Business Combinations

3 Months Ended

Sep. 30, 2023

Business Combination and Asset Acquisition [Abstract]

Note 4. Business Combinations

NeoPhotonics Merger

On November 3, 2021, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with NeoPhotonics and Neptune Merger Sub, Inc. On August 3, 2022 (the “Closing date”), we completed the acquisition of NeoPhotonics through the consummation of the merger and, accordingly, we acquired all of the issued and outstanding common stock of NeoPhotonics. The addition of NeoPhotonics expands our opportunity in some of the fastest growing markets for optical components used in cloud and telecom network infrastructure.

We have applied the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations, with respect to the fair value of purchase price consideration and the identifiable assets and liabilities of NeoPhotonics, which have been measured at estimated fair value as of the Closing date. The following table summarizes our final allocation of the purchase price consideration to the assets acquired and liabilities assumed as of the Closing date (in millions):



	Fair Value
Total purchase price consideration	$	934.4

Assets acquired
Cash and cash equivalents	$	92.9
Accounts receivable, net	66.8
Inventories	84.3
Prepayments and other current assets	24.2
Property, plant and equipment, net	106.1
Operating lease right-of-use assets, net	16.9
Other intangible assets, net (1)	412.5
Deferred tax asset	5.4
Other non-current assets	1.9
Total assets	811.0

Liabilities assumed
Accounts payable	79.6
Accrued payroll and related expenses	11.1
Accrued expenses	3.8
Other current liabilities	10.6
Operating lease liabilities, current	2.8
Operating lease liabilities, non-current	13.2
Deferred tax liability	38.3
Other non-current liabilities	32.5
Total liabilities	191.9

Goodwill	$	315.3

(1) Other intangible assets include customer relationship of $144.5 million, developed technology of $220.0 million, and in-process research and development (“IPR&D”) of $48.0 million. Refer to “Note 8. Goodwill and Other Intangible Assets”.

Goodwill of $315.3 million arising from the acquisition is attributed to the expected synergies, including future cost efficiencies and other benefits that are expected to be generated by combining Lumentum and NeoPhotonics. None of the goodwill is expected to be deductible for local tax purposes. At the date of acquisition, the entire goodwill related to the acquisition was assigned to the OpComms segment. As a result of the change of our reportable segments in the fiscal first quarter of 2024, it has been reassigned to the Cloud & Networking segment. Refer to “Note 15. Operating Segments and Geographic Information”.

NeoPhotonics contributed $72.8 million of our consolidated net revenue for the three months ended October 1, 2022. Due to our corporate structure and the allocation of selling, general and administrative costs, it was impracticable to determine NeoPhotonics’ contribution to our earnings for the three months ended October 1, 2022. As of September 30, 2023, the operation of NeoPhotonics has been fully integrated to the combined business.

The total transaction consideration of $934.4 million was funded by the cash balances of the combined company. We also recorded $28.7 million of merger-related costs, representing professional and other direct acquisition costs. Of the $28.7 million of merger-related costs, $8.3 million was incurred in fiscal year 2022 and $20.4 million was incurred in fiscal year 2023, which was recorded as selling, general and administrative expense in the condensed consolidated statements of operations.

Supplemental Pro Forma Information

Pro forma net revenue and net income was $530.7 million and $32.4 million, respectively, for the three months ended October 1, 2022, as if the merger was completed at the beginning of fiscal 2022. The pro forma financial information includes adjustments for: (i) additional amortization expense that would have been recognized related to the acquired intangible assets, (ii) additional depreciation expense that would have been recognized related to the acquired property, plant, and equipment, (iii) additional cost of sales related to the inventory valuation adjustment, (iv) acquisition related costs, such as third party transaction costs and restructuring costs, (v) stock-based compensation expense and (vi) the estimated income tax effect on the pro forma adjustments. The pro forma financial information is not necessarily indicative of the financial position or results of operations that would have been realized if the acquisition had been completed on the date indicated, nor does it reflect synergies that might have been achieved, nor is it indicative of future operating results or financial position.

Acquisition of IPG Photonics’ Telecom Transmission Product Lines

On August 15, 2022 (“IPG Closing date”), we completed a transaction to acquire IPG Photonics’ telecom transmission product lines (“IPG telecom transmission product lines”) that are used to develop and market products for use in telecommunications and datacenter infrastructure, including Digital Signal Processors (DSPs), ASICs and optical transceivers. This acquisition enables us to expand our business in the Cloud & Networking segment (previously to the OpComms segment prior to the change of our reportable segments in the fiscal first quarter of 2024). Refer to “Note 15. Operating Segments and Geographic Information”.

We have applied the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations to account for this transaction. The total purchase price of $55.9 million was paid in cash. We have completed the purchase price allocation. Our final allocation of the purchase price consideration includes $29.1 million of in process research and development (“IPR&D”), $8.6 million of developed technology, $2.3 million of customer relationships, and $5.0 million of other net assets and liabilities, resulting in goodwill of $10.9 million, which was assigned to the Cloud & Networking segment.

We recorded $2.0 million of merger-related costs, representing professional and other direct acquisition costs. Of the $2.0 million of merger-related costs, $0.4 million was incurred in fiscal year 2022 and $1.6 million was incurred in fiscal year 2023, which was recorded as selling, general and administrative expense in the consolidated statements of operations.

The pro forma financial information from the acquisition of the IPG telecom transmission product lines, assuming the acquisition had occurred as of the first day of fiscal 2022, as well as revenue and earnings generated during fiscal 2023, were not material for disclosure purposes.