UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 8-K/A
(Amendment No. 1)
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 15, 2022	

ADTRAN Holdings, Inc.
(Exact name of Registrant as Specified in Its Charter)

					
Delaware	001-41446	87-2164282	
(State or Other Jurisdiction
of Incorporation)	(Commission File Number)	(IRS Employer
Identification No.)	
 	 	 	 	 	
901 Explorer Boulevard	 	
Huntsville, Alabama	 	35806-2807	
(Address of Principal Executive Offices)	 	(Zip Code)	

Registrant’s Telephone Number, Including Area Code: (256)963-8000	

Not Applicable	
(Former Name or Former Address, if Changed Since Last Report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:‌
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:

Title of each class	 	Trading
Symbol(s)	 	
Name of each exchange on which registered	
Common Stock, Par Value $0.01 per share	 	ADTN	 	NASDAQ Global Select Market	
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).‌
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 
Explanatory Note
On July 15, 2022, ADTRAN Holdings, Inc. (the “Company”) filed a Current Report on Form 8-K (the “Initial Filing”) with the United States Securities and Exchange Commission to report the settlement on July 15, 2022 (the “Exchange Offer Settlement Date”) of its public offer to exchange each issued and outstanding no-par value bearer share of ADVA Optical Networking SE, a company organized and existing under the laws of Germany (“ADVA”), for 0.8244 shares of common stock, par value $0.01 per share, of the Company (the “Exchange Offer”). As disclosed in the Initial Filing, the Company acquired 33,957,538 bearer shares of ADVA at the settlement of the Exchange Offer, representing approximately 65.43% of ADVA’s outstanding bearer shares as of the Exchange Offer Settlement Date. This Current Report on Form 8-K/A (this “Amendment”) (i) amends and supplements Item 9.01 of the Initial Filing to present certain financial statements of ADVA and to present certain unaudited pro forma condensed combined financial information in connection with the settlement of the Exchange Offer and (ii) provides supplemental information under Item 5.02 of the Initial Filing regarding compensation arrangements between ADVA and one of the newly appointed directors of the Company.

The unaudited pro forma financial information included in this Amendment has been presented for informational purposes only, as required by Form 8-K. It does not purport to represent the actual results of operations that the Company would have achieved had the Exchange Offer settled as of the dates presented in the pro forma financial information and is not intended to project the future results of operations that the Company may achieve in the future. Except as described above, all other information in the Initial Filing remains unchanged.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

As previously disclosed in the Initial Filing, effective as of the closing of the Exchange Offer on July 15, 2022, Mr. Protiva was appointed to the Board of Directors of the Company (the “Board”) and as Vice Chairman of the Board. In connection with such appointments, subsequent to the closing of the Exchange Offer, Mr. Protiva and ADVA entered into a settlement agreement on August 4, 2022 (the “Settlement Agreement”), under which Mr. Protiva and ADVA agreed that (i) Mr. Protiva would resign as Chief Executive Officer ("CEO") of ADVA and as a member of the management board of ADVA effective August 31, 2022, (ii) Mr. Protiva’s existing service contract with ADVA would continue in effect until its expiration on December 31, 2022 and (iii) Mr. Protiva would continue to receive his remuneration as CEO of ADVA until December 31, 2022, but that Mr. Protiva would not be entitled to any severance payments as compensation for the expiration of his service contract. Pursuant to his existing service contract, as described in ADVA’s 2021 Annual Report, for ADVA’s fiscal year ended December 31, 2021, Mr. Protiva received fixed remuneration of €253,000, fringe benefits of €11,000, variable short-term compensation of €448,000, and variable long-term compensation of €197,000. Following the expiration of Mr. Protiva’s service contract on December 31, 2022, it is expected that Mr. Protiva will receive compensation for Board service in accordance with the Company’s standard compensation arrangements for non-employee directors of the Company (including Nikos Theodosopoulos and Johanna Hey), which are described in ADTRAN, Inc.’s definitive proxy statement on Schedule 14A filed with the Securities and Exchange Commission on March 29, 2022, as adjusted by the Board from time to time. The foregoing summary of the Settlement Agreement does not purport to be complete and is qualified in its entirety by reference to the Settlement Agreement, a copy of which is attached to this Current Report on Form 8-K as Exhibit 10.1 and is incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired
 
The audited consolidated financial statements of ADVA required by Item 9.01(a) of Form 8-K are attached as Exhibit 99.1 to this Amendment and are incorporated by reference herein. The unaudited consolidated financial statements of ADVA required by Item 9.01(a) of Form 8-K are attached as Exhibit 99.2 to this Amendment and are incorporated by reference herein.‌
 
(b) Pro Forma Financial Information
 
The unaudited pro forma condensed combined financial information required by Item 9.01(b) of Form 8-K is attached as Exhibit 99.3 to this Amendment and is incorporated by reference herein.‌
 
1

(d) Exhibits

Exhibit
Number
 	Description
 	
10.1	Settlement Agreement by and between ADVA Optical Networking SE and Mr. Brian L. Protiva	
23.1	Consent of PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft.	
99.1	Historical audited consolidated financial statements of ADVA Optical Networking SE	
99.2	Historical unaudited interim financial statements of ADVA Optical Networking SE 	
99.3	Unaudited pro forma condensed combined financial information	
104	Cover Page Interactive Data File – the cover page iXBRL tags are embedded within the Inline XBRL document.	

2

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 	 	 	ADTRAN Holdings, Inc.	
 	 	 	 	
Date:	September 30, 2022	By:‌	/s/ Michael Foliano	
 	 	 	Michael Foliano
Chief Financial Officer	
 
3

 
Exhibit 10.1
 
SETTLEMENT AGREEMENT
 
between
 
ADVA Optical Networking SE
 
Campus Martinsried Fraunhoferstrasse 9a 82152 Martinsried/Munich Deutschland/Germany

(hereinafter the "Company")
 
represented by its Supervisory Board,
which again is represented by its chairman, Mr. Nikos Theodosopoulos

 
and
 
Mr. Brian L. Protiva
 
Assenbucher Strasse 28
82335 Berg
 
(hereinafter, “Mr. Protiva")
(the Company and Mr. Protiva together hereinafter also the "Parties")
 
Preamble
 
Mr. Protiva has been a member of the management board and CEO of the Company since March 1999. Mr. Protiva rendered his services based on the board member service contract dated 6th March 1999 (hereinafter the "Service Contract") which has been extended in accordance with the renewals of Mr. Protiva's term of office as board member ever since. Both, the current term of office and the Service Contract, will expire as of 31 December 2022.
 
The Company has entered into a business combination agreement with Adtran Inc. according to which the Company and Adtran will combine under a new holding company, namely Adtran Holdings, Inc. It is envisaged that Mr. Protiva assumes the role as Vice Chairman of the Board of Adtran Holdings, Inc. which, upon closing of the transaction, will become the majority stockholder of the Company. In this context, the Supervisory Board of the Company and Mr. Protiva agreed that Mr. Protiva should step down from his office as member of the Company's management board.
 
This said, the Parties have agreed on the following:
 
1.RESIGNATION FROM OFFICE AS CEO AND BORD MEMBER
 
a.Mr. Protiva shall resign from his office as CEO and member the Company's management board with effect from August 31st, 2022 ("Resignation Date"). Mr. Protiva undertakes to perform all acts required for the execution of the resignation and to submit declarations to the bodies responsible for this purpose, in particular the resignation declaration as attached to this settlement agreement (Annex 1). The Supervisory Board will accept the declaration of resignation from Mr. Protiva.
 
b.Mr. Protiva will continue to properly perform his services as CEO and member of the Company's management board up to the Resignation Date and will ensure that his official duties are properly handed over to a successor. In addition, Mr. Protiva will continue to
/s/ BP

 
4

be available to the Company's management board to answer questions on business matters of the Company during the release period pursuant to section 2.2 below until the Termination Date and for a period of 14 days following release of the Company's 2022 Annual Report.
 
2.SETTLEMENT
 
a.The Parties are in agreement that the Service Contract ends automatically as of 31 December 2022 ('Termination Date"), without any notice of termination being required. For the sake of clarification: Mr. Protiva shall continue to receive his remuneration as CEO until the Termination Date, including his monthly fix remuneration as well as the STI and the LTl subject to their terms, but shall not be entitled to any severance payment as compensation for the expiry of his Service Contract.b.The Company shall irrevocably release Mr. Protiva from his service obligation under the Service Contract with effect from the Resignation Date, with continued payment of the contractually agreed remuneration until the Termination Date.c.The contractual obligation of confidentiality, the contractual prohibition of side activities and the contractual obligation of non-compete continue to apply until the Termination Date. Mr. Protiva is explicitly allowed to render services as Vice Chairman of the Board of Adtran Holdings Section 615 sentence 2 of the German Commercial Code [BOrgerliches Gesetzbuch -8GB]. He shall not accept any compensation for this service as Vice Chairman of the Board of Adtran Holdings until the end of 2022.d.The Parties agree that all vacation entitlements of Mr. Protiva have been granted and taken.e.It is the common understanding of the Parties that Mr. Protiva's stock options will be exchanged in Adtran stock options. The exchange will be implemented separately.f.The Company shall maintain the D&O insurance cover for Mr. Protiva or any equivalent insurance cover for a period of at least 144 months following the Termination Date. This in particular applies to a corresponding notification period for any damages as far as Mr. Protiva as the insured person is concerned.
 
3.RETURN OF ITEMS/ COMPANY CAR/ EMAIL-ACCOUNT
 
a.Mr. Protiva shall, unless he has already done so, return to the Company, in full and undamaged, all items that belong to the Company or were provided to Mr. Protiva by the Company or by a third party on behalf of the Company at the latest on the Termination Date. However, Mr. Protiva may keep his Company laptop and mobile phone until the longer of either (i) the expiration of the transition period pursuant to section 1.2 above or (ii) eight (8) weeks after the last requests for information by the Company.
 
b.Furthermore, even though it is understood that Mr. Protiva worked in the digital domain, Mr. Protiva shall, unless he has already done so, return to the Company in full all documents (in particular memoranda, customer lists, drawings, sketches or any documents that address confidential information) that belong to the Company or were provided to Mr. Protiva by the Company or by a third party on behalf of the Company or that relate to the Company and/or have been created in connection with Mr. Protiva's work without undue delay, at the latest on the Termination Date. Mr. Protiva undertakes not to retain any copies or other reproductions of the documents. This provision applies analogously to electronically stored data; such data must be sent to the Company and subsequently deleted, unless they are stored on an item that must be returned pursuant
 
/s/ BP

5

 
to section 3.1. Mr. Protiva shall disclose to the Company any passwords, PIN codes and access blocks regarding IT systems that may only be known to Mr. Protiva and shall no longer use them himself.
c.Mr. Protiva may continue to use the company car provided, Audi e-tron until the Termination Date to the existing extent and subject to the existing conditions. The company car, including accessories, shall be returned to the Company in due and proper condition by the Termination Date at the latest.d.Mr. Protiva will make an effort to delete all private email correspondence in his email account and consents to an access to such account by the Company for good reason pertaining to normal business activities and by the Company's General Counsel.e.The Company shall allow Mr. Protiva to review documents and electronically stored data of the Company even after the Termination Date, insofar as this is necessary for the purposes of legal defense. A necessary "legal defense" in this sense shall be at hand if and to the extent that claims are asserted against Mr. Protiva under civil or criminal law with regard to his activities as a member of the of the Company's management board, or if Mr. Protiva can show that such a claim is likely to be asserted. Disclosure of confidential documents and data to third parties is only permitted to the extent necessary for the purpose of legal defense. Upon request by the Company, Mr. Protiva shall provide information on to whom and to what extent such disclosure has been made.
 
4.CONFIDENTIALITY
 
a.Even after the service relationship is terminated, Mr. Protiva remains obliged to maintain strict secrecy in respect of all confidential matters, of the Company and its affiliated companies which became known to him in connection with his activity and not to disclose or pass them on to third parties. Confidential shall mean all matters which the Company has designated as such in writing or orally or which are obviously recognizable as such even without such designation. There shall be no duty of confidentialityi.for confidential matters that were publicly available at the time of disclosure;
 
ii.insofar as the Mr. Protiva is obliged to disclose the confidential matter on the basis of a law or the decision of a court or administrative authority;iii.in the cases of sec. 5 of the German Business Secrets Act [Gesetz zum Schutz von Geschaftsgeheimnissen- GeschGehG].
 
b.Disclosure of confidential matters with regard to which there is a duty of confidentiality under section 4.1, without the consent of the Company, may result in damages claims by the Company as well as in sanctions under service and criminal law.5.FINAL PROVISIONS
 
a.No oral side agreements exist. Amendments or additions to this Settlement Agreement, including to this provision, require written form to be valid unless it can be proven that they have been individually agreed between the Parties.b.This Settlement Agreement is subject to German law.
 
c.Should any provision of this Settlement Agreement be or become invalid in whole or in part, the validity of the remaining provisions of this Settlement Agreement will not be affected thereby. If a provision is found to be invalid, the Parties undertake to negotiate a
 
/s/ BP
6

 
 
valid and reasonable replacement provision that comes closest to the economic purpose pursued by the invalid provision. The same applies in case of a contractual gap.

 
Manhasset, NY August 4, 2022
Place, Date
 
ADVA Optical Networking SE.
 
/s/ Nikos Theodosopoulos
For the Supervisory Board
 
Munich August 1, 2022
Place, Date
 
/s/ Brian Protiva
Brian Protiva

ANNEX

 

 

 

 

 

7

Annex 1 - Declaration of Resignation
 
Brian Protiva Geschäftsansäßig in Frauenhoferstr. 9a
82152 Martinsried München
An den Aufsichtsrat der
 
To the supervisory board of
ADVA Optical Networking SE

 
			
eingetragenim Handelsregister des Amtsgerichts Jena unter HRB 508155.	 	registered in the commercial register of the Local Court of Jena under HRB 508155.	

			
Niederlegung meines Amts als Vorsitzender und Mitglied des Vorstands der	 	Resignation from my office as chief executive officer and as a member of the management board of	

ADVA Optical Networking SE

Munich, den/this August 1, 2022

			
Sehr geehrte Darnen und Herren,
 
hiermit lege ich mein Amt als Vorsitzender und als Mitglied des Vorstands der ADVA Optical Networking SE mit Wirkung zum 31. August 2022, 24:00 Uhr, nieder.	 	Dear ladies and gentlemen,
 
I hereby resign from my office as chief executive officer and as a member of the management board of ADVA Optical Networking SE with effect as of August 31, 2022, 24:00 hours.	

lch bitte darum, den Erhalt dieser Amtsniederlegungserklarung durch Gegenzeichnung zu bestätigen.
 
Mit freundlichen Grüßen,	 	I kindly ask you to confirm the receipt of this declaration of resignation by countersigning it.
 
Yours sincerely,	

 
 
/s/ Brian Protiva
Brian Protiva
 
8

 
			
Hiermit werden der Erhalt und die Kenntnisnahme der umseitigen Erklärung des Herrn Brian Protiva bestatigt, mit der er die Niederlegung seines Amtes als Vorsitzender und als Mitglied des Vorstands der ADVA Optical Networking SE erklärt hat.
 
Für den Aufsichtsrat der	 	The receipt and notice of the overleaf declaration of Mr. Brian Protiva, by which he declared to resign from his office as chief executive officer and as member of the management board of ADVA Optical Networking SE, are herewith confirmed.
 
For the supervisory board of	
ADVA Optical Networking SE:
August 4, den 2022
/s/ Nikos Theodosopoulos

 

 

 

9

 
Exhibit 23.1
 
CONSENT OF INDEPENDENT AUDITORS
 
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-266089 and 333-266091) of ADTRAN Holdings, Inc. of our report dated March 10, 2022 relating to the financial statements of ADVA Optical Networking SE, which appears in this Current Report on Form 8-K/A.
 
Munich, Germany
September 30, 2022
 
PricewaterhouseCoopers GmbH
Wirtschaftsprüfungsgesellschaft

/s/Jürgen Schumann /s/ppa. Ralph Jakobi
Jürgen Schumann ppa. Ralph Jakobi
Wirtschaftsprüfer Wirtschaftsprüfer
(German Public Auditor) (German Public Auditor)
 
10

 
Exhibit 99.1
 
ADVA OPTICAL NETWORKING SE
INDEX TO CONSOLIDATED ADVA FINANCIAL STATEMENTS

 	 	

 	 	Page	
Audited Consolidated Financial Statements	 	 	
Consolidated Statements of Financial Position as of December 31, 2021 and 2020	 	14	
Consolidated Income Statements for the twelve months ended December 31, 2021, 2020 and 2019	 	15	
Consolidated Statements of Comprehensive Income for the twelve months ended December 31, 2021, 2020 and 2019	 	16	
Consolidated Cash Flow Statements for the twelve months ended December 31, 2021, 2020 and 2019	 	17	
Consolidated Statements of Changes in Stockholders’ Equity for the twelve months ended December 31, 2021, 2020 and 2019	 	18	
Notes to the Consolidated Financial Statements	 	19	

11
- Classified as Confidential -

Report of Independent Auditors
 
To the board of directors of ADVA Optical Networking SE, Meiningen
 
Opinion
 
We have audited the accompanying consolidated financial statements of ADVA Optical Networking SE and its subsidiaries (the “Company”), which comprise the consolidated statements of financial position as of December 31, 2021 and 2020, and the related consolidated income statements, statements of comprehensive income, statements of changes in stockholders’ equity and cash flow statements for the years ended December 31, 2021, 2020 and 2019, including the related notes (collectively referred to as the “consolidated financial statements”).
 
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years ended December 31, 2021, 2020 and 2019 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
 
Basis for Opinion
 
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (US GAAS). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
 
Responsibilities of Management for the Consolidated Financial Statements
 
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
 
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern for at least, but not limited to, twelve months from the end of the reporting period, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
 
12
- Classified as Confidential -

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements
 
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with US GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
 
In performing an audit in accordance with US GAAS, we:
 
•Exercise professional judgment and maintain professional skepticism throughout the audit.•Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.•Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, no such opinion is expressed.•Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements.•Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.
 
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

Munich, Germany
March 10, 2022
 
PricewaterhouseCoopers GmbH
Wirtschaftsprüfungsgesellschaft

/s/Jürgen Schumann /s/ppa. Sonja Knösch
Jürgen Schumann ppa. Sonja Knösch
Wirtschaftsprüferin (German Public Auditor) Wirtschaftsprüferin (German Public Auditor)
13
- Classified as Confidential -

ADVA OPTICAL NETWORKING SE
Consolidated statements of financial position

 	 	 	 	 	December 31,	 	 	December 31,	 	
(in thousands of EUR)	 	Note	 	 	2021	 	 	2020	 	
ASSETS	 	 	 	 	 	 	 	 	 	
Current Assets	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	 	(9	)	 	 	108,987	 	 	 	64,881	 	
Trade accounts receivable	 	 	(10	)	 	 	82,972	 	 	 	83,880	 	
Contract assets	 	 	(12	)	 	 	180	 	 	 	442	 	
Inventories	 	 	(11	)	 	 	129,205	 	 	 	90,124	 	
Tax assets	 	 	(27	)	 	 	331	 	 	 	390	 	
Other current assets	 	 	(13	)	 	 	13,978	 	 	 	7,858	 	
Total Current Assets	 	 	 	 	 	335,653	 	 	 	247,575	 	
Non-current Assets	 	 	 	 	 	 	 	 	 	
Right-of-use assets	 	 	(14	)	 	 	22,491	 	 	 	25,386	 	
Property, plant and equipment	 	 	(14	)	 	 	33,326	 	 	 	31,235	 	
Goodwill	 	 	(14	)	 	 	71,595	 	 	 	67,036	 	
Capitalized development projects	 	 	(14	)	 	 	97,786	 	 	 	98,607	 	
Intangible assets acquired in business combinations	 	 	(14	)	 	 	11,982	 	 	 	15,004	 	
Other purchased and internally generated intangible assets	 	 	(14	)	 	 	8,540	 	 	 	5,302	 	
Deferred tax asset	 	 	(27	)	 	 	15,339	 	 	 	7,233	 	
Other non-current assets	 	 	(13	)	 	 	4,812	 	 	 	2,594	 	
Total Non-current Assets	 	 	 	 	 	265,871	 	 	 	252,397	 	
Total Assets	 	 	 	 	 	601,524	 	 	 	499,972	 	
EQUITY AND LIABILITIES	 	 	 	 	 	 	 	 	 	
Current Liabilities	 	 	 	 	 	 	 	 	 	
Current lease liabilities	 	 	(15	)	 	 	6,001	 	 	 	5,807	 	
Current liabilities to banks	 	 	(16	)	 	 	25,289	 	 	 	15,492	 	
Trade accounts payable	 	 	(17	)	 	 	83,223	 	 	 	44,151	 	
Current provisions	 	 	(19	)	 	 	15,444	 	 	 	14,407	 	
Tax liabilities	 	 	(27	)	 	 	5,769	 	 	 	1,808	 	
Current contract liabilities and advance payments	 	 	(20	)	 	 	18,810	 	 	 	16,377	 	
Refund liabilities	 	 	(20	)	 	 	931	 	 	 	633	 	
Other current liabilities	 	 	(17	)	 	 	40,065	 	 	 	31,963	 	
Total Current Liabilities	 	 	 	 	 	195,532	 	 	 	130,638	 	
Non-current Liabilities	 	 	 	 	 	 	 	 	 	
Non-current lease liabilities	 	 	(15	)	 	 	19,013	 	 	 	21,998	 	
Non-current liabilities to bank	 	 	(16	)	 	 	22,518	 	 	 	47,129	 	
Provisions for pensions and similar employee benefits	 	 	(18	)	 	 	7,401	 	 	 	8,545	 	
Other non-current provisions	 	 	(19	)	 	 	2,440	 	 	 	1,593	 	
Deferred tax liabilities	 	 	(27	)	 	 	2,151	 	 	 	13,522	 	
Non-current contract liabilities	 	 	(20	)	 	 	9,325	 	 	 	10,551	 	
Other non-current liabilities	 	 	(17	)	 	 	3,232	 	 	 	2,813	 	
Total Non-current Liabilities	 	 	 	 	 	66,080	 	 	 	106,151	 	
Total Liabilities	 	 	 	 	 	261,612	 	 	 	236,789	 	
Stockholders' equity entitled to the owners of the parent company	 	 	(21	)	 	 	 	 	 	 	
Share capital	 	 	 	 	 	51,446	 	 	 	50,497	 	
Capital reserve	 	 	 	 	 	327,777	 	 	 	320,680	 	
Accumulated deficit	 	 	 	 	 	(94,334	)	 	 	(114,648	)	
Net income	 	 	 	 	 	59,218	 	 	 	20,314	 	
Accumulated other comprehensive income	 	 	 	 	 	(4,195	)	 	 	(13,660	)	
Total stockholders' equity	 	 	 	 	 	339,912	 	 	 	263,183	 	
 	 	 	 	 	 	601,524	 	 	 	499,972	 	
The notes are an integral part of these consolidated financial statements.
14
- Classified as Confidential -

ADVA OPTICAL NETWORKING SE
Consolidated income statements

(in thousands of EUR, except earnings per share and number of shares)	 	Note	 	 	2021	 	 	2020	 	 	2019	 	
Revenues	 	 	(22	)	 	 	603,317	 	 	 	564,958	 	 	 	556,821	 	
Cost of goods sold	 	 	 	 	 	(384,759	)	 	 	(368,416	)	 	 	(365,908	)	
Gross profit	 	 	 	 	 	218,558	 	 	 	196,542	 	 	 	190,913	 	
Selling and marketing expenses	 	 	 	 	 	(62,943	)	 	 	(60,803	)	 	 	(72,828	)	
Thereof net impairment results on financial assets	 	 	(10	)	 	 	205	 	 	 	(1,192	)	 	 	(1,131	)	
General and administrative expenses	 	 	 	 	 	(38,811	)	 	 	(35,897	)	 	 	(35,126	)	
Research and development expenses	 	 	 	 	 	(76,723	)	 	 	(74,997	)	 	 	(75,186	)	
Other operating income	 	 	(24	)	 	 	5,912	 	 	 	3,800	 	 	 	4,764	 	
Other operating expenses	 	 	(24	)	 	 	(698	)	 	 	(1,172	)	 	 	(534	)	
Operating income	 	 	 	 	 	45,295	 	 	 	27,473	 	 	 	12,003	 	
Interest income	 	 	(25	)	 	 	100	 	 	 	110	 	 	 	372	 	
Interest expenses	 	 	(25	)	 	 	(1,835	)	 	 	(2,717	)	 	 	(2,676	)	
Foreign currency exchange gains	 	 	(26	)	 	 	12,260	 	 	 	10,779	 	 	 	8,217	 	
Foreign currency exchange losses	 	 	(26	)	 	 	(9,584	)	 	 	(10,826	)	 	 	(7,613	)	
Other financial gains	 	 	(26	)	 	—	 	 	—	 	 	—	 	
Other financial losses	 	 	(26	)	 	—	 	 	—	 	 	 	(1,374	)	
Income before tax	 	 	 	 	 	46,236	 	 	 	24,819	 	 	 	8,929	 	
Income tax benefit (expense), net	 	 	(27	)	 	 	12,982	 	 	 	(4,505	)	 	 	(1,884	)	
Net income entitled to the owners of the parent company	 	 	 	 	 	59,218	 	 	 	20,314	 	 	 	7,045	 	
Earnings per share in EUR	 	 	(31	)	 	 	 	 	 	 	 	 	 	
basic	 	 	 	 	 	1.17	 	 	 	0.40	 	 	 	0.14	 	
diluted	 	 	 	 	 	1.15	 	 	 	0.40	 	 	 	0.14	 	
Weighted average number of shares for calculation of earnings per share	 	 	 	 	 	 	 	 	 	 	 	 	
basic	 	 	 	 	 	50,819,042	 	 	 	50,278,336	 	 	 	50,031,396	 	
diluted	 	 	 	 	 	51,692,779	 	 	 	50,556,185	 	 	 	50,520,571	 	
The notes are an integral part of these consolidated financial statements.
 
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ADVA OPTICAL NETWORKING SE
Consolidated statements of comprehensive income

(in thousands of EUR)	 	Note	 	 	2021	 	 	2020	 	 	2019	 	
Net income entitled to the owners of the parent company	 	 	 	 	 	59,218	 	 	 	20,314	 	 	 	7,045	 	
Items that may be reclassified to profit or loss in future periods	 	 	 	 	 	 	 	 	 	 	 	 	
Exchange differences on translation of foreign operations	 	 	 	 	 	7,918	 	 	 	(14,922	)	 	 	4,483	 	
Items that will not get reclassified to profit or loss in future periods	 	 	 	 	 	 	 	 	 	 	 	 	
Remeasurement of defined benefit plans	 	 	(18	)	 	 	1,547	 	 	 	(428	)	 	 	(3,124	)	
Comprehensive income entitled to the owners of the parent company	 	 	(21	)	 	 	68,683	 	 	 	4,964	 	 	 	8,404	 	
Items in the statement above are disclosed net of tax. The income tax relating to each component of other comprehensive income is disclosed in note (21).
The notes are an integral part of these consolidated financial statements.
 
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ADVA OPTICAL NETWORKING SE
Consolidated cash flow statements

(in thousands of EUR)	 	Note	 	 	2021	 	 	2020	 	 	2019	 	
Cash flow from operating activities	 	 	 	 	 	 	 	 	 	 	 	 	
Income before tax	 	 	 	 	 	46,236	 	 	 	24,819	 	 	 	8,929	 	
Adjustments to reconcile income before tax to net cash provided by operating activities	 	 	 	 	 	 	 	 	 	 	 	 	
Non-cash adjustments	 	 	 	 	 	 	 	 	 	 	 	 	
Amortization of non-current assets	 	 	(14	)	 	 	70,407	 	 	 	65,061	 	 	 	62,191	 	
Loss from disposal of property, plant and equipment and intangible assets	 	 	(14	)	 	 	304	 	 	 	351	 	 	 	1,223	 	
Stock compensation expenses	 	 	(39	)	 	 	1,627	 	 	 	1,189	 	 	 	1,490	 	
Other non-cash income and expenses	 	 	 	 	 	584	 	 	 	517	 	 	 	923	 	
Foreign currency exchange differences	 	 	 	 	 	(505	)	 	 	(4,843	)	 	 	(2,665	)	
Changes in asset and liabilities	 	 	 	 	 	 	 	 	 	 	 	 	
Decrease (increase) in trade accounts receivable	 	 	 	 	 	1,170	 	 	 	12,525	 	 	 	1,409	 	
Decrease (increase) in inventories	 	 	 	 	 	(39,081	)	 	 	15,231	 	 	 	(19,621	)	
Decrease (increase) in other assets	 	 	 	 	 	(8,343	)	 	 	3,851	 	 	 	(2,502	)	
Increase (decrease) in trade accounts payable	 	 	 	 	 	39,072	 	 	 	(29,247	)	 	 	10,203	 	
Increase (decrease) in provisions	 	 	 	 	 	1,887	 	 	 	91	 	 	 	1,423	 	
Increase (decrease) in other liabilities	 	 	 	 	 	11,806	 	 	 	9,697	 	 	 	5,485	 	
Income tax paid and refunded	 	 	 	 	 	(1,911	)	 	 	(2,099	)	 	 	(1,684	)	
Net cash provided by operating activities	 	 	 	 	 	123,253	 	 	 	97,143	 	 	 	66,804	 	
Cash flow from investing activities	 	 	 	 	 	 	 	 	 	 	 	 	
Investments in property plant and equipment	 	 	(14	)	 	 	(15,899	)	 	 	(13,648	)	 	 	(16,888	)	
Investments in intangible assets	 	 	(14	)	 	 	(48,377	)	 	 	(44,740	)	 	 	(43,584	)	
Interest received	 	 	 	 	 	5	 	 	 	34	 	 	 	169	 	
Net cash used in investing activities	 	 	 	 	 	(64,271	)	 	 	(58,354	)	 	 	(60,303	)	
Cash flow from financing activities	 	 	 	 	 	 	 	 	 	 	 	 	
Proceeds from capital increase and exercise of stock options	 	 	(21	)	 	 	6,608	 	 	 	1,273	 	 	 	1,257	 	
Repayment of lease liabilities	 	 	 	 	 	(4,627	)	 	 	(6,986	)	 	 	(4,401	)	
Proceeds from liabilities to banks	 	 	(16	)	 	—	 	 	—	 	 	 	10,000	 	
Cash repayment of liabilities to bank	 	 	(16	)	 	 	(15,000	)	 	 	(18,500	)	 	 	(18,500	)	
Interest paid	 	 	 	 	 	(1,780	)	 	 	(2,553	)	 	 	(2,801	)	
Net cash used in financing activities	 	 	 	 	 	(14,799	)	 	 	(26,766	)	 	 	(14,445	)	
Net effect of foreign currency translation on cash and cash equivalents	 	 	 	 	 	(77	)	 	 	(1,405	)	 	 	(445	)	
Net change in cash and cash equivalents	 	 	 	 	 	44,106	 	 	 	10,618	 	 	 	(8,389	)	
Cash and cash equivalents on January 1	 	 	 	 	 	64,881	 	 	 	54,263	 	 	 	62,652	 	
Cash and cash equivalents on December 31	 	 	 	 	 	108,987	 	 	 	64,881	 	 	 	54,263	 	
The notes are an integral part of these consolidated financial statements.
Details on the preparation of the consolidated cash flow statement are included in note (30).
 
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ADVA OPTICAL NETWORKING SE
Consolidated statements of changes in stockholders’ equity

 	 	Share Capital	 	 	 	 	 	 	 	 	 	 	 	 	 	
(in thousands of EUR, except number of shares)	 	Number of shares	 	 	Par value	 	 	Capital reserve	 	 	Net income (loss and accumulated deficit	 	 	Accumulated other comprehensive income (loss)	 	 	Total stockholders' equity entitled to the owners of the parent company	 	
Balance on January 1, 2019	 	 	49,930,955	 	 	 	49,931	 	 	 	316,072	 	 	 	(121,693	)	 	 	331	 	 	 	244,641	 	
Capital increase, including exercise of stock options	 	 	251,011	 	 	 	251	 	 	 	1,006	 	 	 	-	 	 	 	-	 	 	 	1,257	 	
Stock options outstanding	 	 	-	 	 	 	-	 	 	 	1,490	 	 	 	-	 	 	 	-	 	 	 	1,490	 	
Net income	 	 	-	 	 	 	-	 	 	 	-	 	 	 	7,045	 	 	 	-	 	 	 	7,045	 	
Exchange differences on translation of foreign operations	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	4,483	 	 	 	4,483	 	
Remeasurement of defined plans	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(3,124	)	 	 	(3,124	)	
Comprehensive income	 	 	-	 	 	 	-	 	 	 	-	 	 	 	7,045	 	 	 	1,359	 	 	 	8,404	 	
Balance on December 31, 2019	 	 	50,181,966	 	 	 	50,182	 	 	 	318,568	 	 	 	(114,648	)	 	 	1,690	 	 	 	255,792	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance on January 1, 2020	 	 	50,181,966	 	 	 	50,182	 	 	 	318,568	 	 	 	(114,648	)	 	 	1,690	 	 	 	255,792	 	
Capital increase, including exercise of stock options	 	 	314,726	 	 	 	315	 	 	 	958	 	 	 	-	 	 	 	-	 	 	 	1,273	 	
Stock options outstanding	 	 	-	 	 	 	-	 	 	 	1,154	 	 	 	-	 	 	 	-	 	 	 	1,154	 	
Net income	 	 	-	 	 	 	-	 	 	 	-	 	 	 	20,314	 	 	 	-	 	 	 	20,314	 	
Exchange differences on translation of foreign operations	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(14,922	)	 	 	(14,922	)	
Remeasurement of defined plans	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(428	)	 	 	(428	)	
Comprehensive income	 	 	-	 	 	 	-	 	 	 	-	 	 	 	20,314	 	 	 	(15,350	)	 	 	4,964	 	
Balance on December 31, 2020	 	 	50,496,692	 	 	 	50,497	 	 	 	320,680	 	 	 	(94,334	)	 	 	(13,660	)	 	 	263,183	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance on January 1, 2021	 	 	50,496,692	 	 	 	50,497	 	 	 	320,680	 	 	 	(94,334	)	 	 	(13,660	)	 	 	263,218	 	
Capital increase, including exercise of stock options	 	 	949,200	 	 	 	949	 	 	 	5,659	 	 	 	-	 	 	 	-	 	 	 	6,608	 	
Stock options outstanding	 	 	-	 	 	 	-	 	 	 	1,438	 	 	 	-	 	 	 	-	 	 	 	1,403	 	
Net income	 	 	-	 	 	 	-	 	 	 	-	 	 	 	59,218	 	 	 	-	 	 	 	59,218	 	
Exchange differences on translation of foreign operations	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	7,918	 	 	 	7,918	 	
Remeasurement of defined plans	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	1,547	 	 	 	1,547	 	
Comprehensive income	 	 	-	 	 	 	-	 	 	 	-	 	 	 	59,218	 	 	 	9,465	 	 	 	68,683	 	
Balance on December 31, 2021	 	 	51,445,892	 	 	 	51,446	 	 	 	327,777	 	 	 	(35,116	)	 	 	(4,195	)	 	 	339,912	 	
Details on changes in stockholders’ equity are presented in note (21).
The notes are an integral part of these consolidated financial statements.
 
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Notes to the consolidated financial statements
General information
(1) Information about the company and the group
ADVA Optical Networking SE (hereinafter also referred to as the “company” or “ADVA SE”) is a Societas Europaea domiciled in Meiningen, Germany, with its registered office at Märzenquelle 1–3, 98617 Meiningen, and is registered as HRB 508155 at the commercial register in Jena. The management board authorized the consolidated financial statements for the year ended December 31, 2021, with prior year comparable numbers as well as a three-year comparison of the consolidated income statement and the consolidated cash flow statement as well as the consolidated statement of changes in stockholders’ equity for the periods 2019, 2020 and 2021, on March 10, 2022.
The ADVA Optical Networking group (hereinafter also referred to as “ADVA Optical Networking”, “the group” or “ADVA”) develops, manufactures and sells optical and Ethernet-based networking solutions to telecommunications carriers and enterprises to deliver data, storage, voice and video services.
Telecommunications service providers, private companies, universities and government agencies worldwide use the group’s systems. ADVA sells its product portfolio both directly and through an international network of distribution partners.
Significant accounting policies
(2) Basic principles for the preparation of the consolidated annual financial statements
The group's consolidated annual financial statements have been prepared to meet reporting requirements in case of a successful business combination. They include a consolidated statement of financial position for the financial year ended December 31, 2021, with prior year comparable numbers as well as a three-year comparison of the consolidated income statement and the consolidated cash flow statement as well as the consolidated statement of changes in stockholders’ equity for the periods 2019, 2020 and 2021. The consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and related interpretations of IFRS Interpretations Committee (IFRIC). The consolidated financial statements have been prepared on a historical cost basis, except for the fair value measurement through profit or loss of certain financial instruments and share-based payments.
The financial year correlates with the calendar year. The consolidated annual financial statements are presented in euro. Unless otherwise stated, all amounts quoted are in thousands of euros. The balance sheet is separated into current and non-current assets and liabilities. The classification of income and expenses in the income statement is based on their function within the entity. When items on the balance sheet and in the income statement are summarized in the interest of clarity, this is explained in the notes to the consolidated financial statements.
The annual financial statements of the individual subsidiaries of the holding company ADVA Optical Networking SE, as subsumed in the consolidated annual financial statements, are all prepared using the same accounting and valuation policies and the same balance sheet date.
(3) Effects of new standards and interpretations
The accounting policies followed are consistent with these of the prior financial year, except for the adoption of new and amended IFRSs and interpretations (IFRICs) during the year.
Standards, amendments and interpretations applicable for the first time in 2021
In 2021, following standards and interpretations have been adopted for the first time.
 
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Standard	 	Topic	 	First-time adoption*	 	IASB effective date	 	Expected impact on the financial position and
performance	
Amendments to IFRS 9, IAS 39, IFRS 7 and IFRS 16	 	Reform of interest rate benchmarks (IBOR reform – phase 2)	 	Jan. 1, 2021	 	Jan. 1, 2021	 	no material impact	
Amendments to IFRS 16	 	Accounting for rent concessions related to the Covid-19 pandemic.	 	Apr. 1, 2021	 	Jun. 1, 2021	 	no material impact	
* To be applied in the first reporting period of a financial year beginning on or after this date.
The reform of the interest rate benchmarks has an impact on hedge accounting in particular. ADVA does not apply the hedge accounting rules according to IFRS 9 and is therefore not affected by the new regulations. In addition, the amendment affects the determination of contractual cash flows of financial assets and liabilities to the extent they are affected by the replacement of the previous reference interest rate. The relevant changes are accounted for in a simplified manner by updating the effective interest rate without any immediate impact on the income statement.
New accounting requirements not yet applicable for first-time adoption in 2021
The IASB and the IFRIC have issued further Standards and Interpretations in 2021 and previous years that were not applicable for the financial year 2021.

Standard	 	Topic	 	First-time adoption*	 	IASB effective date	 	Expected impact on the financial position and
performance	
Amendments to IAS 16	 	Property, plant and equipment - revenue before intended use	 	Jan. 1, 2022	 	Jan. 1, 2022	 	under review	
Amendments to IAS 37	 	Onerous contracts - costs of contract performance	 	Jan. 1, 2022	 	Jan. 1, 2022	 	under review	
Amendments to IFRS 3	 	Reference to the IFRS framework	 	Jan. 1, 2022	 	Jan. 1, 2022	 	under review	
Yearly improvements 2018 - 2020	 	IFRS 1, IFRS 9, IFRS 16 and IAS 41	 	Jan. 1, 2022	 	Jan. 1, 2022	 	under review	
IFRS 17	 	Insurance contracts	 	Jan. 1, 2023	 	Jan. 1, 2023	 	none	
Amendments to IAS 1	 	Classification of liabilities as current or non-current	 	Jan. 1, 2023	 	Jan. 1, 2023	 	under review	
* To be applied in the first reporting period of a financial year beginning on or after this date.
(4) Recognition and measurement
Inventories
Inventories are valued at the lower of cost or net realizable value. The cost of purchase is determined by the average method. Production costs include direct unit costs, an appropriate portion of necessary manufacturing overheads and production-related depreciation that can be directly assigned to the production process. Administrative and social insurance charges that can be assigned to production are also considered. Financing charges are not classified as part of the at-cost base. The net realizable value is the estimated selling price that could be realized on the closing date in the context of ordinary business activity, less estimated costs of completion and costs necessary to make the sale.
Inventory depreciation covers risks relating to slow-moving items or technical obsolescence based on applicable net realizable value test. Where the reasons for previous write-downs no longer apply, these write-downs are reversed.
Property, plant and equipment
Property, plant and equipment is stated at historic cost less accumulated depreciation and accumulated impairment losses, if any. The present value of the expected cost for the decommissioning of the asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met.
Subsequent costs are included in the asset’s carrying amount or recognized as separate asset only when it is probable that future economic benefits associated with this item will flow to the group and the cost can be measured reliably. All other repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred.
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Depreciation on property, plant and equipment is calculated on a straight-line basis over the estimated useful lives of the assets as follows:
•Buildings: 20 to 25 years•Technical equipment and machinery: 3 to 4 years•Factory and office equipment: 3 to 10 years
No regular depreciation applies for land.
Leasehold improvements are capitalized and depreciated over the expected useful life on a straight-line basis.
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognized.
The assets’ residual values, useful economic lives and methods of depreciation are reviewed at each financial year-end and adjusted prospectively, if appropriate.
Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value on the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized, and expenditure is reflected in profit or loss in the year in which the expenditure is incurred.
The useful economic lives of intangible assets are assessed to be either finite or indefinite.
Intangible assets with finite lives are amortized on a straight-line basis over the expected useful lives of the assets as follows:
•Capitalized development projects: 3 to 5 years•Intangible assets acquired in business combinations: 3 to 9 years•Other purchased and internally genera- ted intangible assets: 3 to 6 years
Intangible assets with finite useful economic lives are assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life is reviewed at each financial year-end. The amortization expense on intangible assets with finite lives is recognized in profit or loss in the expense category consistent with the function of the intangible asset.
Intangible assets with an indefinite useful life are not amortized. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. The useful life of an intangible asset with an indefinite life is reviewed at least annually to determine whether the indefinite life assessment continues to be applicable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis. Apart from goodwill and development projects in progress all intangible assets are amortized over their useful lives.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between their disposal proceeds and the carrying amount of the asset, and they are recognized in the income statement when the asset is derecognized.
 
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Goodwill
An indefinite useful life is assumed for goodwill acquired in the context of business combinations. Impairment reviews are performed at the cash generating unit level on the balance sheet date or when there is an indication that the goodwill may be impaired in accordance with IAS 36. Impairment losses on goodwill recognized in prior periods are not reversed. See note (14).
Intangible assets acquired in business combinations
Intangible assets acquired in business combinations have a finite useful life. They are recognized at fair value at the acquisition date and amortized on a straight-line basis over estimated useful economic lives of five to nine years. They are tested for impairment if an indication exists that the recoverable amount of the asset may have decreased.
The breakdown of intangible assets into individual items is included in note (14).
Capitalized development projects
Development expenses for new products are capitalized as development projects if
•they can be unambiguously assigned to these products,•the products under development are technically feasible and can be marketed,•there is reasonable certainty that the development activity will result in future cash inflows,•ADVA intends and is able to complete and use the development project and•there is the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.
 
Capitalized development projects include all costs that can be directly assigned to the development process. Financing charges are capitalized if the development project represents a qualifying asset in the sense of IAS 23.
After initial recognition of a development project as an asset, measurement is at historical cost, less accumulated amortization and impairment. The straight-line method of amortization is used from the start of production through the estimated selling periods for the products developed (generally between three and five years). Ongoing development projects are tested for impairment on level of the smallest cash generating unit on the balance sheet date or when there is an indication of potential impairment. Completed development projects are tested for impairment if there is an indication of potential impairment. Impairment losses are recognized if appropriate.
Research costs are expensed as incurred according to IAS 38.
Impairment of non-financial assets
Intangible assets with indefinite useful economic lives are tested for impairment annually and whenever there is an indication for potential impairment, either individually or at the cash generating unit level. Intangible assets with finite and useful economic lives are tested for impairment whenever there is an indication for potential impairment. Intangible assets are tested either individually or at the cash generating unit level.
If there is any indication that an asset may be impaired, the recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the recoverable amount of the cash-generating unit to which the asset belongs is determined.
An impairment loss is only recognized if the carrying amount of the asset or respective cash generating unit exceeds its recoverable amount. The recoverable amount is the higher of the fair value less costs of disposal and value in use of the respective asset or cash generating unit. Prior impairments of non-financial assets (other than goodwill) are reviewed for possible reversal at each reporting date.
Government grants
ADVA recognizes government grants for fixed assets as well as for grants related to research projects.
Government grants are recognized where there is reasonable assurance that the grant will be received, and all attached conditions will be met. When the grant relates to an expense item, it is recognized as income over the period necessary to match the grant on a
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systematic basis to the costs that it is intended to compensate. Where the grant relates to fixed assets, it is recognized as a reduction of purchase costs and released as a reduction of depreciation expense over the expected useful life of the related asset.
Grants related to research projects are recognized as other assets if the grant is approved and certified but the payment still outstanding. A respective liability is recorded in the amount of the grant which has been approved at initial recognition and is released through the income statement when the defined research tasks have been completed.
Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period to get ready for its intended use or sale (qualifying asset) are capitalized as part of the cost of the respective assets. If borrowing costs cannot be directly attributed to the acquisition, construction or production of an asset, an assessment is made on whether general borrowing costs should be recognized that would have been avoided if the asset was not acquired, constructed or produced. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
Leasing
The group leases various properties and cars. Rental contracts are typically made for fixed periods of 3 to 5 years but may have extension options as described below. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes.
Leases are recognized as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the assetʼs useful life and the lease term on a straight-line basis. If a purchase option is considered reasonably certain, the amortization period corresponds to the useful life.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:
•fixed payments (including in-substance fixed payments), less any lease incentives receivable•variable lease payment that are based on an index or a rate•amounts expected to be payable by the lessee under residual value guarantees•the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and•payments of penalties for early termination of the lease if the exercise of a termination option is considered reasonably certain.
 
The lease payments are discounted using the interest rate implicit in the lease, if that rate can be determined, or the group’s incremental borrowing rate.
Right-of-use assets are measured at cost comprising the following:
•the amount of the initial measurement of lease liability•any lease payments made at or before the commencement date less any lease incentives received•any initial direct costs, and•restoration costs.
 
Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT-equipment and small items of office furniture.
Extension and termination options are included in a number of property and equipment leases across the group. These terms are used to maximize operational flexibility in terms of managing contracts. The majority of extension and termination options held are exercisable only by the group and not by the respective lessor.
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To optimize lease costs during the contract period, the group sometimes provides residual value guarantees in relation to car leases. The group initially estimates and recognizes amounts expected to be payable under residual value guarantees as part of the lease liability. The amounts are reviewed, and adjusted if appropriate, at the end of each reporting period.
Post-employment benefits
ADVA maintains defined benefit plans in three countries based on the pensionable compensation of its employees and their length of service. Some of these pension plans are financed through external pension funds. Provisions for pensions are actuarially measured using the projected unit credit method for defined benefit pension plans, considering not only the pension obligations and vested pension rights known at the reporting date, but also expected future salary and benefit increases. The interest rate used to determine the present value of the obligations is generally set based on the yields on high-quality corporate bonds or government bonds in the respective currency area. The return on existing plan assets and expenses for interest added to obligations are reported in finance costs. Service cost is classified as operating expenses. Past service cost not recognized due to a change in the pension plan shall immediately be recognized in the period in which the change took effect. Gains and losses arising from adjustments and changes in actuarial assumptions are recognized immediately and in full in the period in which they occur within other comprehensive income. Further details on recognition and measurement of employee benefits are included in note (18).
In addition, ADVA grants defined contribution plans to employees of some group entities in accordance with statutory or contractual requirements. The payments are made to state or private pension insurance funds. Under defined contribution plans, the employer does not assume any other obligations beyond the payment of contributions to an external fund. The amount of the future pension payments will exclusively depend on the contribution made by the employer (and their employees, if applicable) to the external fund, including income from the investment of such contributions. The amounts payable are expensed when the obligation to pay the amounts is established and classified as operating expenses.
Share-based compensation transactions
Employees (including senior executives) of ADVA receive remuneration in the form of share-based compensation transactions, whereby employees render services as consideration for equity instruments (equity-settled transactions) or they are granted stock appreciation rights, which are settled in cash (cash-settled transactions). Share-based compensation transactions are reported and valued in accordance with IFRS 2.
Equity-settled transactions
The cost of equity-settled transactions with employees is measured by reference to the fair value on the grant date. The fair value is determined by an external expert using an appropriate pricing model. See note (39) for further details.
The cost of equity-settled transactions is recognized, together with the corresponding increase in equity, straight-line over the period in which the relevant employees become fully entitled to the award (vesting date). Vesting period ends with the first exercise possibility. From that day, the employee is entitled to benefit. No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon market condition, which are treated as vesting irrespective of whether or not market condition is satisfied if all other performance conditions are satisfied.
Where the terms of an equity-settled transaction award are modified, the minimum expense recognized is the expense as if the terms had not been modified if the original terms of the award are met. An additional expense is recognized for any modification that increases the total fair value of the share-based compensation transaction or is otherwise beneficial to the employee as measured on the date of modification.
Where an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. All cancellations of equity-settled transactions are treated equally.
The dilutive effect of outstanding options is reflected in the computation of earnings per share. See note (31).
Cash-Settled transactions
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The cost of cash-settled transactions is measured initially at fair value on the grant date. The fair value is expensed straight-line over the vesting period with recognition of a corresponding provision. The provision is re-measured on each balance sheet date up to and including the settlement date, with changes in the fair value recognized in profit or loss.
Provisions
Provisions are recognized when the group has a present obligation (legal or constructive) as a result of a past event, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision represents the best estimate of the expenditure required to settle the present obligation.
If the group expects at least a partial reimbursement for an item for which a provision has been recognized, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense related to any provision is presented in profit or loss, net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision over time is recognized in other financial gains and losses, net.
Share capital
Common stock is disclosed in stockholder’s equity.
Incremental costs directly attributable to the issuance of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.
Where any group company purchases the company’s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs, is deducted from equity until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs, is included in equity.
Financial instruments
Financial instruments are contracts that give rise to a financial asset in one entity and a financial liability or equity instrument in another entity. ADVA recognizes financial assets and financial liabilities in the balance sheet when a company in the group becomes a contractual party to the financial instrument.
All customary purchases and sales of financial assets are recognized on the trading date, i.e. the date on which ADVA enters into the obligation to purchase the asset.
Financial assets and financial liabilities are generally reported at gross value. Netting only applies if the offsetting of the amounts is legally enforceable and it is intended to actually offset them. In general, ADVA does not intend to offset any amounts.
Financial assets
ADVAʼs financial assets include, in addition to trade receivables, cash and cash equivalents, other receivables, other investments and derivative financial instruments.
Classification
Financial assets are initially allocated to one of the following measurement categories in accordance with IFRS 9:
1.measured at amortized cost2.measured at fair value through profit or loss3.measured at fair value through other comprehensive income (debt instruments)4.measured at fair value through other comprehensive income (equity instruments)
 
Financial assets that are debt instruments according to IAS 32 are classified based on the business model for managing the financial assets and the contractually agreed cash flows. Debt instruments are classified as amortized cost if the business model “hold to collect” applies and contractual cash flows solely consist of principal and interest on the outstanding redemption. If the business model is based on the collection of contractual cash flows as well as on the sale of the instruments and the cash flows only consist of principal and interest, the financial assets are classified at fair value through other comprehensive income (FVOCI). Financial assets held for sale
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and derivative financial instruments that are not designated as hedges, and financial assets that do not consist solely of payments of principal and interest are classified as at fair value through profit or loss (FVTPL).
Debt instruments are reclassified if the business model for managing those assets changes.
Financial assets with embedded derivatives are considered at their entirety when determining whether their cash flows are solely repayment of the principal and interest.
For investments in equity instruments that are not held for trading, an irrevocable option to account for the equity investments at fair value through comprehensive income (FVOCI) at the time of initial recognition is available. ADVA has not made use of this option.
ADVA classifies receivables that are not subject to factoring, cash and cash equivalents, and rent deposits as financial assets, which are carried at amortized cost. Trade receivables for which a factoring agreement is in place are classified as financial assets at fair value through profit or loss.
The group has not made use of the option to classify financial assets at fair value through profit or loss upon initial recognition.
Initial measurement
At initial recognition, the group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transactions costs that are directly attributable to the acquisition of the financial asset except for trade receivables that are initially measured at its transaction price in accordance to IFRS 15. Transaction costs of financial assets carried at fair value through profit or loss are expensed immediately.
Subsequent measurement
The subsequent measurement of ADVAʼs financial assets is based on their classification:
1.at amortized cost: Interest income from these financial assets is reported in the financial income using the effective interest method. Gains and losses on derecognition as well as impairment gains and losses are recorded in the income statement and reported under other operating income and expenses,2.at fair value through profit or loss: Gains or losses on debt instruments, which are subsequently measured at fair value through profit or loss, are included in the income statement as other operating income or expenses in the period in which they arise. Gains and losses on derivatives are recognized in other financial income in the income statement.
 
The group subsequently measures all equity instruments at fair value. Changes in fair value are recognized in other gains (losses) in the income statement as applicable.
Impairment
The group assesses expected future credit losses associated with its debt instruments measured at amortized cost based on future expectations. A respective risk provision or, in case of an actual loss that already occurred, an impairment loss is recognized.
Financial assets are in default or credit impaired if there is an objective evidence of impairment. This applies in case of bankruptcy, knowledge of impending insolvency proceedings or if financial assets are overdue more than one year.
Financial assets are considered to be impacted by credit worthiness and are written off if there is no reasonable expectation recovering the financial asset. This could be, inter alia, if debtor payments are delayed more than two years or if the debtor fails to commit to a repayment plan.
General approach
Generally, financial assets are considered as having a low default risk at initial recognition resulting in a 12-month expected credit loss provision. In case of a significant increase in credit risk, the lifetime expected credit losses are recognized. Amongst others debtor’s payment delays of more than 30 days or the decrease of the rating are considered an indicator for increase in default risk.
ADVA assesses expected credit losses using the general approach for cash and cash equivalents and material other financial assets, except for trade receivables. Further details are described in note (34) on financial risk management.
Simplified approach
For trade receivables and contract assets with no significant financing component the group applies the simplified approach, which requires lifetime expected credit losses to be recognized from initial recognition of the receivables.
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In order to measure expected credit losses, trade receivables are summarized on the basis of common credit risk characteristics considering the region of business and overdue days. The expected credit losses are based on customersʼ historical payment behavior for a period of three years as well as on historical defaults. These are reviewed once a year and adjusted to take current and future information on macroeconomic elements (e.g. geopolitical events, currency fluctuations, inflation, trade wars, state subsidies) into account, that have an influence on customers’ ability to meet their financial obligations.
Contract assets relate to work in progress that has not been invoiced and bears essentially the same risk characteristics as trade receivables. The group has therefore concluded that the expected loss rates for trade receivables are a reasonable approximation of the loss ratios for contract assets.
Derecognition
ADVA derecognizes financial assets (or parts of their financial assets where applicable) when the rights to receive cash flows from the financial asset have expired or have been transferred and the group substantially transferred all opportunities and risks associated with the ownership.
In the case of sales of trade receivables the requirements for a receivable transfer according to IFRS 9.3.2.4 (a) are met. Receivables are derecognized if substantially all risks and rewards are transferred. If the receivables are transferred in accordance to IFRS 9.3.2.4 (a) and the review of IFRS 9.3.2.6 shows that neither substantially all risks and rewards have been transferred nor retained, ADVA recognizes the remaining continuing involvement in accordance with IFRS 9.3.2.16. ADVA continues to manage the receivables sold (servicing). ADVA retains control of disposal over the receivables sold.
Financial liabilities
The financial liabilities of ADVA include trade payables and other liabilities, bank overdrafts, loans and derivative financial instruments. The accounting treatment of lease liabilities is dealt with separately as presented in the section “Leasing”.
Classification
Financial liabilities are initially assigned to one of the following valuation categories in accordance with IFRS 9:
1.measured at amortized cost2.measured at fair value through profit or loss.
 
The group has not used the option to designate financial liabilities as “at fair value through profit or loss” on initial recognition of financial liabilities.
Initial measurement
At initial recognition, the group measures a financial liability at its fair value less, in the case of a financial liability not at fair value through profit or loss, transactions costs that are directly attributable to the acquisition of the financial liability.
Subsequent measurement
The measurement of financial liabilities of ADVA depends on their classification as follows:
1.Financial liabilities at fair value through profit or loss: This category includes derivative financial instruments that are not designated as hedging instruments in accordance with IFRS 9 hedge accounting rules. Gains and losses are recognized in financial income in the income statement.2.Financial liabilities measured at amortized cost: This category includes trade payables and interest-bearing loans. After initial recognition, these are measured at amortized cost using the effective interest method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as in case of amortization using the effective interest method. Amortization according to the effective interest method is included in interest expenses in the profit and loss account.
Derecognition
A financial liability is derecognized when the obligation under the liability is settled, cancelled or expired. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, this exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. In case of minor changes in conditions a change in the present value will be considered in profit or loss.
Derivative financial instruments and hedging activities
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The group entered into forward rate agreements to hedge foreign currency exposure of expected future cash flows in foreign currency.
Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured to their fair value at the end of each reporting period. The accounting for subsequent changes in the fair value depend on whether the derivative is designated as a hedging instrument.
The group did not apply hedge accounting rules according to IFRS 9 during the years ended December 31, 2021, 2020 and 2019. Thus, changes in fair value of the derivatives are recognized in profit or loss immediately.
Contracts with customers
Revenue recognition
Revenue is recognized when a performance obligation is satisfied, i.e. when control of the goods or services is transferred to the customer. Control is passed either at a point in time or over time.
When hardware is sold control is transferred at a point in time depending on the delivery terms. Software licenses are either sold together with the hardware or sold separately. Control in case of software is transferred when the customer is able to use the software. In the case of software sold separately, revenue is recognized at the point of time.
In case of service level agreements or maintenance contracts as well as period-related software licenses revenue is recognized over a period of time provided that further services are to be rendered during the term of the contract. The customer receives and uses all services at the same time as they are provided by the company.
Bill-and-hold arrangements or consignment stores are recognized when the performance obligation to transfer a product are met and the customer obtains control.
Transaction price
In general, the transaction price is the price from the order further considering the specific arrangements of the underlying contract. For contracts that contain multiple performance obligations, the transaction price is allocated to the individual performance obligations based on the relative individual selling price. A consideration to be paid to a customer is recorded as a reduction in the transaction price, hence reducing revenues, unless the payment relates to a specific delivery of goods by the customer or service provided by the customer.
The transaction price from a contract may contain fixed and/or variable components.
With regard to financial components, the practical remedy of not considering the effects of a financing component is applied if the maximum duration of the period between transfer of goods or services and payment by the customer does not exceed one year.
The group does not adjust any of the transaction prices for the time value of money.
Contract assets and liabilities
A contract asset is recognized when ADVA has transferred the goods or services. The contract asset is recognized as a receivable if an unconditional payment entitlement of the company exists.
A contract liability is recognized if the company receives the consideration before it has delivered the goods or services. This applies in particular to advance payments for service level agreements and maintenance contracts.
Contract assets and liabilities related to one contract are netted and shown as either contract assets or contract liability.
In addition, certain customers have the benefit of customer loyalty programs which result in the recognition of a contract liability and reduction of revenues based on the relative individual selling price.
Volume rebates can be identified as incentive programs where the company makes a payment to the customer once a specified sales volume has been achieved with the customer. Volume rebates are not related to separate performance obligations but are considered as a variable component of the transaction price.
Customer rights of return are considered in the transaction price based on past experience.
The company has made use of the option to recognize all costs in relation to conclude and extend a contract which would be amortized over a period of maximum one year upon activation, directly in profit and loss. This concerns all such costs.
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Warranties
Exclusively all warranties are so-called “assurance type” warranties and therefore do not form separate performance obligations. For these essentially legal warranties, accruals according to IAS 37 are considered.
Cost of goods sold
The cost of goods sold comprises the costs incurred in the production and rendering of services. This item subsumes both the direct cost of materials and production directly assignable to a product and indirect (overhead) costs, including the depreciation of production equipment, amortization of production related intangible assets and write-downs on inventories. The cost of goods sold also includes appropriation to the warranty provision and amortization of purchased technologies. Income from the reversal of write-downs on inventories reduces the cost of goods sold.
Interest income and expenses
For all financial instruments measured at amortized cost, interest income or expenses are recorded using the effective interest rate, which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability.
Taxes
Current income tax
Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are these that are enacted or substantively enacted on the respective balance sheet date.
Deferred income tax
Deferred tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, except:
•where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and•in respect to taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the near future.
 
Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized, except:
•where the deferred tax asset related to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and•in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will not reverse in the foreseeable future and no taxable profit will be available against which the temporary differences can be utilized.
 
The carrying amount of deferred tax assets is reviewed on each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed on each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be utilized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted on the balance sheet date. Future changes in tax rates are recognized on the balance sheet date if their impact is materially certain as part of the tax legislation process.
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According to IAS 12.74 deferred tax assets and liabilities have been set off in 2021 and 2020 insofar as offsetting qualifications apply.
The best estimate for any uncertain current and deferred income tax items to be recognized is the expected tax payment.
Earnings per share
The group calculates basic and diluted earnings per share in accordance with IAS 33. Basic earnings per share are calculated based on the weighted average number of no- par value shares outstanding during the reporting period. Diluted earnings per share are calculated based on the weighted average number of no-par value shares outstanding during the reporting period, but also including the number of no-par value shares that could come into existence if all stock options that are in the money were exercised on the balance sheet date.
(5) Significant accounting judgements, estimates and assumptions
The preparation of the groupʼs financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities on the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future. Assumptions used to make estimates are regularly reviewed. Changes in estimates only affecting one accounting period are only considered in that accounting period. In the case of changes in estimates that affect the current and future accounting periods, these are considered appropriately in the current and subsequent accounting periods.
Discussed below are the key judgments and assumptions concerning the future and other key sources of estimation and uncertainty on the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
Valuation of inventories
Inventories are valued at the lower of cost or net realizable value. The net realizable value is the estimated selling price that could be realized on the closing date in the context of ordinary business activity, less estimated costs of completion and costs necessary to make the sale. Estimates of the net realizable value have to be based on the most reliable information at the time the estimates are made. Inventory depreciation covers risks relating to slow-moving items or technical obsolescence. Application of moving average price or net realizable value as well as consideration of risks in the inventory depreciation is subject to estimates that have a significant effect on the carrying amount of inventories.
In addition, significant estimates are involved in the determination of provisions related to the valuation of excess and obsolete material available at contract manufacturers. The assessment of whether and to what extent available material for which non-cancelable purchase commitments exist can be used in the future is based on past experience.
Development expenses
Development expenses are capitalized in accordance with the accounting policy described in note (4). Initial capitalization of costs is based on management judgment assuming that technological and economic feasibility is confirmed, usually when a product development project has reached a defined milestone according to an established project management model. In determining the amounts to be capitalized, management makes assumptions regarding the expected future cash generation of the assets, discount rates to be applied and the expected period of benefits. See note (14) for the carrying amounts involved.
Impairment of non-financial assets
The group assesses whether there are any indicators of impairment for all non-financial assets on each reporting date. Goodwill and other indefinite life intangibles are tested for impairment annually and at other times when such indicators exist. Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. When value-in-use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash generating unit and choose a suitable discount rate in order to calculate the present value of these cash flows. See note (14) for the carrying amounts involved.
Pension obligations
Pension and similar post-employment obligations as well as the related expenses are recognized based on actuarial calculations. The actuarial valuation of the present value of pension obligations depends on a number of assumptions regarding the discount rate, the expected salary increase rate, the expected pension trend, and life expectancy. In the event that changes in the assumptions regarding
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the valuation parameters are required, the future amounts of the pension obligations as well as the pension benefit costs may be affected materially. For further details on the valuation of pension obligations, see note (18).
Share-based compensation transactions
The group measures the cost of equity-settled and cash-settled transactions with employees by reference to the fair value of the equity instruments on the date at which they are granted or on the balance sheet date. Estimating fair value requires determining the most appropriate valuation model for a grant of equity instruments, which is dependent on the terms and conditions of the grant. This also requires determining the expected life of the option, volatility and dividend yield, as well as further assumptions. See note (39) for the carrying amounts involved.
Provisions
Significant estimates are involved in the determination of provisions related to warranty costs and legal proceedings a. The estimate of warranty claims is based on historic data and is extrapolated into the future. Legal proceedings often involve complex legal issues and are subject to substantial uncertainties. Accordingly, management exercises considerable judgment in determining whether there is a present obligation as a result of a past event at the end of the reporting period, whether it is more likely than not that such a proceeding will result in an outflow of resources and whether the amount of the obligation can be reliably estimated. Other provisions are described in note (19).
Accounting for combined supply and service contracts
ADVA provides contracts that have more than one separate performance obligation (multiple element arrangements). The transaction price is allocated to the performance obligations in the contract by reference to their relative standalone selling prices. If a standalone selling price is not directly observable ADVA will need to estimate it. These estimates have a significant impact on the timing of revenue recognition.
Leases
In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).
Taxes
Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. Given the wide range of international business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expenses already recorded. The group establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective group company’s domicile.
Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available to utilize these losses. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies. See note (27) for the carrying amounts involved.
Non-financial risks
The assessment of the impact of non-financial risks (global warming, circular economy, new regulations) on the recognition and measurement of assets and liabilities is based on significant management judgments and assumptions. Non-financial risks are assessed by management as long-term risks that currently have no significant impact on net realizable values, recoverable amounts, useful lives or the requirement to recognize provisions.
(6) Covid-19 effects
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Against the background of the continuing crisis in connection with the global spreading of the Covid-19 virus, ADVA management has dealt again with the resulting risks and the relevant effects on accounting in 2021.
In the opinion of the management, there is still no sign of an increased default risk for trade receivables and contract assets. Therefore, no impact on the expected credit losses pursuant to IFRS 9 has been considered.
There was no triggering event for an impairment test pursuant to IAS 36.9 in the current financial year. In accordance with the usual procedure, an impairment test was carried out at the end of 2021, taking into account the current cost of capital and a current 4-year plan. As of December 31, 2021, no impairment of goodwill or other non-current non-financial assets was required.
The German federal government as well as governments of other countries in which ADVA operates or maintains subsidiaries or branches have introduced economic stimulus measures and other bridging measures to overcome the Covid-19 crisis.
In 2020 a key measure was the raising of a EUR 40 million KfW backup line under the “KfW Entrepreneur Loan” special program 2020. The contract was signed on July 21, 2020, the borrowing facilities however has never been used and was early terminated by the group in January 2021.
In 2021, no other government support measures related to Covid-19, such as the waiver of social security contributions and the deferral of tax payments and the payment of social security contributions, were used by the group.
Deferred tax assets at ADVA Optical Networking SE and its subsidiaries, insofar they exceed the amount of deferred tax liabilities, are recognized based on forecasts of the future taxable income, which can be used for offsetting deductible temporary differences and tax loss carry forwards. Based on the positive tax planning prepared for the relevant forecast period the recognized deferred tax assets were assessed at reporting date as recoverable.
(7) Principles of consolidation, scope of consolidation and shareholdings
Subsidiaries are all entities over which ADVA Optical Networking SE directly or indirectly has control. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated at the date when the control ends. ADVA Optical Networking SE controls an entity when it is exposed to or has the rights to variable returns from its involvement and has the ability to affect those returns through its power to direct the activities of the entity.
Intercompany revenues, expenses, income, receivables and payables within the group are eliminated.
Intercompany profits that arise from deliveries of products and services provided within the group are eliminated.
Business combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed.
When a group company acquires a business, it assesses the financial assets and liabilities acquired for appropriate classification and designation in accordance with the contractual terms, economic circumstances and relevant conditions on the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value on the acquisition date through profit and loss.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value on the acquisition date. Subsequent changes in the fair value of contingent considerations that represent an asset or liability are recognized in the income statement in accordance with IFRS 9.
Goodwill is initially measured at cost being the excess of the consideration transferred over the group’s net identifiable assets acquired and measured at fair value as well as liabilities assumed and measured at fair value. If this consideration is lower than the fair value of the net assets of the company acquired, the difference is recognized in profit or loss after reassessment.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the group’s cash generating units that
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are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Where goodwill forms part of a cash-generating unit and where part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

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Scope of consolidation
The consolidated financial statements for the year ended December 31, 2021, include the financial statements of ADVA Optical Networking SE plus all of the 19 (prior year: 19) wholly owned subsidiaries listed below (hereafter collectively referred to as “the group companies”):

 	 	 	 	 	 	 	 	 	 	 	 	Share in equity	 	
(in thousands)	 	 	 	 	 	IFRS
equity	 	 	IFRS net income/(loss)	 	 	Owned	 	 	Owned indirectly	 	
ADVA Optical Networking North America, Inc.,
Norcross/Atlanta (Georgia), USA
(ADVA Optical Networking North America)	 	USD	 	 	 	 	75,803	 	 	 	8,205	 	 	—	 	 	 	100	%	
ADVA Optical Networking Ltd., York, United Kingdom (ADVA Optical Networking York)	 	GBP	 	*	 	 	13,977	 	 	 	1,967	 	 	 	100	%	 	—	 	
Oscilloquartz SA, Saint-Blaise, Switzerland (OSA Switzerland)	 	CHF	 	 	 	 	5,885	 	 	 	525	 	 	 	100	%	 	—	 	
ADVA Optical Networking sp. z o.o., Gdynia, Poland (ADVA Optical Networking Poland)	 	PLN	 	*	 	 	53,567	 	 	 	4,013	 	 	 	100	%	 	—	 	
ADVA Optical Networking Israel Ltd., Ra'anana/Tel Aviv, Israel (ADVA Optical networking Israel)	 	ILS	 	 	 	 	(5,430	)	 	 	30,087	 	 	 	100	%	 	—	 	
ADVA Optical Networking (Shenzhen) Ltd., Shenzhen, China (ADVA Optical Networking Shenzhen)	 	CNY	 	*	 	 	36,672	 	 	 	5,911	 	 	 	100	%	 	—	 	
Oscilloquartz Finland Oy, Espoo, Finland (OSA Finland)	 	EUR	 	 	 	 	194	 	 	 	53	 	 	 	100	%	 	—	 	
ADVA IT Solutions Pvt. Ltd., Bangalore, India (ADVA IT Solutions)	 	INR	 	 	 	 	66,019	 	 	 	(156	)	 	—	 	 	 	100	%	
ADVA Optical Networking Trading (Shenzhen) Ltd., Shenzhen, China (ADVA Optical Networking Trading)	 	USD	 	 	 	 	1,719	 	 	 	240	 	 	—	 	 	 	100	%	
ADVA Optical Networking Singapore Pte. Ltd., Singapore (ADVA Optical Networking Singapore)	 	SGD	 	*	 	 	4,313	 	 	 	192	 	 	 	100	%	 	—	 	
ADVA Optical Networking Hong Kong Ltd., Hong Kong, China (ADVA Optical Networking Hong Kong)	 	USD	 	*	 	 	981	 	 	 	102	 	 	—	 	 	 	100	%	
ADVA Optical Networking (India) Private Ltd., Gurgaon, India (ADVA Optical Networking India)	 	INR	 	 	 	 	172,106	 	 	 	22,533	 	 	 	1	%	 	 	99	%	
ADVA Optical Networking Serviços Brazil Ltda., São Paulo, Brazil (ADVA Optical Networking São Paulo)	 	BRL	 	 	 	 	2,168	 	 	 	43	 	 	 	99	%	 	 	1	%	
ADVA Optical Networking Corp., Tokyo, Japan (ADVA Optical Networking Tokyo)	 	JPY	 	 	 	 	93,213	 	 	 	4,357	 	 	 	100	%	 	—	 	
ADVA Optical Networking AB, Kista/Stockholm, Sweden (ADVA Optical Networking Stockholm)	 	SEK	 	*	 	 	2,443	 	 	 	282	 	 	 	100	%	 	—	 	
ADVA NA Holdings Inc., Norcross/Atlanta (Georgia), USA (ADVA NA Holdings)	 	USD	 	 	 	 	60,714	 	 	 	(1	)	 	 	100	%	 	—	 	
ADVA Optical Networking Pty Ltd.,
Sydney (New South Wales), Australia (ADVA Australia)	 	AUD	 	 	 	 	1,653	 	 	 	100	 	 	—	 	 	 	100	%	
ADVA Optical Networking B.V., Hilversum, Netherlands (ADVA Netherlands)	 	EUR	 	 	 	 	301	 	 	 	29	 	 	 	100	%	 	—	 	
ADVA Canada Inc., Ottawa, Canada (ADVA Canada)	 	CAD	 	 	 	 	3,145	 	 	 	297	 	 	 	100	%	 	—	 	
* For the purpose of better comparability, changed in 2021 to disclosures according to group reporting packages in accordance with IFRS for the financial year ended December 31, 2021. In prior year, figures from the most recent available financial statements in accordance with local accounting principles were included.
 
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Changes in the scope of consolidation
In November 2019, ADVA Canada Inc. in Ottawa, Canada has been incorporated. There was no operating activity in this entity in 2019.
In August 2020, the liquidation of MRV Communications GmbH was completed and the company was deleted from the commercial register.
In November 2020, the liquidation of Charlotte’s Web Ltd., NBase Communications Ltd., Jolt Ltd. and NBase Fibronics Ltd., in Israel, four entities that have been inactive since 2017, was started. As these companies do not show any relations to companies or persons outside the ADVA group, the management assumes that the liquidation will take place without further adjustments. The companies were therefore deconsolidated in Q4 2020.
The deconsolidation resulted in reclassifications in the amount of EUR 255 thousand from other comprehensive income to the financial result in the income statement. No other material effects on earnings and in the balance sheet were recognized. In 2020, there were no other changes in the scope of consolidation.
In 2021, there were no changes in the scope of consolidation.
(8) Foreign currency translation
The functional currency of each group company is the currency of the main economic environment in which the company operates. The reporting currency of ADVA Optical Networking’s consolidated financial statements is the functional currency of the parent company, ADVA Optical Networking SE (euro).
Currency translation on entity level
Transactions in foreign currencies are initially recorded by the group entities at their respective functional currency rates prevailing on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of exchange ruling on the reporting date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates on the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates on the date when the fair value is determined. The exchange differences arising from the translation are recognized in profit or loss in financial income/expense.
Currency translation on group level
The assets and liabilities of foreign operations are translated into euro at the rate of exchange prevailing on the reporting date, and their income statements are translated at the average rate for the reporting period. The exchange differences arising from the translation are recognized in accumulated other comprehensive income. On disposal of a foreign operation, the component of accumulated other comprehensive income related to that particular foreign operation is recognized in the income statement.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amount of assets and liabilities arising on acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.
The relevant exchange rates for translation of foreign operations into the functional currency of the group are as follows:

 	 	Closing rate Dec. 31, 2021	 	 	Closing rate Dec. 31, 2020	 	 	Average rate Jan. 1 to Dec. 31, 2021	 	 	Average rate Jan. 1 to Dec. 31, 2020	 	 	Average rate Jan. 1 to Dec. 31, 2019	 	
AUD	 	 	1.5594	 	 	 	1.6025	 	 	 	1.5749	 	 	 	1.6555	 	 	 	1.6104	 	
BRL	 	 	6.3734	 	 	 	6.3574	 	 	 	6.3687	 	 	 	5.8810	 	 	 	4.4147	 	
CAD	 	 	1.4481	 	 	 	1.5701	 	 	 	1.4827	 	 	 	1.5291	 	 	 	1.4860	 	
CHF	 	 	1.0363	 	 	 	1.0857	 	 	 	1.0813	 	 	 	1.0704	 	 	 	1.1127	 	
CNY	 	7.2230	 	 	8.0134	 	 	7.6286	 	 	 	7.8692	 	 	 	7.7329	 	
GBP	 	 	0.8393	 	 	 	0.9031	 	 	 	0.8598	 	 	 	0.8892	 	 	 	0.8775	 	
HKD	 	8.8399	 	 	9.5210	 	 	9.1925	 	 	 	8.8496	 	 	 	8.7717	 	
ILS	 	 	3.5204	 	 	 	3.9429	 	 	 	3.8195	 	 	 	3.9233	 	 	 	3.9913	 	
INR	 	 	84.2575	 	 	 	89.8824	 	 	 	87.4261	 	 	 	84.5604	 	 	 	78.8157	 	
JPY	 	 	130.4400	 	 	 	126.5700	 	 	 	129.8223	 	 	 	121.7478	 	 	 	122.0648	 	
PLN	 	 	4.5960	 	 	 	4.5565	 	 	 	4.5650	 	 	 	4.4431	 	 	 	4.2970	 	
SEK	 	 	10.2438	 	 	 	10.0568	 	 	 	10.1447	 	 	 	10.4902	 	 	 	10.5851	 	
SGD	 	 	1.5330	 	 	 	1.6257	 	 	 	1.5893	 	 	 	1.5731	 	 	 	1.5272	 	
USD	 	 	1.1334	 	 	 	1.2281	 	 	 	1.1826	 	 	 	1.1410	 	 	 	1.1196	 	
 
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(9) Cash and cash equivalents
Cash and cash equivalents include current funds as well as current financial assets with a remaining maturity that does not exceed three months and that are readily convertible to a known amount of cash and only subject to an insignificant risk of changes in value.
On December 31, 2021, cash of EUR 2,353 thousand (December 31, 2020: EUR 1,472 thousand) is held in China and is subject to local exchange control regulations. These local exchange control regulations provide for restrictions on exporting capital from the country, other than through normal dividends.
Cash at banks earns interest at floating rates based on daily bank deposit rates.
Cash equivalents are invested for varying periods of between one day and three months, depending on the immediate cash requirements of the group, and earn interest at the respective short-term deposit rates.
(10) Trade accounts receivable
Trade accounts receivable are non-interest-bearing and are due within 30 to 120 days in general. For specific projects, other payment terms may be agreed.
Gross and net trade accounts receivable are as follows:

(in thousands of EUR)	 	Dec. 31,
2021	 	 	Dec. 31,
2020	 	
Gross trade accounts receivable	 	 	85,601	 	 	 	86,593	 	
Allowance for expected credit losses	 	 	(2,629	)	 	 	(2,713	)	
Net trade accounts receivable	 	 	82,972	 	 	 	83,880	 	
 
A reconciliation of the risk provision for trade accounts receivable carried at amortized cost is included in the table below:
									
(in thousands of EUR)	 	2021	 	 	2020	 	
 Jan. 1	 	 	2,713	 	 	 	1,691	 	
 increase of risk provision	 	 	-	 	 	 	73	 	
 Release of risk provision	 	 	(240	)	 	 	-	 	
 Addition of specific allowances	 	 	35	 	 	 	1,119	 	
 Usage	 	 	(33	)	 	 	(7	)	
 Foreign currency translation effects	 	 	154	 	 	 	(163	)	
 Dec. 31	 	 	2,629	 	 	 	2,713	 	
 
Further information on default risk from trade accounts receivable is included in note (34) on financial risk management.
The group has a supplier finance agreement, which entitles the transfer of trade receivables from a specific customer. Credit risks and settlement risks are transferred to the financing institution. The group fully derecognizes sold trade receivables as all risks and rewards are transferred. ADVA paid an annual fee amounting to LIBOR plus 0.75 % on the volume of receivables transferred. In 2020, the group incurred interest expenses of EUR 54 thousand pertaining to this arrangement (prior year: EUR 30 thousand).
In Q2 2020, the group concluded another revolving factoring agreement with a maximum annual volume of EUR 20,000 thousand. The contract entitles to transfer uninsured trade receivables with certain customers. The agreement is for an indefinite period . The risks relevant to the risk assessment in relation to the receivables sold are the default risk and the late payment risk. As of December 31, 2021, receivables amounting to EUR 7,144 thousand (prior year: EUR 10,622 thousand) were sold, of which EUR 718 thousand (prior year: EUR 891 thousand) was not paid out as reserve. These reserves are recognized in other assets.
The group accounts for the sold trade receivables from the revolving factoring agreement in the amount of their continuing involvement. On December 31, 2021, the continuing involvement asset in the amount of EUR 349 thousand (prior year: EUR 391 thousand) was recognized as a liability and includes the maximum loss for the default and late payment risk for ADVA. The fair value of these guarantees or the interest payments to be made were recognized in the profit and loss statement and also recognized as other liabilities in the amount of EUR 50 thousand (prior year: EUR 71 thousand).
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On December 31, 2021, trade accounts receivable include receivables of EUR 12,144 thousand related to the existing sale of receivables agreement (December 31, 2020: EUR 24,559 thousand), for which no transfer had taken place as of year-end 2021. The decrease compared to the previous year is in particular due to higher utilization of the existing supplier finance agreement.
(11) Inventories
The table below summarizes the composition of inventories:

(in thousands of EUR)	 	2021	 	 	2020	 	
Raw materials and supplies	 	 	27,683	 	 	 	16,303	 	
Work in progress	 	 	2,948	 	 	 	3,428	 	
Finished goods	 	 	98,574	 	 	 	70,393	 	
 	 	 	129,205	 	 	 	90,124	 	
 
In 2021, impairment of inventories amounting to EUR 5,309 thousand (2020: EUR 5,420 thousand; 2019: EUR 5,761 thousand) was recognized as an expense within cost of goods sold. This amount includes reversals of earlier write-downs amounting to EUR 347 thousand (2020: EUR 332 thousand; 2019: EUR 541 thousand) due to higher selling and input prices.
In 2021, 2020 and 2019, material costs of EUR 269,746 thousand, EUR 259,938 thousand and EUR 262,633 thousand, respectively, have been recognized.
(12) Contract assets
Contract assets amounting to EUR 180 thousand (prior year: EUR 442 thousand) relate to claims from return deliveries. Contract assets are subject to the impairment requirements of IFRS 9, however the identified impairment losses were insignificant.
(13) Other current and non-current assets
Other current assets are as follows:

(in thousands of EUR)	 	Dec. 31,
2021	 	 	Dec. 31,
2020	 	
Non-financial assets	 	 	 	 	 	 	
Prepaid expenses	 	 	3,853	 	 	 	2,289	 	
Receivables due from tax authorities	 	 	2,639	 	 	 	1,147	 	
Other	 	 	857	 	 	 	696	 	
Total current non-financial assets	 	 	7,349	 	 	 	4,132	 	
Financial assets	 	 	 	 	 	 	
Government grant allowances for research projects	 	 	3,325	 	 	 	2,178	 	
Positive fair values of derivative financial instruments	 	 	89	 	 	—	 	
Reserves relating to a revolving factoring agreement	 	 	718	 	 	 	891	 	
Volume discounts of suppliers	 	 	1,838	 	 	—	 	
Other	 	 	659	 	 	 	657	 	
Total Current financial assets	 	 	6,629	 	 	 	3,726	 	
 	 	 	13,978	 	 	 	7,858	 	
Other current assets are non-interest-bearing and are generally due within 0 to 60 days.
Further disclosures on derivative financial instruments are given in note (33).
Other non-current assets are as follows:

(in thousands of EUR)	 	Dec. 31,
2021	 	 	Dec. 31,
2020	 	
Financial assets	 	 	 	 	 	 	
 Investments	 	—	 	 	—	 	
 Government grant allowances for research projects	 	 	2,982	 	 	 	1,093	 	
 Rent deposits	 	 	1,622	 	 	 	1,397	 	
 Other	 	 	208	 	 	 	104	 	
 Total non-current assets	 	 	4,812	 	 	 	2,594	 	
 
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The fair value of the investment of 7.1 % (previous year: 7.1 %) of the shares in Saguna Networks Ltd., Nesher, Israel, amounted to zero at year-end 2021. A review of the fair value at year-end did not indicate any write-up.
On December 31, 2021, government grants for 19 research projects are recognized (December 31, 2020: 19 research projects). These public grants relate to programs promoted by the EU and national governments. ADVA does not expect any defaults based on high credit rankings.
The rent deposits are mainly assets held in trust. ADVA does not expect any defaults.
On December 31, 2021 and 2020, no non-financial non-current assets have been reported.
The classification of financial instruments according to IFRS 9 is included in note (33).
(14) Fixed assets
The following changes in fixed assets were recorded in 2021 and 2020:

 	 	Historical cost	 	
(in thousands of EUR)	 	Jan. 1,
2021	 	 	Additions	 	 	Disposals/ retirements	 	 	Reclassi- fications	 	 	Currency translation adjustments	 	 	Change in scope of consolidation	 	Dec. 31,
2021	 	
 Right-of-use assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Leased cars	 	 	3,675	 	 	 	627	 	 	 	(740	)	 	—	 	 	 	144	 	 	—	 	 	3,706	 	
 Leased premises	 	 	32,605	 	 	 	1,226	 	 	—	 	 	—	 	 	 	1,931	 	 	—	 	 	35,762	 	
 	 	 	36,280	 	 	 	1,853	 	 	 	(740	)	 	—	 	 	 	2,075	 	 	—	 	 	39,468	 	
 Property, plant and equipment	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Land and buildings	 	 	18,245	 	 	 	28	 	 	—	 	 	—	 	 	 	518	 	 	—	 	 	18,791	 	
 Technical equipment and machinery	 	 	104,195	 	 	 	12,806	 	 	 	(3,728	)	 	 	32	 	 	 	4,076	 	 	—	 	 	117,381	 	
 Factory and office equipment	 	 	16,367	 	 	 	1,248	 	 	 	(1,237	)	 	—	 	 	 	775	 	 	—	 	 	17,153	 	
 Assets under construction	 	 	188	 	 	 	1,817	 	 	—	 	 	 	(171	)	 	 	3	 	 	—	 	 	1,837	 	
 	 	 	138,995	 	 	 	15,899	 	 	 	(4,965	)	 	 	(139	)	 	 	5,372	 	 	—	 	 	155,162	 	
 Intangible assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Goodwill	 	 	112,807	 	 	—	 	 	—	 	 	—	 	 	 	6,652	 	 	—	 	 	119,459	 	
 Capitalized development projects	 	 	260,757	 	 	 	42,497	 	 	—	 	 	—	 	 	—	 	 	—	 	 	303,254	 	
 Thereof capitalized development projects in progress	 	 	34,326	 	 	 	21,851	 	 	—	 	 	 	(16,986	)	 	—	 	 	—	 	 	39,191	 	
 Intangible assets acquired in business combinations	 	 	71,520	 	 	—	 	 	—	 	 	—	 	 	 	4,298	 	 	—	 	 	75,818	 	
 Other purchased and internally generated intangible assets	 	 	65,637	 	 	 	5,880	 	 	 	(151	)	 	 	139	 	 	 	386	 	 	—	 	 	71,891	 	
 Thereof internally generated intangible assets in progress	 	—	 	 	 	5,096	 	 	—	 	 	—	 	 	—	 	 	—	 	 	5,096	 	
 	 	 	510,721	 	 	 	48,377	 	 	 	(151	)	 	 	139	 	 	 	11,335	 	 	—	 	 	570,421	 	
 	 	 	685,996	 	 	 	66,129	 	 	 	(5,856	)	 	—	 	 	 	18,782	 	 	—	 	 	765,051	 	
 
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Accumulated depreciation	 	 	Net book values	 	
Jan. 1, 2021	 	 	Depreciation of the period	 	 	Impairment of the period	 	Depreciation on disposals / retirements	 	 	Reclassifications	 	 	Currency translation adjustments	 	 	Change in scope of consolidation	 	Dec. 31, 2021	 	 	Dec. 31, 2021	 	 	Dec. 31, 2020	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	1,689	 	 	 	1,155	 	 	—	 	 	(723	)	 	—	 	 	 	115	 	 	—	 	 	2,236	 	 	 	1,470	 	 	 	1,986	 	
 	9,205	 	 	 	4,825	 	 	—	 	—	 	 	—	 	 	 	711	 	 	—	 	 	14,741	 	 	 	21,021	 	 	 	23,400	 	
 	10,894	 	 	 	5,980	 	 	—	 	 	(723	)	 	—	 	 	 	826	 	 	—	 	 	16,977	 	 	 	22,491	 	 	 	25,386	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	12,034	 	 	 	904	 	 	—	 	—	 	 	—	 	 	 	398	 	 	—	 	 	13,336	 	 	 	5,455	 	 	 	6,211	 	
 	81,872	 	 	 	11,871	 	 	—	 	 	(3,465	)	 	 	1,108	 	 	 	3,430	 	 	—	 	 	93,708	 	 	 	23,673	 	 	 	22,323	 	
 	13,854	 	 	 	1,450	 	 	—	 	 	(1,196	)	 	—	 	 	 	684	 	 	—	 	 	14,792	 	 	 	2,361	 	 	 	2,513	 	
 	-	 	 	—	 	 	—	 	—	 	 	—	 	 	—	 	 	—	 	—	 	 	 	1,837	 	 	 	188	 	
 	107,760	 	 	 	14,225	 	 	—	 	 	(4,661	)	 	 	1,108	 	 	 	4,512	 	 	—	 	 	121,836	 	 	 	33,326	 	 	 	31,235	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	45,771	 	 	—	 	 	—	 	—	 	 	—	 	 	 	2,093	 	 	—	 	 	47,864	 	 	 	71,595	 	 	 	67,036	 	
 	162,150	 	 	 	43,318	 	 	—	 	—	 	 	—	 	 	—	 	 	—	 	 	205,468	 	 	 	97,786	 	 	 	98,607	 	
—	 	 	—	 	 	—	 	—	 	 	—	 	 	—	 	 	—	 	—	 	 	 	39,191	 	 	 	34,326	 	
 	56,516	 	 	 	4,058	 	 	—	 	—	 	 	—	 	 	 	3,261	 	 	—	 	 	63,835	 	 	 	11,982	 	 	 	15,004	 	
 	60,335	 	 	 	2,826	 	 	—	 	 	(151	)	 	—	 	 	 	341	 	 	—	 	 	63,351	 	 	 	8,540	 	 	 	5,302	 	
—	 	 	—	 	 	—	 	—	 	 	—	 	 	 	-	 	 	—	 	—	 	 	 	5,096	 	 	—	 	
 	324,772	 	 	 	50,202	 	 	—	 	 	(151	)	 	—	 	 	 	5,695	 	 	—	 	 	380,518	 	 	 	189,903	 	 	 	185,949	 	
 	443,426	 	 	 	70,407	 	 	—	 	 	(5,535	)	 	—	 	 	 	11,033	 	 	—	 	 	519,331	 	 	 	245,720	 	 	 	242,570	 	

 	 	Historical cost	 	
(in thousands of EUR)	 	Jan. 1,
2020	 	 	Additions	 	 	Disposals/ retirements	 	 	Reclassi- fications	 	 	Currency translation adjustments	 	 	Change in scope of consolidation	 	Dec. 31,
2020	 	
 Right-of-use assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Leased cars	 	 	2,838	 	 	 	1,286	 	 	 	(424	)	 	—	 	 	 	(25	)	 	—	 	 	3,675	 	
 Leased premises	 	 	35,434	 	 	—	 	 	 	(920	)	 	—	 	 	 	(1,909	)	 	—	 	 	32,605	 	
 	 	 	38,272	 	 	 	1,286	 	 	 	(1,344	)	 	—	 	 	 	(1,934	)	 	—	 	 	36,280	 	
 Property, plant and equipment	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Land and buildings	 	 	18,173	 	 	 	219	 	 	 	(21	)	 	 	307	 	 	 	(433	)	 	—	 	 	18,245	 	
 Technical equipment and machinery	 	 	97,064	 	 	 	12,064	 	 	 	(579	)	 	 	31	 	 	 	(4,385	)	 	—	 	 	104,195	 	
 Factory and office equipment	 	 	16,369	 	 	 	1,191	 	 	 	(452	)	 	—	 	 	 	(741	)	 	—	 	 	16,367	 	
 Assets under construction	 	 	662	 	 	 	174	 	 	 	(3	)	 	 	(611	)	 	 	(34	)	 	—	 	 	188	 	
 	 	 	132,268	 	 	 	13,648	 	 	 	(1,055	)	 	 	(273	)	 	 	(5,593	)	 	—	 	 	138,995	 	
 Intangible assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Goodwill	 	 	119,522	 	 	—	 	 	—	 	 	—	 	 	 	(6,715	)	 	—	 	 	112,807	 	
 Capitalized development projects	 	 	220,790	 	 	 	39,967	 	 	—	 	 	—	 	 	—	 	 	—	 	 	260,757	 	
 Thereof capitalized development projects in progress	 	 	24,994	 	 	 	19,124	 	 	—	 	 	 	(9,792	)	 	—	 	 	—	 	 	34,326	 	
 Intangible assets acquired in business combinations	 	 	76,447	 	 	—	 	 	—	 	 	—	 	 	 	(4,927	)	 	—	 	 	71,520	 	
 Other purchased and internally generated intangible assets	 	 	64,115	 	 	 	4,773	 	 	 	(3,094	)	 	 	273	 	 	 	(430	)	 	—	 	 	65,637	 	
 Thereof internally generated intangible assets in progress	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	—	 	
 	 	 	480,874	 	 	 	44,740	 	 	 	(3,094	)	 	 	273	 	 	 	(12,072	)	 	—	 	 	510,721	 	
 	 	 	651,414	 	 	 	59,674	 	 	 	(5,493	)	 	—	 	 	 	(19,599	)	 	—	 	 	685,996	 	
 
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Accumulated depreciation	 	 	Net book values	 	
Jan. 1, 2020	 	 	Depreciation of the period	 	 	Impairment of the period	 	 	Depreciation on disposals / retirements	 	 	Reclassifications	 	Currency translation adjustments	 	 	Change in scope of consolidation	 	Dec. 31, 2020	 	 	Dec. 31, 2020	 	 	Dec. 31, 2019	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	964	 	 	 	1,160	 	 	—	 	 	 	(424	)	 	—	 	 	(11	)	 	—	 	 	1,689	 	 	 	1,986	 	 	 	1,874	 	
 	5,323	 	 	 	4,919	 	 	 	332	 	 	 	(905	)	 	—	 	 	(464	)	 	—	 	 	9,205	 	 	 	23,400	 	 	 	30,111	 	
 	6,287	 	 	 	6,079	 	 	 	332	 	 	 	(1,329	)	 	—	 	 	(475	)	 	—	 	 	10,894	 	 	 	25,386	 	 	 	31,985	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	11,200	 	 	 	1,179	 	 	—	 	 	 	(21	)	 	—	 	 	(324	)	 	—	 	 	12,034	 	 	 	6,211	 	 	 	6,973	 	
 	74,960	 	 	 	10,970	 	 	—	 	 	 	(376	)	 	—	 	 	(3,682	)	 	—	 	 	81,872	 	 	 	22,323	 	 	 	22,104	 	
 	13,486	 	 	 	1,454	 	 	—	 	 	 	(443	)	 	—	 	 	(643	)	 	—	 	 	13,854	 	 	 	2,513	 	 	 	2,883	 	
—	 	 	—	 	 	—	 	 	—	 	 	—	 	—	 	 	—	 	—	 	 	 	188	 	 	 	662	 	
 	99,646	 	 	 	13,603	 	 	—	 	 	 	(840	)	 	—	 	 	(4,649	)	 	—	 	 	107,760	 	 	 	31,235	 	 	 	32,622	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	47,499	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(1,728	)	 	—	 	 	45,771	 	 	 	67,036	 	 	 	72,023	 	
 	124,621	 	 	 	37,341	 	 	—	 	 	—	 	 	—	 	 	188	 	 	—	 	 	162,150	 	 	 	98,607	 	 	 	96,169	 	
—	 	 	—	 	 	—	 	 	—	 	 	—	 	—	 	 	—	 	—	 	 	 	34,326	 	 	 	24,994	 	
 	55,583	 	 	 	4,439	 	 	—	 	 	—	 	 	—	 	 	(3,506	)	 	—	 	 	56,516	 	 	 	15,004	 	 	 	20,864	 	
 	60,411	 	 	 	3,267	 	 	—	 	 	 	(2,985	)	 	—	 	 	(358	)	 	—	 	 	60,335	 	 	 	5,302	 	 	 	3,704	 	
—	 	 	—	 	 	—	 	 	—	 	 	—	 	—	 	 	—	 	—	 	 	—	 	 	—	 	
 	288,114	 	 	 	45,047	 	 	—	 	 	 	(2,985	)	 	—	 	 	(5,404	)	 	—	 	 	324,772	 	 	 	185,949	 	 	 	192,760	 	
 	394,047	 	 	 	64,729	 	 	 	332	 	 	 	(5,154	)	 	—	 	 	(10,528	)	 	—	 	 	443,426	 	 	 	242,570	 	 	 	257,367	 	
 
Right-of-use assets
Lease terms of between 36 and 120 months were applied considering the minimum rental periods and contractual extension options. In 2021, depreciation of EUR 1,155 thousand for vehicles (2020: EUR 1,160 thousand) and EUR 4,825 thousand for office and building rentals (2020: EUR 4,919 thousand) are included in operating profit. Further an impairment of EUR 332 thousand for reduced usage of the office in Bangalore, as well as the related leasehold improvements, was included in operating profit in 2020. No impairment was made in 2021.
In 2021 an amount of EUR 410 thousand, which mainly relates to short-term leases is recognized in profit and loss (2020: EUR 476 thousand). In addition, in 2021 variable lease payments of EUR 2,351 thousand were not included in the measurement of lease liabilities and are also recognized in profit and loss (2020: EUR 2,345 thousand). There are no major lease payments related to low value contracts. In the cash flow statement, the cash outflows resulting from these items are included in the cash flow from operating activities.
Further information on the corresponding lease liabilities is provided in note (15).
Property, plant and equipment
The classification and changes in property, plant and equipment are shown in the analysis of changes in fixed assets.
In 2021 and 2020, there were neither impairments nor write-backs of property, plant and equipment impaired in prior years.
Goodwill
The table below shows the composition of goodwill allocated to cash-generating units:

(in thousands of EUR)	 	Dec. 31,
2021	 	 	Dec. 31,
2020	 	
ADVA Optical Networking SE plus	 	 	45,145	 	 	 	42,491	 	
ADVA Optical Networking York	 	 	4,715	 	 	 	4,382	 	
ADVA Optical Networking North America	 	 	18,447	 	 	 	17,025	 	
OSA Switzerland	 	 	3,288	 	 	 	3,138	 	
 	 	 	71,595	 	 	 	67,036	 	
 
Impairment of goodwill
In 2021 and 2020, no impairment of goodwill was recognized.
Key assumptions used in impairment testing
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All entities, which are acting on their own account and are capable to generate revenues independently based on own customer relationships and own distribution channels are considered as separate cash-generating units. All dependent development service providing, logistical service and sales service providing entities are considered together with the ADVA Optical Networking SE in one combined cash-generating unit (ADVA Optical Networking SE plus). This as ADVA Optical Networking SE as owner of all technologies is responsible for future developments and utilization and cost-plus contracts exist between the respective companies and ADVA SE for the remuneration of the services. For impairment test purposes goodwill is generally allocated to the cash-generating unit in which the subsidiary is included, on which acquisition the goodwill has been recognized. Therefore, 61 % of the goodwill recognized in the course of the acquisition of Overture Networks Inc. has been allocated to ADVA Optical Networking SE plus and 39 % has been allocated to ADVA Optical Networking North America based on fair value of technology and customer relationship at the date of the acquisition. 40 % of customer relationships recognized in the purchase price allocation related to the acquisition of MRV group have been allocated to ADVA Optical Networking North America. The technology from the acquisition of the MRV Communications group was allocated 100 % to ADVA Optical Networking SE plus. Accordingly, the allocation of the relevant goodwill amounted to 77 % : 23 % in cash generating units ADVA Optical Networking SE plus and ADVA Optical Networking North America. Unchanged from prior years, the cash-generating units, to which the corporate assets are allocated, are ADVA Optical Networking SE plus, ADVA Optical Networking York, ADVA Optical Networking North America and OSA Switzerland.
On December 31, 2021 and 2020, the value in use of the goodwill was calculated based on future cash flows (discounted-cash-flow-method). The calculation is most sensitive to the following assumptions:
•Gross margins•Discount rates•Raw material prices•Market share expected
 
Cash flows include the projected cash flows for the four subsequent years as per the approved budget and four-year planning from 2022 - 2025 for gross margins, market share and raw material prices. For further periods, a perpetual income is estimated based on nil growth with inflation offset. The discount rate used for the calculation is a pre-tax rate. It considers the specific risk of each group company and is calculated according to the Capital Asset Pricing Model (CAPM). The cost of equity is composed of a risk-free interest rate and a specific risk mark-up calculated as the difference of the average market rate of return and the risk-free interest rate multiplied with the specific risk related to the company (beta coefficient). The beta coefficient is calculated on a peer group basis. The calculation uses pre-tax discount rates depending on the different cash generating units.
Following pre-tax discount rates have been assumed:

(in %)	 	2021	 	 	2020	 	
ADVA Optical Networking SE plus	 	 	11.69	 	 	 	11.60	 	
ADVA Optical Networking York	 	 	12.60	 	 	 	12.37	 	
ADVA Optical Networking North America	 	 	14.18	 	 	 	14.17	 	
OSA Switzerland	 	 	10.06	 	 	 	10.17	 	
 
The growth rate for the extrapolation of expected cash flows for all cash-generating units is 1.00 %.
Sensitivity analysis
No disclosures on sensitivities are provided, as an impairment is unlikely to occur as of the balance sheet date. Only an increase in the discount rates by 3.63 percentage points and above results in a need for impairment.
Capitalized development projects, intangible assets acquired in business combinations and other purchased and internally generated intangible assets
The table below summarizes the carrying amounts:
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(in thousands of EUR)	 	Dec. 31,
2021	 	 	Dec. 31,
2020	 	
Capitalized development projects	 	 	97,786	 	 	 	98,607	 	
Intangible assets acquired in business combinations	 	 	11,982	 	 	 	15,004	 	
Other intangible assets	 	 	8,540	 	 	 	5,302	 	
 	 	 	118,308	 	 	 	118,913	 	
 
Capitalized development projects include expenses related to the development of technologies and products for connectivity solutions for cloud and mobile services, network functions virtualization and synchronization.
In 2021, borrowing costs of EUR 416 thousand (2020: EUR 426 thousand) were capitalized related to development projects with an expected duration of more than 12 months. Borrowing costs were capitalized at the weighted average rate of the financial liabilities of 1.7 %.
Other intangibles assets mainly include licenses and software.
Intangible assets acquired in business combinations are as follows:

(in thousands of EUR)	 	Dec. 31,
2021	 	 	Dec. 31,
2020	 	
Purchased software technology Overture	 	 	456	 	 	 	1,149	 	
Purchased technology MRV	 	 	2,504	 	 	 	3,724	 	
Purchased customer relationships Overture	 	 	1,401	 	 	 	1,925	 	
Purchased customer relationship MRV	 	 	7,621	 	 	 	8,206	 	
 	 	 	11,982	 	 	 	15,004	 	
 
Amortization of intangible assets with a finite useful life comprises:

(in thousands of EUR)	 	Dec. 31,
2021	 	 	Dec. 31,
2020	 	
Capitalized development projects	 	 	43,318	 	 	 	37,341	 	
Intangible assets acquired in business combinations	 	 	4,058	 	 	 	4,439	 	
Other intangible assets	 	 	2,826	 	 	 	3,267	 	
 	 	 	50,202	 	 	 	45,047	 	
 
Amortization of intangible assets acquired in business combinations are as follows:

(in thousands of EUR)	 	Dec. 31,
2021	 	 	Dec. 31,
2020	 	 	Dec. 31,
2019	 	
Purchased technology FiSEC	 	—	 	 	 	121	 	 	 	291	 	
Purchased hardware technology Overture	 	—	 	 	 	88	 	 	 	1,057	 	
Purchased software technology Overture	 	 	692	 	 	 	692	 	 	 	693	 	
Purchased technology MRV	 	 	1,491	 	 	 	1,552	 	 	 	1,581	 	
Brand Ensemble*	 	—	 	 	 	43	 	 	 	43	 	
Purchased customer relationships OSA	 	—	 	 	—	 	 	 	18	 	
Purchased customer relationships Overture	 	 	658	 	 	 	681	 	 	 	694	 	
Purchased customer relationship MRV	 	 	1,217	 	 	 	1,262	 	 	 	1,286	 	
 	 	 	4,058	 	 	 	4,439	 	 	 	5,663	 	
* Ensemble is a trademark used by ADVA for the companyʼs software solutions.
At initial recognition the useful lives of intangible assets acquired in business combinations were as follows:
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Purchased technology FiSEC	 	4 years, 6 months	
Purchased hardware technology Overture	 	3 years, 7 months	
Purchased software technology Overture	 	5 years, 7 months	
Purchased technology MRV	 	7 year	
Brand Ensemble	 	4 years, 6 months	
Purchased customer relationships OSA	 	5 years	
Purchased customer relationships Overture	 	8 years	
Purchased customer relationship MRV	 	9 years, 9 months	
 
In 2021, 2020 and 2019, no impairment for capitalized development projects as well as purchased technologies was recognized.
In the consolidated income statement, amortization and impairment of capitalized development projects and amortization of purchased technology is included in cost of goods sold. Amortization of purchased customer relationship assets is included in selling and marketing expenses.
(15) Lease liabilities
Variable lease payments of EUR 2,351 thousand have not been included in the measurement of lease liabilities and were recognized in profit and loss (2020: EUR 2,345 thousand). In the cash flow statement, the cash outflows resulting from these items are included in the cash flow from operating activities.
The interest expense of EUR 791 thousand is included in the financial result (2020: EUR 938 thousand).
The maturity of lease liabilities is as follows:

(in thousands of EUR)	 	Dec. 31,
2021	 	 	Dec. 31,
2020	 	
Up to 1 year	 	 	6,001	 	 	 	5,807	 	
One to three years	 	 	8,880	 	 	 	10,215	 	
More than three years	 	 	10,133	 	 	 	11,783	 	
 	 	 	25,014	 	 	 	27,805	 	

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(16) Liabilities to banks
The tables below show details on liabilities to banks and their maturity:

 	 	 	 	 	Maturity	
(in thousands of EUR)	 	Dec. 31,
2021	 	 	≤ 12 months	 	 	13 to
36
months	 	 	> 36
months	
Syndicated loan	 	 	37,807	 	 	 	15,289	 	 	 	22,518	 	 	—	
Deutsche Bank bullet loan	 	 	10,000	 	 	 	10,000	 	 	—	 	 	—	
Total liabilities to banks	 	 	47,807	 	 	 	25,289	 	 	 	22,518	 	 	—	

															
 	 	 	 	 	Maturity	
(in thousands of EUR)	 	Dec. 31,
2020	 	 	≤ 12 months	 	 	13 to
36
months	 	 	> 36
months	
Syndicated loan	 	 	52,621	 	 	 	15,492	 	 	 	37,129	 	 	—	
Deutsche Bank bullet loan	 	 	10,000	 	 	—	 	 	 	10,000	 	 	—	
Total liabilities to banks	 	 	62,621	 	 	 	15,492	 	 	 	47,129	 	 	—	
 
In September 2018, ADVA contracted a syndicated loan amounting to EUR 75,000 thousand with a banking syndicate. The syndicated loan consists of two tranches with a total maturity of five years including a redeemable loan amounting to EUR 38,000 thousand as well as a revolving credit line of EUR 10,000 thousand. The interest rate for the redeemable loan amounts currently to EURIBOR plus 1.4 % p.a., linked to the leverage of the group. Due to an improvement of the leverage the interest was reduced to EURIBOR plus 1.35 % p.a. from 2021. Repayment in bi-annual installments started from June 2019. The redeemable loan has been accounted for applying the effective interest method.
In October 2019, ADVA entered into a EUR 10,000 thousand bullet loan with Deutsche Bank. The loan is due for repayment in one amount in September 2022 and bears interest at EURIBOR plus 1.1 % p.a.
On December 31, 2021, the group had unused borrowing facilities totaling EUR 10,000 thousand available (December 31, 2020: EUR 50,000 thousand).
In 2021, the interest on liabilities to banks recognized at year-end was 1.1 % and 1.35 % p.a., respectively.
The fair value of the liabilities to banks is stated in note (33).
(17) Trade accounts payable and other current and non-current liabilities
The trade accounts payable are non-interest-bearing and generally due within 30 to 90 days. The increase in trade accounts payable mainly results from demand-oriented purchases of materials.
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Other current liabilities are as follows:

(in thousands of EUR)	 	Dec. 31,
2021	 	 	Dec. 31,
2020	 	
Non-financial liabilities	 	 	 	 	 	 	
Liabilities to employees for variable compensation and payroll	 	 	24,636	 	 	 	19,209	 	
Liabilities to employees for vacation	 	 	2,127	 	 	 	1,570	 	
Liabilities due to withheld wage income tax and social security contribution	 	 	3,547	 	 	 	2,980	 	
Liabilities due to tax authorities	 	 	2,441	 	 	 	2,689	 	
Obligations from subsidized research projects	 	 	3,840	 	 	 	2,548	 	
Total current non-financial liabilities	 	 	36,591	 	 	 	28,996	 	
Financial liabilities	 	 	 	 	 	 	
Negative fair value of derivatives	 	 	88	 	 	 	396	 	
Other	 	 	3,386	 	 	 	2,571	 	
Total current financial liabilities	 	 	3,474	 	 	 	2,967	 	
 	 	 	40,065	 	 	 	31,963	 	
 
Other non-current liabilities include:

(in thousands of EUR)	 	Dec. 31,
2021	 	 	Dec. 31,
2020	 	
Non-financial liabilities	 	 	 	 	 	 	
Other	 	 	3,129	 	 	 	1,347	 	
Liabilities to employees for vacation	 	 	17	 	 	 	17	 	
Total non-current non-financial liabilities	 	 	3,146	 	 	 	1,364	 	
Financial liabilities	 	 	 	 	 	 	
Othe	 	 	86	 	 	 	1,449	 	
Total non-current financial liabilities	 	 	86	 	 	 	1,449	 	
 	 	 	3,232	 	 	 	2,813	 	
 
On December 31, 2021, other current financial liabilities mainly include accrued software license contracts.
The classification of financial instruments according to IFRS 9 is included in note (33).
(18) Provisions for pensions and similar employee benefits
Post-employment benefit plans are classified as either defined contribution or defined benefit plans.
Plan assets related to defined contribution plans are managed separately from the assets of the relevant company by a trustee. For such plans, the company pays fixed contributions into a separate entity or a fund and does not assume any other obligations. Payment obligations to defined contribution plans are recognized in profit or loss when they occur. Payment to government managed pension plans with fixed contributions are considered as defined contribution plans. ADVA group maintains defined contribution plans in different group companies. In 2021, total expenses related to defined contribution plans amount to EUR 9,254 thousand (prior year: EUR 8,346 thousand).
Under defined benefit plans the company is required to pay agreed benefits granted to present and past employees. Defined benefit plans may be funded or unfunded. The group maintains defined benefit plans in Switzerland, Italy, India and Israel.
The defined benefit plans in Switzerland are remuneration-dependent commitments for which a guaranteed minimum interest rate is set. Benefits paid in conjunction with these plans comprise old-age retirement pensions as well as invalidity and surviving dependents’ benefits. The assets of the pension plans are managed by trustees. The administration is carried out in accordance with local legal requirements. In Switzerland, in addition to the regular case of pension payments at retirement age, the retirement assets can also be paid out in full or in part as a lump sum. Furthermore, in certain cases, for example in the event of the acquisition of residential property, there is the possibility of early withdrawal of the retirement assets. In the event of a change of job, the employee's retirement assets are transferred from the pension fund of the previous employer to the pension fund of the new employer.
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The pension plans in Israel, Italy and India are defined benefit plans, which in the case of Italy and India are unfunded. The assets of the pension plan in Israel are managed by trustees in accordance with local legal requirements. In Italy, Israel and India, a single lump-sum payment is usually made upon retirement.
On December 31, 2021, ADVA reports provisions for pensions amounting to EUR 7,401 thousand (December 31, 2020: EUR 8,545 thousand).
The carrying amount are as follows:

(in thousands of EUR)	 	Dec. 31,
2021	 	 	Dec. 31,
2020	 	
Present value of defined benefit obligations	 	 	29,146	 	 	 	26,846	 	
Fair value of plan assets	 	 	(21,745	)	 	 	(18,301	)	
Provisions for pensions and similar employee benefits	 	 	7,401	 	 	 	8,545	 	
 
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The change in the net defined benefit liability for pension plans derives as follows:

(in thousands of EUR)	 	Defined benefit obligations	 	 	Fair value of plan assets	 	 	Total	 	
 Jan. 1, 2020	 	 	24,448	 	 	 	(16,692	)	 	 	7,756	 	
 Expenses and income	 	 	 	 	 	 	 	 	 	
 Current service cost	 	 	1,018	 	 	—	 	 	 	1,018	 	
 Interest expense (+)/income (-)	 	 	183	 	 	 	(121	)	 	 	62	 	
 Remeasurements	 	 	 	 	 	 	 	 	 	
 Gains (-)/losses (+) arising from changes in financial assumptions	 	 	309	 	 	—	 	 	 	309	 	
 Gains (-)/losses (+) arising from experience	 	 	877	 	 	—	 	 	 	877	 	
 Gains (-)/losses (+) on plan assets, excluding amounts included in interest income	 	—	 	 	 	(689	)	 	 	(689	)	
 Employee contributions	 	 	283	 	 	 	(283	)	 	—	 	
 Transfers to funds	 	—	 	 	 	(641	)	 	 	(641	)	
 Assets distributed on settlements	 	—	 	 	 	14	 	 	 	14	 	
 Benefits paid through plan assets and payments made to plan assets, net	 	 	(10	)	 	 	10	 	 	—	 	
 Disbursements of ADVA	 	 	(131	)	 	—	 	 	 	(131	)	
 Exchange rate differences and other changes	 	 	(131	)	 	 	101	 	 	 	(30	)	
 Dec. 31, 2020	 	 	26,846	 	 	 	(18,301	)	 	 	8,545	 	
 Expenses and income	 	 	 	 	 	 	 	 	 	
 Current service cost	 	 	1,069	 	 	—	 	 	 	1,069	 	
 Past service cost	 	 	(19	)	 	—	 	 	 	(19	)	
 Interest expense (+)/income (-)	 	 	184	 	 	 	(119	)	 	 	65	 	
 Remeasurements	 	 	 	 	 	 	 	 	 	
 Gains (-)/losses (+) arising from changes in financial assumptions	 	 	(441	)	 	—	 	 	 	(441	)	
 Gains (-)/losses (+) arising from changes in demographic assumptions	 	 	(338	)	 	—	 	 	 	(338	)	
 Gains (-)/losses (+) arising from experience	 	 	450	 	 	—	 	 	 	450	 	
 Gains (-)/losses (+) on plan assets, excluding amounts included in interest income	 	—	 	 	 	(1,401	)	 	 	(1,401	)	
 Employee contributions	 	 	288	 	 	 	(288	)	 	—	 	
 Transfers to funds	 	—	 	 	 	(671	)	 	 	(671	)	
 Assets distributed on settlements	 	—	 	 	 	18	 	 	 	18	 	
 Benefits paid through plan assets and payments made to plan assets, net	 	 	(292	)	 	 	292	 	 	—	 	
 Disbursements of ADVA	 	 	(328	)	 	—	 	 	 	(328	)	
 Exchange rate differences and other changes	 	 	1,727	 	 	 	(1,275	)	 	 	452	 	
 Dec. 31, 2021	 	 	29,146	 	 	 	(21,745	)	 	 	7,401	 	
 
The payments made to plan assets result in particular from vested benefits brought in by joining the company as well as from other payments and repayments of benefits drawn in advance to top up the pension fund.
The past service cost in 2021 results from the legal adjustment of the retirement age for women in Israel.
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On December 31, 2021, EUR 25,449 thousand of the defined benefit obligations relate to active employees and EUR 3,697 thousand relate to pensioners (prior year: EUR 22,974 thousand and EUR 3,871 thousand, respectively).
The average remaining period of service for employees and the weighted average duration of the obligations as of December 31, 2021 are as follows:

(in years)	 	Switzerland	 	 	Italy	 	 	India	 	 	Israel	 	
Average remaining period of service	 	 	9.30	 	 	 	14.90	 	 	n/a	 	 	n/a	 	
Weighted average duration	 	 	16.80	 	 	 	10.20	 	 	 	8.00	 	 	 	10.60	 	
 
On December 31, 2020 the average remaining period of service and the weighted average duration are as follows:

(in years)	 	Switzerland	 	 	Italy	 	 	India	 	 	Israel	 	
Average remaining period of service	 	 	10.30	 	 	 	14.40	 	 	n/a	 	 	n/a	 	
Weighted average duration	 	 	18.50	 	 	 	10.50	 	 	 	8.00	 	 	 	10.50	 	
 
In general, the monthly payment of pensions starts if an employee in Switzerland reaches the retirement age, while in Israel, Italy and India a lump sum payment of the relevant accrued amount applies with retirement or resignation of an employee.
Employer contributions in 2022 are expected to amount to EUR 753 thousand (2020 expected for 2021: EUR 886 thousand). The expected pension payments for 2022 amount to EUR 1,109 thousand. In 2020 pension payments of EUR 868 thousand had been expected for 2021.
In 2021, the projected units credit method is used to calculate the defined benefit obligations considering the following material assumptions for valuation parameters:

 	 	Switzerland	 	 	Italy	 	 	India	 	 	Israel	 	
Discount rate	 	 	0.32	%	 	 	0.66	%	 	 	6.50	%	 	 	2.40	%	
Inflation rate	 	 	1.00	%	 	 	1.75	%	 	n/a	 	 	 	2.50	%	
Salary level trend	 	 	1.00	%	 	 	2.00	%	 	 	7.00	%	 	 	2.20	%	
Pension level trend	 	 	0.00	%	 	n/a	 	 	n/a	 	 	n/a	 	
 
In 2020, the following valuation parameters have been assumed:

 	 	Switzerland	 	 	Italy	 	 	India	 	 	Israel	 	
Discount rate	 	 	0.20	%	 	 	0.16	%	 	 	6.00	%	 	 	2.10	%	
Inflation rate	 	 	1.00	%	 	 	1.75	%	 	n/a	 	 	 	1.40	%	
Salary level trend	 	 	1.00	%	 	 	2.00	%	 	 	7.00	%	 	 	2.00	%	
Pension level trend	 	 	0.00	%	 	n/a	 	 	n/a	 	 	n/a	 	
 
Discount rates have been determined considering the weighted average duration of the obligations. The evaluation for Switzerland, Italy and Israel is based on high-quality corporate bonds with AA-rating. For India, the discount rate is based on government bond rates.
ADVA is exposed to risks arising from defined benefit plans. Changes in actuarial parameters, especially in discount rates, may have significant influence on the pension obligations.
 
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The sensitivity analysis provided below shows the extent to which the defined benefit obligation would have been affected by changes in the relevant assumptions in 2021:

(in thousands of EUR)	 	 	 	Change in defined benefit obligation	 	
Discount rate	 	Increase by 0.25%	 	 	(931	)	
 	 	Decrease by 0.25%	 	 	980	 	
Salary level trend	 	Increase by 0.25%	 	 	171	 	
 	 	Decrease by 0.25%	 	 	(165	)	
Pension level trend	 	Increase by 0.25%	 	 	184	 	
 
The sensitivity analysis in prior year were as follows:

(in thousands of EUR)	 	 	 	Change in defined benefit obligation	 	
Discount rate	 	Increase by 0.25%	 	 	(981	)	
 	 	Decrease by 0.25%	 	 	1,041	 	
Salary level trend	 	Increase by 0.25%	 	 	166	 	
 	 	Decrease by 0.25%	 	 	(164	)	
Pension level trend	 	Increase by 0.25%	 	 	196	 	
 
Sensitivities for discount rate, salary level and pension trend have been considered in turn disregarding any potential dependencies between these assumptions. With exception of pension trend considerations separate actuarial computations have been performed for increase and decrease of the assumptions. Due to the structure of the pension plans, no sensitivity was determined for the case of falling pensions.
ADVA assumes inflation rate to have minor impact on the amount of defined benefit obligations.
On December 31, 2021, plan assets split to major asset categories as follows:

 	 	Quoted market prices	 	 	Other than quoted market prices	 	
Equity instruments	 	 	23.46	%	 	—	 	
Bonds	 	 	19.04	%	 	—	 	
Real estate	 	 	21.26	%	 	—	 	
Alternative investments	 	 	8.37	%	 	—	 	
Qualified insurance policies	 	—	 	 	 	15.87	%	
Cash and cash equivalents	 	—	 	 	 	8.07	%	
Other	 	—	 	 	 	3.94	%	
On December 31, 2020, plan assets split to major asset categories as follows:

 	 	Quoted market prices	 	 	Other than quoted market prices	 	
Equity instruments	 	 	20.37	%	 	—	 	
Bonds	 	 	24.59	%	 	—	 	
Real estate	 	 	19.73	%	 	—	 	
Alternative investments	 	 	7.39	%	 	—	 	
Qualified insurance policies	 	—	 	 	 	16.40	%	
Cash and cash equivalents	 	—	 	 	 	3.64	%	
Other	 	—	 	 	 	7.88	%	
 
Pension fund assets are monitored continuously and managed from a risk-and-yield perspective by the external trustees.
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(19) Other provisions
The table below lists changes in the composition of the group’s other provisions in the reporting and the prior period:

(in thousands of EUR)	 	Jan. 1,
2021	 	 	Usage	 	 	Release	 	 	Appropriation	 	 	Transfer	 	Currency translation difference	 	 	Changes of scope of consolidation	 	Dec. 31,
2021	 	
 Current provisions	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Warranty provision	 	 	598	 	 	 	(260	)	 	 	(50	)	 	 	45	 	 	—	 	 	3	 	 	—	 	 	336	 	
 Personnel provisions	 	 	1,061	 	 	 	(856	)	 	 	(205	)	 	 	1,279	 	 	—	 	 	30	 	 	—	 	 	1,309	 	
 Consulting fees	 	 	3,348	 	 	 	(755	)	 	 	(414	)	 	 	351	 	 	—	 	 	182	 	 	—	 	 	2,712	 	
 Supplier obligations	 	 	8,821	 	 	 	(7,925	)	 	 	(152	)	 	 	8,813	 	 	—	 	 	128	 	 	—	 	 	9,685	 	
 Other short-term provisions	 	 	579	 	 	 	(546	)	 	—	 	 	 	1,355	 	 	—	 	 	14	 	 	—	 	 	1,402	 	
 Total current provisions	 	 	14,407	 	 	 	(10,342	)	 	 	(821	)	 	 	11,843	 	 	—	 	 	357	 	 	—	 	 	15,444	 	
 Non-current provisions	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Warranty provision	 	 	1,261	 	 	 	(234	)	 	—	 	 	 	559	 	 	—	 	 	6	 	 	—	 	 	1,592	 	
 Non-current personnel provisions	 	 	289	 	 	—	 	 	—	 	 	 	472	 	 	—	 	 	13	 	 	—	 	 	774	 	
 Other long-term provisions	 	 	43	 	 	—	 	 	—	 	 	 	31	 	 	—	 	—	 	 	—	 	 	74	 	
 Total non-current provisions	 	 	1,593	 	 	 	(234	)	 	—	 	 	 	1,062	 	 	—	 	 	19	 	 	—	 	 	2,440	 	
 Provisions total	 	 	16,000	 	 	 	(10,576	)	 	 	(821	)	 	 	12,905	 	 	—	 	 	376	 	 	—	 	 	17,884	 	

																															
(in thousands of EUR)	 	Jan. 1,
2020	 	 	Usage	 	 	Release	 	 	Appropriation	 	 	Transfer	 	Currency translation difference	 	 	Changes of scope of consolidation	 	 	Dec. 31,
2020	 	
 Current provisions	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Warranty provision	 	 	636	 	 	 	(109	)	 	—	 	 	 	78	 	 	—	 	 	(7	)	 	—	 	 	 	598	 	
 Personnel provisions	 	 	1,452	 	 	 	(1,243	)	 	 	(53	)	 	 	941	 	 	—	 	 	(36	)	 	—	 	 	 	1,061	 	
 Consulting fees	 	 	2,975	 	 	 	(309	)	 	 	(282	)	 	 	1,184	 	 	—	 	 	(220	)	 	—	 	 	 	3,348	 	
 Supplier obligations	 	 	7,913	 	 	 	(6,981	)	 	 	(163	)	 	 	8,270	 	 	—	 	 	(215	)	 	 	(3	)	 	 	8,821	 	
 Other short-term provisions	 	 	493	 	 	 	(473	)	 	 	(2	)	 	 	571	 	 	—	 	 	(7	)	 	 	(3	)	 	 	579	 	
 Total current provisions	 	 	13,469	 	 	 	(9,115	)	 	 	(500	)	 	 	11,044	 	 	—	 	 	(485	)	 	 	(6	)	 	 	14,407	 	
 Non-current provisions	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Warranty provision	 	 	1,337	 	 	 	(249	)	 	—	 	 	 	179	 	 	—	 	 	(6	)	 	—	 	 	 	1,261	 	
 Non-current personnel provisions	 	—	 	 	—	 	 	—	 	 	 	296	 	 	—	 	 	(7	)	 	—	 	 	 	289	 	
 Other long-term provisions	 	 	43	 	 	—	 	 	—	 	 	—	 	 	—	 	—	 	 	—	 	 	 	43	 	
 Total non-current provisions	 	 	1,380	 	 	 	(249	)	 	—	 	 	 	475	 	 	—	 	 	(13	)	 	—	 	 	 	1,593	 	
 Provisions total	 	 	14,849	 	 	 	(9,364	)	 	 	(500	)	 	 	11,519	 	 	—	 	 	(498	)	 	 	(6	)	 	 	16,000	 	
 
The estimated expenses related to warranty claims reflect both past experience and current developments and are based on a percentage of sales revenues. Any differences between actual amounts and anticipated amounts are treated as changes in accounting estimates and affect earnings in the period in which the change occurs.
Current personnel provisions mainly include expenses for severance payments as well as employee’s accident insurance and other expenses resulting from legal requirements.
Reversals of provisions from previous years are reported under other operating income (see note (24)).
(20) Contract liabilities and refund liabilities
Contract and refund liabilities are as follows:
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(in thousands of EUR)	 	Dec. 31,
2021	 	 	Dec. 31,
2020	 	
Current contract liabilities	 	 	 	 	 	 	
 Outstanding credit notes	 	—	 	 	—	 	
 Advance payments received	 	 	450	 	 	 	81	 	
 Current contract liabilities related to customer loyalty programs	 	 	511	 	 	 	839	 	
 Current deferred revenues related to service level agreements	 	 	17,849	 	 	 	15,457	 	
Total current contract liabilities	 	 	18,810	 	 	 	16,377	 	
 Current refund liabilities	 	 	931	 	 	 	633	 	
Total refund liabilities	 	 	931	 	 	 	633	 	
Non-current contract liabilities	 	 	 	 	 	 	
 Non-current deferred revenues related to service level agreements	 	 	9,325	 	 	 	10,551	 	
Total non-current contract liabilities	 	 	9,325	 	 	 	10,551	 	
 	 	 	29,066	 	 	 	27,561	 	
 
Current contract liabilities related to customer loyalty programs include mainly expected volume discounts and refunds to customers.
The revenues generated in the reporting period from contract liabilities existing at the beginning of the period amounted to EUR 15,458 thousand (previous year: EUR 11,782 thousand).
Management expects that 67 % of the outstanding or partially outstanding benefit obligations as of December 31, 2021, will be recognized as revenue in the 2022 financial year. The remaining 33 % is expected to be recognized as sales in the financial year 2023. The amount stated does not include variable compensation components which are limited.
(21) Stockholders' equity
Common stock and share capital
On December 31, 2021, ADVA Optical Networking SE had issued 51,445,892 (prior year: 50,496,692) no par value bearer shares (hereinafter “common shares”), each representing a notional amount of share capital of EUR 1.00.
The common shares entitle the holder to vote at the annual general meeting and to receive dividends in case of a distribution. No restrictions are attached to the common shares.
Capital transactions
In connection with the exercise of stock options, 949,200 shares were issued to employees of the company and its affiliates out of conditional capital in 2021 (in 2020 in connection with the exercise of stock options 314,726 shares). The par value of EUR 949 thousand (prior year: EUR 315 thousand) was appropriated to share capital, whereas the premium resulting from the exercise of stock options of EUR 5,659 thousand (prior year: EUR 958 thousand) was recognized within capital reserve.
Other information on the share option programs is included in note (38).
Authorized capital
According to the companyʼs articles of association, the management board is authorized, subject to the consent of the supervisory board, to increase subscribed capital until May 21, 2024, only once or in successive tranches by a maximum of EUR 24,965,477 by issuing new common shares in return for cash or non-cash contributions (conditional capital 2019/I). Subject to the consent of the supervisory board, the management board is further authorized to decide whether to exclude stockholdersʼ subscription rights. Stockholders’ subscription rights can be excluded for capital increases for cash contributions as well as contributions in kind if during the term of this authorization and in exclusion of shareholder subscription rights, the shares issued against contributions in cash or in kind do not exceed 20 % of the share capital.
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Conditional capital
The annual shareholder´s meeting on May 19, 2021, resolved the increase of conditional capital 2011/I by EUR 346 thousand to EUR 5,050 thousand. The resolution was registered in the commercial register on May 27, 2021.
Considering the above described capital transactions, the total conditional capital on December 31, 2021 amounts to EUR 4,100 thousand.
The changes in share capital, authorized and conditional capital are summarized below:

(in thousands of EUR)	 	Share capital	 	 	Authorized
capital
2019/I	 	 	Conditional
capital
2011/I	 	
Jan. 1, 2021	 	 	50,497	 	 	 	24,965	 	 	 	4,703	 	
 Changes due to Annual Shareholders’ Meeting resolutions	 	—	 	 	—	 	 	 	346	 	
 Stock options exercised	 	 	949	 	 	—	 	 	 	(949	)	
Dec. 31, 2021	 	 	51,446	 	 	 	24,965	 	 	 	4,100	 	

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Capital reserve
The capital reserve includes premium payments from the issuance of shares, as well as additional contributions to the company’s equity associated with the exercise of stock options. Additionally, the capital reserve contains the correspondent accumulated compensation expenses related to equity-settled stock option rights issued amounting to EUR 24,976 thousand (prior year: EUR 23,538 thousand).
Accumulated other comprehensive income/(loss)
Accumulated other comprehensive income/(loss) is used to record exchange differences arising from the translation of the financial statements of foreign operations. In addition, the result from remeasurement of defined benefit obligations is included in this line item.
The development of accumulated other comprehensive income is as follows:

(in thousands of EUR)	 	Remeasurement of defined benefit
plans	 	 	Exchange differences on translation of foreign operations	 	
Jan. 1, 2020	 	 	(3,124	)	 	 	4,814	 	
 Addition/ release from remeasurement	 	 	(492	)	 	—	 	
 Tax effect	 	 	63	 	 	—	 	
 Currency translation differences	 	—	 	 	 	(14,921	)	
Dec. 31, 2020	 	 	(3,553	)	 	 	(10,107	)	
 Addition/ release from remeasurement	 	 	1,824	 	 	—	 	
 Tax effect	 	 	(266	)	 	—	 	
 Currency translation differences	 	—	 	 	 	7,917	 	
Dec. 31, 2021	 	 	(1,995	)	 	 	(2,190	)	
 
In 2021 no items were reclassified (recycled) from comprehensive income to profit or loss (2020: EUR 255 thousand due to deconsolidation; 2019: none).
Changes in stockholdersʼ equity are summarized in the consolidated statement of changes in stockholdersʼ equity.
(22) Revenues
In 2021, 2020 and 2019, revenues included EUR 84,131 thousand, EUR 81,271 thousand and EUR 75,541 thousand for services, respectively. The remaining revenues relate mainly to product sales.
In 2021, revenues related to customer loyalty programs amounting to EUR 216 thousand have been recognized (2020 and 2019: EUR 125 thousand and EUR 134 thousand).
In 2021, revenues amounting to EUR 539,590 thousand 2020 and 2019: EUR 507,962 thousand and EUR 497,759 thousand) relate to performance obligations that were performed at a specific point in time, and revenues of EUR 63,727 thousand (2020 and 2019: EUR 56,996 thousand and EUR 59,062 thousand) relate to performance obligations that were delivered over a period of time.
A segmentation of revenues by geographic region is provided in the section on segment reporting under note (32).
(23) Selling and marketing, general and administration and research and development expenses
Selling and marketing, general and administration and research and development expenses mainly include personnel expenses relating to wages and salaries and social security costs.
In addition, general and administration expenses include expenses for external services provided for legal, accounting and tax purposes as well as expenses regarding rented office space and leased cars.
Research and development expenses additionally include external service expenses mainly for research and development services, calibration and certification and legal fees as well as depreciation expenses for equipment and cost of material used for research and development.
(24) Other operating income and expenses
Other operating income and expenses are as follows:
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  (in thousands of EUR)	 	2021	 	 	2020	 	 	2019	 	
Other operating income	 	 	 	 	 	 	 	 	 	
 Government grants received	 	 	2,295	 	 	 	1,649	 	 	 	1,878	 	
 Release of provisions	 	 	821	 	 	 	500	 	 	 	1,331	 	
 Income for the supply of development services	 	 	292	 	 	 	91	 	 	—	 	
 Income from payments received on receivables written off in previous periods	 	 	57	 	 	 	12	 	 	 	55	 	
 Refund of duty and logistic charges	 	 	1,056	 	 	—	 	 	—	 	
 Reversal of customer credit notes	 	 	254	 	 	—	 	 	—	 	
 Income from deconsolidation	 	—	 	 	 	10	 	 	—	 	
 Other	 	 	1,137	 	 	 	1,538	 	 	 	1,500	 	
Total other operating income	 	 	5,912	 	 	 	3,800	 	 	 	4,764	 	
Other operating expenses	 	 	 	 	 	 	 	 	 	
 Reduction of outstanding credit notes	 	—	 	 	 	(781	)	 	—	 	
 Derecognition of trade accounts receivable	 	 	(208	)	 	 	(57	)	 	 	(219	)	
 Write-off of prepayments received for licenses	 	 	(226	)	 	—	 	 	—	 	
 Other	 	 	(264	)	 	 	(334	)	 	 	(315	)	
Total other operating expenses	 	 	(698	)	 	 	(1,172	)	 	 	(534	)	
Other operating income and expenses, net	 	 	5,214	 	 	 	2,628	 	 	 	4,230	 	
(25) Interest income and expenses
Interest income primarily includes interest from daily bank deposits and from other short-term deposits with maturities between one day and three months.
Interest expenses are primarily incurred on financial liabilities and on the sale of receivables. In addition, net interest expenses from valuation of defined benefit plans and interest expenses related to leases according to IFRS 16 are included. For further details, refer to notes (10), (15), (16), (18) and (33).
(26) Other financial gains and losses
Other financial gains and losses, net, comprise the following:

  (in thousands of EUR)	 	 	2,021	 	 	 	2,020	 	 	 	2,019	 	
Foreign currency exchange gains	 	 	12,260	 	 	 	10,779	 	 	 	8,217	 	
    Thereof: gains from forward rate agreements	 	 	850	 	 	 	877	 	 	 	612	 	
Foreign currency exchange losses	 	 	(9,584	)	 	 	(10,826	)	 	 	(7,613	)	
    Thereof: losses from forward rate agreements	 	 	(380	)	 	 	(1,697	)	 	 	(943	)	
 Fair value adjustment for investments	 	—	 	 	—	 	 	 	(1,374	)	
Total other financial gains and losses, net	 	 	2,676	 	 	 	(47	)	 	 	(770	)	
Further information on the foreign currency derivatives is contained in note (33).
(27) Income tax
Income taxes in Germany consist of corporate income tax, the solidarity surcharge and trade taxes. The tax calculation in foreign countries is based on the applicable local tax rates. They vary between 13.56 % and 34.00 % (prior year: between 13.56 % and 34.00 %).
The table below shows the components of the group’s total income tax expenses:
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  (in thousands of EUR)	 	 	2,021	 	 	 	2,020	 	 	 	2,020	 	
Current taxes	 	 	 	 	 	 	 	 	 	
 Current income tax charge	 	 	(6,922	)	 	 	(4,246	)	 	 	(2,328	)	
 Adjustments in respect of current income tax for prior years	 	 	777	 	 	 	(365	)	 	 	3,707	 	
Total current taxes	 	 	(6,145	)	 	 	(4,611	)	 	 	1,379	 	
Deferred taxes	 	 	 	 	 	 	 	 	 	
 Temporary differences and tax loss carryforwards	 	 	19,127	 	 	 	146	 	 	 	(3,166	)	
 Changes in tax rates	 	—	 	 	 	(40	)	 	 	(97	)	
Total deferred taxes	 	 	19,127	 	 	 	106	 	 	 	(3,263	)	
Income tax benefit (expense), net	 	 	12,982	 	 	 	(4,505	)	 	 	(1,884	)	
 
A reconciliation of income taxes based on the accounting profit (loss) and the expected domestic income tax rate for the parent company of 28.88 % (prior year: 28.88 %) to effective income tax benefit (expense), net, is presented below:

  (in thousands of EUR)	 	2021	 	 	2020	 	 	2019	 	
Accounting income before tax	 	 	46,236	 	 	 	24,819	 	 	 	8,929	 	
Expected statutory tax benefit (expense)	 	 	(13,353	)	 	 	(7,168	)	 	 	(2,579	)	
 Tax rate adjustments	 	—	 	 	 	(40	)	 	 	(97	)	
 Tax for prior periods	 	 	777	 	 	 	(365	)	 	 	3,707	 	
 Foreign tax rate differential	 	 	947	 	 	 	532	 	 	 	(74	)	
 Non-tax-deductible stock option expenses	 	 	(470	)	 	 	(343	)	 	 	(430	)	
 Differences from foreign branch offices	 	 	(117	)	 	 	(283	)	 	 	(90	)	
 Non-taxable income and other non-tax-deductible expenses	 	 	(593	)	 	 	(715	)	 	 	250	 	
 Other adjustments to recognitions of deferred tax assets	 	—	 	 	—	 	 	 	9	 	
 Change in valuation allowance on deferred tax assets for tax losses	 	 	19,027	 	 	—	 	 	—	 	
 Deferred taxes based on tax credits	 	 	676	 	 	—	 	 	—	 	
 Permanent differences	 	 	(19	)	 	 	56	 	 	 	165	 	
 Utilization of tax loss carry forwards	 	 	6,115	 	 	 	3,821	 	 	—	 	
 Not capitalized deferred tax assets for temporary differences and tax losses	 	—	 	 	—	 	 	 	(2,745	)	
 Other differences	 	 	(8	)	 	—	 	 	—	 	
Income tax benefit (expense), net	 	 	12,982	 	 	 	(4,505	)	 	 	(1,884	)	
Effective tax rate	 	 	28.08	%	 	(18.15)%	 	 	(21.09)%	 	
The tax income for prior periods in the amount of EUR 777 thousand increased compared to prior year (2020: tax expense in the amount of EUR 365 thousand; 2019: tax income in the amount of EUR 3,707 thousand) and results mainly from claiming an R&D Tax Credit for ADVA Optical Networking North America Inc. for the year 2020. A further not yet claimed R&D tax credit results in a deferred tax benefit amounting to EUR 676 thousand.
No tax effect resulting from the tax rate changes occurred in 2021 (2020 and 2019: EUR 40 thousand and EUR 97 thousand, respectively).
The effect with the regard to the utilization of tax loss carryforwards relates mainly ADVA Optical Networking SE (EUR 4,915 thousand) as well as ADVA Optical Networking North America Inc. (EUR 891 thousand). Furthermore, the deferred tax asset on tax loss carryforwards of ADVA Optical Networking SE was increased respectively due to the discontinuation of ADVA SE’s history of losses and positive forecast. This results mainly in a tax benefit of EUR 19,027 thousand.
The deferred tax assets and deferred tax liabilities relate to the following:
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 	 	Dec 31. 2021	 	 	Dec 31. 2020	 	
(in thousands of EUR)	 	Deferred tax
assets	 	 	Deferred tax liabilities	 	 	Deferred tax
assets	 	 	Deferred tax liabilities	 	
Current assets	 	 	 	 	 	 	 	 	 	 	 	 	
 Cash and cash equivalents	 	—	 	 	—	 	 	—	 	 	—	 	
 Trade accounts receivable	 	 	116	 	 	 	(7	)	 	 	325	 	 	—	 	
 Inventories	 	 	1,276	 	 	 	(2,405	)	 	 	1,665	 	 	 	(2,142	)	
 Other current assets	 	—	 	 	 	(285	)	 	—	 	 	 	(333	)	
Total current assets	 	 	1,392	 	 	 	(2,697	)	 	 	1,990	 	 	 	(2,475	)	
Non-current assets	 	 	 	 	 	 	 	 	 	 	 	 	
 Right-of-use assets	 	—	 	 	 	(4,352	)	 	—	 	 	 	(5,028	)	
 Property, plant and equipment	 	 	160	 	 	 	(147	)	 	 	160	 	 	 	(219	)	
 Goodwill	 	—	 	 	 	(3,074	)	 	—	 	 	 	(3,057	)	
 Capitalized development projects	 	—	 	 	 	(28,970	)	 	—	 	 	 	(29,207	)	
 Intangible assets acquired in business combinations	 	 	1,659	 	 	 	(3,906	)	 	 	1,172	 	 	 	(4,261	)	
 Other intangible assets	 	—	 	 	 	(1,339	)	 	—	 	 	 	(5	)	
 Other non-current assets	 	 	436	 	 	 	(410	)	 	 	812	 	 	—	 	
Total non-current assets	 	 	2,255	 	 	 	(42,198	)	 	 	2,144	 	 	 	(41,777	)	

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(in thousands of EUR)	 	Deferred tax
assets	 	 	Deferred tax liabilities	 	 	Deferred tax
assets	 	 	Deferred tax liabilities	 	
Current liabilities	 	 	 	 	 	 	 	 	 	 	 	 	
 Lease Liabilities	 	 	1,087	 	 	—	 	 	 	1,080	 	 	—	 	
 Trade accounts payable	 	 	63	 	 	—	 	 	 	5	 	 	 	(102	)	
 Provisions	 	 	2,842	 	 	—	 	 	 	2,977	 	 	—	 	
 Deferred revenues	 	 	1,098	 	 	—	 	 	 	684	 	 	—	 	
 Other current liabilities	 	 	2,098	 	 	—	 	 	 	1,091	 	 	—	 	
Total current liabilities	 	 	7,188	 	 	—	 	 	 	5,837	 	 	 	(102	)	
Non-current liabilities	 	 	 	 	 	 	 	 	 	 	 	 	
 Lease Liabilities	 	 	3,839	 	 	—	 	 	 	4,552	 	 	—	 	
 Other non-current liabilities	 	 	1,141	 	 	 	(24	)	 	 	1,245	 	 	 	(13	)	
Total non-current liabilities	 	 	4,980	 	 	 	(24	)	 	 	5,797	 	 	 	(13	)	
Tax loss carry-forwards and tax credits	 	 	 	 	 	 	 	 	 	 	 	 	
 German tax loss carry-forwards	 	 	38,334	 	 	—	 	 	 	19,588	 	 	—	 	
    thereof: current	 	—	 	 	—	 	 	—	 	 	—	 	
    thereof: non-current	 	 	38,334	 	 	—	 	 	 	19,588	 	 	—	 	
 Foreign tax loss carry-forwards	 	 	3,252	 	 	—	 	 	 	2,722	 	 	—	 	
    thereof: current	 	 	3,252	 	 	—	 	 	 	2,722	 	 	—	 	
    thereof: non-current	 	—	 	 	—	 	 	—	 	 	—	 	
 Foreign tax credits	 	 	706	 	 	—	 	 	—	 	 	—	 	
    thereof: current	 	 	706	 	 	—	 	 	—	 	 	—	 	
    thereof: non-current	 	—	 	 	—	 	 	—	 	 	—	 	
Total tax loss carry-forwards and tax credits	 	 	42,292	 	 	—	 	 	 	22,310	 	 	—	 	
Total deferred tax assets and liabilities	 	 	58,107	 	 	 	(44,919	)	 	 	38,078	 	 	 	(44,367	)	
    thereof: current	 	 	12,538	 	 	 	(2,697	)	 	 	10,549	 	 	 	(2,577	)	
    thereof: non-current	 	 	45,569	 	 	 	(42,222	)	 	 	27,529	 	 	 	(41,790	)	
 Netting	 	 	(42,768	)	 	 	42,768	 	 	 	(30,845	)	 	 	30,845	 	
Deferred tax net	 	 	15,339	 	 	 	(2,151	)	 	 	7,233	 	 	 	(13,522	)	
 
Temporary differences are differences between the carrying amount of an asset or liability in the balance sheet according to IFRS and its tax base.
Deferred tax liabilities on temporary differences arising out of the initial recognition of goodwill are not accounted for. According to IAS 12.21B deferred tax liability in the amount of EUR 3,074 thousand (previous year: EUR 3,057 thousand) was recognized on taxable temporary differences in connection with a goodwill which is deductible for tax purposes and which resulted from the a business acquisition (asset deal) performed earlier by ADVA SE.
Deferred tax assets have been recognized for German and foreign tax loss carry-forwards since net deferred tax liabilities arising from temporary differences as well as a positive tax planning, which are relevant for the recognition of tax loss carry-forwards as reported, exist.
The German and foreign tax loss carry-forwards comprise as follows:

(in thousands of EUR)	 	Dec. 31,
2021	 	 	Dec. 31,
2020	 	
ADVA Optical Networking SE	 	 	161,527	 	 	 	177,992	 	
ADVA Optical Networking North America	 	 	72,403	 	 	 	70,948	 	
OSA Switzerland	 	 	95	 	 	 	7,637	 	
ADVA Optical Networking Israel	 	 	3,192	 	 	 	18,459	 	
ADVA NA Holdings	 	 	63	 	 	 	57	 	
ADVA IT Solutions	 	—	 	 	 	9	 	
 	 	 	237,280	 	 	 	275,102	 	
 
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As of December 31, 2021, tax loss carry-forwards of OSA Switzerland expired in the amount of EUR 7,369 thousand. Tax loss carry forwards of ADVA Israel were to the major extent utilized against additional taxable income arising out of the assessments of the tax audit for the fiscal years 2016-2020.
Starting with 2021 ADVA Optical Networking SE does not show a history of losses anymore and therefore, deferred tax assets on tax loss carry forwards which exceed the amount of taxable temporary differences were recognized to the extent future taxable profits are expected against which carry forward losses can be utilized. Future taxable profits are calculated based on the business plan of the Group and considering a limited forecast period. Following this, deferred tax assets have been recognized in respect of tax losses in ADVA Optical Networking SE amounting to EUR 132,735 thousand (prior year: EUR 67,827 thousand).
ADVA Optical Networking North America reports further tax income over an aggregated four-year-period and considering the following restrictions there is a reasonable assurance that taxable profits will be recognized in the near future that can be offset against tax loss carry-forwards.
Pursuant to the U.S. Tax Act, federal tax loss carry-forwards in the U.S. expire after twenty years. Furthermore, the utilization of a portion of tax loss carry-forwards is subject to annual limitations. Consequently, deferred tax assets have not been recognized in respect of tax loss carry-forwards in ADVA Optical Networking North America in the amount of EUR 60,616 thousand (prior year: EUR 60,059 thousand).
Furthermore, deferred tax assets for tax loss carry-forwards for state and local purposes expire in between five and twenty years. Deferred tax assets in respect of these tax loss carry-forwards have been recognized in the amount of EUR 164 thousand (prior year: EUR 144 thousand).
 
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The total tax loss carry-forwards of the group, for which no deferred tax assets were recognized at the end of 2021, expire within the following periods:

(in thousands of EUR)	 	 	 	
1 year	 	 	-	 	
2 years	 	 	1,412	 	
3 years	 	 	5,653	 	
4 years	 	 	5,000	 	
5 years	 	 	4,081	 	
after 5 years	 	 	44,566	 	
Carried forward for unlimited period	 	 	32,046	 	
Total tax loss carry-forwards	 	 	92,758	 	
Whether or not deferred tax assets are realized depends on the generation of future taxable income during periods in which these temporary differences are deductible. The group has considered the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment.
During 2021 a tax audit for ADVA Israel covering fiscal years 2016-2020 took place. Assessments arising out of the tax audit resulted in the reduction of tax loss carry forwards by EUR 16,441 thousand. Additional tax payments were not triggered. No other tax audits of corporate income tax are currently taking place at ADVA. Potential tax risks which could trigger tax payments in the future tax audits are continuously monitored by management and assessed at a most likely value. As of December 31, 2021, no tax risks were assessed as likely and accounted for.
On December 31, 2021 and 2020, no deferred tax liabilities on retained earnings of group companies have been recognized. ADVA committed that at present there will be no distribution of currently undistributed earnings from the company’s major subsidiaries. The amount of temporary differences for which no deferred tax liabilities have been recognized totals to EUR 9,845 thousand (prior year: EUR 6,066 thousand).
Deferred tax assets for pensions and similar employee benefits in the amount of EUR 499 thousand are recognized in accumulated other comprehensive loss (prior year: EUR 776 thousand).
(28) Employees and personnel expenses
In 2021, 2020 and 2019, respectively, the ADVA group had an average of 1,897, 1,860 and 1,884 permanent employees and an average of 21, 22 and 25 apprentices on its payroll, respectively in the following departments:

  (in thousands of EUR)	 	2021	 	 	2020	 	 	2019	 	
Purchasing and Operations	 	 	410	 	 	 	402	 	 	 	392	 	
Sales and Marketing	 	 	347	 	 	 	359	 	 	 	368	 	
General and Administration	 	 	177	 	 	 	170	 	 	 	166	 	
Research and Development	 	 	963	 	 	 	929	 	 	 	958	 	
Apprentices	 	 	21	 	 	 	22	 	 	 	25	 	
 	 	 	1,918	 	 	 	1,882	 	 	 	1,909	 	
 
Furthermore, ADVA employs 41, 39 and 35 people on a temporary basis effective December 31, 2021, 2020 and 2019, respectively. Personnel expenses for 2021, 2020 and 2019 totaled EUR 191,959 thousand, EUR 181,877 thousand and EUR 187,785, respectively:

  (in thousands of EUR)	 	2021	 	 	2020	 	 	2020	 	
Wages and salaries	 	 	160,362	 	 	 	152,228	 	 	 	157,227	 	
Social security costs	 	 	20,207	 	 	 	19,803	 	 	 	22,326	 	
Expenses for post-employment benefits	 	 	9,763	 	 	 	8,657	 	 	 	6,742	 	
Share-based compensation expenses	 	 	1,627	 	 	 	1,189	 	 	 	1,490	 	
 	 	 	191,959	 	 	 	181,877	 	 	 	187,785	 	
 
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Expenses for retirement benefits include expenses related to defined contribution plans as well as service costs for defined obligation plans.
Further details on expenses for post-employment benefits are included in note (18).
Details regarding share-based compensation expenses are shown in note (38).
(29) Restructuring expenses
In 2021, no restructuring expenses have been recognized (2020: EUR 731 thousand and 2019: EUR 5,655 thousand are including severance payments as well as related legal costs ). The allocation to functional areas in the consolidated income statement is included in note (32).
Other disclosures
(30) Consolidated cash flow statement
The consolidated cash flow statement has been prepared in accordance with IAS 7.
Cash and cash equivalents include short-term cash and short-term financial assets whose remaining maturity does not exceed three months. Bank overdrafts are reported in financial liabilities.
Cash flows from investing and financing activities are determined directly, whereas the cash flow from operating activities is derived indirectly from the consolidated income before tax. When cash flow from operating activities is calculated, the changes in assets and liabilities are adjusted for the effects of currency translation. As a result, it is not possible to reconcile the figures to the differences in the published consolidated statement of financial position.
The movements of liabilities from financing activities are as follows:

(in thousands of EUR)	 	Lease liabilities	 	 	Liabilities to banks	 	 	Total liabilities from financing activities	 	
Jan. 1, 2019	 	n/a	 	 	 	89,484	 	 	 	89,484	 	
 Recognized on adoption of IFRS 16	 	 	37,051	 	 	—	 	 	 	37,051	 	
 Repayments	 	 	(5,562	)	 	 	(8,500	)	 	 	(14,062	)	
 Non-cash changes	 	 	1,625	 	 	 	(5	)	 	 	1,620	 	
 Foreign currency exchange effects	 	 	1,316	 	 	—	 	 	 	1,316	 	
Dec. 31, 2020	 	 	34,430	 	 	 	80,979	 	 	 	115,409	 	
 Repayments	 	 	(6,266	)	 	 	(18,500	)	 	 	(24,766	)	
 Non-cash changes	 	 	1,299	 	 	 	142	 	 	 	1,441	 	
 Foreign currency exchange effects	 	 	(1,658	)	 	—	 	 	 	(1,658	)	
Dec. 31, 2020	 	 	27,805	 	 	 	62,621	 	 	 	90,426	 	
 Repayments	 	 	(6,401	)	 	 	(15,000	)	 	 	(21,401	)	
 Non-cash changes	 	 	1,836	 	 	 	186	 	 	 	2,022	 	
 Foreign currency exchange effects	 	 	1,774	 	 	—	 	 	 	1,774	 	
Dec. 31, 2021	 	 	25,014	 	 	 	47,807	 	 	 	72,821	 	
 
Actual interest payments for liabilities to banks amounting to EUR 989 thousand (2020 and 2019: EUR 1,615 thousand and EUR 1,640 thousand) and interest related to lease liabilities of EUR 791 thousand (2020 and 2019: EUR 938 thousand and EUR 1,161 thousand) are included in cash flow from financing activities.
Non-cash changes include effective interest rate changes on liabilities to banks as well as non-cash effective increases or decreases in lease liabilities due to consideration of new lease contracts or disposal of lease contracts.
Cash and cash equivalents to which the group only has restricted access are explained in note (9).
(31) Earnings per share
In accordance with IAS 33, basic earnings per share are calculated by dividing consolidated net income by the weighted average number of shares outstanding.
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There were no material dilution effects in the current fiscal year. Diluted earnings per share are calculated by adjusting the weighted average number of shares outstanding by the number of potential shares arising from granted and exercisable stock options on the balance sheet date.
No effects of dilution had to be considered in net income in 2021 and 2020.
The following table reflects the number of shares used in the computation of basic and diluted earnings per share:

 	 	2021	 	 	2020	 	 	2019	 	
Weighted average number of shares (basic)	 	 	50,819,042	 	 	 	50,278,336	 	 	 	50,031,396	 	
Effect of dilution from stock options	 	 	873,737	 	 	 	277,849	 	 	 	489,175	 	
Weighted average number of shares (diluted)	 	 	51,692,779	 	 	 	50,556,185	 	 	 	50,520,571	 	
 
There have been no other material transactions involving ordinary shares or potential shares between the balance sheet date and the date of authorization for issue of these financial statements.
(32) Segment reporting
In accordance with IFRS 8, operating segments are identified based on the way information is reported internally to the chief operating decision maker, i.e. the management board, and regularly reviewed to make decisions about resources to be assigned to the segment and assess its performance. The internal organizational and management structure and the structure of internal financial reporting activities are the key factors in determining what information is reported. For making decisions about resource allocation and performance assessment, management does not monitor the operating results separately on the level of business units. Therefore the reporting on individual business segment does not apply.
Within the ADVA group, management decisions are based on pro forma EBIT. Pro forma financial information excludes non-cash charges related to share -based compensation plans and amortization and impairment of goodwill and acquisition-related intangible assets. Additionally, expenses related to M&A and restructuring measures are not included. Income from capitalization of development expenses is shown as a separate line item and not deducted from research and development expenses.
Reconciliation of key performance measures to the consolidated financial income on December 31, 2021 presents as follows:
																													
(in thousands of EUR)	 	Pro forma financial information	 	 	Intangible assets from acquisitions	 	 	Goodwill	 	 	Compensation
expenses	 	 	Expenses related to M&A and restructuring measures	 	 	Disclosure
of R&D expenses	 	 	Consolidated
financial information	 	
 Revenues	 	 	603,317	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	 	603,317	 	
 Cost of goods sold	 	 	(382,473	)	 	 	(2,183	)	 	—	 	 	 	(103	)	 	—	 	 	—	 	 	 	(384,759	)	
 Gross profit	 	 	220,844	 	 	 	(2,183	)	 	—	 	 	 	(103	)	 	—	 	 	—	 	 	 	218,558	 	
 Gross margin	 	 	36.6	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	36.2	%	
 Selling and marketing expenses	 	 	(60,453	)	 	 	(1,875	)	 	—	 	 	 	(615	)	 	—	 	 	—	 	 	 	(62,943	)	
 General and administrative expenses	 	 	(34,834	)	 	—	 	 	—	 	 	 	(307	)	 	 	(3,669	)	 	—	 	 	 	(38,810	)	
 Research and development expenses	 	 	(118,619	)	 	—	 	 	—	 	 	 	(602	)	 	—	 	 	 	42,497	 	 	 	(76,723	)	
 Income from capitalization of development expenses	 	 	42,497	 	 	—	 	 	—	 	 	—	 	 	—	 	 	 	(42,497	)	 	—	 	
 Other operating income	 	 	5,912	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	 	5,912	 	
 Other operating expenses	 	 	(698	)	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	 	(698	)	
 Operating income	 	 	54,649	 	 	 	(4,058	)	 	—	 	 	 	(1,627	)	 	 	(3,669	)	 	—	 	 	 	45,295	 	
 Operating margin	 	 	9.1	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	7.5	%	
 Segment assets	 	 	517,947	 	 	 	11,982	 	 	 	71,595	 	 	—	 	 	—	 	 	—	 	 	 	601,524	 	
 
Reconciliation of key performance measures to the consolidated financial income on December 31, 2020 presents as follows:
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(in thousands of EUR)	 	Pro forma financial information	 	 	Intangible assets from acquisitions	 	 	Goodwill	 	 	Compensation
expenses	 	 	Expenses related to M&A and restructuring measures	 	 	Disclosure
of R&D expenses	 	 	Consolidated financial - information	 	
 Revenues	 	 	564,958	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	 	564,958	 	
 Cost of goods sold	 	 	(365,908	)	 	 	(2,453	)	 	—	 	 	 	(55	)	 	—	 	 	—	 	 	 	(368,416	)	
 Gross profit	 	 	199,050	 	 	 	(2,453	)	 	—	 	 	 	(55	)	 	—	 	 	—	 	 	 	196,542	 	
 Gross margin	 	 	35.2	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	34.8	%	
 Selling and marketing expenses	 	 	(58,130	)	 	 	(1,986	)	 	—	 	 	 	(519	)	 	 	(168	)	 	—	 	 	 	(60,803	)	
 General and administrative expenses	 	 	(35,611	)	 	—	 	 	—	 	 	 	(195	)	 	 	(91	)	 	—	 	 	 	(35,897	)	
 Research and development expenses	 	 	(114,072	)	 	—	 	 	—	 	 	 	(420	)	 	 	(472	)	 	 	39,967	 	 	 	(74,997	)	
 Income from capitalization of development expenses	 	 	39,967	 	 	—	 	 	—	 	 	—	 	 	—	 	 	 	(39,967	)	 	—	 	
 Other operating income	 	 	3,800	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	 	3,800	 	
 Other operating expenses	 	 	(1,172	)	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	 	(1,172	)	
 Operating income	 	 	33,832	 	 	 	(4,439	)	 	—	 	 	 	(1,189	)	 	 	(731	)	 	—	 	 	 	27,473	 	
 Operating margin	 	 	6.0	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	4.9	%	
 Segment assets	 	 	417,932	 	 	 	15,004	 	 	 	67,036	 	 	—	 	 	—	 	 	—	 	 	 	499,972	 	
 
Reconciliation of key performance measures to the consolidated financial income on December 31, 2019 presents as follows:

(in thousands of EUR)	 	Pro forma financial information	 	 	Intangible assets from acquisitions	 	 	Goodwill	 	 	Compensation
expenses	 	 	Expenses related to M&A and restructuring measures	 	 	Disclosure
of R&D expenses	 	 	Consolidated financial - information	 	
 Revenues	 	 	556,821	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	 	556,821	 	
 Cost of goods sold	 	 	(361,457	)	 	 	(3,622	)	 	—	 	 	 	(71	)	 	—	 	 	—	 	 	 	(365,908	)	
 Gross profit	 	 	195,361	 	 	 	(3,622	)	 	—	 	 	 	(71	)	 	 	(758	)	 	—	 	 	 	190,913	 	
 Gross margin	 	 	35.1	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	34.3	%	
 Selling and marketing expenses	 	 	(68,318	)	 	 	(2,041	)	 	—	 	 	 	(561	)	 	 	(1,908	)	 	—	 	 	 	(72,828	)	
 General and administrative expenses	 	 	(33,851	)	 	—	 	 	—	 	 	 	(322	)	 	 	(953	)	 	—	 	 	 	(35,126	)	
 Research and development expenses	 	 	(115,057	)	 	—	 	 	—	 	 	 	(536	)	 	 	(2,036	)	 	 	42,443	 	 	 	(75,186	)	
 Income from capitalization of development expenses	 	 	42,443	 	 	—	 	 	—	 	 	—	 	 	—	 	 	 	(42,443	)	 	—	 	
 Other operating income	 	 	4,764	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	 	4,764	 	
 Other operating expenses	 	 	(534	)	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	 	(534	)	
 Operating income	 	 	24,811	 	 	 	(5,663	)	 	—	 	 	 	(1,490	)	 	 	(5,655	)	 	—	 	 	 	12,003	 	
 Operating margin	 	 	4.5	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	2.2	%	
 Segment assets	 	 	443,475	 	 	 	20,864	 	 	 	72,023	 	 	—	 	 	—	 	 	—	 	 	 	536,362	 	
 
Additional information by geographical regions:

(in thousands of EUR)	 	2021	 	 	2020	 	 	2019	 	
 Revenues	 	 	 	 	 	 	 	 	 	
 Germany	 	 	154,072	 	 	 	115,249	 	 	 	102,691	 	
 Rest of Europe, Middle East and Africa	 	 	227,257	 	 	 	193,550	 	 	 	196,263	 	
 Americas	 	 	166,016	 	 	 	201,552	 	 	 	213,793	 	
 Asia-Pacific	 	 	55,972	 	 	 	54,607	 	 	 	44,074	 	
 	 	 	603,317	 	 	 	564,958	 	 	 	556,821	 	

 (in thousands of EUR)	 	Dec. 31,
 2021	 	 	Dec. 31,
 2020	 	
 Non-current assets	 	 	 	 	 	 	
 Germany	 	 	133,634	 	 	 	131,682	 	
 Rest of Europe, Middle East and Africa	 	 	28,285	 	 	 	28,235	 	
 Americas	 	 	80,259	 	 	 	78,312	 	
 Asia-Pacific	 	 	3,542	 	 	 	4,341	 	
 	 	 	245,720	 	 	 	242,570	 	
 
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Revenue information is based on the shipment location of the customers.
In 2021, revenues with two major customers exceeded 10 % of total revenues (2020 and 2019: two major customers). In 2021, the share of revenues allocated to major customers was EUR 153,372 thousand (prior year: EUR 139,799 thousand); thereof revenue with the biggest customer was EUR 89,057 thousand (prior year: EUR 77,906 thousand) and with the second biggest customer was EUR 64,315 thousand (prior year: EUR 61,893 thousand).
Non-current assets including property, plant and equipment, intangible assets and finance lease equipment are attributed based on the location of the respective group company.
(33) Financial instruments
The following tables analyze carrying amounts and fair values according to measurement categories. Only assets and liabilities, which fall into the categories defined by IFRS 7, are presented, so that the total amounts disclosed do not correspond to the balance sheet totals of each year.

(in thousands of EUR, on Dec. 31, 2021)	 	Measurement category in accordance with IFRS 9	 	Carrying amount	 	 	Amortized cost	 	 	Fair value recognized in profit
and loss	 	 	Fair value	 	 	Hierarchy of fair values	
 Assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Cash and cash equivalents	 	AC	 	 	108,987	 	 	 	108,987	 	 	—	 	 	n/a*	 	 	n/a*	
 Trade accounts receivable without underlying factoring agreement	 	AC	 	 	70,828	 	 	 	70,828	 	 	—	 	 	n/a*	 	 	n/a*	
 Trade accounts receivable with underlying factoring agreement	 	FVTPL	 	 	12,144	 	 	—	 	 	 	12,144	 	 	 	12,144	 	 	Level 2	
 Other current financial assets	 	AC	 	 	6,629	 	 	 	6,629	 	 	—	 	 	n/a	 	 	n/a*	
 Other non-current financial assets	 	AC	 	 	4,812	 	 	 	4,812	 	 	—	 	 	 	4,812	 	 	Level 2	
 Derivatives	 	FVTPL	 	 	89	 	 	—	 	 	 	89	 	 	 	89	 	 	Level 2	
 Investments	 	FVTPL	 	 	-	 	 	—	 	 	—	 	 	 	-	 	 	Level 3	
 Total financial assets	 	 	 	 	203,489	 	 	 	191,256	 	 	 	12,233	 	 	 	17,045	 	 	 	
 Liabilities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Current lease liabilities	 	n/a	 	 	6,001	 	 	 	6,001	 	 	—	 	 	n/a	 	 	n/a	
 Non-current lease liabilities	 	n/a	 	 	19,013	 	 	 	19,013	 	 	—	 	 	n/a	 	 	n/a	
 Current liabilities to banks	 	FLAC	 	 	25,289	 	 	 	25,289	 	 	—	 	 	 	25,340	 	 	Level 2	
 Non-current liabilities to banks	 	FLAC	 	 	22,518	 	 	 	22,518	 	 	—	 	 	 	22,697	 	 	Level 2	
 Trade accounts payable	 	FLAC	 	 	83,223	 	 	 	83,223	 	 	—	 	 	n/a*	 	 	n/a*	
 Other current financial liabilities	 	FLAC	 	 	3,386	 	 	 	3,386	 	 	—	 	 	n/a*	 	 	n/a*	
 Other non-current financial liabilities	 	FLAC	 	 	86	 	 	 	86	 	 	—	 	 	 	86	 	 	Level 2	
 Derivatives	 	FVTPL	 	 	88	 	 	—	 	 	 	88	 	 	 	88	 	 	Level 2	
 Total financial liabilities	 	 	 	 	159,603	 	 	 	159,515	 	 	 	88	 	 	 	48,211	 	 	 	
* Due to the short-term nature, it was assumed that the book value as of the reporting date approximates the fair value.
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(in thousands of EUR, on Dec. 31, 2020)	 	Measurement category in accordance with IFRS 9	 	Carrying amount	 	 	Amortized cost	 	 	Fair value recognized in profit
and loss	 	 	Fair value	 	 	Hierarchy of fair values	
 Assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Cash and cash equivalents	 	AC	 	 	64,881	 	 	 	64,881	 	 	—	 	 	n/a	 	 	n/a*	
 Trade accounts receivable without underlying factoring agreement	 	AC	 	 	59,321	 	 	 	59,321	 	 	—	 	 	n/a	 	 	n/a*	
 Trade accounts receivable with underlying factoring agreement	 	FVTPL	 	 	24,559	 	 	—	 	 	 	24,559	 	 	 	24,559	 	 	Level 2	
 Other current financial assets	 	AC	 	 	3,726	 	 	 	3,726	 	 	—	 	 	n/a	 	 	n/a*	
 Other non-current financial assets	 	AC	 	 	2,594	 	 	 	2,594	 	 	—	 	 	 	2,594	 	 	Level 2	
 Derivatives	 	FVTPL	 	 	-	 	 	—	 	 	 	-	 	 	 	-	 	 	Level 2	
 Investments	 	FVTPL	 	 	-	 	 	—	 	 	—	 	 	 	-	 	 	Level 3	
 Total financial assets	 	 	 	 	155,081	 	 	 	130,522	 	 	 	24,559	 	 	 	27,153	 	 	 	
 Liabilities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Current lease liabilities	 	n/a	 	 	5,807	 	 	 	5,807	 	 	—	 	 	n/a	 	 	n/a	
 Non-current lease liabilities	 	n/a	 	 	21,998	 	 	 	21,998	 	 	—	 	 	n/a	 	 	n/a	
 Current liabilities to banks	 	FLAC	 	 	15,492	 	 	 	15,492	 	 	—	 	 	 	15,543	 	 	Level 2	
 Non-current liabilities to banks	 	FLAC	 	 	47,129	 	 	 	47,129	 	 	—	 	 	 	47,531	 	 	Level 2	
 Trade accounts payable	 	FLAC	 	 	44,151	 	 	 	44,151	 	 	—	 	 	n/a	 	 	n/a*	
 Other current financial liabilities	 	FLAC	 	 	2,571	 	 	 	2,571	 	 	—	 	 	n/a	 	 	n/a*	
 Other non-current financial liabilities	 	FLAC	 	 	1,449	 	 	 	1,449	 	 	—	 	 	 	1,449	 	 	Level 2	
 Derivatives	 	FVTPL	 	 	396	 	 	—	 	 	 	396	 	 	 	396	 	 	Level 2	
 Total financial liabilities	 	 	 	 	138,993	 	 	 	138,597	 	 	 	396	 	 	 	64,919	 	 	 	
* Due to the short-term nature, it was assumed that the book value as of the reporting date approximates the fair value.
 
The group uses the following hierarchy for determining the fair value of financial instruments:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly.
Level 3: Techniques, which use inputs that are not based on observable market data.
At the end of the reporting period it is analyzed whether transfers between the hierarchy levels need to be considered. In 2021 and 2020, there were no such transfers.
In the case of cash and cash equivalents, trade receivables measured at amortized cost, other current financial assets and liabilities as well as trade accounts payable, the carrying amounts represent reasonable approximations for the fair values.
Forward rate agreements are measured using the discounted cash flow method based on quoted forward rates and yield curves derived from quoted interest rates according to the maturities of the contract.
Moreover, ADVA SE has an investment in equity instruments of Saguna Networks Ltd. with no quoted prices in active markets. Input factors for the valuation are share prices from past investment rounds and current purchase price offers from other investors in Saguna Networks Ltd. Since the end of 2019, the fair value of the investment is zero, as the company is in a persistent loss-making situation. At the end of 2021, the fair value was reviewed and there was no indication that a write-up was necessary.
The fair values of financial liabilities as well as other non-current financial assets and liabilities have been calculated based on future cash flows by using arm’s length, risk-adjusted interest rates.
The fair value of the balance sheet items measured at Level 3 on December 31, 2021 totaled nil (December 31, 2020: in total nil).
The following table shows the net results per measurement category according to IFRS 9:
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(in thousands of EUR)	 	Note	 	 	2021	 	 	2020	 	 	2019	 	
 Financial assets measured at amortized cost	 	 	(13	)	 	 	305	 	 	 	(1,082	)	 	 	(759	)	
 Financial liabilities measured at amortized cost	 	 	(16	)	 	 	(1,274	)	 	 	(2,008	)	 	 	(1,514	)	
 Financial assets and liabilities measured at fair value through profit or loss	 	 	(25	)	 	 	470	 	 	 	(820	)	 	 	(1,705	)	
Net result	 	 	 	 	 	(499	)	 	 	(3,910	)	 	 	(3,978	)	
 
In 2020, the net result from financial assets measured at amortized cost included the impairment loss and interest income recognized in the current period on the relevant assets. The net result of financial instruments at fair value through profit or loss consist of changes in the fair value of derivative financial instruments, trade receivables subject to factoring agreements and equity investments. The net result from financial liabilities at amortized cost includes interest for bank liabilities (drawn and undrawn) and other financial liabilities as well as amortization according to effective interest method.
Total interest income and expenses from financial assets and liabilities are as follows:

(in thousands of EUR)	 	2021	 	 	2020	 	 	2019	 	
Financial assets measured at amortized cost	 	 	 	 	 	 	 	 	 	
 Total interest income	 	 	100	 	 	 	110	 	 	 	372	 	
Financial liabilities measured at amortized cost	 	 	 	 	 	 	 	 	 	
 Total interest expense	 	 	(1,274	)	 	 	(2,008	)	 	 	(1,514	)	
 
As the necessary prerequisites have not been fulfilled, no financial assets and liabilities are offset in the balance sheet. Master netting agreements exist with the contractual partners of the derivatives, according to which a set-off can be made in the event of insolvency. As of the balance sheet date, there were only insignificant offsetting potentials from derivative financial instruments.
(34) Financial risk management
The following section describes the groupʼs position with regard to risks arising from financial instruments and their potential future impact on the net assets, financial position and operational results. The classification into material and immaterial financial risks considered in the risk and opportunity report has been disregarded.
ADVA’s capital management is described in note (35).
The management board establishes principles for overall risk management and decides on the use of derivative financial instruments and the investment of excess liquidity. The compliance department is responsible for group-wide monitoring of observance of the processes and guidelines of the risk management system defined by the ADVA management board.
Foreign currency risks
Risk exposure
ADVA is exposed to foreign currency risks as investments, financing and operations are carried out in several currencies. This results in foreign currency risks from future transactions as well as from recognized assets and liabilities denominated in a currency other than the functional currency of the respective group company. As part of the reporting date analysis of balance sheet exposures and exchange rate sensitivities, the currency pairs EUR/USD, EUR/AUD, EUR/GBP and EUR/JPY were identified as relevant. The risks from the currency pairs EUR/ILS, EUR/CFH and USD/SGD considered in 2020 are insignificant on the balance sheet date. The relevance of the different currencies can vary depending on the reporting date.
The foreign currency risk of ADVA on the basis of the underlying operating activities at the end of 2021 in the major currencies is as follows:

(in thousands)	 	USD	 	 	JPY	 	 	GBP	 	 	AUD	 	
Trade accounts receivable	 	 	13,960	 	 	 	446,028	 	 	 	77	 	 	 	1,333	 	
Trade accounts payable	 	 	26,120	 	 	—	 	 	 	12	 	 	—	 	
 
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At the end of 2020, the foreign currency risk was mainly related to USD as follows:

(in thousands)	 	USD	 	
Trade accounts receivable	 	 	16,174	 	
Trade accounts payable	 	 	19,213	 	
The groupʼs risk with regard to other currency fluctuations was insignificant at the reporting date.
Risk management
ADVA’s risk management framework considers operational business risks to the business that affect the income statement. Specific hedging transactions are only concluded if larger non-recurring foreign exchange risks are expected (e.g. due to a planned M&A transaction). Regarding intercompany payments, the treasury department is closely involved in order to optimize the cash flows with regard to currencies and separate hedging considerations. Foreign currency risks from recognized financial assets and liabilities are only considered by ADVAʼs risk management in specific cases.
In 2020 and 2021, the group recorded significant external net cash inflows in GBP and significant external net cash outflows in USD. In order to mitigate these material risks from operating activities and as a means to offset cash flow fluctuations, ADVAʼs Treasury Department has been hedging some of its net cash flows in USD versus GBP through the use of forward foreign exchange agreements in GBP already in 2020. These transactions became due in the current year and resulted in a net gain of EUR 468 thousand (2020: net loss of EUR 424 thousand).
To hedge exchange rate risks from future cash flows, the group entered into derivatives that will mature in the first quarter of 2022. The fair value of these foreign exchange agreements is recognized in other current assets or other current liabilities. The related fair values amounted to positive EUR 89 thousand and negative EUR 88 thousand, respectively (December 31, 2020: positive EUR 0 thousand and negative EUR 396 thousand). As of December 31, 2021, the nominal value of these derivatives amounted to EUR 14,361 thousand (December 31, 2020: EUR 13,745 thousand). The nominal value is the accounting value from which payments are derived.
Sensitivity analysis
The foreign exchange rate sensitivity of the most relevant currency pairs with respect to balance sheet risks on earnings after tax at the end of the reporting period is illustrated below. The analysis does not consider effects from the translation of the financial statements of the groupʼs foreign subsidiaries into euro the companyʼs reporting currency.
If, at the balance sheet date, the relevant exchange rates would have appreciated or depreciated by 10 % relative to the base currency in the relevant currency relations (base currency/spot currency), the following impact on earnings after tax from the currency translation of reported primary financial instruments would have to be considered:

(in thousands)	 	Dec. 31, 2021	 	
 	 	+10%	 	 	-10%	 	
EUR/USD	 	 	(999	)	 	 	1,222	 	
EUR/AUD	 	 	98	 	 	 	(120	)	
EUR/GBP	 	 	327	 	 	 	(400	)	
EUR/JPY	 	 	403	 	 	 	(493	)	
 
As described in the section on foreign currency risk positions, the relevant currency pairs have changed in 2021 compared to 2020. In the previous year, the following sensitivities were reported for the currency relations relevant in 2020:

(in thousands)	 	Dec. 31, 2020	 	
 	 	+10%	 	 	-10%	 	
EUR/ILS	 	 	2,185	 	 	 	(2,671	)	
EUR/USD	 	 	389	 	 	 	(476	)	
EUR/CHF	 	 	(345	)	 	 	422	 	
EUR/SGD	 	 	(290	)	 	 	354	 	
 
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In addition, the currency pair USD/GBP is relevant for risk management considerations. The currency pairs USD/GBP and USD/EUR are hedged by using forward contracts. If, at the balance sheet date, the spot currency GBP had appreciated or depreciated by 10 % against the base currency USD, the following effects would have been recognized in profit or loss:

(in thousands)	 	Dec. 31, 2021	 	
 	 	GBP +10%	 	 	GBP -10%	 	
USD/GBP	 	 	1,141	 	 	 	(858	)	
 	 	EUR +10%	 	 	EUR -10%	 	
USD/EUR	 	 	43	 	 	 	(374	)	
 
The following sensitivities have been reported in 2020:

(in thousands)	 	Dec. 31, 2020	 	
 	 	GBP +10%	 	 	GBP -10%	 	
USD/GBP	 	 	1,001	 	 	 	(820	)	
 	 	EUR +10%	 	 	EUR -10%	 	
USD/EUR	 	 	(122	)	 	 	(525	)	
 
Interest rate risk
Risk exposure
The interest rate risk is the risk that fair values or future interest payments on existing and future interest-bearing financial instruments will fluctuate due to changes in market interest rates. ADVA increased its cash position from EUR 64,881 thousand in 2020 to EUR 108,987 thousand in 2021. With increasing liquidity, the risk of having to pay negative interest on bank balances also increases.
At year-end 2021, ADVA Optical Networking SE has a variable rate loan of nominal EUR 38,000 thousand as well as another variable-interest bullet loan of EUR 10,000 thousand to finance its investments, which fundamentally results in an interest rate risk. Additionally, there is an outstanding credit line of EUR 10,000 thousand which has not been drawn as of December 31, 2021. The interest on a loan drawn under these credit lines is also dependent on EURIBOR. Further information on existing financial liabilities can be found in note (16).
Risk management
The treasury department regularly analyzes the existing interest rate risk and, in the event of a material risk, makes proposals for the use of appropriate hedging instruments. As part of risk management to limit interest rate risks, derivative financial instruments such as interest rate caps and interest rate swaps can be used. Due to the continued expansive interest rate policy of the European Central Bank, the EURIBOR interest rate is negative at the reporting date. Despite increased core inflation, ADVA does not expect any significant interest rate spreads change in the euro area and thus rates the interest rate risk as low as at December 31, 2021.
Sensitivity analysis
As of December 31, 2021, the 3-month EURIBOR was negative. Due to the floor agreed in the loan agreement, a reduction in EURIBOR as of December 31, 2021, would have had no effect on the interest rate. An EURIBOR increase of 0.5 % would also have had no effect on the interest expense. (prior year: no effect).
Default risk
Risk exposure
The default risk arising from financial assets involves the risk of the default of a contractual partner and thus includes at maximum the amount of the related recognized carrying amounts. At ADVA default risks arise from cash at banks, contract assets and contractual cash flows from debt instruments that are measured at amortized cost or at fair value through profit or loss, including outstanding trade receivables.
Risk management
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All default risks are managed at group level. The default risk is mitigated by various measures, depending on the class of financial assets. In addition, the credit risk from non-derivative financial assets is considered by means of risk provisioning and bad debt allowances.
ADVA enters into transactions with creditworthy banks and financial institutions. To assess the creditworthiness of banks, financial institutions and other financial assets, ADVA uses current credit ratings from rating agencies (S&P, Moodyʼs or Fitch) as well as current default rates (credit default swaps). Based on the capital market ratings, ADVA divided the banks and other financial assets into three internal rating classes, determining their exposure at default and calculating the expected loss at default as of December 31, 2021 and 2020. Rating class 1 means investment grade assets, rating class means non-investment grade assets and rating class 3 includes assets in default. Due to immateriality, no risk provisions were recognized at the balance sheet date.
The gross carrying amounts (risk positions) by rating class on December 31, 2021 and 2020 are as follows:

(in thousands of EUR)	 	Rating class 1	 	 	Rating class 2	 	 	Rating class 3	 	 	Total	 	
Cash and cash equivalents	 	 	108,922	 	 	 	10	 	 	 	54	 	 	 	108,987	 	
Other current financial assets	 	 	6,629	 	 	—	 	 	—	 	 	 	6,629	 	
Other non-current financial assets	 	 	4,812	 	 	—	 	 	—	 	 	 	4,812	 	

															
(in thousands of EUR)	 	Rating class 1	 	 	Rating class 2	 	 	Rating class 3	 	Total	 	
Cash and cash equivalents	 	 	64,623	 	 	 	258	 	 	—	 	 	64,881	 	
Other current financial assets	 	 	3,726	 	 	—	 	 	—	 	 	3,726	 	
Other non-current financial assets	 	 	2,594	 	 	—	 	 	—	 	 	2,594	 	
 
ADVA has distributed its investments to more than 10 international credit institutions. As of December 31, 2021, one bank was responsible for approximately 92.6 % of all investments (as of December 31, 2020: for approximately 87 %). This results in a risk exposure of EUR 100,870 thousand. (2020: EUR 56,558 thousand).
When concluding contracts with clients, the creditworthiness and credit quality of the client is assessed on the basis of independent ratings (e.g. Duns & Bradstreet), audited financial statements, or historical experience. Depending on the risk assessment, deliveries are made solely only under reasonable payment terms, which may include down payments or advance payments.
ADVA applies the general expected credit loss model for significant financial assets. To measure the expected credit losses on trade receivables carried at amortized cost and contract assets the simplified approach under IFRS 9 is used. Trade receivables are summarized on the basis of common credit risk characteristics and overdue days.
As of December 31, 2021, and 2020, the expected loss ratios are based on historical payment profiles of receivables and the corresponding historical defaults. There are adjusted to reflect up-to-date and forward-looking information on macroeconomic factors (such as geopolitical events, currency fluctuations, inflation, trade conflicts, state subsidies) that may affect clientsʼ solvency. Contract assets relate to work that has not yet been invoiced, and accordingly have the same risk characteristics as trade receivables of the underlying contracts.
In addition, ADVA applies a specified valuation if certain criteria are met.
Regarding major other financial assets ADVA reviews the risk on a case-by-case basis considering the counterparty-specific credit default swaps or assumptions regarding the expected creditworthiness of the contractual partners.
The following table shows the overdue structure of gross carrying amounts of trade accounts receivable and contract assets by as of December 31, 2021:

(in thousands of EUR)	 	Not yet due	 	 	Overdue up to 90 days	 	 	90 - 180 days overdue	 	 	180 days to 1 year overdue	 	 	Credit impaired	 	 	Total	 	
Trade accounts receivable (simplified approach)	 	 	70,571	 	 	 	9,257	 	 	 	2,499	 	 	 	475	 	 	 	2,799	 	 	 	85,601	 	
Contract assets	 	 	180	 	 	—	 	 	—	 	 	—	 	 	—	 	 	 	180	 	
 
As of December 31, 2020, the overdue structure of gross carrying amounts of trade receivables and contract assets were as follows:
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(in thousands of EUR)	 	Not yet due	 	 	Overdue up to 90 days	 	 	90 - 180 days overdue	 	 	180 days to 1 year overdue	 	 	Credit impaired	 	 	Total	 	
Trade accounts receivable (simplified approach)	 	 	71,098	 	 	 	10,824	 	 	 	1,231	 	 	 	643	 	 	 	2,797	 	 	 	86,593	 	
Contract assets	 	 	442	 	 	—	 	 	—	 	 	—	 	 	—	 	 	 	442	 	
 
Due to immateriality, no valuation allowances were recognized relating to contract assets as of December 31, 2021, and 2020. The reconciliation of risk provisions for trade receivables is shown in note (10).
For other financial assets carried at amortized cost with a total carrying amount of EUR 11,441 thousand (prior year: EUR 6,320 thousand), the group analyzes the risk on a case-by-case basis. As of December 31, 2021, and 2020, there were no significant default risks. Therefore, no valuation allowances were recognized.
Liquidity risk
Risk exposure
In general, the inability to meet its financial obligations, such as servicing its debts, composes the liquidity risk of ADVA.
Risk management
Management uses rolling forecasts to monitor the groupʼs liquidity reserves, consisting of cash and cash equivalents based on expected cash flows and unused credit lines. To manage liquidity, ADVA considers compliance with internally defined operating liquidity at all times.
The groupʼs liquidity management policies include the forecast of cash flows in the major currencies and the assessment of required cash in these currencies, the monitoring of balance sheet liquidity ratios and the management of debt financing plans. In general, ADVA pursues a conservative and risk-avoiding strategy.
Financing agreements
The loan agreements contain restrictions and covenants that restrict the financial and operating scope of ADVA. A breach of these agreements would result in a compulsory early repayment of the loans. All agreements were met as of the reporting date. The existing financing agreements include termination rights in the event of a change of control. Currently, the management board is having discussions with the lending banks. The management board and supervisory board currently assume that either an agreement with the lenders can be reached according to which they will not make use of their termination rights or that it will be possible to replace necessary credit lines.
At the end of the reporting period, ADVA had financing agreements with various banks. This includes a syndicated loan of a nominal amount of EUR 38,000 thousand with maturity in September 2023 and a bilateral bullet term loan of EUR 10,000 thousand due in September 2022. In addition, the syndicated loan has an undrawn revolving credit facilities over EUR 10,000 thousand. See also note (16) on liabilities to banks.
Maturities of financial liabilities
The table below analyzes the group’s undiscounted cash outflows for non-derivative financial liabilities according to their maturity based on the remaining time at the balance sheet date to the contractual maturity date:

 	 	 	 	 	 	 	 	Future cash flows	 	
(in thousands of EUR, on Dec. 31, 2021)	 	Note	 	 	Carrying Value	 	 	≤ 12 months	 	 	13 – 36 months	 	 	> 36 months	 	
 	 	 	 	 	 	 	 	Redemption	 	 	Interest	 	 	Redemption	 	 	Interest	 	 	Redemption	 	 	Interest	 	
Lease liabilities	 	 	(15	)	 	 	25,014	 	 	 	6,001	 	 	 	575	 	 	 	8,880	 	 	 	850	 	 	 	10,133	 	 	 	970	 	
Liabilities to banks	 	 	(16	)	 	 	47,807	 	 	 	25,289	 	 	 	552	 	 	 	22,518	 	 	 	207	 	 	—	 	 	—	 	
Trade accounts payable	 	 	(17	)	 	 	83,223	 	 	 	83,223	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	
Other financial liabilities	 	 	(17	)	 	 	3,559	 	 	 	3,473	 	 	—	 	 	 	86	 	 	—	 	 	—	 	 	—	 	
 	 	 	 	 	 	159,603	 	 	 	117,986	 	 	 	1,127	 	 	 	31,484	 	 	 	1,057	 	 	 	10,133	 	 	 	970	 	
 
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 	 	 	 	 	 	 	 	Future cash flows	 	
(in thousands of EUR, on Dec. 31, 2020)	 	Note	 	 	Carrying Value	 	 	≤ 12 months	 	 	13 – 36 months	 	 	> 36 months	 	
 	 	 	 	 	 	 	 	Redemption	 	 	Interest	 	 	Redemption	 	 	Interest	 	 	Redemption	 	 	Interest	 	
Lease liabilities	 	 	(15	)	 	 	27,805	 	 	 	5,807	 	 	 	794	 	 	 	10,215	 	 	 	1,143	 	 	 	11,783	 	 	 	1,107	 	
Liabilities to banks	 	 	(16	)	 	 	62,621	 	 	 	15,492	 	 	 	785	 	 	 	47,129	 	 	 	759	 	 	—	 	 	—	 	
Trade accounts payable	 	 	(17	)	 	 	44,151	 	 	 	44,151	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	
Other financial liabilities	 	 	(17	)	 	 	4,416	 	 	 	2,967	 	 	—	 	 	 	1,449	 	 	—	 	 	—	 	 	—	 	
 	 	 	 	 	 	138,993	 	 	 	68,417	 	 	 	1,579	 	 	 	58,793	 	 	 	1,902	 	 	 	11,783	 	 	 	1,107	 	
 
(35) Capital management
Risk management
ADVAʼs capital management aims to ensure the continued existence of the company and optimization of its capital structure to reduce its cost of capital.
The group defines capital as the sum of equity and financial liabilities. On December 31, 2021, financial debt amounted to EUR 72,821 thousand (prior year: EUR 90,426 thousand). Equity on December 31, 2021, amounted to EUR 339,912 thousand or 56.5 % of the balance sheet total (previous year: EUR 263,218 thousand or 52.6 % of the balance sheet total). For liabilities to banks of EUR 47,807 thousand as of December 31, 2021 (previous year: EUR 62,621 thousand), the term usually exceeds the life of the assets financed. ADVA aims for an equity ratio of at least 30 % and a ratio of gross debt to EBITDA of a maximum of 2.5x. Both financial ratios were met in the past financial year.
Financial covenants
The loan agreements include compliance with certain financial covenants that should be guaranteed at all time within the scope of capital management. As of December 31, 2021, ADVA needs to comply with a gross leverage (proportion of gross debt to EBITDA for the last 12 months). A breach of the commitment clauses may lead to early repayment of the borrowed funds. ADVA minimizes risk through ongoing monitoring of financial metrics.
Within the scope of capital management, ADVA seeks to minimize interest expenses, provided that the availability of funds is not jeopardized. Excess funds are usually used to pay off debt. For USD bank accounts, a so-called cash pooling is implemented. Under this agreement, the funds will be transferred daily to a collective account. The interest is calculated on the basis of the combined balances.
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(36) Other financial obligations and financial commitments
On December 31, 2021, the group had purchase commitments totaling EUR 170,438 thousand (on December 31, 2020: EUR 57,128 thousand) in respect to suppliers. The increase compared to the previous year is mainly due to higher order requirements as a result of expected supply shortages in the semiconductor industry.
Group entities have issued guarantees in favor of customers. On December 31, 2021, performance bonds with a maximum guaranteed amount of EUR 334 thousand were issued (on December 31, 2020: EUR 414 thousand). Based on experience from prior periods, ADVA does not expect claims from these guarantees at year-end 2021.
With respect to various financing agreements there are certain guarantee obligations from ADVA North America Inc. and ADVA Ltd. to ADVA Optical Networking SE.
(37) Contingent liabilities
In the normal course of business, claims may be asserted, or lawsuits filed against the company and its subsidiaries from time to time. On December 31, 2021, ADVA does not expect potential titles or litigations in detail or in total that will have a material impact on its financial position or operating performance.
(38) Stock option programs
To date, the company has issued stock options for employees (Plan XIV) and for management board (Plan XIVa and Plan XVIa). Generally, Plan XIV and Plan XIVa are still available for issuance of share-based compensation instruments.
All contracts stipulate a general four-year vesting period and a total contractual life of seven years for the respective rights issue. The rights may only be exercised if the volume weighted average of the company share closing prices on the ten stock exchange trading days before the first day of each exercise period in which the option is exercised is at least 120 % of the purchase price. In addition, options issued to the management board from Plan XIVa and from the new Plan XVIa introduced in 2020 include a profit limitation.
All option rights are non-transferable. They may only be exercised as long as the entitled person is employed on a permanent contract by the company or by a company in which ADVA Optical Networking SE has direct or indirect interest. Option rights issued to apprentices may only be exercised if the apprentices are hired by the company or by an affiliated company on a permanent contract. All option rights expire upon termination of the employment contract. In the event that the person entitled dies, becomes unable to work or retires, special provisions come into force.
The group of people to whom option rights can be issued is defined separately for each stock option program. According to the resolution on May 19, 2021, 35.0 % of option rights - in total 1,767,384 options rights could be issued to members of the management board, 5.0 % - in total 252,483 options rights - to the management of affiliated companies, 22.5 % - in total 1,136,176 options rights - to company employees, and 37.5 % - in total 1,893,626 options rights - to employees of affiliated companies. The management board specifies the exact group of people entitled to exercise rights and the scope of each offer. Options rights awarded to the management board are approved by supervisory board.
Subject to the conditions under which option rights are issued, each option right entitles the individual to purchase one common share in the company. The conditions of issue specify the term, the exercise price (strike price), any qualifying periods and the defined exercise periods.
Exercise periods are regularly linked to key business events in the companyʼs calendar and each have a defined term. Certain other business events can lead to blocking periods, during which option rights cannot be exercised. Insofar as regular exercise periods overlap with such blocking periods, the exercise deadline shall be extended by the corresponding number of exercise days immediately after the end of such a blocking period. Option rights may be exercised only on days on which commercial banks are open in Frankfurt am Main, Germany.
The Plan XVIa for the management board introduced in 2020 considers an automated exercise process. Furthermore, the new Plan XVIa includes an automatic sale of the shares received via the stock exchange (“exersale”) immediately after the automated exercise process. Due to the automatic sale under Plan XVIa, it is classified as a cash-settled share-based payment plan. The automated exercise and the immediate sale take place after the expiration of the general vesting period of 4 years in eight regularly equal tranches, distributed over eight consecutive exercise windows on days determined or determinable in advance. The specific waiting period depends on the respective tranche. In the event that stock options cannot be exercised during the exercise window, the exersales are
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postponed to the respective subsequent exercise window. If they cannot be exercised within the term of the agreement, the options forfeit at the end of the last available exercise window. The purpose of the automated exercise and sale process is to simplify the disposal of exercised options and reduce administrative expenses due to insider trading rules.
With the introduction of the Plan XVIa in 2020, the supervisory board also decided to amend Plan XIVa for options issued prior to 2020 and include the automated exercise process. Independent from the plan amendment of the equity-settled share-based payment plan, the management board gave a revocable ermission to an immediate sale of their exercised options on a voluntary basis. The amendment became effective on July 1, 2020, for all as of December 31, 2020 outstanding options and resulted in modification of the actual vesting period for stock options already issued before 2020. The modification resulted in a revaluation of these expenses. If the newly determined fair values per tranche exceed the fair value at the modification date, the additional fair value is accrued over the remaining vesting period (see IFRS 2.27). Starting from 2021 the option agreements for issuances from Plan XIVa do not include an automated exercise process.
The fair value of stock options was valued using a Monte Carlo simulation. For the calculation of the fair value of options, ADVA assumed that no dividends will be paid to stockholders.
The following computation parameters apply for option rights issued in 2021 from plan XIV and XIVa:

 	 	Plan XIV	 	 	Plan XIVa	 	
Weighted average share price (in EUR)	 	 	10.62	 	 	 	10.30	 	
Weighted average strike price (in EUR)	 	 	10.30	 	 	 	10.00	 	
Weighted expected volatility (in % per year)	 	 	44.21	 	 	 	44.20	 	
Term (in years)	 	 	7.00	 	 	 	7.00	 	
Weighted risk-free interest rate (in % per year)	 	 	(0.57	)	 	 	(0.59	)	
 
The volatility is specified as fluctuation of the share price compared to the average share price of the period. In each case, expected volatility is calculated based on historic share prices (historic volatility). The risk-free interest rate is based on information on risk-free investments with corresponding terms.
The tables below present changes in the number of option rights outstanding.
Stock option program 2011 (Plan XIV)

 	 	Number of options	 	 	Weighted average strike price (in EUR)	 	
Options outstanding on Jan.1, 2020	 	 	2,234,900	 	 	 	7.03	 	
 Granted options	 	 	107,500	 	 	 	5.91	 	
 Exercised options	 	 	(49,726	)	 	 	3.78	 	
 Forfeited options	 	 	(143,100	)	 	 	7.49	 	
 Expired options	 	 	(3,674	)	 	 	3.90	 	
Options outstanding on Dec. 31, 2020	 	 	2,145,900	 	 	 	7.02	 	
 Granted options	 	 	628,000	 	 	 	9.75	 	
 Exercised options	 	 	(587,300	)	 	 	6.34	 	
 Forfeited options	 	 	(103,000	)	 	 	7.98	 	
 Expired options	 	—	 	 	—	 	
Options outstanding on Dec. 31, 2021	 	 	2,083,600	 	 	 	7.93	 	
Of which exercisable	 	 	631,100	 	 	 	7.27	 	
 
The weighted average remaining contractual life for option rights outstanding on December 31, 2021, is 4.41 years (December 31, 2020: 4.06 years). The strike price for these options is between EUR 4.98 and EUR 12.58 (2020: between EUR 2.87 and EUR 10.16).
Stock options exercised in 2021 had an average share price of EUR 12.51 on the exercise date.
The average fair value of option rights granted in 2021 is EUR 4.26 (December 31, 2020: EUR 2.37).
Stock option program 2011 for the management board (Plan XIVa)
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 	 	Number of options	 	 	Weighted average strike price (in EUR)	 	
Options outstanding on Jan.1, 2020	 	 	1,066,667	 	 	 	6.31	 	
 Granted options	 	—	 	 	—	 	
 Exercised options	 	 	(265,000	)	 	 	4.09	 	
 Forfeited options	 	—	 	 	—	 	
 Expired options	 	—	 	 	—	 	
Options outstanding on Dec. 31, 2020	 	 	801,667	 	 	 	7.04	 	
 Granted options	 	 	265,000	 	 	 	10.00	 	
 Exercised options	 	 	(361,900	)	 	 	7.96	 	
 Forfeited options	 	—	 	 	—	 	
 Expired options	 	—	 	 	—	 	
Options outstanding on Dec. 31, 2021	 	 	704,767	 	 	 	7.67	 	
Of which exercisable	 	 	264,767	 	 	 	6.59	 	
 
The weighted average remaining contractual life for option rights outstanding on December 31, 2021, is 4.17 years (December 31, 2020: 3.10 years). The strike price for these options is between EUR 4.98 and EUR 10.00 (2020: between EUR 4.98 and EUR 8.70).
Stock options exercised in 2021 had an average share price of EUR 12.30 on the exercise date.
The average fair value of option rights granted in 2021 is EUR 3.28.
The revaluation due to the modification of the plan as of July 1, 2020, resulted in an additional weighted average fair value of the affected stock options of EUR 0.17 (incremental fair value).
Cash-settled stock option program 2020 for the management board (Plan XVIa)

 	 	Number of options	 	 	Weighted average strike price (in EUR)	 	
Options outstanding on Jan.1, 2020	 	—	 	 	—	 	
 Granted options	 	 	100,000	 	 	 	5.76	 	
 Exercised options	 	—	 	 	—	 	
 Forfeited options	 	—	 	 	—	 	
 Expired options	 	—	 	 	—	 	
Options outstanding on Dec. 31, 2020	 	 	100,000	 	 	 	5.76	 	
 Granted options	 	—	 	 	—	 	
 Exercised options	 	—	 	 	—	 	
 Forfeited options	 	—	 	 	—	 	
 Expired options	 	—	 	 	—	 	
Options outstanding on Dec. 31, 2021	 	 	100,000	 	 	 	5.76	 	
Of which exercisable	 	—	 	 	—	 	
 
The weighted average remaining contractual life for option rights outstanding on December 31, 2021, is 5.47 years (December 31, 2020: 6.47 years). The strike price for these options is EUR 5.76 (2020: EUR 5.76).
The average fair value of option rights granted in 2020 was EUR 2.82. No options were granted from this plan in 2021.
Compensation expenses arising from share-based compensation programs included in operating income were as follows:

(in thousands of EUR)	 	2021	 	 	2020	 	 	2019	 	
Plan XIV	 	 	1,128	 	 	 	878	 	 	 	1,023	 	
Plan XIVa	 	 	309	 	 	 	276	 	 	 	467	 	
 Thereof expense from modification	 	 	26	 	 	 	16	 	 	—	 	
Plan XVIa	 	 	189	 	 	 	35	 	 	—	 	
 	 	 	1,627	 	 	 	1,189	 	 	 	1,490	 	

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(39) Related party transactions
There are no related parties within the meaning of IAS 24. Key management personnel remuneration is disclosed in note (40).
(40) Governing boards and remuneration
Management board

 	 	Resident in	 	External mandates	
Brian Protiva
Chief executive officer	 	 Berg, Germany	 	 Member of the board of directors of AMS Technologies AG, Martinsried, Germany	
Christoph Glingener
Chief technology officer & chief operating officer	 	Jade, Germany	 	 Member of the board of trustees of Fraunhofer Heinrich-Hertz-Institute, Berlin, Germany	
Ulrich Dopfer
Chief financial officer	 	Alpharetta, Georgia, USA	 	 	
Scott St. John
Chief marketing & sales officer	 	Raleigh, North Carolina, USA	 	 	
 
Supervisory board

 	 	Resident in	 	Occumpation	 	External mandates	
Nikos Theodosopoulos
Chairman	 	 Manhasset, New York, USA	 	 Founder and managing member, NT Advisors LLC, Manhasset, New York, USA	 	 Member of the board of directors of Arista Networks, Inc.,
Santa Clara, CA, USA
Member of the board of directors of Harmonic, Inc.,
San Jose, CA, USA
Board member of Driving Management Systems, Inc.,
Colorado Springs, CO, USA	
Johanna Hey
Vicer chairwoman	 	Cologne, Germany	 	Professor for tax law, University of Cologne, Cologne, Germany	 	Director of the Institut Finanzen und Steuern e.V.,
Berlin, Germany
Member of the supervisory board of Gothaer Versicherungsbank VVaG,
Cologne, Germany
Member of the supervisory board of Gothaer Finanzholding AG,
Cologne, Germany
Chairwoman of the supervisory board of Cologne Executive School GmbH,
Cologne, Germany
Member of the supervisory board of Flossbach von Storch AG,
Cologne, Germany	
Michael Aquino	 	Peachtree City, Georgia, USA	 	 Consultant	 	 	
 
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Remuneration of the management board
The total management board remuneration according to IFRS amounts to EUR 3,217 thousand (2020 and 2019: EUR 2,684 thousand and EUR 2,179 thousand) and can be differentiated into following categories as follows:

(in thousands of EUR)	 	2021	 	 	2020	 	 	2019	 	
 Short-term employee benefits	 	 	2,436	 	 	 	2,103	 	 	 	1,712	 	
 Post-employment benefits	 	—	 	 	—	 	 	—	 	
 Other long-term benefits	 	 	282	 	 	 	269	 	 	—	 	
 Termination benefits	 	—	 	 	—	 	 	—	 	
 Share-based payment	 	 	499	 	 	 	311	 	 	 	467	 	
Total compensation	 	 	3,217	 	 	 	2,683	 	 	 	2,179	 	
 
Short-term employee benefits include fixed remuneration, fringe benefits and current variable remuneration.
The long-term variable pay (LTVP) for the period 2020 to 2022 amounting to EUR 808 thousand in total (2020: EUR 808 thousand and 2019: nil) focuses on the sustainable development of the group and will be paid to the members of the management board after three years, provided that a year-by-year increased minimum group pro forma EBIT is met for each of the three years.
In 2021, 2020 and 2019, no loans were granted to the members of the management board. As of December 31, 2021, there were no receivables from members of the management board (2020: EUR 6 thousand to one member of the management board and 2019: none).
On December 31, the members of the management board held the following shares and stock options at the respective year-end:

 	 	Shares	 	 	Stock options	 	
(in thousands of EUR)	 	2021	 	 	2020	 	 	2021	 	 	2020	 	
Brian Protiva
Chief executive officer	 	 	401,030	 	 	 	401,030	 	 	 	227,860	 	 	 	275,000	 	
Christoph Glingener
Chief technology officer & chief operating officer	 	—	 	 	—	 	 	 	221,430	 	 	 	195,000	 	
Ulrich Dopfer
Chief financial officer	 	 	500	 	 	 	500	 	 	 	105,477	 	 	 	181,667	 	
Scott St. John
Chief marketing & sales officer	 	—	 	 	—	 	 	 	250,000	 	 	 	250,000	 	
 
On December 31, 2021, and 2020, the options to members of the management board were granted out of Plan XIVa and Plan XVIa. The grants to two members of the management board under Plan XVIa in the financial year 2020 are accounted for as cash-settled share-based payments. On December 31, 2021, a provision of EUR 224 thousand was recognized. The option rights authorize the management board to purchase the said number of common shares in the company once the qualifying period has elapsed. Both plans include a profit limit of EUR 20.00 per option.
The management board received cash inflows of EUR 1,570 thousand from the exercise of stock options in 2021 (2020: EUR 687 thousand and 2019: EUR 118 thousand). Further details on the stock option programs can be found in note (38).
The total management board remuneration according to section 314 paragraph 1 no. 6a HGB was EUR 3,287 thousand in 2021, EUR 2,224 thousand in 2020 and EUR 1,695 thousand in 2019.
The fixed remuneration amounting to EUR 1,060 thousand (2020: EUR 1,057 thousand and 2019: EUR 1,065 thousand) includes non-performance-based considerations and fringe benefits (company car allowances). The variable remuneration considers components related to short-term performance goals that are reported as current liabilities on December 31, 2021, amounting to EUR 2,227 thousand (2020: EUR 1,029 thousand and 2019: EUR 630 thousand) as well as components based on long-term performance goals (in 2021: EUR 869 thousand; 2020: EUR 138 thousand; 2019: none).
Remuneration of the supervisory board
The fixed remuneration to be paid to the supervisory board for 2021, 2020 and 2019 totaled EUR 235 thousand, respectively.
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The remuneration for the supervisory board of ADVA Optical Networking SE is paid out in quarterly installments. The fixed remuneration for Q4 2021 amounting to EUR 59 thousand was paid out in January 2022. In the consolidated financial statements, this amount is recognized in other current liabilities.
On December 31, 2021, no shares or stock options were held by members of the supervisory board (December 31, 2020 and 2019: none).
(41) Events after the balance sheet date
On August 30, 2021, ADVA and ADTRAN announced the entry into a business combination agreement to combine the two companies and create a leading global, scaled provider of end-to-end fiber networking solutions for communications service provider, enterprise and government customers. On January 28, 2022, ADTRAN and ADVA announced that the minimum acceptance threshold for the proposed merger with ADTRAN has been reached. Following approval by the foreign trade authorities, the merger will take place. This corporate transaction may have effects on balance sheet items presented in the IFRS consolidated financial statements.
In order to obtain approval for the merger from the German foreign trade authority, it might be necessary to consolidate all of the company’s business relating to government customer and critical infrastructure in a separate structure. At present the company is in discussion with the authorities about the possible future set up. Any effects on the net assets, financial position and results of operations of the group are currently still being examined.
For U.S. loss-making entities where there is a change in ownership as part of a transaction, there may be a restriction on the continued use of tax attributes (for example, net operating losses, capital losses, tax credits, excess interest carryforwards, etc.). With regards to the US-subsidiary, ADVA Optical Networking North America, Inc., an indirect transfer of more than 50 % of the shares in the U.S. company occurring in connection with the ADTRAN merger could reduce its usable tax loss carry-forwards depending on the value ratios at the time of closing.
The existing financing agreements include termination rights in case of a change of control. The Management Board is currently in discussions with the lending banks. The Board of Management and the Supervisory Board currently assume that either an agreement can be reached with the lenders of the syndicated loan agreement that they will not exercise their right of termination, or that necessary credit lines can be replaced in some other way.
Possible further effects on the net assets, financial position and results of operations of the group are currently still being examined.
Apart from the possible effects of the corporate transaction, there were no events after the balance sheet date that have an impact on the net assets and financial position as of December 31, 2021, and the results of operations in 2021.
76
- Classified as Confidential -

 
Exhibit 99.2
 
INDEX TO UNAUDITED CONSOLIDATED ADVA FINANCIAL STATEMENTS

 	 	Page	
Unaudited Consolidated Financial Statements	 	 	
Consolidated Statements of Financial Position as of June 30, 2022 and December 31, 2021	 	78	
Consolidated Income Statements for the three and six months ended June 30, 2022 and 2021	 	79	
Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2022 and 2021	 	80	
Consolidated Cash Flow Statements for the three and six months ended June 30, 2022 and 2021	 	81	
Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2022 and 2021	 	82	
Notes to Condensed Consolidated Financial Statements	 	83	
 
77

ADVA OPTICAL NETWORKING SE
Consolidated statements of financial position as of June 30, 2022 and December 31, 2021 (unaudited)

 	 	 	 	 	June 30,	 	 	December 31,	 	
(in thousands of EUR)	 	Note	 	 	2022	 	 	2021	 	
ASSETS	 	 	 	 	 	 	 	 	 	
Current Assets	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	 	(6	)	 	 	63,187	 	 	 	108,987	 	
Trade accounts receivable	 	 	(7	)	 	 	111,872	 	 	 	82,972	 	
Contract assets	 	 	(9	)	 	 	184	 	 	 	180	 	
Inventories	 	 	(8	)	 	 	158,857	 	 	 	129,205	 	
Tax assets	 	 	 	 	 	2,683	 	 	 	331	 	
Other current assets	 	 	(10	)	 	 	15,825	 	 	 	13,978	 	
Total Current Assets	 	 	 	 	 	352,608	 	 	 	335,653	 	
Non-current Assets	 	 	 	 	 	 	 	 	 	
Right-of-use assets	 	 	(11	)	 	 	20,976	 	 	 	22,491	 	
Property, plant and equipment	 	 	(12	)	 	 	33,045	 	 	 	33,326	 	
Goodwill	 	 	 	 	 	75,628	 	 	 	71,595	 	
Capitalized development projects	 	 	(13	)	 	 	98,231	 	 	 	97,786	 	
Intangible assets acquired in business combinations	 	 	(13	)	 	 	10,477	 	 	 	11,982	 	
Other purchased and internally generated intangible assets	 	 	(13	)	 	 	12,966	 	 	 	8,540	 	
Deferred tax asset	 	 	 	 	 	16,708	 	 	 	15,339	 	
Other non-current assets	 	 	(10	)	 	 	5,261	 	 	 	4,812	 	
Total Non-current Assets	 	 	 	 	 	273,292	 	 	 	265,871	 	
Total Assets	 	 	 	 	 	625,900	 	 	 	601,524	 	
EQUITY AND LIABILITIES	 	 	 	 	 	 	 	 	 	
Current Liabilities	 	 	 	 	 	 	 	 	 	
Current lease liabilities	 	 	(14	)	 	 	5,772	 	 	 	6,001	 	
Current liabilities to banks	 	 	(15	)	 	 	25,174	 	 	 	25,289	 	
Trade accounts payable	 	 	(16	)	 	 	87,699	 	 	 	83,223	 	
Current provisions	 	 	(17	)	 	 	28,398	 	 	 	15,444	 	
Tax liabilities	 	 	 	 	 	4,643	 	 	 	5,769	 	
Current contract liabilities and advance payments	 	 	(18	)	 	 	25,158	 	 	 	18,810	 	
Refund liabilities	 	 	(18	)	 	 	609	 	 	 	931	 	
Other current liabilities	 	 	(16	)	 	 	25,142	 	 	 	40,065	 	
Total Current Liabilities	 	 	 	 	 	202,595	 	 	 	195,532	 	
Non-current Liabilities	 	 	 	 	 	 	 	 	 	
Non-current lease liabilities	 	 	(14	)	 	 	17,985	 	 	 	19,013	 	
Non-current liabilities to bank	 	 	(15	)	 	 	15,202	 	 	 	22,518	 	
Provisions for pensions and similar employee benefits	 	 	(17	)	 	 	8,064	 	 	 	7,401	 	
Other non-current provisions	 	 	(17	)	 	 	2,723	 	 	 	2,440	 	
Deferred tax liabilities	 	 	 	 	 	3,491	 	 	 	2,151	 	
Non-current contract liabilities	 	 	(18	)	 	 	9,175	 	 	 	9,325	 	
Other non-current liabilities	 	 	(16	)	 	 	3,553	 	 	 	3,232	 	
Total Non-current Liabilities	 	 	 	 	 	60,193	 	 	 	66,080	 	
Total Liabilities	 	 	 	 	 	262,788	 	 	 	261,612	 	
Stockholders' equity entitled to the owners of the parent company	 	 	(19	)	 	 	 	 	 	 	
Share capital	 	 	 	 	 	51,903	 	 	 	51,446	 	
Capital reserve	 	 	 	 	 	331,655	 	 	 	327,777	 	
Accumulated deficit	 	 	 	 	 	(35,116	)	 	 	(94,334	)	
Net income	 	 	 	 	 	13,470	 	 	 	59,218	 	
Accumulated other comprehensive income (loss)	 	 	 	 	 	1,200	 	 	 	(4,195	)	
Total stockholders' equity	 	 	 	 	 	363,112	 	 	 	339,912	 	
 	 	 	 	 	 	625,900	 	 	 	601,524	 	
 
78

ADVA OPTICAL NETWORKING SE
Consolidated income statements for the three and six months ended June 30, 2022 and 2021 (unaudited)

																					
(in thousands of EUR, except earnings per share and number of shares)	 	Note	 	 	Q2 2022	 	 	Q2 2021	 	 	6M 2022	 	 	6M 2021	 	
Revenues	 	 	(20	)	 	 	166,320	 	 	 	149,354	 	 	 	336,818	 	 	 	293,827	 	
Cost of goods sold	 	 	 	 	 	(112,408	)	 	 	(92,645	)	 	 	(229,972	)	 	 	(182,328	)	
Gross profit	 	 	 	 	 	53,912	 	 	 	56,709	 	 	 	106,846	 	 	 	111,499	 	
Selling and marketing expenses	 	 	 	 	 	(18,090	)	 	 	(15,866	)	 	 	(36,277	)	 	 	(31,535	)	
Thereof net impairment results on financial assets	 	 	(10	)	 	 	21	 	 	 	(160	)	 	 	47	 	 	 	(78	)	
General and administrative expenses	 	 	 	 	 	(10,035	)	 	 	(9,195	)	 	 	(19,931	)	 	 	(17,691	)	
Research and development expenses	 	 	 	 	 	(23,391	)	 	 	(19,442	)	 	 	(43,622	)	 	 	(39,160	)	
Other operating income	 	 	(22	)	 	 	2,405	 	 	 	980	 	 	 	4,061	 	 	 	2,174	 	
Other operating expenses	 	 	(22	)	 	 	(146	)	 	 	(150	)	 	 	(446	)	 	 	(678	)	
Operating income	 	 	 	 	 	4,655	 	 	 	13,036	 	 	 	10,631	 	 	 	24,609	 	
Interest income	 	 	(23	)	 	 	4	 	 	 	3	 	 	 	26	 	 	 	89	 	
Interest expenses	 	 	(23	)	 	 	(438	)	 	 	(542	)	 	 	(777	)	 	 	(976	)	
Foreign currency exchange gains	 	 	(24	)	 	 	8,480	 	 	 	2,901	 	 	 	12,029	 	 	 	5,505	 	
Foreign currency exchange losses	 	 	(24	)	 	 	(5,354	)	 	 	(3,031	)	 	 	(7,771	)	 	 	(4,918	)	
Income before tax	 	 	 	 	 	7,347	 	 	 	12,367	 	 	 	14,138	 	 	 	24,309	 	
Income tax benefit (expense), net	 	 	(25	)	 	 	(56	)	 	 	(366	)	 	 	(668	)	 	 	(1,080	)	
Net income entitled to the owners of the parent company	 	 	 	 	 	7,291	 	 	 	12,001	 	 	 	13,470	 	 	 	23,229	 	
Earnings per share in EUR	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
basic	 	 	 	 	 	0.14	 	 	 	0.24	 	 	 	0.26	 	 	 	0.46	 	
diluted	 	 	 	 	 	0.14	 	 	 	0.23	 	 	 	0.26	 	 	 	0.45	 	
Weighted average number of shares for calculation of earnings per share	 	 	 	 	 	 	 	 	 	 	 	
basic	 	 	 	 	 	51,612,820	 	 	 	50,551,596	 	 	 	51,529,817	 	 	 	50,524,296	 	
diluted	 	 	 	 	 	52,728,537	 	 	 	51,097,328	 	 	 	52,645,534	 	 	 	51,070,028	 	

 

79

ADVA OPTICAL NETWORKING SE
Consolidated statements of comprehensive income for the three and six months ended June 30, 2022 and 2021 (unaudited)

(in thousands of EUR)	 	Note	 	 	Q2 2022	 	 	Q2 2021	 	 	6M 2022	 	 	6M 2021	 	
Net income entitled to the owners of the parent company	 	 	 	 	 	7,291	 	 	 	12,001	 	 	 	13,470	 	 	 	23,229	 	
Items that may be reclassified to profit or loss in future periods	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Exchange differences on translation of foreign operations	 	 	 	 	 	3,984	 	 	 	(1,072	)	 	 	5,395	 	 	 	3,837	 	
Items that will not get reclassified to profit or loss in future periods	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Comprehensive income entitled to the owners of the parent company	 	 	(19	)	 	 	11,275	 	 	 	10,929	 	 	 	18,865	 	 	 	27,066	 	

80

ADVA OPTICAL NETWORKING SE
Consolidated cash flow statements for the three and six months ended June 30, 2022 and 2021 (unaudited)

(in thousands of EUR)	 	Note	 	 	Q2 2022	 	 	Q2 2021	 	 	6M 2022	 	 	6M2021	 	
Cash flow from operating activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before tax	 	 	 	 	 	7,347	 	 	 	12,367	 	 	 	14,138	 	 	 	24,309	 	
Adjustments to reconcile income before tax to net cash provided by operating activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-cash adjustments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Amortization of non-current assets	 	 	 	 	 	17,408	 	 	 	17,654	 	 	 	35,338	 	 	 	34,632	 	
Loss from disposal of property, plant and equipment and intangible assets	 	 	 	 	 	12	 	 	 	24	 	 	 	71	 	 	 	90	 	
Stock compensation expenses	 	 	 	 	 	441	 	 	 	377	 	 	 	839	 	 	 	665	 	
Other non-cash income and expenses	 	 	 	 	 	351	 	 	 	400	 	 	 	675	 	 	 	800	 	
Foreign currency exchange differences	 	 	 	 	 	(2,680	)	 	 	(260	)	 	 	(2,913	)	 	 	363	 	
Changes in asset and liabilities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Decrease (increase) in trade accounts receivable	 	 	 	 	 	(12,602	)	 	 	(6,862	)	 	 	(28,904	)	 	 	(11,027	)	
Decrease (increase) in inventories	 	 	 	 	 	(28,665	)	 	 	(3,838	)	 	 	(29,652	)	 	 	(7,615	)	
Decrease (increase) in other assets	 	 	 	 	 	(1,841	)	 	 	(1,585	)	 	 	(2,302	)	 	 	(4,301	)	
Increase (decrease) in trade accounts payable	 	 	 	 	 	22,636	 	 	 	3,991	 	 	 	4,476	 	 	 	15,929	 	
Increase (decrease) in provisions	 	 	 	 	 	6,011	 	 	 	5,235	 	 	 	13,244	 	 	 	11,380	 	
Increase (decrease) in other liabilities	 	 	 	 	 	(58	)	 	 	5,513	 	 	 	(8,058	)	 	 	(4,769	)	
Income tax paid and refunded, net	 	 	 	 	 	(1,828	)	 	 	(1,332	)	 	 	(3,143	)	 	 	(1,328	)	
Net cash provided (used) by operating activities	 	 	 	 	 	6,532	 	 	 	31,684	 	 	 	(6,191	)	 	 	59,128	 	
Cash flow from investing activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investments in property plant and equipment	 	 	(12	)	 	 	(2,419	)	 	 	(3,610	)	 	 	(6,813	)	 	 	(6,021	)	
Investments in intangible assets	 	 	(13	)	 	 	(10,194	)	 	 	(13,517	)	 	 	(27,841	)	 	 	(23,468	)	
Interest received	 	 	 	 	 	4	 	 	—	 	 	 	6	 	 	 	34	 	
Net cash used in investing activities	 	 	 	 	 	(12,609	)	 	 	(17,127	)	 	 	(34,648	)	 	 	(29,455	)	
Cash flow from financing activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Proceeds from capital increase and exercise of stock options	 	 	(19	)	 	 	3,564	 	 	 	798	 	 	 	3,564	 	 	 	798	 	
Repayment of lease liabilities	 	 	(14	)	 	 	(1,116	)	 	 	(1,267	)	 	 	(2,341	)	 	 	(1,883	)	
Cash repayment of liabilities to bank	 	 	(15	)	 	 	(7,500	)	 	 	(7,500	)	 	 	(7,500	)	 	 	(7,500	)	
Interest paid	 	 	 	 	 	(494	)	 	 	(473	)	 	 	(668	)	 	 	(923	)	
Net cash used in financing activities	 	 	 	 	 	(5,546	)	 	 	(8,442	)	 	 	(6,945	)	 	 	(9,508	)	
Net effect of foreign currency translation on cash and cash equivalents	 	 	 	 	 	1,808	 	 	 	(152	)	 	 	1,984	 	 	 	(23	)	
Net change in cash and cash equivalents	 	 	 	 	 	(9,815	)	 	 	5,963	 	 	 	(45,800	)	 	 	20,142	 	
Cash and cash equivalents on January 1	 	 	 	 	 	73,002	 	 	 	79,060	 	 	 	108,987	 	 	 	64,881	 	
Cash and cash equivalents on December 31	 	 	 	 	 	63,187	 	 	 	85,023	 	 	 	63,187	 	 	 	85,023	 	
 
81

 
 
ADVA OPTICAL NETWORKING SE
Consolidated statements of changes in stockholders' equity for the six months ended June 30, 2022 and 2021 (unaudited)

 	 	Share Capital	 	 	 	 	 	 	 	 	 	 	 	 	 	
(in thousands of EUR, except number of shares)	 	Number of shares	 	 	Par value	 	 	Capital reserve	 	 	Net income (loss) and accumulated deficit	 	 	Accumulated other comprehensive income (loss)	 	 	Total stockholders' equity entitled to the owners of the parent company	 	
Balance on January 1, 2021	 	 	50,496,692	 	 	 	50,497	 	 	 	320,715	 	 	 	(94,334	)	 	 	(13,660	)	 	 	263,218	 	
Capital increase, including exercise of stock options	 	 	158,500	 	 	 	158	 	 	 	640	 	 	 	—	 	 	 	—	 	 	 	798	 	
Stock options outstanding	 	—	 	 	—	 	 	 	603	 	 	 	—	 	 	 	—	 	 	 	603	 	
Net income	 	—	 	 	—	 	 	—	 	 	 	23,229	 	 	 	—	 	 	 	23,229	 	
Exchange differences on translation of foreign operations	 	—	 	 	—	 	 	—	 	 	 	—	 	 	 	3,837	 	 	 	3,837	 	
Comprehensive income	 	—	 	 	—	 	 	—	 	 	 	23,229	 	 	 	3,837	 	 	 	27,066	 	
Balance on June 30, 2021	 	 	50,655,192	 	 	 	50,655	 	 	 	321,958	 	 	 	(71,105	)	 	 	(9,823	)	 	 	291,685	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance on January 1, 2022	 	 	51,445,892	 	 	 	51,446	 	 	 	327,777	 	 	 	(35,116	)	 	 	(4,195	)	 	 	339,912	 	
Capital increase, including exercise of stock options	 	 	456,608	 	 	 	457	 	 	 	3,107	 	 	 	—	 	 	 	—	 	 	 	3,564	 	
Stock options outstanding	 	—	 	 	 	—	 	 	 	771	 	 	 	—	 	 	 	—	 	 	 	771	 	
Net income	 	—	 	 	 	—	 	 	 	—	 	 	 	13,470	 	 	 	—	 	 	 	13,470	 	
Exchange differences on translation of foreign operations	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	5,395	 	 	 	5,395	 	
Comprehensive income	 	—	 	 	 	—	 	 	 	—	 	 	 	13,470	 	 	 	5,395	 	 	 	18,865	 	
Balance on June 30, 2022	 	 	51,902,500	 	 	 	51,903	 	 	 	331,655	 	 	 	(21,646	)	 	 	1,200	 	 	 	363,112	 	

82

Notes to the condensed consolidated interim financial statements (unaudited)
1.Information about the company and the group
ADVA Optical Networking SE (hereinafter also referred to as the “company” or “ADVA SE”) is a Societas Europaea domiciled in Meiningen, Germany, with its registered office at Märzenquelle 1–3, 98617 Meiningen, and is registered as HRB 508155 at the commercial register in Jena. The management board authorized the condensed interim consolidated financial statements as of June 30, 2022 and for the three and six month periods ended June 30, 2022 and 2021 for inclusion in the SEC filing on September 30, 2022.
 
The ADVA Optical Networking group (hereinafter also referred to as “ADVA Optical Networking”, “the group” or “ADVA”) develops, manufactures and sells optical and Ethernet-based networking solutions to telecommunications carriers and enterprises to deliver data, storage, voice and video services.
 
Telecommunications service providers, private companies, universities and government agencies worldwide use the group’s systems. ADVA sells its product portfolio both directly and through an international network of distribution partners.
2.Basis of preparation and accounting policies
The group’s condensed interim consolidated financial statements for the period ended June 30, 2022 and 2021, are prepared in accordance with IAS 34 in light of a potential corporate transaction and are intended to be included in the relevant SEC filing. The condensed interim consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the group’s annual financial statements per December 31, 2021.
 
The condensed interim consolidated financial statements are presented in EUR. Unless otherwise stated, all amounts quoted are in thousands of EUR. The balance sheet is broken down into current and non-current assets and liabilities. The classification of income and expenses in the income statement is based on their function within the entity. Where items on the consolidated statement of financial position and in the consolidated income statement are summarized in the interest of clarity, this is explained in the notes to the consolidated financial statements.
 
The interim financial statements of the individual subsidiaries of the holding company ADVA SE, as subsumed in the condensed interim consolidated financial statements, are all prepared using the same accounting and valuation policies and the same balance sheet date.
 
The result of the six-month period through June 30, 2022, cannot be extrapolated to the result of the full year 2022.
3.Effects of new standards and interpretations
With the exception of the application of new and revised IFRS and interpretations (IFRIC) in the six month ended June 30, 2022, the accounting policies and valuation methods applied are consistent with those from the consolidated financial statements as of December 31, 2021.
 
Standards, amendments and interpretations applicable for the first time in 2022
In 2022, following standards and interpretations have been adopted for the first time.

Standard	 	Topic	 	First-time adoption*	 	IASB effective date	 	Expected impact on the financial position and
performance	
Amendments to IAS 16	 	Property, plant and equipment - revenue before intended use	 	Jan. 1, 2022	 	Jan. 1, 2022	 	none	
Amendments to IAS 37	 	Onerous contracts - costs of contract performance	 	Jan. 1, 2022	 	Jan. 1, 2022	 	none	
Amendments to IFRS 3	 	Reference to the IFRS framework	 	Jan. 1, 2022	 	Jan. 1, 2022	 	none	
Yearly improvements 2018 - 2020	 	IFRS 1, IFRS 9, IFRS 16 and IAS 41	 	Jan. 1, 2022	 	Jan. 1, 2022	 	none	
*To be applied in the first reporting period of a financial year beginning on or after this date.
 
The reform of the interest rate benchmarks has an impact on hedge accounting in particular. ADVA does not apply the hedge accounting rules according to IFRS 9 and is therefore not affected by the new regulations. In addition, the amendment affects the determination of contractual cash flows of financial assets and liabilities to the extent they are affected by the replacement of the previous reference interest rate. The relevant changes are accounted for in a simplified manner by updating the effective interest rate without any immediate impact on the income statement.
 
New accounting requirements not yet applicable for first-time adoption in 2022
The IASB and the IFRIC have issued further Standards and Interpretations in 2022 and previous years that were not applicable for the financial year 2022.
 
83

									
Standard	 	Topic	 	First-time adoption*	 	IASB effective date	 	Expected impact on the financial position and
performance	
IFRS 17 including amendments	 	Insurance contracts	 	Jan. 1, 2023	 	Jan. 1, 2023	 	none	
Amendments to IAS 1	 	Classification of liabilities as current or non-current	 	Jan. 1, 2023	 	Jan. 1, 2023	 	under review	
Amendments to IAS 1	 	Disclosure of accounting policies	 	Jan. 1, 2023	 	Jan. 1, 2023	 	none	
Amendments to IAS 8	 	Definition of accounting estimates	 	Jan. 1, 2023	 	Jan. 1, 2023	 	under review	
Amendments to IAS 12	 	Deferred tax related to assets and liabilities arising from
a single transaction	 	Jan. 1, 2023	 	Jan. 1, 2023	 	under review	
*To be applied in the first reporting period of a financial year beginning on or after this date.
4.Significant accounting judgements, estimates and assumptions
The preparation of the group's financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities on the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future. Assumptions used to make estimates are regularly reviewed. Changes in estimates only affecting one accounting period are only considered in that accounting period. In the case of changes in estimates that affect the current and future accounting periods, these are considered appropriately in the current and subsequent accounting periods.
 
Discussed below are the key judgments and assumptions concerning the future and other key sources of estimation and uncertainty on the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
 
Development expenses
Development expenses are capitalized in accordance with the accounting policy described in note (4). Initial capitalization of costs is based on management judgment assuming that technological and economic feasibility is confirmed, usually when a product development project has reached a defined milestone according to an established project management model. In determining the amounts to be capitalized, management makes assumptions regarding the expected future cash generation of the assets, discount rates to be applied and the expected period of benefits. See note (13) for the carrying amounts involved.
 
Impairment of non-financial assets
The group assesses whether there are any indicators of impairment for all non-financial assets on each reporting date. Goodwill and other indefinite life intangibles are tested for impairment annually and at other times when such indicators exist. Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. When value-in-use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash generating unit and choose a suitable discount rate in order to calculate the present value of these cash flows. See note (12) and (13) for the carrying amounts involved.
 
Employee Benefits
Pension and similar post-employment obligations as well as the related expenses are recognized based on actuarial calculations. The actuarial valuation of the present value of pension obligations depends on a number of assumptions regarding the discount rate, the expected salary increase rate, the expected pension trend, and life expectancy. In the event that changes in the assumptions regarding the valuation parameters are required, the future amounts of the pension obligations as well as the pension benefit costs may be affected materially. For further details on the valuation of pension obligations, see note (17).
 
Share-based compensation transactions
The group measures the cost of equity-settled and cash-settled transactions with employees by reference to the fair value of the equity instruments on the date at which they are granted or on the balance sheet date. Estimating fair value requires determining the most appropriate valuation model for a grant of equity instruments, which is dependent on the terms and conditions of the grant. This also requires determining the expected life of the option, volatility and dividend yield, as well as further assumptions. See note (31) for the carrying amounts involved.
 
Provisions
Significant estimates are involved in the determination of provisions related to warranty costs and legal proceedings a. The estimate of warranty claims is based on historic data and is extrapolated into the future. Legal proceedings often involve complex legal issues and are subject to substantial uncertainties. Accordingly, management exercises considerable judgment in determining whether there is a present obligation as a result of a past event at the end of the reporting period, whether it is more likely than not that such a proceeding will result in an outflow of resources and whether the amount of the obligation can be reliably estimated. Other provisions are described in note (17).
 
84

Transaction price for customer loyalty programs
Points accumulated for purchases provide a material right to customers that they would not receive without entering into a contract. The transaction price is allocated to the product and the points on a relative stand-alone selling price basis. Management estimates the selling price per point on the basis of the discount granted when the points are redeemed and on the basis of the likelihood of redemption, based on past experience.
 
Accounting for combined supply and service contracts
ADVA provides contracts that have more than one separate performance obligation (multiple element arrangements). The transaction price is allocated to the performance obligations in the contract by reference to their relative standalone selling prices. If a standalone selling price is not directly observable ADVA will need to estimate it. These estimates have a significant impact on the timing of revenue recognition.
 
Leases
In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).
 
Taxes
Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. Given the wide range of international business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expenses already recorded. The group establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective group company’s domicile.
 
Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available to utilize these losses. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies. See note (25) for the carrying amounts involved.
 
Non-financial risks
The assessment of the impact of non-financial risks (global warming, circular economy, new regulations) on the recognition and measurement of assets and liabilities is based on significant management judgments and assumptions. Non-financial risks are assessed by management as long-term risks that currently have no significant impact on net realizable values, recoverable amounts, useful lives or the requirement to recognize provisions.
5.Covid-19 effects
Against the background of the continuing crisis in connection with the global spreading of the Covid-19 virus, ADVA management has dealt again with the resulting risks and the relevant effects on accounting in the first half of 2022.
 
In the opinion of the management, there is still no sign of an increased default risk for trade receivables and contract assets. Therefore, no impact on the expected credit losses pursuant to IFRS 9 has been considered.
 
There was no triggering event for an impairment test pursuant to IAS 36.9 in the current reporting period. As of December 31, 2021, no impairment of goodwill or other non-current non-financial assets was required.
 
The German federal government as well as governments of other countries in which ADVA operates or maintains subsidiaries or branches have introduced economic stimulus measures and other bridging measures to overcome the Covid-19 crisis.
 
In 6M 2022 and 2021, no government support measures related to Covid-19, such as the waiver of social security contributions and the deferral of tax payments and the payment of social security contributions, were used by the group.
 
Deferred tax assets at ADVA Optical Networking SE and its subsidiaries, insofar they exceed the amount of deferred tax liabilities, are recognized based on forecasts of the future taxable income, which can be used for offsetting deductible temporary differences and tax loss carry forwards. At reporting date, based on the positive tax planning prepared for the relevant forecast period the recognized deferred tax assets were assessed as recoverable.
6.Cash and cash equivalents
Cash and cash equivalents include current funds as well as current financial assets with a remaining maturity that does not exceed three months and that are readily convertible to a known amount of cash and only subject to an insignificant risk of changes in value.
85

 
On June 30, 2022, cash of EUR 1,860 thousand (December 31, 2021: EUR 2,353 thousand) held in China is subject to local exchange control regulations. These local regulations provide for restrictions on exporting capital from the country, other than through normal dividends.
 
Cash at banks earns interest at floating rates based on daily bank deposit rates.
 
Cash equivalents are invested for varying periods of between one day and three months, depending on the immediate cash requirements of the group, and earn interest at the respective short-term deposit rates.
7.Trade accounts receivable
Trade accounts receivable are non-interest-bearing and are due within 30 to 120 days in general. For specific projects, other payment terms may be agreed.
 
Gross and net trade accounts receivable are as follows:
									
(in thousands of EUR)	 	Jun. 30, 2022	 	 	Dec. 31, 2021	 	
Gross trade accounts receivable	 	 	115,615	 	 	 	85,601	 	
Allowance for expected credit losses	 	 	(3,743	)	 	 	(2,629	)	
Net trade accounts receivable	 	 	111,872	 	 	 	82,972	 	
 
A reconciliation of the risk provision for trade accounts receivable carried at amortized cost is included in the table below:
									
(in thousands of EUR)	 	6M 2022	 	 	6M 2021	 	
Jan. 1	 	 	2,629	 	 	 	2,713	 	
Increase of risk provision	 	 	47	 	 	 	—	 	
Release of risk provision	 	—	 	 	 	(78	)	
Addition of specific allowances	 	 	915	 	 	 	—	 	
Usage	 	—	 	 	 	(31	)	
Foreign currency translation effects	 	 	152	 	 	 	57	 	
Jun. 30	 	 	3,743	 	 	 	2,661	 	
 	 	 	 	 	 	 	
The group has a supplier finance agreement, which entitles the transfer of trade receivables from a specific customer. Credit risks and settlement risks are transferred to the financing institution. The group fully derecognizes sold trade receivables as all risks and rewards are transferred. ADVA paid an annual fee amounting to LIBOR plus 0.75 % on the volume of receivables transferred. In 6M 2022, the group incurred interest expenses of EUR 75 thousand pertaining to this arrangement (6M 2021: EUR 26 thousand).
 
In Q2 2020, the group concluded another revolving factoring agreement with a maximum annual volume of EUR 20,000 thousand. The contract entitles the group to transfer uninsured trade receivables with certain customers. The agreement is for an indefinite period. The risks relevant to the risk assessment in relation to the receivables sold are the default risk and the late payment risk. As of June 30, 2022, receivables amounting to EUR 7,090 thousand (December 31, 2021: EUR 7,144 thousand) were sold, of which EUR 715 thousand (December 31, 2021: EUR 718 thousand) was not paid out as reserve. These reserves are recognized in other assets.
 
The group accounts for the sold trade receivables from the revolving factoring agreement in the amount of their continuing involvement. On June 30, 2022, the continuing involvement asset in the amount of EUR 396 thousand (December 31, 2021: EUR 349 thousand) was recognized as a liability and includes the maximum loss for the default and late payment risk for ADVA. The fair value of these guarantees or the interest payments to be made were recognized in the profit and loss statement and also recognized as other liabilities in the amount of EUR 51 thousand (December 31, 2021: EUR 50 thousand).
 
On June 30, 2022, trade accounts receivable include receivables of EUR 26,306 thousand related to the existing sale of receivables agreement (December 31, 2021: EUR 12,144 thousand), for which no transfer had taken place as of June 30, 2022. These receivables are classified as fair value through profit and loss (FVTPL) all other trade receivables are measured at amortized cost (AC).
8.Inventories
In 6M 2022, impairment of inventories amounting to EUR 3,787 thousand (6M 2021: EUR 2,017 thousand) was recognized as an expense within cost of goods sold. This amount includes reversals of earlier write-downs amounting to EUR 1,035 thousand (6M 2021: EUR 365 thousand) due to higher selling and input prices.
 
In 6M 2022 and 6M 2021, material costs of EUR 165,500 thousand and EUR 129,696 thousand, respectively, have been recognized.
9.Contract assets
Contract assets amounting to EUR 184 thousand (prior year: EUR 180 thousand) relate to claims from return deliveries. Contract assets are subject to the impairment requirements of IFRS 9, however the identified impairment losses were insignificant.
86

10.Other current and non-current assets
Other current assets are as follows:

(in thousands of EUR)	 	Jun. 30,
2022	 	 	Dec. 31,
2021	 	
Non-financial assets	 	 	 	 	 	 	
Prepaid expenses	 	 	5,194	 	 	 	3,853	 	
Receivables due from tax authorities	 	 	1,485	 	 	 	2,639	 	
Other	 	 	1,256	 	 	 	857	 	
Total current non-financial assets	 	 	7,935	 	 	 	7,349	 	
Financial assets	 	 	 	 	 	 	
Government grant allowances for research projects	 	 	4,492	 	 	 	3,325	 	
Positive fair values of derivative financial instruments	 	 	390	 	 	 	89	 	
Reserves relating to a revolving factoring agreement	 	 	715	 	 	 	718	 	
Volume discounts of suppliers	 	 	-	 	 	 	1,838	 	
Refund of duty & logistics charges	 	 	1,699	 	 	 	-	 	
Other	 	 	595	 	 	 	659	 	
Total current financial assets	 	 	7,890	 	 	 	6,629	 	
Total current assets	 	 	15,825	 	 	 	13,978	 	
Other current assets are non-interest-bearing and are generally due within 0 to 60 days.
 
Other non-current assets are as follows:
									
(in thousands of EUR)	 	Jun. 30,
2022	 	 	Dec. 31,
2021	 	
Financial assets	 	 	 	 	 	 	
Investments	 	—	 	 	—	 	
Government grant allowances for research projects	 	 	3,311	 	 	 	2,982	 	
Rent deposits	 	 	1,636	 	 	 	1,622	 	
Other	 	 	315	 	 	 	208	 	
Total non-current assets	 	 	5,261	 	 	 	4,812	 	
 
The fair value of the investment of 7.1 % (previous year: 7.1 %) of the shares in Saguna Networks Ltd., Nesher, Israel, amounted to zero on June 30, 2022. A review of the fair value at year-end did not indicate any write-up.
 
On June 30, 2022, government grants for 25 research projects are recognized (December 31, 2021: 19 research projects). These public grants relate to programs promoted by the EU and national governments. ADVA does not expect any defaults based on high credit rankings.
 
The rent deposits are mainly assets held in trust. ADVA does not expect any defaults.
 
On June 30, 2022 and December 31, 2021, no non-financial non- current assets have been reported.
11.Right-of-use assets
Right-of-use assets can be analyzed as follows:
									
(in thousands of EUR)	 	Jun. 30,
2022	 	 	Dec. 31,
2021	 	
Leased cars	 	 	1,392	 	 	 	1,470	 	
Leased premises	 	 	19,584	 	 	 	21,021	 	
Total right-of-use assets	 	 	20,976	 	 	 	22,491	 	

From January 1, 2019, lease terms of between 36 and 120 months were applied taking into account the minimum rental periods and contractual extension options. In 6M 2022, depreciation of EUR 501 thousand (6M 2021: EUR 564 thousand) for vehicles and EUR 2,492 thousand for office and building rentals are included in operating profit (6M 2021: EUR 2,386 thousand).
 
An amount of EUR 388 thousand, which mainly relates to short- term leases continues to be recognized in operating profit (6M 2021: EUR 277 thousand). In addition, variable lease payments of EUR 1,206 thousand were not included in the measurement of lease liabilities and are also recognized in operating profit (6M 2021: EUR 1,054 thousand). There are no major lease payments related to low value contracts. In the cash flow statement, the cash outflows resulting from these items are included in the cash flow from operating activities.
 
In 6M 2022 and 6M 2021 no impairment of right-of-use assets was recognized.
87

12.Property, plant and equipment
Property, plant and equipment can be analyzed as follows:

(in thousands of EUR)	 	Jun. 30,
2022	 	 	Dec. 31,
2021	 	
Land and buildings	 	 	5,095	 	 	 	5,455	 	
Technical equipment and machinery	 	 	22,807	 	 	 	23,673	 	
Factory and office equipment	 	 	2,401	 	 	 	2,361	 	
Assets under construction	 	 	2,742	 	 	 	1,837	 	
     Total property, plant and equipment	 	 	33,045	 	 	 	33,326	 	
 
In 6M 2022 and 6M 2021, there were neither impairments nor write-backs of property, plant and equipment impaired in prior years.
 
In 6M 2022, the group has not received any cash payments for government grants related to purchases (6M 2021: none). Based on grant notifications no historical costs have been deducted in 6M 2022 (6M 2021: none).
13.Intangibles assets
Capitalized development projects include expenses related to the development of technologies and products for connectivity solutions for cloud and mobile services, network functions virtualization (NFV) and synchronization technology.
 
In 6M 2022, borrowing costs of EUR 248 thousand (6M 2021: EUR 187 thousand) were capitalized related to development projects with an expected duration of more than 12 months. Borrowing costs were capitalized at the weighted average rate of the financial liabilities of 1.6% (prior year: 1.7%).
 
Intangible assets acquired in business combinations can be analyzed as follows:
										
(in thousands of EUR)	 	Jun. 30,
2022	 	 	Dec. 31,
2021	 	 	
Purchased software technology Overture	 	 	—	 	 	 	456	 	 	
Purchased technology MRV	 	 	1,809	 	 	 	2,504	 	 	
Purchased customer relationships Overture	 	 	1,140	 	 	 	1,401	 	 	
Purchased customer relationship MRV	 	 	7,528	 	 	 	7,621	 	 	
Total intangible assets acquired in business combinations	 	 	10,477	 	 	 	11,982	 	 	
 
Amortization of intangible assets with a finite useful life comprises:
																	
(in thousands of EUR)	 	Q2 2022	 	 	Q2 2021	 	 	6M 2022	 	 	6M 2021	 	
Capitalized development projects	 	 	10,532	 	 	 	10,933	 	 	 	21,734	 	 	 	21,344	 	
Intangible assets acquired in business combinations	 	 	913	 	 	 	1,002	 	 	 	1,847	 	 	 	2,001	 	
Other intangible assets	 	 	678	 	 	 	712	 	 	 	1,355	 	 	 	1,435	 	
Total amortization of intangible assets	 	 	12,123	 	 	 	12,647	 	 	 	24,936	 	 	 	24,780	 	
 
Amortization of intangible assets acquired in business combinations can be analyzed as follows:
																	
(in thousands of EUR)	 	Q2 2022	 	 	Q2 2021	 	 	6M 2022	 	 	6M 2021	 	
Purchased software technology Overture	 	 	—	 	 	 	173	 	 	 	58	 	 	 	346	 	
Purchased technology MRV	 	 	393	 	 	 	368	 	 	 	775	 	 	 	735	 	
Purchased customer relationships Overture	 	 	183	 	 	 	162	 	 	 	356	 	 	 	323	 	
Purchased customer relationship MRV	 	 	337	 	 	 	299	 	 	 	658	 	 	 	597	 	
Total amortization of intangible assets acquired in business combinations	 	 	913	 	 	 	1,002	 	 	 	1,847	 	 	 	2,001	 	
 
At initial recognition the useful lives of intangible assets acquired in business combinations were as follows:

Purchased software technology Overture	 	5 years, 7 months	
Purchased technology MRV	 	7 years	
Purchased customer relationships Overture	 	8 years	
Purchased customer relationships MRV	 	9 years, 9 months	
 
In 6M 2022 and 6M 2021 no impairment of intangible assets was recognized.
 
88

In the income statement, amortization of capitalized development projects and amortization of purchased technology is included in cost of goods sold. Amortization of purchased customer relationship assets is included in selling and marketing expenses.
14.Lease liabilities
Variable lease payments of EUR 1,206 thousand have not been included in the measurement of lease liabilities and were recognized in profit and loss (6M 2021: EUR 1,054 thousand). In the cash flow statement, the cash outflows resulting from these items are included in the cash flow from operating activities.
 
The interest expense of EUR 360 thousand is included in the financial result (6M 2021: EUR 376 thousand).
 
The maturity of lease liabilities is as follows:
										
(in thousands of EUR)	 	Jun. 30,
2022	 	 	Dec. 31,
2021	 	 	
Up to 1 year	 	 	5,772	 	 	 	6,001	 	 	
One to three years	 	 	8,881	 	 	 	8,880	 	 	
More than three years	 	 	9,105	 	 	 	10,133	 	 	
 	 	 	23,758	 	 	 	25,014	 	 	
 
15.Liabilities to banks
On June 30, 2022, the group had undrawn committed borrowing facilities totaling EUR 10,000 thousand available (December 31, 2021: EUR 10,000 thousand).
 
Liabilities to banks are measured at amortized cost (FLAC). On June 30, 2022, the net book value amounted to EUR 55,237 thousand and the fair value amounted to EUR 40,337 thousand, respectively The fair value of liabilities to banks is included in note (28).
16.Trade accounts payable and other current and non-current liabilities
The trade accounts payable are non-interest-bearing and generally due within 30 to 90 days.
 
Other current liabilities are as follows:
										
(in thousands of EUR)	 	Jun. 30,
2022	 	 	Dec. 31,
2021	 	 	
Non-financial liabilities	 	 	 	 	 	 	 	
Liabilities to employees for variable compensation and payroll	 	 	5,411	 	 	 	24,636	 	 	
Liabilities to employees for vacation	 	 	6,025	 	 	 	2,127	 	 	
Liabilities due to withheld wage income tax and social security contribution	 	 	3,562	 	 	 	3,547	 	 	
Liabilities due to tax authorities	 	 	3,878	 	 	 	2,441	 	 	
Obligations from subsidized research projects	 	 	4,833	 	 	 	3,840	 	 	
Total current non-financial liabilities	 	 	23,709	 	 	 	36,591	 	 	
Financial liabilities	 	 	 	 	 	 	 	
Negative fair value of derivatives	 	 	8	 	 	 	88	 	 	
Other	 	 	1,425	 	 	 	3,386	 	 	
Total current financial liabilities	 	 	1,433	 	 	 	3,473	 	 	
Total current liabilities	 	 	25,142	 	 	 	40,065	 	 	
 
Other non-current liabilities include:
									
(in thousands of EUR)	 	Jun. 30,
2022	 	 	Dec. 31,
2021	 	
Non-financial liabilities	 	 	 	 	 	 	
Obligations from subsidized research projects	 	 	3,485	 	 	 	3,129	 	
Other	 	 	17	 	 	 	17	 	
Total non-current non-financial liabilities	 	 	3,502	 	 	 	3,146	 	
Financial liabilities	 	 	 	 	 	 	
Other	 	 	51	 	 	 	86	 	
Total non-current financial liabilities	 	 	51	 	 	 	86	 	
Total non-current liabilities	 	 	3,553	 	 	 	3,232	 	
 
Forward rate agreements are measured using quoted forward exchange rates and yield curves derived from quoted interest rates according to the maturities of the contract.
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For all financial liabilities the fair value corresponds with the book value of the respective positions on June 30, 2022 The classification is in line with the disclosure in the group’s annual financial statements per December 31, 2021.
17.Pensions obligations and other provisions
Additions to pension provisions are made during the year on the basis of a forecast value determined as part of the actuarial valuation as of December 31, 2021.
 
Other provisions are as follows:
										
(in thousands of EUR)	 	Jun. 30,
2022	 	 	Dec. 31,
2021	 	 	
Current provisions	 	 	 	 	 	 	 	
Warranty provision	 	 	2,059	 	 	 	336	 	 	
Personnel provisions	 	 	10,195	 	 	 	1,309	 	 	
Consulting fees	 	 	2,911	 	 	 	2,712	 	 	
Supplier obligations	 	 	12,519	 	 	 	9,685	 	 	
Other short-term provisions	 	 	714	 	 	 	1,402	 	 	
Total current provisions	 	 	28,398	 	 	 	15,444	 	 	
Non-current provisions	 	 	 	 	 	 	 	
Warranty provision	 	 	1,667	 	 	 	1,592	 	 	
Non-current personnel provisions	 	 	982	 	 	 	774	 	 	
Other long-term provisions	 	 	74	 	 	 	74	 	 	
Total non-current provisions	 	 	2,723	 	 	 	2,440	 	 	
Total provisions	 	 	31,121	 	 	 	17,884	 	 	
 
The estimated expenses related to warranty claims reflect both past experience and current developments and are based on a percentage of sales revenues. Any differences between actual amounts and anticipated amounts are treated as changes in accounting estimates and affect earnings in the period in which the change occurs.
 
Current personnel provisions mainly include variable compensation payments, expenses for employee’s accident insurance and other expenses resulting from legal requirements. For year-end reporting, variable compensation payments are reclassified to other liabilities.
 
Other current provisions primarily include provisions for outstanding invoices of uncertain amount and timing.
 
Reversals of provisions from previous years are reported under other operating income (see note (22)).
18.Contract liabilities and refund liabilities
Contract and refund liabilities are as follows:
										
(in thousands of EUR)	 	Jun. 30,
2022	 	 	Dec. 31,
2021	 	 	
Current contract liabilities	 	 	 	 	 	 	 	
Advance payments received	 	 	518	 	 	 	450	 	 	
Current contract liabilities related to customer loyalty programs	 	 	572	 	 	 	511	 	 	
Current deferred revenues related to service level agreements	 	 	24,068	 	 	 	17,849	 	 	
Total current contract liabilities	 	 	25,159	 	 	 	18,810	 	 	
Current refund liabilities	 	 	609	 	 	 	931	 	 	
Total refund liabilities	 	 	609	 	 	 	931	 	 	
Non-current contract liabilities	 	 	 	 	 	 	 	
Non-current deferred revenues related to service level agreements	 	 	9,175	 	 	 	9,325	 	 	
Total non-current contract liabilities	 	 	9,175	 	 	 	9,325	 	 	
Total contract liabilities	 	 	34,942	 	 	 	29,066	 	 	
 
Current contract liabilities related to customer loyalty programs include mainly expected volume discounts and refunds to customers.
 
The revenues generated in the reporting period from contract liabilities existing at the beginning of the period amounted to EUR 13,813 thousand (previous year: EUR 12,919 thousand).
 
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Management expects that 73 % of the outstanding or partially outstanding benefit obligations as of June 30, 2022, will be recognized as revenue within the next twelve months. The remaining 27 % is expected to be recognized as sales after twelve months in financial year 2023 and later. The amount stated does not include variable compensation components which are limited.
19.Stockholders' equity
On June 30, 2022 the share capital amounts to EUR 51,902,500 (on December 31, 2021: EUR 51,445,892).
 
In connection with the exercise of stock options, 456,608 shares were issued to employees and management board of the company and its group companies out of conditional capital in 6M 2022. The par value of EUR 457 thousand was appropriated to the share capital, whereas the premium of EUR 3,107 thousand was recognized as capital reserve.
 
Accumulated other comprehensive income/(loss) is used to record exchange differences arising from the translation of the financial statements of foreign operations. In addition, the result from remeasurement of defined benefit obligations is included in this line item. The complete changes in other comprehensive income in 6M 2022 and the prior-year period result from translation effects. Remeasurement of defined benefit plans is regularly done at year-end. In 6M 2022 and 6M 2021 no items were reclassified (recycled) from comprehensive income to profit or loss.
 
In the annual shareholder´s meeting on May 18, 2022, no increase of the conditional capital 2011/I was resolved. Considering the above-described capital transactions, the total conditional capital on June 30, 2022 amounts to EUR 3,644 thousand.
 
The changes in share capital, authorized and conditional capital are summarized below:
														
(in thousands of EUR)	 	Share capital	 	 	Authorized
capital
2019/I	 	 	Conditional
capital
2011/I	 	 	
Jan. 1, 2022	 	 	51,446	 	 	 	24,965	 	 	 	4,100	 	 	
 Changes due to Annual Shareholders’ Meeting resolutions	 	—	 	 	—	 	 	 	-	 	 	
 Stock options exercised	 	 	457	 	 	—	 	 	 	(457	)	 	
Jun. 30, 2022	 	 	51,903	 	 	 	24,965	 	 	 	3,644	 	 	
 
Further details on stockholders’ equity are included in the consolidated statement of changes in stockholders’ equity.
20.Revenues
In 6M 2022 and 6M 2021, revenues included EUR 45,851 thousand and EUR 40,360 thousand for services, respectively. The remaining revenues relate mainly to product sales.
 
In 6M 2022, revenues related to customer loyalty programs amounting to EUR 146 thousand have been recognized (6M 2021: EUR 216 thousand).
 
In 6M 2022, revenues amounting to EUR 299,488 thousand (prior year: EUR 264,338 thousand) relate to performance obligations that were performed at a specific point in time, and revenues of EUR 37,330 thousand (6M 2021: EUR 29,487 thousand) relate to performance obligations that were delivered over a period of time.
 
A segmentation of revenues by geographic region is provided in the section on segment reporting under note (27).
21.Selling and marketing, general and administration and research and development expenses
Selling and marketing, general and administration and research and development expenses mainly include personnel expenses relating to wages and salaries and social security costs.
 
In addition, general and administration expenses include expenses for external services provided for legal, accounting and tax purposes as well as expenses regarding rented office space and leased cars.
 
Research and development expenses additionally include external service expenses mainly for research and development services, calibration and certification and legal fees as well as depreciation expenses for equipment and cost of material used for research and development.
 
91

22.Other operating income and expenses
Other operating income and expenses are as follows:
																	
  (in thousands of EUR)	 	Q2 2022	 	 	Q2 2021	 	 	6M 2022	 	 	6M 2021	 	
Other operating income	 	 	 	 	 	 	 	 	 	 	 	 	
 Government grants received	 	 	544	 	 	 	429	 	 	 	929	 	 	 	879	 	
 Release of provisions	 	 	13	 	 	 	131	 	 	 	691	 	 	 	216	 	
 Income for the supply of development services	 	 	-	 	 	 	35	 	 	 	24	 	 	 	35	 	
 Income from payments received on receivables written off in previous periods	 	 	-	 	 	 	39	 	 	 	-	 	 	 	39	 	
 Refund of duty and logistic charges	 	 	2,009	 	 	 	-	 	 	 	2,009	 	 	 	-	 	
 Other	 	 	(161	)	 	 	346	 	 	 	408	 	 	 	1,005	 	
Total other operating income	 	 	2,405	 	 	 	980	 	 	 	4,061	 	 	 	2,174	 	
Other operating expenses	 	 	 	 	 	 	 	 	 	 	 	 	
 Derecognition of trade accounts receivable	 	 	-	 	 	 	(133	)	 	 	-	 	 	 	(210	)	
 Write-off of prepayments received for licenses	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(226	)	
 Other	 	 	(146	)	 	 	(17	)	 	 	(446	)	 	 	(242	)	
Total other operating expenses	 	 	(146	)	 	 	(150	)	 	 	(446	)	 	 	(678	)	
Other operating income and expenses, net	 	 	2,259	 	 	 	830	 	 	 	3,615	 	 	 	1,496	 	
 
92

23.Interest income and expenses
Interest income primarily includes interest from daily bank deposits and from other short-term deposits with maturities between one day and three months.
 
Interest expenses are primarily incurred on financial liabilities and on the sale of receivables. In addition, net interest expenses from valuation of defined benefit plans and interest expenses related to leases according to IFRS 16 are included.
 
For further details, refer to notes (7) and (14).
24.Other financial gains and losses
Foreign currency exchange gains and losses, net, comprise the following:
																	
  (in thousands of EUR)	 	Q2 2022	 	 	Q2 2021	 	 	6M 2022	 	 	6M 2021	 	
Foreign currency exchange gains	 	 	8,479	 	 	 	2,901	 	 	 	12,028	 	 	 	5,505	 	
 Thereof: gains from forward rate agreements	 	 	1,047	 	 	 	79	 	 	 	1,468	 	 	 	339	 	
Foreign currency exchange losses	 	 	(5,354	)	 	 	(3,031	)	 	 	(7,770	)	 	 	(4,918	)	
 Thereof: losses from forward rate agreements	 	 	9	 	 	 	(133	)	 	 	(36	)	 	 	(282	)	
Total foreign currency exchange gains and losses, net	 	 	3,125	 	 	 	(130	)	 	 	4,258	 	 	 	587	 	
25.Income tax
The tax expenses in 6M 2022 and 6M 2021 result from the application of the expected tax rate of the group to the current IFRS result. The expected tax rate is calculated based on a tax planning for the financial year.
26.Consolidated cash flow statement
The consolidated cash flow statement has been prepared in accordance with IAS 7.
 
Cash and cash equivalents include short-term cash and short- term financial assets whose remaining maturity does not exceed three months. Bank overdrafts are reported in financial liabilities.
 
The movements of liabilities from financing activities are as follows:
													
(in thousands of EUR)	 	Lease liabilities	 	 	Liabilities to banks	 	 	Total liabilities from financing activities	 	
Jan. 1, 2021	 	 	27,805	 	 	 	62,621	 	 	 	90,426	 	
 Repayments	 	 	(2,388	)	 	 	(7,500	)	 	 	(9,888	)	
 Non-cash changes	 	 	364	 	 	 	116	 	 	 	480	 	
 Foreign currency exchange effects	 	 	505	 	 	 	-	 	 	 	505	 	
Jun. 30, 2021	 	 	26,286	 	 	 	55,237	 	 	 	81,523	 	
 	 	 	 	 	 	 	 	 	 	
Jan. 1, 2022	 	 	25,014	 	 	 	47,807	 	 	 	72,821	 	
 Repayments	 	 	(2,885	)	 	 	(7,500	)	 	 	(10,385	)	
 Non-cash changes	 	 	1,084	 	 	 	69	 	 	 	1,153	 	
 Foreign currency exchange effects	 	 	544	 	 	 	-	 	 	 	544	 	
Jun. 30, 2022	 	 	23,757	 	 	 	40,376	 	 	 	64,133	 	
 
Actual interest payments for liabilities to banks amounting to EUR 308 thousand (6M 2021: EUR 547 thousand) and interest related to lease liabilities of EUR 360 thousand (6M 2021: EUR 376 thousand) are included in cash flow from financing activities.
 
Non-cash changes include effective interest rate changes on liabilities to banks as well as non-cash effective increases or decreases in lease liabilities due to consideration of new lease contracts or disposal of lease contracts.
 
Cash and cash equivalents to which the group only has restricted access are explained in note (6).
 
Cash flows from investing and financing activities are determined directly, whereas the cash flow from operating activities is derived indirectly from the consolidated income before tax. When cash flow from operating activities is calculated, the changes in assets and liabilities are adjusted for the effects of currency translation. As a result, it is not possible to reconcile the figures to the differences in the published consolidated statement of financial position.
27.Segment reporting
In accordance with IFRS 8, operating segments are identified based on the way information is reported internally to the chief operating decision maker, i.e. the management board, and regularly reviewed to make decisions about resources to be assigned to the segment and assess its performance. The internal organizational and management structure and the structure of internal financial reporting activities are the key factors in determining what information is reported. For making decisions about resource allocation and performance
93

assessment, management does not monitor the operating results separately on the level of business units. Therefore the reporting on individual business segment does not apply.
 
Within the ADVA group, management decisions are based on pro forma EBIT. Pro forma financial information excludes non-cash charges related to share-based compensation plans and amortization and impairment of goodwill and acquisition- related intangible assets. Additionally, expenses related to M&A and restructuring measures are not included. Income from capitalization of development expenses is shown as a separate line item and not deducted from research and development expenses.
 
Reconciliation of key performance measures to the consolidated financial income on June 30, 2022 presents as follows:
																														
(in thousands of EUR)	 	Pro forma financial information	 	 	Intangible assets from acquisitions	 	 	Goodwill	 	 	Compensation
expenses	 	 	Expenses related to M&A transactions	 	 	Disclosure
of R&D expenses	 	 	Consolidated
financial information	 	 	
 Revenues	 	 	336,818	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	 	336,818	 	 	
 Cost of goods sold	 	 	(229,077	)	 	 	(833	)	 	—	 	 	 	(62	)	 	—	 	 	—	 	 	 	(229,972	)	 	
 Gross profit	 	 	107,741	 	 	 	(833	)	 	—	 	 	 	(62	)	 	—	 	 	—	 	 	 	106,846	 	 	
 Gross margin	 	 	32.0	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	31.7	%	 	
 Selling and marketing expenses	 	 	(35,016	)	 	 	(1,014	)	 	—	 	 	 	(247	)	 	—	 	 	—	 	 	 	(36,277	)	 	
 General and administrative expenses	 	 	(18,813	)	 	—	 	 	—	 	 	 	(188	)	 	 	(930	)	 	—	 	 	 	(19,931	)	 	
 Research and development expenses	 	 	(65,459	)	 	—	 	 	—	 	 	 	(342	)	 	—	 	 	 	22,179	 	 	 	(43,622	)	 	
 Income from capitalization of development expenses	 	 	22,179	 	 	—	 	 	—	 	 	—	 	 	—	 	 	 	(22,179	)	 	—	 	 	
 Other operating income	 	 	4,061	 	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	 	4,061	 	 	
 Other operating expenses	 	 	(446	)	 	—	 	 	—	 	 	—	 	 	—	 	 	—	 	 	 	(446	)	 	
 Operating income	 	 	14,247	 	 	 	(1,847	)	 	—	 	 	 	(840	)	 	 	(930	)	 	—	 	 	 	10,631	 	 	
 Operating margin	 	 	4.2	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	3.2	%	 	
 Segment assets	 	 	539,796	 	 	 	10,477	 	 	 	75,628	 	 	—	 	 	—	 	 	—	 	 	 	625,900	 	 	
 
Reconciliation of key performance measures to the consolidated financial income on June 30, 2021 presents as follows:
																												
(in thousands of EUR)	 	Pro forma financial information	 	 	Intangible assets from acquisitions	 	 	Goodwill	 	 	Compensation
expenses	 	 	Expenses related to M&A transactions	 	Disclosure
of R&D expenses	 	 	Consolidated financial - information	 	 	
 Revenues	 	 	293,827	 	 	—	 	 	—	 	 	—	 	 	—	 	—	 	 	 	293,827	 	 	
 Cost of goods sold	 	 	(181,208	)	 	 	(1,081	)	 	—	 	 	 	(39	)	 	—	 	—	 	 	 	(182,328	)	 	
 Gross profit	 	 	112,619	 	 	 	(1,081	)	 	—	 	 	 	(39	)	 	—	 	—	 	 	 	111,499	 	 	
 Gross margin	 	 	38.3	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	37.9	%	 	
 Selling and marketing expenses	 	 	(30,311	)	 	 	(920	)	 	—	 	 	 	(304	)	 	—	 	—	 	 	 	(31,535	)	 	
 General and administrative expenses	 	 	(17,595	)	 	—	 	 	—	 	 	 	(96	)	 	—	 	—	 	 	 	(17,691	)	 	
 Research and development expenses	 	 	(59,212	)	 	—	 	 	—	 	 	 	(226	)	 	—	 	 	20,278	 	 	 	(39,160	)	 	
 Income from capitalization of development expenses	 	 	20,278	 	 	—	 	 	—	 	 	—	 	 	—	 	 	(20,278	)	 	—	 	 	
 Other operating income	 	 	2,174	 	 	—	 	 	—	 	 	—	 	 	—	 	—	 	 	 	2,174	 	 	
 Other operating expenses	 	 	(678	)	 	—	 	 	—	 	 	—	 	 	—	 	—	 	 	 	(678	)	 	
 Operating income	 	 	27,275	 	 	 	(2,001	)	 	—	 	 	 	(665	)	 	—	 	—	 	 	 	24,609	 	 	
 Operating margin	 	 	9.3	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	8.4	%	 	
 Segment assets	 	 	460,125	 	 	 	13,439	 	 	 	68,831	 	 	—	 	 	—	 	—	 	 	 	542,395	 	 	
 
Additional information by geographical regions:
																	
(in thousands of EUR)	 	Q2 2022	 	 	Q2 2021	 	 	6M 2022	 	 	6M 2021	 	
 Revenues	 	 	 	 	 	 	 	 	 	 	 	 	
 Germany	 	 	36,702	 	 	 	39,085	 	 	 	76,294	 	 	 	84,285	 	
 Rest of Europe, Middle East and Africa	 	 	56,238	 	 	 	57,245	 	 	 	113,020	 	 	 	108,265	 	
 Americas	 	 	59,378	 	 	 	41,658	 	 	 	118,549	 	 	 	78,348	 	
 Asia-Pacific	 	 	14,001	 	 	 	11,366	 	 	 	28,955	 	 	 	22,929	 	
 Total revenues	 	 	166,320	 	 	 	149,354	 	 	 	336,818	 	 	 	293,827	 	
 
94

									
 (in thousands of EUR)	 	Jun. 30,
 2022	 	 	Dec. 31,
 2021	 	
 Non-current assets	 	 	 	 	 	 	
 Germany	 	 	138,204	 	 	 	133,634	 	
 Rest of Europe, Middle East and Africa	 	 	26,471	 	 	 	28,285	 	
 Americas	 	 	83,524	 	 	 	80,259	 	
 Asia-Pacific	 	 	3,123	 	 	 	3,542	 	
 Total non-current assets for segment reporting	 	 	251,322	 	 	 	245,720	 	
 
Revenue information is based on the shipment location of the customers.
 
In 6M 2022, revenues with two major customers exceeded 10 % of total revenues (6M 2021: two major customers). In 6M 2022, the share of revenues allocated to major customers was EUR 93,868 thousand (6M 2021: EUR 73,885 thousand); thereof revenue with the biggest customer was EUR 50,532 thousand (6M 2021: EUR 41,956 thousand) and with the second biggest customer was EUR 43,336 thousand (prior year: EUR 31,929 thousand).
 
Non-current assets including property, plant and equipment, intangible assets and finance lease equipment are attributed based on the location of the respective group company.
 
28.Financial instruments
The following tables analyze carrying amounts and fair values according to measurement categories. Only assets and liabilities, which fall into the categories defined by IFRS 7, are presented so that the total amounts disclosed do not correspond to the balance sheet totals of each year.
																					
 	 	 	 	 	 	 	Categories recognized according to IFRS 9	 	 	 	 	 	 	
(in thousands of EUR, on Jun. 2022)	 	Measurement category in accordance with IFRS 9	 	Carrying amount	 	 	Amortized cost	 	 	Fair value recognized in profit and loss	 	 	Fair value	 	 	Hierarchy of fair values	
 Assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Cash and cash equivalents	 	AC	 	 	63,187	 	 	 	63,187	 	 	 	-	 	 	n/a*	 	 	n/a*	
 Trade accounts receivable without underlying factoring agreement	 	AC	 	 	85,566	 	 	 	85,566	 	 	 	-	 	 	n/a*	 	 	n/a*	
 Trade accounts receivable with underlying factoring agreement	 	FVTPL	 	 	26,306	 	 	 	-	 	 	 	26,306	 	 	 	26,306	 	 	Level 2	
 Other current financial assets	 	AC	 	 	7,500	 	 	 	7,500	 	 	 	-	 	 	n/a*	 	 	n/a*	
 Other non-current financial assets	 	AC	 	 	5,261	 	 	 	5,261	 	 	 	-	 	 	 	5,261	 	 	Level 2	
 Derivatives	 	FVTPL	 	 	390	 	 	 	-	 	 	 	390	 	 	 	390	 	 	Level 2	
 Investments	 	FVTPL	 	 	-	 	 	 	-	 	 	 	 	 	 	-	 	 	Level 3	
 Total financial assets	 	 	 	 	188,210	 	 	 	161,514	 	 	 	26,696	 	 	 	31,957	 	 	 	
 Liabilities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Current lease liabilities	 	n/a	 	 	5,772	 	 	 	5,772	 	 	 	-	 	 	n/a	 	 	n/a	
 Non-current lease liabilities	 	n/a	 	 	17,985	 	 	 	17,985	 	 	 	-	 	 	n/a	 	 	n/a	
 Current liabilities to banks	 	FLAC	 	 	25,174	 	 	 	25,174	 	 	 	-	 	 	 	25,133	 	 	Level 2	
 Non-current liabilities to banks	 	FLAC	 	 	15,202	 	 	 	15,202	 	 	 	-	 	 	 	15,204	 	 	Level 2	
 Trade accounts payable	 	FLAC	 	 	87,699	 	 	 	87,699	 	 	 	-	 	 	n/a*	 	 	n/a*	
 Other current financial liabilities	 	FLAC	 	 	1,425	 	 	 	1,425	 	 	 	-	 	 	n/a*	 	 	n/a*	
 Other non-current financial liabilities	 	FLAC	 	 	51	 	 	 	51	 	 	 	-	 	 	 	51	 	 	Level 2	
 Derivatives	 	FVTPL	 	 	8	 	 	 	-	 	 	 	8	 	 	 	8	 	 	Level 2	
 Total financial liabilities	 	 	 	 	153,316	 	 	 	153,308	 	 	 	8	 	 	 	40,396	 	 	 	
 
95

																					
 	 	 	 	 	 	 	Categories recognized according to IFRS 9	 	 	 	 	 	 	
(in thousands of EUR, on Dec. 31, 2021)	 	Measurement category in accordance with IFRS 9	 	Carrying amount	 	 	Amortized cost	 	 	Fair value recognized in profit and loss	 	 	Fair value	 	 	Hierarchy of fair values	
 Assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Cash and cash equivalents	 	AC	 	 	108,987	 	 	 	108,987	 	 	 	-	 	 	n/a*	 	 	n/a*	
 Trade accounts receivable without underlying factoring agreement	 	AC	 	 	70,828	 	 	 	70,828	 	 	 	-	 	 	n/a*	 	 	n/a*	
 Trade accounts receivable with underlying factoring agreement	 	FVTPL	 	 	12,144	 	 	 	-	 	 	 	12,144	 	 	 	12,144	 	 	Level 2	
 Other current financial assets	 	AC	 	 	6,629	 	 	 	6,629	 	 	 	-	 	 	n/a*	 	 	n/a*	
 Other non-current financial assets	 	AC	 	 	4,812	 	 	 	4,812	 	 	 	-	 	 	 	4,812	 	 	Level 2	
 Derivatives	 	FVTPL	 	 	89	 	 	 	-	 	 	 	89	 	 	 	89	 	 	Level 2	
 Investments	 	FVTPL	 	 	-	 	 	 	-	 	 	 	 	 	 	-	 	 	Level 3	
 Total financial assets	 	 	 	 	203,489	 	 	 	191,256	 	 	 	12,233	 	 	 	17,045	 	 	 	
 Liabilities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 Current lease liabilities	 	n/a	 	 	6,001	 	 	 	6,001	 	 	 	-	 	 	n/a	 	 	n/a	
 Non-current lease liabilities	 	n/a	 	 	19,013	 	 	 	19,013	 	 	 	-	 	 	n/a	 	 	n/a	
 Current liabilities to banks	 	FLAC	 	 	25,289	 	 	 	25,289	 	 	 	-	 	 	 	25,340	 	 	Level 2	
 Non-current liabilities to banks	 	FLAC	 	 	22,518	 	 	 	22,518	 	 	 	-	 	 	 	22,697	 	 	Level 2	
 Trade accounts payable	 	FLAC	 	 	83,223	 	 	 	83,223	 	 	 	-	 	 	n/a*	 	 	n/a*	
 Other current financial liabilities	 	FLAC	 	 	3,386	 	 	 	3,386	 	 	 	-	 	 	n/a*	 	 	n/a*	
 Other non-current financial liabilities	 	FLAC	 	 	86	 	 	 	86	 	 	 	-	 	 	 	86	 	 	Level 2	
 Derivatives	 	FVTPL	 	 	88	 	 	 	-	 	 	 	88	 	 	 	88	 	 	Level 2	
 Total financial liabilities	 	 	 	 	159,603	 	 	 	159,515	 	 	 	88	 	 	 	48,211	 	 	 	
 
29.Other financial obligations and financial commitments
On June 30, 2022, the group had purchase commitments totaling EUR 210.038 thousand (on December 31, 2021: EUR 170.438 thousand) in respect to suppliers.
 
Group entities have issued guarantees in favor of customers. On June 30, 2022, performance bonds with a maximum guaranteed amount of EUR 335 thousand were issued (on December 31, 2021: EUR 334 thousand). Based on experience from prior periods, ADVA does not expect claims from these guarantees at the end of 6M 2022.
 
Moreover, there are certain guarantee obligations from ADVA North America Inc. and ADVA Ltd. to ADVA Optical Networking SE with respect to various financing agreements.
30.Contingent liabilities
In the normal course of business, claims may be asserted, or lawsuits filed against the company and its subsidiaries from time to time. On June 30, 2022, ADVA does not expect potential titles or litigations that will in detail or in total have a material impact on its financial position or operating performance.
31.Stock option programs
Changes in the number of options rights outstanding and similar rights are detailed in the table below:
														
 	 	Stock Option Program 2011 Plan XIV	 	 	Stock Option Program 2011 Plan XIVa	 	 	Stock Option Program 2020 Plan XVIa	 	 	
Options outstanding on Jan. 1, 2021	 	 	2,146	 	 	 	802	 	 	 	100	 	 	
 Granted options	 	 	628	 	 	 	265	 	 	 	-	 	 	
 Exercised options	 	 	(587	)	 	 	(362	)	 	 	-	 	 	
 Forfeited options	 	 	(103	)	 	 	-	 	 	 	-	 	 	
 Expired options	 	 	-	 	 	 	-	 	 	 	-	 	 	
Options outstanding on Dec. 31, 2021	 	 	2,084	 	 	 	705	 	 	 	100	 	 	
 Granted options	 	 	15	 	 	 	362	 	 	 	-	 	 	
 Exercised options	 	 	(378	)	 	 	(79	)	 	 	-	 	 	
 Forfeited options	 	 	(47	)	 	 	-	 	 	 	-	 	 	
Options outstanding on June 30, 2022	 	 	1,657	 	 	 	988	 	 	 	100	 	 	
 Of which exercisable	 	 	232	 	 	 	361	 	 	 	-	 	 	
 
Compensation expenses arising from share-based compensation programs included in operating income were as follows:
																	
(in thousands of EUR)	 	Q2 2022	 	 	Q2 2021	 	 	6M 2022	 	 	6M 2021	 	
Plan XIV	 	 	336	 	 	 	286	 	 	 	618	 	 	 	517	 	
Plan XIVa	 	 	71	 	 	 	76	 	 	 	153	 	 	 	120	 	
Plan XVIa	 	 	34	 	 	 	14	 	 	 	68	 	 	 	28	 	
Total	 	 	441	 	 	 	376	 	 	 	840	 	 	 	665	 	
 
96

32.Related party transactions
There are no related parties within the meaning of IAS 24. Key management personnel remuneration is disclosed in note (32).
33.Governing boards
Management board
On June 30, 2022, the members of the management board held 401,530 shares (December 31, 2021:401,530 shares) and 1,087,859 stock options (December 31, 2021:804,7677 stock options.
 
The options to members of the management board were granted out of Plan XIVa and Plan XVIa. The grants to two members of the management board under Plan XVIa in the financial year 2020 are accounted for as cash-settled share-based payments. A provision of EUR 292 thousand was recognized on June 30, 2022. The option rights authorize the management board to purchase the said number of common shares in the company once the qualifying period has elapsed. Both plans include a profit limit of EUR 20.00 per option.
The strike price for these option rights is
1.EUR 8.70 for 57,387 options granted on May 15, 2016,2.EUR 4.98 for 128,572 options granted on November 15, 2017,3.EUR 5.79 for 175,000 options granted on May 15, 2018,4.EUR 5.76 for 100,000 options granted on May 15, 2020,5.EUR 10.00 for 265,000 options granted on May 15, 2021,6.EUR 15.68 for 361,900 options granted on May 15, 2022, respectively.
 
Supervisory board
On June 30, 2022, no shares or stock options were held by members of the supervisory board (December 31, 2021: none).
On June 30, 2022, trade accounts payable to the supervisory board for the pro rata compensation for Q2 2022 with an amount of EUR 59 thousand were recognized (December 31, 2021: EUR 59 thousand). The pay-out of these payables was carried out in July 2022 (January 2022).
34.Events after the balance sheet date
On August 30, 2021, ADVA and ADTRAN had announced the entry into a business combination agreement to combine the two companies and create a leading global, scaled provider of end- to-end fiber networking solutions for communications service provider, enterprise and government customers. On January 28, 2022, ADTRAN and ADVA had announced that the minimum acceptance threshold for the proposed merger with ADTRAN had been reached. On July 6, 2022, the German foreign trade authorities approved the merger. A condition of the German foreign trade authorities' approval for the merger was to combine the company's business with government customers and critical infrastructure into a separate structure. This corporate transaction and the restructuring described above may have effects on balance sheet items presented in the IFRS consolidated financial statements.
 
For U.S. loss-making entities where there is a change in ownership as part of a transaction, there may be a restriction on the continued use of tax attributes (for example, net operating losses, capital losses, tax credits, excess interest carryforwards, etc.). With regards to the US-subsidiary, ADVA Optical Networking North America, Inc., an indirect transfer of more than 50 % of the shares in the U.S. company occurring in connection with the ADTRAN merger could reduce its usable tax loss carry-forwards depending on the value ratios at the time of closing.
 
The existing financing agreements include termination rights in case of a change of control. The management board received approval from the banks to waive the termination right due to the change of control clause on March 3, 2022.
 
In order to finance higher inventory levels due the semiconductor crisis, ADVA concluded an EUR 15m revolving credit line with one bank. The credit line is currently fully utilized and has a maturity date of August 15, 2023. The interest rate is EURSTR + 1.4 %.
 
Possible effects of the corporate transaction on the Group's net assets, financial position and results of operations are currently still being examined.
 
There were no further events after the balance sheet date that materially impacted the net assets and financial position of the group and ADVA SE on June 30, 2022, or the group’s and the company’s financial performance for 6M 2022. Also, there were no events considered material for disclosure.
 
Disclaimer: Potential inconsistencies in the table values are based on rounding differences.
97

 
Exhibit 99.3
 
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
 
On August 30, 2021, ADTRAN, Inc. (“ADTRAN”), and ADVA Optical Networking SE, a European stock corporation incorporated under the laws of the European Union and Germany (“ADVA”), entered into a business combination agreement (the “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.) (“ADTRAN Holdings” or the “Company”), 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. (“Merger Sub”), a Delaware corporation and wholly-owned direct subsidiary of the Company, merged with and into ADTRAN, with ADTRAN surviving the merger as a wholly-owned direct subsidiary of the Company (the “Merger”). 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 common stock, par value $0.01 per share (the “Company Common Stock”), of the Company (the “Exchange Offer” and, together with the Merger, the “Business Combination”). The Exchange Offer was settled on July 15, 2022 (the “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, at the option of the holder thereof, each ADVA stock option that was outstanding and unexercised immediately prior to the closing of the business combination, if elected by the option holder, was converted at or after the closing of the business combination into an Acorn HoldCo stock option on the terms set forth in this filling. ADTRAN and ADVA became subsidiaries of ADTRAN Holdings as a result of the Business Combination. ADTRAN Holdings is a legal entity with no material operations as of or prior to the Business Combination and was established to consummate the merger between ADTRAN and ADVA. Commencing at the closing of the Business Combination, the historical financial statements of the Company are those of ADTRAN.
 
The following unaudited pro forma condensed combined financial information (the “Pro Forma Information”) is presented to illustrate the estimated effects of the Exchange Offer and certain other adjustments listed below for the periods presented herein. The Pro Forma Information is derived from and should be read in conjunction with:
 
•the accompanying notes to the Pro Forma Information contained herein;•the unaudited condensed consolidated financial statements of the Company, as the successor registrant to ADTRAN, as of and for the six months ended June 30, 2022 included in the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (the “SEC”) on August 5, 2022;•the audited consolidated financial statements of ADTRAN as of and for the year ended December 31, 2021 included in the Company’s Annual Report filed with the SEC on February 25, 2022;•the unaudited consolidated financial statements of ADVA as of and for the six months ended June 30, 2022, which were prepared in accordance with the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and which are included in Exhibit 99.2 to this Current Report on Form 8-K; and•the audited consolidated financial statements of ADVA as of and for the year ended December 31, 2021, which were prepared in accordance with the IFRS as issued by the IASB and which are included in Exhibit 99.1 to this Current Report on Form 8-K.
 
The Pro Forma Information presented herein consists of (i) an unaudited pro forma condensed combined balance sheet as of June 30, 2022, and (ii) unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2022 and the year ended December 31, 2021. The unaudited pro forma condensed combined balance sheet combines the unaudited condensed consolidated balance sheets of ADTRAN and ADVA as of June 30, 2022 and gives effect to the Business Combination as if it occurred on June 30, 2022. The unaudited pro forma condensed combined statements of operations combine the historical results of ADTRAN and ADVA for the six months ended June 30, 2022 and the year ended December 31, 2021 and give effect to the Business Combination as if it occurred on January 1, 2021. The historical financial information has been adjusted to give effect to pro forma adjustments deemed to be directly related to the Business Combination and expected to be incurred, irrespective of whether such adjustment is deemed to be recurring.
 
The Business Combination has been accounted for using the acquisition method of accounting under the provisions of Financial Accounting Standards Board Accounting Standards Codification 805, Business Combinations, with ADTRAN representing the acquiring entity for accounting purposes. In identifying ADTRAN as the acquiring entity for accounting purposes, the companies took into account the (i) intended corporate governance structure of the combined company, (ii) the relative voting rights in the combined company after the Business Combination, (iii) the composition of the senior management of the combined company, (iv) the terms of
98

the exchange of equity interests, and (v) the size of each of the companies. In assessing the size of each of the companies, the companies evaluated various metrics, including, but not limited to: assets, revenue, operating income, market capitalization and enterprise value. No single factor was the sole determinant in the overall conclusion that ADTRAN is the acquirer for accounting purposes, rather all factors were considered in arriving at such conclusion.
 
The Pro Forma Information was prepared in accordance with Article 11 of Regulation S-X, as amended by SEC Final Rule Release No. 33-10786, Amendments to Financial Disclosures About Acquired and Disposed Businesses, and give effect to the following adjustments:
 
•Adjustments to reconcile ADVA’s historical financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) to U.S. Generally Accepted Accounting Principles (“GAAP”) and conversion from Euros to U.S. dollars;•Addressing differences in basis of accounting (which are determined before taking into effect the impacts of purchase accounting) and classification and presentation of certain financial information;•Application of the acquisition method of accounting in connection with the Business Combination to reflect an aggregate fair value for ADVA of $894.7 million ($578.3 million, representing 65.43% of the outstanding ADVA bearer shares tendered during the Exchange Offer and $316.4 million, which includes the remaining 34.57% non-controlling interest and the fair value of other non-controlling interests of ADVA);•Addressing differences in reporting currencies; and•Reflecting transaction accounting impacts.
 
The unaudited pro forma condensed combined statements of income also include certain purchase accounting adjustments (“PPA”), including items expected to have a continuing impact on the combined results, such as increased cost of revenue on inventory, increased amortization expense on acquired intangible assets, and increased depreciation on property, plant and equipment
 
The Pro Forma information does not include the impact of any anticipated synergies or dis-synergies, operating efficiencies or cost savings that may result from the Business Combination.
 
The Pro Forma Information presented herein is based on the assumptions and adjustments described in the accompanying notes. The Pro Forma Information is for informational purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the Business Combination had been completed on the dates set forth above, nor is it indicative of future results or financial position of the Company.
 
The pro forma adjustments included herein are subject to modification depending on the fair value of stock options issued in replacement of certain ADVA options on the closing date, changes in discount rates, the final determination of the fair value of the assets acquired and liabilities assumed and as additional information becomes available and additional analyses are performed, which may cause the final adjustments to be materially different from the Pro Forma Information presented below. The final allocation of the total purchase price will be determined after completing a thorough analysis of the fair value of ADVA’s tangible and identifiable intangible assets acquired and liabilities assumed as of July 15, 2022, the date the Business Combination was completed. Increases or decreases in the fair values of the net assets as compared with the data shown in the Pro Forma Information may change the amount of the total purchase consideration allocated to goodwill and other assets and liabilities and may impact the combined group statements of income due to adjustments in amortization and depreciation of the adjusted assets and liabilities. Additionally, management of the Company continues to perform a detailed review of ADVA’s accounting policies in an effort to determine if differences in accounting policies require further adjustment or reclassification of ADVA’s results of operations or assets or liabilities to conform to the Company’s accounting policies and classification. As a result, management may subsequently identify additional differences in the accounting policies which could have a material impact on the Pro Forma Information. The final adjustments may be materially different from the Pro Forma Information.

99

UNAUDITED PRO FORM CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 2022
(in thousands of USD)
 
100

																																					
 	 	Historical	 	 	 	 	 	 	
 	 	ADTRAN	 	 	 	ADVA
(IFRS)
(See Note 3)	 	 	 	ADVA
U.S. GAAP Adjustments	 	(Note)	 	 	 	ADVA
(U.S. GAAP)	 	 	 	Purchase Accounting Adjustments	 	(Note)	 	Pro Forma	 	
Assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
  Cash and cash equivalents	 	 	43,368	 	 	 	 	66,172	 	 	 	 	-	 	 	 	 	 	 	66,172	 	 	 	 	-	 	 	 	 	109,540	 	
  Restricted cash	 	 	-	 	 	 	 	75	 	 	 	 	-	 	 	 	 	 	 	75	 	 	 	 	-	 	 	 	 	75	 	
  Short-term investments	 	 	1,773	 	 	 	 	-	 	 	 	 	-	 	 	 	 	 	 	-	 	 	 	 	-	 	 	 	 	1,773	 	
  Accounts receivable	 	 	172,088	 	 	 	 	118,934	 	 	 	 	-	 	 	 	 	 	 	118,934	 	 	 	 	-	 	 	 	 	291,022	 	
  Other receivables	 	 	8,413	 	 	 	 	193	 	 	 	 	-	 	 	 	 	 	 	193	 	 	 	 	-	 	 	 	 	8,606	 	
  Inventory, net	 	 	196,916	 	 	 	 	166,552	 	 	 	 	(1,085	)	4A	 	 	 	 	165,467	 	 	 	 	45,310	 	6A	 	 	407,693	 	
  Prepaid expenses and other current assets	 	 	9,306	 	 	 	 	14,949	 	 	 	 	-	 	 	 	 	 	 	14,949	 	 	 	 	-	 	 	 	 	24,255	 	
  Tax assets	 	 	-	 	 	 	 	2,813	 	 	 	 	-	 	 	 	 	 	 	2,813	 	 	 	 	-	 	 	 	 	2,813	 	
Total current assets	 	 	431,864	 	 	 	 	369,688	 	 	 	 	(1,085	)	 	 	 	 	 	368,603	 	 	 	 	45,310	 	 	 	 	845,777	 	
Property, plant and equipment, net	 	 	53,432	 	 	 	 	34,646	 	 	 	 	-	 	 	 	 	 	 	34,646	 	 	 	 	20,532	 	6B	 	 	108,610	 	
Deferred tax assets, net	 	 	8,508	 	 	 	 	17,517	 	 	 	 	(5,728	)	4E	 	 	 	 	11,789	 	 	 	 	-	 	6F	 	 	20,297	 	
Goodwill	 	 	6,968	 	 	 	 	79,291	 	 	 	 	-	 	 	 	 	 	 	79,291	 	 	 	 	234,512	 	6C	 	 	320,771	 	
Intangibles, net	 	 	17,473	 	 	 	 	127,568	 	 	 	 	(102,989	)	4B	 	 	 	 	24,579	 	 	 	 	428,766	 	6D	 	 	470,818	 	
Other non-current assets	 	 	29,637	 	 	 	 	27,508	 	 	 	 	1,219	 	4C	 	 	 	 	28,727	 	 	 	 	2,114	 	6E	 	 	60,478	 	
Long-term investments	 	 	52,297	 	 	 	 	-	 	 	 	 	-	 	 	 	 	 	 	-	 	 	 	 	-	 	 	 	 	52,297	 	
Total assets	 	 	600,179	 	 	 	 	656,218	 	 	 	 	(108,583	)	 	 	 	 	 	547,635	 	 	 	 	731,234	 	 	 	 	1,879,048	 	
Liabilities and stockholders' equity	 	 	-	 	 	 	 	-	 	 	 	 	-	 	 	 	 	 	 	-	 	 	 	 	-	 	 	 	 	-	 	
Current liabilities:	 	 	-	 	 	 	 	-	 	 	 	 	-	 	 	 	 	 	 	-	 	 	 	 	-	 	 	 	 	-	 	
   Accounts payable	 	 	144,432	 	 	 	 	91,947	 	 	 	 	-	 	 	 	 	 	 	91,947	 	 	 	 	-	 	 	 	 	236,379	 	
   Unearned revenue	 	 	22,705	 	 	 	 	26,377	 	 	 	 	-	 	 	 	 	 	 	26,377	 	 	 	 	-	 	 	 	 	49,082	 	
   Accrued expenses and other liabilities	 	 	16,759	 	 	 	 	62,823	 	 	 	 	-	 	 	 	 	 	 	62,823	 	 	 	 	214	 	6E, 6I	 	 	79,796	 	
   Accrued wages and benefits	 	 	13,276	 	 	 	 	-	 	 	 	 	-	 	 	 	 	 	 	-	 	 	 	 	-	 	 	 	 	13,276	 	
   Income tax payable, net	 	 	4,541	 	 	 	 	-	 	 	 	 	-	 	 	 	 	 	 	-	 	 	 	 	-	 	 	 	 	4,541	 	
   Current portion of debt	 	 	-	 	 	 	 	26,393	 	 	 	 	-	 	 	 	 	 	 	26,393	 	 	 	 	-	 	 	 	 	26,393	 	
   Tax liabilities	 	 	-	 	 	 	 	4,868	 	 	 	 	-	 	 	 	 	 	 	4,868	 	 	 	 	-	 	 	 	 	4,868	 	
Total current liabilities	 	 	201,713	 	 	 	 	212,408	 	 	 	 	-	 	 	 	 	 	 	212,408	 	 	 	 	214	 	 	 	 	414,335	 	
   Non-current unearned revenue	 	 	10,133	 	 	 	 	9,619	 	 	 	 	-	 	 	 	 	 	 	9,619	 	 	 	 	-	 	 	 	 	19,752	 	
   Pension liability	 	 	9,889	 	 	 	 	8,455	 	 	 	 	(1,327	)	4D	 	 	 	 	7,128	 	 	 	 	-	 	 	 	 	17,017	 	
   Deferred compensation liability	 	 	26,014	 	 	 	 	-	 	 	 	 	-	 	 	 	 	 	 	-	 	 	 	 	-	 	 	 	 	26,014	 	
   Other non-current liabilities	 	 	3,893	 	 	 	 	6,580	 	 	 	 	-	 	 	 	 	 	 	6,580	 	 	 	 	-	 	 	 	 	10,473	 	
   Non-current portion of debt	 	 	-	 	 	 	 	15,938	 	 	 	 	-	 	 	 	 	 	 	15,938	 	 	 	 	-	 	 	 	 	15,938	 	
   Non-current lease liabilities	 	 	-	 	 	 	 	18,856	 	 	 	 	-	 	 	 	 	 	 	18,856	 	 	 	 	883	 	6E	 	 	19,739	 	
   Deferred tax liabilities	 	 	-	 	 	 	 	3,660	 	 	 	 	(36,186	)	4E	 	 	 	 	(32,526	)	 	 	 	145,624	 	6F	 	 	113,098	 	
Total liabilities	 	 	251,642	 	 	 	 	275,516	 	 	 	 	(37,513	)	 	 	 	 	 	238,003	 	 	 	 	146,721	 	 	 	 	636,366	 	
Stockholders' equity:	 	 	-	 	 	 	 	-	 	 	 	 	-	 	 	 	 	 	 	-	 	 	 	 	-	 	 	 	 	-	 	
Common stock, par value $0.01 per share	 	 	797	 	 	 	 	54,417	 	 	 	 	-	 	 	 	 	 	 	54,417	 	 	 	 	(54,137	)	6G, 6J	 	 	1,077	 	
Additional paid-in capital	 	 	292,727	 	 	 	 	347,720	 	 	 	 	-	 	 	 	 	 	 	347,720	 	 	 	 	230,260	 	6G, 6J	 	 	870,707	 	
Accumulated other comprehensive loss	 	 	(16,696	)	 	 	 	1,258	 	 	 	 	-	 	 	 	 	 	 	1,258	 	 	 	 	(1,258	)	6G	 	 	(16,696	)	
Retained earnings	 	 	731,821	 	 	 	 	(22,693	)	 	 	 	(71,070	)	4A, 4B, 4C,4D, 4E	 	 	 	 	(93,763	)	 	 	 	93,233	 	6G, 6I	 	 	731,291	 	
Treasury stock at cost	 	 	(660,112	)	 	 	 	-	 	 	 	 	-	 	 	 	 	 	 	-	 	 	 	 	-	 	 	 	 	(660,112	)	
Total stockholders' equity	 	 	348,537	 	 	 	 	380,702	 	 	 	 	(71,070	)	 	 	 	 	 	309,632	 	 	 	 	268,098	 	 	 	 	926,267	 	
Noncontrolling interests	 	 	-	 	 	 	 	-	 	 	 	 	-	 	 	 	 	 	 	-	 	 	 	 	316,415	 	6H	 	 	316,415	 	
Total stockholders' equity	 	 	348,537	 	 	-	 	 	380,702	 	 	-	 	 	(71,070	)	 	-	 	 	-	 	 	309,632	 	 	-	 	 	584,513	 	 	 	 	1,242,682	 	
 Total liabilities and stockholders' equity	 	$	600,179	 	 	 	$	656,218	 	 	 	$	(108,583	)	 	 	 	 	$	547,635	 	 	 	$	731,234	 	 	 	$	1,879,048	 	
 
101

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2021
(in thousands of USD except per share amounts)

 	 	Historical	 	 	 	 	 	 	 	 	
 	 	ADTRAN
(See Note 3)	 	 	ADVA
(IFRS)
(See Note 4)	 	 	ADVA
U.S. GAAP Adjustments	 	 	(Note)	 	ADVA
(U.S. GAAP)	 	 	Purchase Accounting Adjustments	 	 	(Note)	Pro Forma	 	
Sales	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
   Network Solutions	 	$	498,834	 	 	$	615,316	 	 	$	-	 	 	 	 	$	615,316	 	 	$	-	 	 	 	$	1,114,150	 	
   Services & Support	 	 	64,170	 	 	 	99,708	 	 	 	-	 	 	 	 	 	99,708	 	 	 	-	 	 	 	 	163,878	 	
     Total Sales	 	 	563,004	 	 	 	715,024	 	 	 	-	 	 	 	 	 	715,024	 	 	 	-	 	 	 	 	1,278,028	 	
Cost of Sales	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
   Network Solutions	 	 	307,841	 	 	 	422,061	 	 	 	(50,994	)	 	4A, 4B	 	 	371,067	 	 	 	80,608	 	 	6A, 6B, 6D, 6J, 6K	 	759,516	 	
   Services & Support	 	 	36,786	 	 	 	33,938	 	 	 	66	 	 	4A	 	 	34,004	 	 	 	10,700	 	 	6A, 6B, 6J, 6K	 	81,490	 	
     Total Cost of Sales	 	 	344,627	 	 	 	455,999	 	 	 	(50,928	)	 	 	 	 	405,071	 	 	 	91,308	 	 	 	 	841,006	 	
Gross Profit	 	 	218,377	 	 	 	259,025	 	 	 	50,928	 	 	 	 	 	309,953	 	 	 	(91,308	)	 	 	 	437,022	 	
Selling, general and administrative expenses	 	 	124,414	 	 	 	118,828	 	 	 	1,002	 	 	4C	 	 	119,830	 	 	 	131,651	 	 	6B, 6D, 6E, 6I, 6J, 6K	 	375,895	 	
Research and development expenses	 	 	108,663	 	 	 	90,929	 	 	 	49,872	 	 	4B	 	 	140,801	 	 	 	5,200	 	 	6B, 6D, 6J, 6K	 	254,664	 	
Asset impairments	 	 	-	 	 	 	-	 	 	 	-	 	 	 	 	 	-	 	 	 	-	 	 	 	 	-	 	
     Operating Income (Loss)	 	 	(14,700	)	 	 	49,268	 	 	 	54	 	 	 	 	 	49,322	 	 	 	(228,159	)	 	 	 	(193,537	)	
Interest and dividend income	 	 	2,844	 	 	 	119	 	 	 	-	 	 	 	 	 	119	 	 	 	-	 	 	 	 	2,963	 	
Interest expense	 	 	(34	)	 	 	(2,175	)	 	 	503	 	 	4B, 4C	 	 	(1,672	)	 	 	-	 	 	 	 	(1,706	)	
Net investment gain (loss)	 	 	1,761	 	 	 	-	 	 	 	-	 	 	 	 	 	-	 	 	 	-	 	 	 	 	1,761	 	
Other income (expense), net	 	 	3,824	 	 	 	7,585	 	 	 	348	 	 	4D	 	 	7,933	 	 	 	-	 	 	 	 	11,757	 	
Income (loss) Before Income Taxes	 	 	(6,305	)	 	 	54,797	 	 	 	905	 	 	 	 	 	55,702	 	 	 	(228,159	)	 	 	 	(178,762	)	
Income tax (expense) benefit	 	 	(2,330	)	 	 	15,386	 	 	 	(272	)	 	4E	 	 	15,114	 	 	 	62,690	 	 	6F	 	75,474	 	
Net Income (Loss)	 	$	(8,635	)	 	$	70,183	 	 	$	633	 	 	 	 	$	70,816	 	 	$	(165,469	)	 	 	$	(103,288	)	
Net Income (Loss) attributable to noncontrolling interest	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	(32,538	)	 	6L	$	(32,538	)	
Net Income (loss) attributable to common stockholders	 	$	(8,635	)	 	$	70,183	 	 	$	633	 	 	 	 	$	70,816	 	 	$	(132,931	)	 	 	$	(70,750	)	
Weighted average shares outstanding - basic	 	 	48,582	 	 	 	50,819	 	 	 	 	 	 	 	 	50,819	 	 	 	27,995	 	 	6M	 	76,577	 	
Weighted average shares outstanding - diluted	 	 	48,582	 	 	 	51,693	 	 	 	 	 	 	 	 	51,693	 	 	 	27,995	 	 	6M	 	76,577	 	
Earnings (loss) per common share - basic	 	$	(0.18	)	 	$	1.38	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	(0.92	)	
Earnings (loss) per common share - diluted	 	$	(0.18	)	 	$	1.36	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	(0.92	)	
 
102

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2022
(in thousands of USD except per share amounts)

 	Historical	 	 	 	 	 	 	 	 	
 	 	ADTRAN	 	 	ADVA
(IFRS)
(See Note 3)	 	 	ADVA
U.S. GAAP Adjustments	 	 	(Note)	 	ADVA
(U.S. GAAP)	 	 	Purchase Accounting Adjustments	 	 	(Note)	Pro Forma	 	
Sales	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
   Network Solutions	 	$	294,366	 	 	$	318,146	 	 	$	-	 	 	 	 	$	318,146	 	 	$	-	 	 	 	$	612,512	 	
   Services & Support	 	 	32,190	 	 	 	50,134	 	 	 	-	 	 	 	 	 	50,134	 	 	 	-	 	 	 	 	82,324	 	
     Total Sales	 	 	326,556	 	 	 	368,280	 	 	 	-	 	 	 	 	 	368,280	 	 	 	-	 	 	 	 	694,836	 	
Cost of Sales	 	 	-	 	 	 	-	 	 	 	-	 	 	 	 	 	-	 	 	 	-	 	 	 	 	-	 	
   Network Solutions	 	 	190,575	 	 	 	235,363	 	 	 	(22,974	)	 	4A, 4B	 	 	212,389	 	 	 	18,426	 	 	6B, 6D, 6J, 6K	 	421,390	 	
   Services & Support	 	 	19,159	 	 	 	16,090	 	 	 	152	 	 	4A	 	 	16,242	 	 	 	125	 	 	6B, 6J, 6K	 	35,526	 	
     Total Cost of Sales	 	 	209,734	 	 	 	251,453	 	 	 	(22,822	)	 	 	 	 	228,631	 	 	 	18,551	 	 	 	 	456,916	 	
Gross Profit	 	 	116,822	 	 	 	116,827	 	 	 	22,822	 	 	 	 	 	139,649	 	 	 	(18,551	)	 	 	 	237,920	 	
Selling, general and administrative expenses	 	 	55,766	 	 	 	58,994	 	 	 	426	 	 	4C	 	 	59,420	 	 	 	5,471	 	 	6B, 6D, 6E 6J, 6K	 	120,657	 	
Research and development expenses	 	 	52,991	 	 	 	47,697	 	 	 	23,980	 	 	4B	 	 	71,677	 	 	 	2,004	 	 	6B, 6D, 6J, 6K	 	126,672	 	
Asset impairments	 	 	-	 	 	 	-	 	 	 	-	 	 	 	 	 	-	 	 	 	-	 	 	 	 	-	 	
     Operating Income (Loss)	 	 	8,065	 	 	 	10,136	 	 	 	(1,584	)	 	 	 	 	8,552	 	 	 	(26,026	)	 	 	 	(9,409	)	
Interest and dividend income	 	 	421	 	 	 	28	 	 	 	-	 	 	 	 	 	28	 	 	 	-	 	 	 	 	449	 	
Interest expense	 	 	(124	)	 	 	(850	)	 	 	169	 	 	4B, 4C	 	 	(681	)	 	 	-	 	 	 	 	(805	)	
Net investment gain (loss)	 	 	(8,061	)	 	 	-	 	 	 	-	 	 	 	 	 	-	 	 	 	-	 	 	 	 	(8,061	)	
Other income (expense), net	 	 	455	 	 	 	6,144	 	 	 	75	 	 	4D	 	 	6,219	 	 	 	-	 	 	 	 	6,674	 	
Income (loss) Before Income Taxes	 	 	756	 	 	 	15,458	 	 	 	(1,340	)	 	 	 	 	14,118	 	 	 	(26,026	)	 	 	 	(11,152	)	
Income tax (expense) benefit	 	 	260	 	 	 	(730	)	 	 	402	 	 	4E	 	 	(328	)	 	 	6,115	 	 	6F	 	6,047	 	
Net Income (Loss)	 	$	1,016	 	 	$	14,728	 	 	$	(938	)	 	 	 	$	13,790	 	 	$	(19,911	)	 	 	$	(5,105	)	
Net Income (Loss) attributable to noncontrolling interest	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	(2,116	)	 	6L	$	(2,116	)	
Net Income (loss) attributable to common stockholders	 	$	1,016	 	 	$	14,728	 	 	$	(938	)	 	 	 	$	13,790	 	 	$	(17,795	)	 	 	$	(2,989	)	
Weighted average shares outstanding - basic	 	 	49,110	 	 	 	51,530	 	 	 	 	 	 	 	 	 	 	 	27,995	 	 	6M	 	77,105	 	
Weighted average shares outstanding - diluted	 	 	49,813	 	 	 	52,646	 	 	 	 	 	 	 	 	 	 	 	27,995	 	 	6M	 	77,808	 	
Earnings (loss) per common share - basic	 	$	0.02	 	 	$	0.29	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	(0.04	)	
Earnings (loss) per common share - diluted	 	$	0.02	 	 	$	0.28	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	(0.04	)	

103

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
 
Note 1 – Business combination of ADTRAN and ADVA into ADTRAN Holdings
 
In August 2021, the ADTRAN board voted to adopt the Business Combination Agreement (“BCA”) which provided the structure under which ADVA, a German public company which develops, manufactures and sells ethernet-based networking solutions to telecommunications carriers and enterprises to deliver data, storage, voice and video services for consideration will combine its business with ADTRAN under ADTRAN Holdings.

As of July 15, 2022, the closing date, ADTRAN became a subsidiary of Acorn HoldCo through a merger with Merger Sub, a wholly-owned direct subsidiary of Acorn HoldCo, with ADTRAN surviving the merger. Following the consummation of the business combination, Acorn HoldCo changed its name to “ADTRAN Holdings, Inc” (“ADTRAN Holdings”).

Additionally, on July 15, 2022, the offer was accepted for a total of 34.0 million ADVA shares, which corresponds to an acceptance rate of 65.43% of all outstanding ADVA shares as of that date. The acceptance period for the offer expired on February 14, 2022; and therefore, acceptance as of the closing date is final. Additionally, ADTRAN Holdings did not purchase any additional shares on the open market prior to the consummation of the business combination. As such, the unaudited pro forma condensed combined financial information is based on ADTRAN Holdings acquiring 34.0 million ADVA shares representing 65.43% of the ADVA shares outstanding in exchange for the issuance of an aggregate of 28.0 million shares of ADTRAN Holdings common stock. Based on the ADTRAN Holdings’ closing share price as of July 15, 2022 of $20.20, the value of the ADTRAN Holdings common stock provided in exchange for ADVA shares was approximately $565.5 million. (see Note 5 for additional information on the purchase price).

Per the terms of the BCA, ADTRAN was required to replace the historical ADVA stock options outstanding (vested and unvested) with ADTRAN Holdings stock options adjusted for the fixed exchange ratio and a revised strike price based on the fixed exchange ratio and translated to U.S. dollars (“USD”). The transaction price is comprised of shares of ADTRAN Holdings common stock and replacement ADTRAN Holdings stock options with a combined fair value of approximately $578.3 million.

The business combination of ADVA will be accounted for using the acquisition method of accounting as per the provisions of Accounting Standards Codification 805, “Business Combinations” (“ASC 805”). The BCA used a fixed exchange ratio of ADTRAN Holdings shares of 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. Additionally, the current ADTRAN chief executive officer and ADTRAN chief financial officer hold these positions within the combined company. Therefore, under ASC 805, ADTRAN represents the accounting acquirer.

The unaudited pro forma condensed combined financial information was prepared to illustrate the effects of the business combination. For each of the periods presented, the pro forma financial information reflects the combination of historical financial information of ADTRAN Holdings, ADTRAN and ADVA, adjusted to give effect to the acquisition method of accounting in accordance with ASC 805 based on a preliminary purchase price allocation and as subsequently described in greater detail below. Furthermore, additional pro forma adjustments have also been reflected to show impacts of differences in reporting currencies, basis of accounting and classification and presentation of certain financial information. For purposes of certain disclosures that follow, for the period before the inception of ADTRAN Holdings, August 10, 2021, ADTRAN and ADVA and for the period after the inception of ADTRAN Holdings, ADTRAN Holdings, ADTRAN and ADVA may be referred to collectively as the combined company.
 
Note 2 – Basis of presentation
 
The pro forma condensed combined financial information of the combined company is prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”) and Article 11 of Regulation S-X. ADTRAN Holdings and ADTRAN’s historical financial statements were prepared in accordance with U.S. GAAP and presented in thousands of USD. ADVA’s consolidated income statement for the year ended December 31, 2021, and the consolidated balance sheet and income statement as of and for the six months ended June 30, 2022, have been prepared in accordance with IFRS as issued by the IASB, presented in thousands of Euros (“Euro”) and translated to thousands of USD for condensed combined pro forma financial information purposes. As such, certain IFRS, as adopted by the IASB to U.S. GAAP adjustments are included in the unaudited pro forma condensed combined financial information as discussed in Note 4 below.

104

For purposes of preparing the unaudited pro forma condensed combined financial information, the historical financial information of ADVA and related pro forma adjustments were translated from Euro to USD using the following historical exchange rates as posted by Oanda:

Period of Exchange Rate	€ / $	 	
Balance Sheet as of June 30, 2022 period end exchange rate at June 30, 2022	 	1.048	 	
Statement of Operations for the year ended December 31, 2021 average exchange rate for that period	 	1.185	 	
Statement of Operations for the six months ended June 30, 2022 average exchange rate for that period	 	1.093	 	
 
Note 3 – Reclassifications
 
Certain reclassifications were made to align ADVA’s financial statement presentation with that of ADTRAN based on information available to date.
 
Unaudited pro forma condensed combined balance sheet as of June 30, 2022:

Presentation in ADVA's IFRS financial statements	Presentation in unaudited pro forma condensed combined balance sheet	Amount
(in millions)	 	
Cash and cash equivalents	Restricted cash	$	0.10	 	
Trade accounts receivable	Accounts receivable, net	$	117.30	 	
Contract assets	Other receivable	$	0.20	 	
Other current assets	Accounts receivable, net	$	1.60	 	
Inventories	Inventory, net	$	166.60	 	
Other current assets	Prepaid expenses and other current assets	$	14.90	 	
Right-of-use assets	Other non-current assets	$	22.00	 	
Property, plant and equipment	Property, plant and equipment, net	$	34.60	 	
Deferred tax assets	Deferred tax assets, net	$	17.50	 	
Capitalized development projects	Intangibles, net	$	11.00	 	
Intangible assets acquired in business combinations	Intangibles, net	$	13.60	 	
Other purchased and internally generated intangible assets	Intangibles, net	$	103.00	 	
Current lease liabilities	Accrued expenses and other liabilities	$	6.10	 	
Current liabilities to banks	Current portion of debt	$	26.40	 	
Trade accounts payable	Accounts payable	$	91.90	 	
Current contract liabilities and advance payments	Unearned revenue	$	26.40	 	
Refund liabilities	Accrued expenses and other liabilities	$	0.60	 	
Other current liabilities	Accrued expenses and other liabilities	$	26.40	 	
Current provisions	Accrued expenses and other liabilities	$	29.80	 	
Provisions for pensions and similar employee benefits	Pension liability	$	8.50	 	
Other non-current provisions	Other non-current liabilities	$	2.90	 	
Non-current liabilities to banks	Non-current portion of debt	$	15.90	 	
Non-current contract liabilities	Non-current unearned revenue	$	9.60	 	
Share capital	Common stock	$	54.40	 	
Capital reserve	Additional paid-in capital	$	347.70	 	
Accumulated deficit	Retained earnings	$	(36.80	)	
Accumulated other comprehensive income	Accumulated other comprehensive income (loss)	$	1.30	 	
Net income	Retained earnings	$	14.10	 	
 
105

Unaudited pro forma condensed combined statement of operations for the year ended December 31, 2021:

Presentation in ADVA's IFRS financial statements	Presentation in unaudited pro forma condensed combined statement of operations	Amount
(in millions)	 	
Revenue	Revenue-Network solutions	$	615.30	 	
Revenue	Revenue-Services & support	$	99.70	 	
Cost of goods sold	Cost of revenue-Network solutions	$	(422.10	)	
Cost of goods sold	Cost of revenue-Services & support	$	(33.90	)	
Selling and marketing expenses	Selling, general and administrative	$	(74.60	)	
General and administrative expenses	Selling, general and administrative	$	(46.00	)	
Other operating income - Government grants received	Other income (expense), net	$	2.70	 	
Other operating income - Release of provisions	Selling, general and administrative	$	1.00	 	
Other operating income - Income for the supply of development services	Other income (expense), net	$	0.30	 	
Other operating income - Income from payments received on receivables written off in previous periods	Selling, general and administrative	$	0.10	 	
Other operating income - Reversal of customer credit notes	Selling, general and administrative	$	0.30	 	
Other operating income - Duty and logistics charges	Selling, general and administrative expenses	$	1.30	 	
Other operating income - Other	Other income (expense), net	$	1.30	 	
Other operating expenses - Derecognitions of trade accounts receivable	Selling, general and administrative	$	(0.20	)	
Other operating expenses - Write-off of prepayments received for licenses	Selling, general and administrative	$	(0.30	)	
Other operating expenses - Other	Selling, general and administrative	$	(0.30	)	
Interest income	Interest and dividend income	$	0.10	 	
Foreign currency exchange gains	Other income (expense), net	$	14.50	 	
Foreign currency exchange losses	Other income (expense), net	$	(11.40	)	
 
Unaudited pro forma condensed combined statement of operations as of June 30, 2022:

Presentation in ADVA's IFRS financial statements	Presentation in unaudited pro forma condensed combined statement of operations	Amount
(in millions)	 	
Revenue	Revenue-Network solutions	$	318.10	 	
Revenue	Revenue-Services & support	$	50.10	 	
Cost of goods sold	Cost of revenue-Network solutions	$	(235.40	)	
Cost of goods sold	Cost of revenue-Services & support	$	(16.10	)	
Selling and marketing expenses	Selling, general and administrative	$	(39.70	)	
General and administrative expenses	Selling, general and administrative	$	(21.80	)	
Other operating income - Government grants received	Other income (expense), net	$	1.00	 	
Other operating income - Release of provisions	Selling, general and administrative	$	0.80	 	
Other operating income - Duty and logistics charges	Other income (expense), net	$	2.20	 	
Other operating income - Other	Other income (expense), net	$	0.40	 	
Other operating expenses - Other	Selling, general and administrative	$	(0.50	)	
Foreign currency exchange gains	Other income (expense), net	$	13.20	 	
Foreign currency exchange losses	Other income (expense), net	$	(8.50	)	
 
Note 4 – IFRS to U.S. GAAP adjustments
 
ADVA’s historical consolidated statement of financial position as of June 30, 2022, and statements of operations for the year ended December 31, 2021, and for the six months ended June 30, 2022, have been prepared in accordance with IFRS as issued by the IASB which differs in certain material respects from U.S. GAAP. The historical financial statements have been adjusted to align ADVA’s historical accounting policies to accounting policies in accordance with U.S. GAAP. Adjustments are initially calculated in EUR and translated to USD based on the exchange rates detailed in Note 2. Any differences between adjustments impacting the unaudited pro forma condensed combined balance sheet and the unaudited pro forma condensed combined statements of operations are due to foreign exchange rates.
 
A. Represents an adjustment to eliminate ADVA’s inventory impairment reversals that were recorded in accordance with IFRS but are prohibited under U.S. GAAP. The balance sheet impact resulted in a derecognition of $1.1 million of inventory value as of June 30, 2022. The net impact to the statement of operations for the year ended December 31, 2021, and the six months ended June 30, 2022, includes an increase to cost of revenue—network solutions of $0.3 million and $0.8 million, respectively, and an increase to cost of revenue—services and support of $0.1 million and $0.2 million, respectively.
 
106

B. Represents an adjustment to ADVA’s capitalized development projects, which are capitalized under IFRS; however, these costs would be expensed under U.S. GAAP. The amount expensed is presented as research and development costs as technological feasibility was not met under U.S. GAAP. The reversal of the related amortization expense is eliminated in cost of revenue—network solutions where it was historically recorded under IFRS. The unaudited pro forma condensed combined balance sheet impact resulted in a derecognition of capitalized development projects of $103.0 million. The net impact to the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2021, involves a $51.3 million reversal of the historical amortization expense, a $49.9 million increase to research and development expenses incurred during the period, and a $0.5 million increase in interest expense that was previously capitalized as part of the development costs. The net impact to the unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2022, involves a $23.8 million reversal of the historical amortization expense, a $24.0 million increase to research and development expenses incurred during the period, and a $0.3 million increase in interest expense that was previously capitalized as part of the development costs.
 
C. Represents an adjustment to ADVA’s real estate leases, which are accounted for as operating leases under IFRS. The adjustment reflects such operating leases under U.S. GAAP, by adjusting the right-of-use assets and related depreciation and interest expense recognized. The unaudited pro forma condensed combined balance sheet impact results in an increase to the right-of-use assets, presented in other non-current assets, of $1.2 million. Additionally, expense is adjusted to reflect straight line rent expense by adjusting the historical amortization of the right-of-use assets recorded in selling, general and administrative expenses and reclassifying the historical interest expense to selling, general and administrative expenses. The net adjustment to selling, general and administrative expenses for the reclassification of interest expense is $1.0 million for the year ended December 31, 2021 and $0.4 million for the six months ended June 30, 2022. The amount of historical amortization reversed is less than $0.1 million for the year ended December 31, 2021 and the six months ended June 30, 2022.
 
See Note 6 adjustment E for the related purchase accounting impacts to the acquired leases.
 
D. Represents an adjustment to ADVA’s net pension obligation and return on plan assets due changes in assumptions under U.S. GAAP. The change in assumptions resulted in a $1.3 million decrease to the net pension obligation in the unaudited pro forma condensed combined balance sheet. Additionally, adjusted for the increase in expected return on plan assets and the change in interest expense which increased other income (expense), net by $0.3 million and less than $0.1 million for the year ended December 31, 2021, and June 30, 2022, respectively. No further balance sheet adjustments were made as any changes to other comprehensive income would be eliminated due to the application of purchase accounting; see Note 6 adjustment G.
 
E. Represents an adjustment to deferred tax liabilities and tax expense for the tax effects of adjustments reflected herein to align ADVA’s historical accounting policies in accordance with U.S. GAAP (calculated at an estimated statutory rate of 30%). The balance sheet impact resulted in a derecognition of $30.5 million. Additionally, there is a $5.7 million reclass between deferred tax assets and deferred tax liabilities for jurisdictional netting alignment resulting from the purchase accounting adjustments. The net impact to the statement of operations for the year ended December 31, 2021 and the six months ended June 30, 2022 resulted in a increase to tax expense of $0.3 million and an increase to tax benefit $0.4 million, respectively.
 
Note 5 – Purchase price and preliminary allocation
 
Purchase price
 
The purchase price is approximately$578.3 million based on ADVA shareholders receiving 28.0 million shares of ADTRAN Holdings common stock at a closing share price of $20.20 for the ADTRAN common stock as of July 15, 2022, and $12.8 million for the replacement ADTRAN Holdings stock options issued, based on a binominal lattice model. Upon closing of the business combination, 2.4 million historical ADVA stock options outstanding (vested and unvested) were elected by the option holders to be replaced with 2.0 million ADTRAN Holdings stock options adjusted for the fixed exchange ratio and a revised strike price based on the fixed exchange ratio and translated to USD. Approximately, 0.3 million ADVA stock options were not replaced upon completion of the business combination.
 
For historical unvested replaced ADVA stock options, option holders are subject to continued employment through the remaining vesting period. As such, $12.8 million is allocated to the purchase price based on the fair value of the ADVA options immediately before the modification and the pre-combination services provided by the option holder. Post-combination expense based on the fair value of the replacement ADTRAN option and the remaining vesting period is $9.8 million which will be recognized over the remaining vesting period (see Note 6 adjustment J).
 
The detailed calculation of the purchase price is as follows (in millions of USD, except exchange ratio and share price):
 
107

				
Purchase price	Amount
(in millions)	 	
ADVA outstanding shares exchanged as of July 15, 2022	 	34.0	 	
Fixed exchange ratio	 	0.8244	 	
Number of ADTRAN Holdings shares issued	 	28.0	 	
ADTRAN Holdings Share price at July 15, 2022	$	20.2	 	
     Purchase price paid for ADVA shares	$	565.5	 	
Fair value of replacement ADTRAN Holdings stock options attributable to the purchase price	$	12.8	 	
     Total Purchase Price	$	578.3	 	

The purchase price represents the fair value of the total consideration that was received by ADVA’s shareholders when the business combination was completed on July 15, 2022. In accordance with U.S. GAAP, the fair value of the shares of ADTRAN Holdings stock options issued as part of the consideration was valued immediately before the modification and immediately after the modification using a binomial lattice model. The pre-combination services provided by the option holder were included as part of the purchase price. (See Note 6 adjustment J for the assumptions used in the binomial lattice model.)
 
Preliminary purchase price allocation
 
Under the acquisition method of accounting, ADVA’s assets and liabilities will be recorded at fair value at the closing date and combined with the historical carrying amounts of ADTRAN’s assets and liabilities. For this purpose, fair value shall be determined in accordance with the fair value concepts defined in ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”). Fair value is defined in ASC 820 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Fair value measurements can be highly subjective and can involve a high degree of estimation. In the unaudited pro forma condensed combined balance sheet, the purchase price paid by ADTRAN to acquire ADVA has been allocated to the assets acquired, liabilities assumed, and goodwill based upon management’s preliminary estimate of respective fair values.
 
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”(“ASU 2021-08”). Upon the adoption of this update, contract assets and contract liabilities (i.e. deferred revenue) acquired in a business combination will be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, “Revenue from Contracts with Customers,” as if the acquirer had originated the contracts, which would generally result in an acquirer recognizing and measuring acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements. ADTRAN early adopted ASU 2021-08 prior to the consummation of the business combination. Therefore, the unaudited pro forma condensed combined financial information presented reflects the adoption of ASU 2021-08, and ADVA’s historical deferred revenue balance as of June 30, 2022, has been included in the preliminary purchase price allocation in accordance with ASU 2021-08.
 
ADTRAN’s purchase price allocation for the business combination is preliminary and subject to revision once additional information about the fair value of the assets to be acquired and liabilities to be assumed becomes available. ADTRAN has engaged a third-party valuation company to assist it in completing the valuation of certain assets to be acquired and liabilities to be assumed. The preliminary valuation performed is related to inventory, intangible assets, real estate leases, fixed assets, and deferred taxes. The valuation is based on the most recent available financial statement information, and current forecasts prepared by ADTRAN. Accordingly, the unaudited pro forma condensed combined financial information includes a preliminary allocation of the purchase price based on assumptions and estimates that, while considered reasonable under the circumstances, are subject to changes, which may be material. ADTRAN will continue to refine its identification and valuation of assets to be acquired and liabilities to be assumed as further information becomes available.
 
The final determination of the purchase price allocation will be completed as soon as practicable and will be based on the fair values of the assets acquired and liabilities assumed as of the closing date. The final amounts allocated to assets acquired and liabilities assumed could differ significantly from the amounts presented in the unaudited pro forma condensed combined financial information.
 
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The preliminary purchase price is allocated to the assets to be acquired and liabilities to be assumed based on the estimated fair values, with any excess purchase price allocated to goodwill as follows (in millions of USD):

Consideration:	(in millions)	 	
Estimated total purchase price	$	578.3	 	
Noncontrolling interest	 	316.4	 	
Net Assets:	 	 	
Cash and cash equivalents	 	66.2	 	
Accounts receivable	 	118.9	 	
Inventory, net	 	210.8	 	
Other current assets	 	18.0	 	
Property, plant and equipment, net	 	55.2	 	
Intangible assets	 	453.3	 	
Other non-current assets	 	42.6	 	
Accounts payable	 	(91.9	)	
Accrued liabilities	 	(62.5	)	
Other current liabilities	 	(57.6	)	
Other non-current liabilities	 	(59.0	)	
Deferred tax liabilities	 	(113.1	)	
Goodwill	$	313.8	 	

Note 6 –Transaction accounting adjustments
 
Adjustments included in the unaudited pro forma financial information are represented by the following. Adjustments are initially calculated in EUR and translated to USD based on the exchange rates detailed in Note 2. Any differences between adjustments impacting the unaudited pro forma condensed combined balance sheet and the unaudited pro forma condensed combined statements of operations are due to foreign exchange rates.
 
A. Represents an adjustment to reflect the estimated fair value of inventory. The fair value of the inventory was determined using a top-down approach and accordingly ADTRAN considered the components of ADVA’s inventory, as well as estimated selling prices and selling and distribution costs resulting in an increase of $45.3 million to inventory as of June 30, 2022. Additionally, inventory is expected to turnover during the first-year post-close. Therefore, cost of revenue in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2021 has been adjusted to recognize the additional non-recurring expense of $51.2 million. The adjustment to cost of revenue of $51.2 million, is presented as follows: $40.9 million to cost of revenue—network solutions and $10.4 million cost of revenue—service and support.
 
B. Represents an adjustment to reflect the net increase in fair value of the acquired property, plant and equipment, net of $20.5 million to reflect the total fair value of $55.2 million. The fair value was estimated using a cost approach based on the net book value of each asset class adjusted for (i) the current market replacement cost, (ii) the physical and technology attributes of the property, plant and equipment and (iii) the estimated accumulated depreciation as if replacement cost was applied at the original purchase date.
 
The following table summarizes the estimated fair values for each asset class, the remaining estimated useful life and the impact to depreciation, a recurring expense, reflected in the unaudited pro forma condensed combined statements of operations (in millions of USD, except useful lives):
 
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 	 	 	 	 	 	 	 	Pro Forma depreciation expense	 	
(in millions)	 	Fair Value	 	 	Remaining Estimated Useful Life
(in years)	 	 	Year Ended December 31, 2021	 	 	Nine Months Ended June 30, 2022	 	
Land	$	 	0.8	 	 	n/a	 	 	n/a	 	 	n/a	 	
Buildings and improvements	 	 	13.3	 	 	 	22.7	 	$	 	0.7	 	$	 	0.3	 	
Computer hardware, software and networking equipment	 	 	4.7	 	 	 	2.1	 	 	 	2.5	 	 	 	1.2	 	
Furniture, fixtures and office equipment	 	 	2.0	 	 	 	4.2	 	 	 	0.5	 	 	 	0.3	 	
Leasehold improvements	 	 	4.4	 	 	 	4.6	 	 	 	1.1	 	 	 	0.5	 	
Technical machinery and equipment	 	 	27.1	 	 	 	2.2	 	 	 	13.9	 	 	 	6.4	 	
Other assets	 	 	2.9	 	 	n/a	 	 	n/a	 	 	n/a	 	
Total	$	 	55.2	 	 	 	 	$	 	18.7	 	$	 	8.7	 	
Historical depreciation expense	 	 	 	 	 	 	 	 	14.2	 	 	 	7.4	 	
Pro forma adjustment	 	 	 	 	 	 	$	 	4.5	 	$	 	1.3	 	

Depreciation expense increased for the year ended December 31, 2021. The adjustment to increase depreciation expense of $4.5 million for the year ended December 31, 2021 is presented as follows: $1.0 million in cost of revenue—network solutions, $0.1 million in cost of revenue—service and support, $0.6 million in selling, general and administrative expenses, and $2.8 million in research and development expenses. Depreciation expense increased for the six months ended June 30, 2022. The adjustment to increase depreciation expense of $1.3 million for the six months ended June 30, 2022, is presented as follows: $0.3 million in cost of revenue—network solutions, less than $0.1 million in cost of revenue—service and support, $0.2 million in selling, general and administrative expenses, and $0.8 million in research and development expenses.
 
C. Represents an adjustment to reflect estimated goodwill of $313.8 million recognized from the business combination and the elimination of historical ADVA goodwill of $79.3 million.
 
D. Represents an adjustment to reflect the net increase in fair value of $428.8 million to eliminate ADVA’s historical intangible assets recorded and to reflect the acquired identifiable intangible assets consisting of developed technology, customer backlog, customer relationships and the ADVA trade name at the estimated fair value of $453.3 million. The fair value of the developed technology, customer backlog and customer relationships is estimated based on a multi-period excess earnings method which calculates the present value of the estimated revenues and net cash flows derived from the developed technology, customer backlog and customer relationships, respectively. The fair value of the trade name is based on the relief from royalty method which estimates the value based on the hypothetical royalty payments that are saved by owning the asset. The following table summarizes the fair values of ADVA’s identifiable intangible assets, their estimated useful lives and the impact to ADTRAN’s amortization, a recurring expense, reflected in the pro forma condensed combined statements of operations (in millions of USD, except for useful lives):

(in millions)	 	Fair Value	 	 	Estimated Useful Life (in years)	 	 	Year Ended December 31, 2021	 	 	Six Months Ended June 30, 2022	 	
Developed technology	$	 	289.7	 	 	 	8.0	 	$	 	40.9	 	$	 	18.9	 	
Backlog	 	 	105.1	 	 	 	1.0	 	 	 	118.9	 	 	 	-	 	
Customer relationships	 	 	35.3	 	 	 	11.0	 	 	 	3.6	 	 	 	1.7	 	
Trade name	 	 	23.2	 	 	 	5.0	 	 	 	5.2	 	 	 	2.4	 	
Total	$	 	453.3	 	 	 	 	$	 	168.6	 	$	 	23.0	 	
Historical amortization expense	 	 	 	 	 	 	 	 	8.1	 	 	 	3.5	 	
Pro forma adjustment	 	 	 	 	 	 	$	 	160.5	 	$	 	19.5	 	

The adjustment to amortization expense of $160.5 million for the year ended December 31, 2021, is presented as follows: $38.1 million in cost of revenue—network solutions and $123.6 million in selling, general and administrative expenses; additionally, $1.2 million was removed from research and development expenses for the year ended December 31, 2021 in the historical ADVA financial statements. The adjustment to amortization expense of $19.5 million for the six months ended June 30, 2022, is presented as follows: $17.8 million in cost of revenue—network solutions and $2.2 million in selling, general and administrative expenses; additionally, $0.5 million was removed from research and development expenses for the six months ended June 30, 2022, in the historical ADVA financial statements
 
E. Represents an adjustment to the right-of-use assets and lease liabilities for real estate leases acquired as part of the business combination to fair value of $24.2 million. ADTRAN calculated the lease liability based on the remaining lease payments and the most current discount rates. This resulted in a decrease to the current lease liability of $0.3 million, presented in accrued expenses and other liabilities, and a increase to the noncurrent lease liability of $0.9 million, presented in non-current lease liabilities. The right of use asset is calculated based on the lease liability less lease incentives and the tenant improvement allowance to be received post-close. This resulted in an increase to other non-current assets of $2.1 million. Additionally, the recurring lease expense was increased by $0.3
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million for the year ended December 31, 2021 and $0.1 million for the six months ended June 30, 2022, presented in selling, general, and administrative expenses.
 
F. Represents an adjustment to deferred tax liabilities for the tax effects of recognizing the preliminary purchase price allocation reflected herein (calculated at an estimated statutory rate of 30%). Deferred taxes relating to goodwill for prior ADVA acquisitions have also been removed from the pro forma financial statements. These adjustments are based on estimates of the fair value of ADVA's assets to be acquired, liabilities to be assumed, and the related preliminary purchase price allocations.
 
Additionally, the adjustments represents the income tax impact of the pro forma adjustments (calculated at an estimated statutory rate of 30%) and also reflects additional tax costs associated with ADVA's operations within ADTRAN's structure of approximately $2.8 million and $0.4 million for year ended December 31, 2021 and the six months ended June 30, 2022, respectively. The effective tax rate of the combined company could be significantly different than what is presented in these unaudited pro forma financial statements depending on post-acquisition activities, including legal entity restructuring, repatriation decisions, and the geographical mix of taxable income.
 
G. Represents an adjustment to eliminate all of ADVA’s historical shareholders’ equity.
 
H. Represents an adjustment to recognize the noncontrolling interest at its fair value of $316.4 million, which is based on a market approach. As ADVA shares will remain trading after the business combination, the noncontrolling interest is calculated using 17,941,496 ADVA shares held by noncontrolling 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.
 
I. Represents an adjustment to reflect an accrual of $0.5 million of transaction costs expected to be incurred by ADTRAN and ADVA through the close of the business combination that are not reflected in the historical financial statements. This $0.5 million has been recorded as an accrued liability in the unaudited pro forma condensed combined balance sheet at June 30, 2022 and a non-recurring expense in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2021.
 
For the year ended December 31, 2021, $16.3 million in non-recurring transactions costs were incurred in ADTRAN’s and ADVA’s statement of operations. An additional $29.3 million in non-recurring transactions costs have been incurred for the six month ended June 30, 2022, and are recorded in ADTRAN’s and ADVA’s historical balance sheet and statement of operations as of and for the six months ended June 30, 2022.
 
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J. Represents the purchase price of $578.3 million based on the issuance of 28.0 million shares of ADTRAN Holdings common stock to ADVA shareholders and 2.0 million replacement ADTRAN Holdings stock options granted to ADVA option holders. The fair value of the ADTRAN Holdings common stock was based on a closing price at July 15, 2022 of $20.20 per share. The fair values of the replaced ADVA stock options immediately before the replacement and the fair values of the replacement ADTRAN Holdings stock options are based on a binomial lattice model with the following assumptions:

Assumptions	 	Replaced ADVA Stock Options	 	 	Replacement ADTRAN Holdings Stock Options	 	
ADTRAN share price at July 15, 2022	 	€	17.58	 	 	$	20.20	 	
Number of iterations	 	500	 	 	500	 	
Exercise multiple	 	2.5	 	 	2.5	 	
Volatility	 	30.19% - 44.27%	 	 	40.67% - 53.65%	 	
Dividend rate	 	 	0.00	%	 	 	1.77	%	
Forfeiture rate	 	 	0.00	%	 	 	0.00	%	
Term (years)	 	0.33 - 6.83	 	 	0.33 - 6.83	 	
 
ADTRAN will have additional recurring post-close compensation expense of $9.8 million, of which $4.0 million will be recognized during the first year post-close, $1.7 million recognized during the subsequent two quarters of the second year post-close, and the remaining thereon through 2026. As such, an additional pro forma adjustment increases the historical ADVA stock compensation expense for these replacement ADTRAN Holdings stock options by $2.3 million for the year ended December 31, 2021 and $0.9 million for the six months ended June 30, 2022. The compensation expense of $2.3 million is presented as less than $0.1 million to costs of revenue–network solutions, less than $0.1 million to costs of revenue–services and support, $1.3 million to selling, general, and administrative expenses, and $0.9 million to research and development expenses for the year ended December 31, 2021. The additional compensation expense of $0.9 million is presented as less than $0.1 million to costs of goods sold–network solutions, less than $0.1 million to costs of revenue–services and support, $0.5 million to selling, general, and administrative expenses, and $0.4 million to research and development expenses for the six months ended June 30, 2022.
 
K. Represents additional recurring compensation expense related to the modification of the ADTRAN performance stock units (PSUs). Upon completion of the business combination, the ADTRAN PSUs were modified to remove the performance and/or market conditions; but continue to require holders to provide services through the remaining vesting period. As such, the ADTRAN PSUs with only performance conditions, which were not probable of being met historically, are remeasured on the modification date, based on the July 15, 2022, closing share price of $20.20 for a total fair value of $17.5 million. For the PSUs with market conditions, the post-modification fair value was less than the pre-modification fair value. Accordingly, no incremental fair value was recognized.
 
For the performance PSUs, the incremental expense, due to the modification and based on the changes in fair value, is recognized on a straight-line basis over the remaining vesting period. The pro forma adjustment increases the historical ADTRAN stock compensation expense for these modified ADTRAN PSUs by $8.7 million for the year ended December 31, 2021. The additional compensation expense is presented as $0.6 million to costs of revenue–network solutions, $0.2 million to costs of revenue–services and support, $5.2 million to selling, general, and administrative expenses, and $2.8 million to research and development expenses for the year ended December 31, 2021. The additional expense related to the modified ADTRAN PSUs for the six months ended June 30, 2022 is $4.4 million, of which $0.3 million is related to costs of revenue–network solutions, less than $0.1 million is related to costs of revenue–services and support, $2.6 million is related to selling, general, and administrative expenses, and $1.4 million is related to research and development expenses. This modification does not have an impact on the number of PSUs considered in the calculation of pro forma diluted earnings per share as their inclusion would be anti-dilutive.
 
L. The pro forma condensed combined statement of operations for the year ended December 31, 2021, reflects an adjustment of $32.5 million to present the net loss attributable to noncontrolling interests as a result of the business combination. This amount represents ADVA’s net loss attributable to noncontrolling interest after all U.S. GAAP adjustments and transaction adjustments, excluding $0.5 million of net loss related to ADTRAN’s transaction expenses attributable to ADTRAN Holdings shareholders. The pro forma condensed combined statement of operations for the six months ended June 30, 2022, reflects an adjustment of $2.1 million to present the net loss attributable to noncontrolling interests as a result of the business combination.
 
M. Represents an adjustment to the weighted average shares outstanding due to the increase of the number of shares outstanding from the transaction of 28.0 million shares. The 2.0 million replacement ADTRAN Holdings stock options issued and an incremental 0.2 million ADTRAN PSUs were not included in the calculation of pro forma diluted EPS for the year ended December 31, 2021 and the six months ended June 30, 2022, as their inclusion would be anti-dilutive.
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