of Infinera common stock in connection with the Acquisition; and |
• | the elimination of $358 million of Coriant historical additional paid-in capital. |
(q) | To record the following: |
• | the elimination of Coriant historical accumulated deficit of $814 million and accumulated other comprehensive loss of $61 million; |
• | the incurrence of $9 million of estimated Infinera transaction costs to be incurred and paid subsequent to the balance sheet date; and |
• | the impact of $4 million resulting from ASC 606 as set forth in Note 1. |
(r) | To record the proceeds from the issuance of $403 million of the Offering due 2024 (at an interest rate of 2.125%), less the deferred issuance costs of $13 million, the capped call payment of approximately $49 million and the commitment letter payment of $3 million related to a $200 million bridge facility that was not drawn upon to fund the acquisition due to the proceeds received as a result of the Offering. Actual adjustments may differ from the amounts reflected in the unaudited pro forma condensed combined financial statements, and the differences may be material. |
(s) | To record the portion of the proceeds of the Offering allocated to long-term debt at fair value of $270 million, less the deferred issuance costs of $9 million. Actual adjustments may differ from the amounts reflected in the unaudited pro forma condensed combined financial statements, and the differences may be material. |
(t) | After adjusting for (s), to record the residual portion of the proceeds of the Offering allocated to equity of $133 million, less the deferred issuance costs of $4 million. In accordance with the cash conversion accounting guidance, the liability and equity components, (i) with the liability component determined by estimating the fair value of a similar liability that does not have an associated equity component and (ii) the equity component consisting of the original issuance discount and all of the deferred issuance costs are accreted over the note’s six-year term. Such accretion is recorded to interest expense within note (y) below. |
(u) | To record the following: |
• | a decrease in services revenue of $4 million and $5 million related to the estimated fair value of the acquired deferred revenue during the six months ended June 30, 2018 and the year ended December 30, 2017, respectively; and |
• | a decrease of $10 million in product revenue and an increase of $9 million in services revenue during the six months ended June 30, 2018 due to the impact of ASC 606 adoption as set forth in Note 1. |
(v) | To record the following adjustments: |
Six Months Ended June 30, 2018 | ||||||||||||||||
(in millions) | ||||||||||||||||
Cost of Revenue | Research and Development | Sales and Marketing | General and Administrative | |||||||||||||
Increase in amortization of intangibles | $ | 1 | $ | — | $ | 10 | $ | 1 | ||||||||
Impact of lease related adjustments | — | (2 | ) | (1 | ) | 4 | ||||||||||
Adjustments to cost of revenue and operating expenses | $ | 1 | $ | (2 | ) | $ | 9 | $ | 5 |
Fiscal Year Ended December 30, 2017 | ||||||||||||||||
(in millions) | ||||||||||||||||
Cost of Revenue | Research and Development | Sales and Marketing | General and Administrative | |||||||||||||
Increase in amortization of intangibles | $ | 3 | $ | — | $ | 20 | $ | 2 | ||||||||
Impact of lease related adjustments | (1 | ) | (4 | ) | (1 | ) | 7 | |||||||||
Adjustments to cost of revenue and operating expenses | $ | 2 | $ | (4 | ) | $ | 19 | $ | 9 |
(w) | To record the following: |
• | the net impact of $43 million and $59 million during the six months ended June 30, 2018 and the year ended December 30, 2017, respectively, for the reversal of Coriant’s historical interest expense related to debt to be repaid in connection with the Acquisition and interest expense in connection with a capital lease that will be derecognized upon the Acquisition, as described in note (e) above; and |
• | an increase of $2 million during the six months ended June 30, 2018 as a result of ASC 606 adoption as set forth in Note 1. |
(x) | To record the tax effects of the unaudited pro forma adjustments calculated at the blended statutory tax rate for foreign jurisdictions. Due to both Infinera and Coriant’s history of operating losses and full valuation allowances against any potential tax benefit, a rate of 0% was used for any adjustments expected to be incurred within the United States. |
(y) | To record interest expense related to the $403 million of the convertible senior notes due 2024 at an interest rate of 2.125%, which Infinera issued in September 2018. |
Six Months Ended June 30, 2018 | Fiscal Year Ended December 30, 2017 | ||||||
(in millions) | |||||||
Stated interest | $ | 4 | $ | 8 | |||
Amortization of original issue discount and deferred issuance costs | 10 | 19 | |||||
Adjustment to record interest expense | $ | 14 | $ | 27 |
(z) | Basic and diluted earnings per share has been calculated by dividing the net loss for the year by the weighted average shares outstanding. The adjustment for weighted average shares outstanding gives effect to the number of shares issued that will be issued as purchase consideration in connection with the Acquisition as described in Note 3. The following table shows the calculation of earnings per share: |
Six Months Ended June 30, 2018 | Fiscal Year Ended December 30, 2017 | ||||||
(in millions, except per share amounts) | |||||||
Pro Forma Weighted Average Shares (Basic and Diluted) | |||||||
Historical Infinera Weighted Average Shares Outstanding | 151 | 148 | |||||
Issued ordinary shares as consideration | 21 | 21 | |||||
Pro Forma Weighted Average Shares (Basic and Diluted) | 172 | 169 | |||||
Pro Forma Net Loss | $ | (164 | ) | $ | (366 | ) | |
Pro Forma Net Loss Per Common Share (Basic and Diluted) | $ | (0.95 | ) | $ | (2.17 | ) |