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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______ to _______

 

Commission File Number: 000-24612

 

ADTRAN, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

63-0918200

(State or other jurisdiction of

incorporation or organization)

(I.R.S. 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

 

                                              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

 

The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

☐  

  

Smaller reporting company

 

 

 

 

 

 

 

 

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. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of May 5, 2021, the registrant had 48,395,709 shares of common stock, $0.01 par value per share, outstanding.

 

 

 


 

ADTRAN, Inc.

Quarterly Report on Form 10-Q

For the three months ended March 31, 2021

Table of Contents

 

Item

Number

 

 

 

Page

Number

 

 

 

Cautionary Note Regarding Forward-Looking Statements

 

3

 

 

Glossary of Selected Terms

 

5

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

1

 

Financial Statements:

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 – (Unaudited)

 

6

 

 

Condensed Consolidated Statements of Income (Loss) for the three months ended March 31, 2021 and 2020 – (Unaudited)

 

7

 

 

Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2021 and 2020 – (Unaudited)

 

8

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2021 and 2020 (Unaudited) 

 

9

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 – (Unaudited)

 

10

 

 

Notes to Condensed Consolidated Financial Statements – (Unaudited)

 

11

2

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

28

3

 

Quantitative and Qualitative Disclosures About Market Risk

 

37

4

 

Controls and Procedures

 

38

 

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

1

 

Legal Proceedings

 

39

1A

 

Risk Factors

 

39

2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

39

6

 

Exhibits

 

40

 

 

 

 

 

 

 

SIGNATURE

 

41

 

 

 

 

 

 

 

 

 

 

 


2


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of ADTRAN, Inc. (“ADTRAN”, the “Company”, “we”, “our” or “us”). ADTRAN and its representatives may from time to time make written or oral forward-looking statements, including statements contained in this report, our other filings with the Securities and Exchange Commission (the “SEC”) and other communications with our stockholders. Any statement that does not directly relate to a historical or current fact is a forward-looking statement. Generally, the words, “believe”, “expect”, “intend”, “estimate”, “anticipate”, “will”, “may”, “could” and similar expressions identify forward-looking statements. We caution you that any forward-looking statements made by us or on our behalf are subject to uncertainties and other factors that could affect the accuracy of such statements. The following are some of the risks that could affect our financial performance or could cause actual results to differ materially from those expressed or implied in our forward-looking statements:

 

 

Our revenues for a particular period can be difficult to predict, and a shortfall in revenue may harm our operating results.

 

The lengthy sales and approval process required by service providers for new products could result in fluctuations in our revenue.

 

We depend heavily on sales to certain customers; the loss of any of these customers would significantly reduce our revenues and net income.

 

Our exposure to the credit risks of our customers and distributors may make it difficult to collect accounts receivable and could adversely affect our operating results, financial condition and cash flows.

 

We expect gross margins to vary over time, and our levels of product and services gross margins may not be sustainable.

 

Our dependence on a limited number of suppliers for certain raw materials and key components may prevent us from delivering our products on a timely basis, which could have a material adverse effect on customer relations and operating results.

 

General economic conditions may reduce our revenues and harm our operating results, financial condition and cash flows.

 

The ongoing COVID-19 pandemic could adversely affect our business, results of operations and financial condition, including possible disruptions in our supply chain, workforce and/or customer demand.

 

We compete in markets that have become increasingly competitive, which may result in reduced gross profit margins and market share.

 

Our estimates regarding future warranty obligations may change due to product failure rates, installation and shipment volumes, field service repair obligations and other rework costs incurred in correcting product failures. If our estimates change, the liability for warranty obligations may be increased or decreased, impacting future cost of goods sold.

 

Managing our inventory is complex and may include write-downs of excess or obsolete inventory.

 

The continuing growth of our international operations could expose us to additional risks, increase our costs and adversely affect our operating results, financial condition and cash flow.

 

If we are unable to integrate acquisitions successfully, it could adversely affect our operating results, financial condition and cash flow.

 

Our success depends on our ability to reduce the selling prices of succeeding generations of our products.

 

If we fail to manage our exposure to worldwide financial and securities markets successfully, our operating results and financial statements could be materially impacted.

 

We are currently in the process of implementing a new enterprise resource planning (“ERP”) software solution. If we do not effectively implement this project, or any future associated updates, our operations could be significantly disrupted.

 

Breaches of our information systems and cyber-attacks could compromise our intellectual property and cause significant damage to our business and reputation.

 

A material weakness in our internal control over financial reporting could result in a loss of investor confidence in the reliability of our financial statements, which in turn could negatively affect the price of our common stock.

 

We must continue to update and improve our products and develop new products to compete and to keep pace with improvements in communications technology.

 

Our failure or the failure of our contract manufacturers to comply with applicable environmental regulations could adversely impact our results of operations.

 

If our products do not interoperate with our customers’ networks, installations may be delayed or canceled, which could harm our business.

 

We engage in research and development activities to develop new, innovative solutions and to improve the application of developed technologies, and as a consequence we may miss certain market opportunities enjoyed by larger companies with substantially greater research and development efforts and which may focus on more leading edge development.

 

Our strategy of outsourcing a portion of our manufacturing requirements to subcontractors located in various international regions may result in us not meeting our cost, quality or performance standards.

 

Our failure to maintain rights to intellectual property used in our business could adversely affect the development, functionality and commercial value of our products.

 

Software under license from third parties for use in certain of our products may not continue to be available to us on commercially reasonable terms.

 

Our use of open source software could impose limitations on our ability to commercialize our products.

3


 

 

We may incur liabilities or become subject to litigation that may have a material effect on our business.

 

Consolidation and deterioration in the CLEC market could result in a significant decrease in our revenue.

 

If we are unable to successfully develop and maintain relationships with system integrators, service providers and enterprise value-added resellers, our revenue may be negatively affected.

 

Our operating results may fluctuate in future periods, which may adversely affect our stock price.

 

The price of our common stock has been volatile and may continue to fluctuate significantly.

 

We are subject to complex and evolving U.S. and foreign laws, regulations and standards governing the conduct of our business. Violations of these laws and regulations may harm our business, subject us to penalties and to other adverse consequences.

 

Changes in trade policy in the U.S. and other countries, specifically the U.K. and China, including the imposition of additional tariffs and the resulting consequences, may adversely impact our gross profits, gross margins, results of operations and financial condition.

 

New or revised tax regulations, changes in our effective tax rate, recognition of a valuation allowance or assessments arising from tax audits may have an adverse impact on our results.

The foregoing list of risks is not exclusive. For a more detailed description of the risk factors associated with our business, see Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 26, 2021 (the “2020 Form 10-K”). We caution investors that other factors may prove to be important in the future in affecting our operating results. New factors emerge from time to time, and it is not possible for us to predict all of these factors, nor can we assess the impact each factor, or a combination of factors, may have on our business.

You are further cautioned not to place undue reliance on these forward-looking statements because they speak only of our views as of the date that the statements were made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 


4


 

GLOSSARY OF SELECTED TERMS

 

Below are certain acronyms, concepts and defined terms commonly used in our industry and in this Quarterly Report on Form 10-Q, along with their meanings:

 

Acronym/Concept/

Defined Term

 

Meaning

carrier

Entity that provides voice, data or video services to consumers and businesses

CPE

Customer-Premises Equipment

CSP

Communication Service Provider

DSO

Days Sales Outstanding

FCC

Federal Communications Commission

FTTN

Fiber to the Node

Gfast

Digital subscriber line protocol standard for local loops (telephone lines) shorter than 500 meters with performance targets between 100 Mbps (as defined below) and 1 gigabit per second, depending on loop length

LAN

Local Area Network

LIBOR

London Inter-bank Offered Rate

Mbps

Megabits per second

MSO

Multiple-System Operator

PON

Passive Optical Network

RDOF

Rural Digital Opportunity Fund

SD-Access

Software Defined Access

Service Provider

Entity that provides voice, data or video services to consumers and businesses

SMB

Small- to Medium-sized Business

System Integrator

Person or company that specializes in bringing together component subsystems into a whole and ensuring that those subsystems function together

WAN

Wide Area Network

XGS-PON

Updated standard for Passive Optical Networks that can support 10 Gbps symmetrical data transfer

 

 

 

 

 

5


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ADTRAN, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

63,777

 

 

$

60,161

 

Restricted cash

 

 

119

 

 

 

18

 

Short-term investments (includes $2,692 and $1,731 of available-for-sale securities as of March 31, 2021 and December 31, 2020, respectively, reported at fair value)

 

 

4,092

 

 

 

3,131

 

Accounts receivable, less allowance for doubtful accounts of $38 as of March 31, 2021 and December 31, 2020

 

 

103,201

 

 

 

98,827

 

Other receivables

 

 

22,669

 

 

 

21,531

 

Inventory, net

 

 

122,862

 

 

 

125,457

 

Prepaid expenses and other current assets

 

 

7,625

 

 

 

8,293

 

Total Current Assets

 

 

324,345

 

 

 

317,418

 

Property, plant and equipment, net

 

 

60,157

 

 

 

62,399

 

Deferred tax assets, net

 

 

9,448

 

 

 

9,869

 

Goodwill

 

 

6,968

 

 

 

6,968

 

Intangibles, net

 

 

22,384

 

 

 

23,470

 

Other non-current assets

 

 

26,195

 

 

 

25,425

 

Long-term investments (includes $43,455 and $43,385 of available-for-sale securities as of March 31, 2021 and December 31, 2020, respectively, reported at fair value)

 

 

81,266

 

 

 

80,130

 

Total Assets

 

$

530,763

 

 

$

525,679

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

55,476

 

 

$

49,929

 

Unearned revenue

 

 

14,457

 

 

 

14,092

 

Accrued expenses and other liabilities

 

 

14,601

 

 

 

13,609

 

Accrued wages and benefits

 

 

15,856

 

 

 

15,262

 

Income tax payable, net

 

 

1,765

 

 

 

1,301

 

Total Current Liabilities

 

 

102,155

 

 

 

94,193

 

Non-current unearned revenue

 

 

7,040

 

 

 

6,888

 

Pension liability

 

 

17,579

 

 

 

18,664

 

Deferred compensation liability

 

 

26,658

 

 

 

25,866

 

Other non-current liabilities

 

 

6,956

 

 

 

7,124

 

Total Liabilities

 

 

160,388

 

 

 

152,735

 

Commitments and contingencies (see Note 19)

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

Common stock, par value $0.01 per share; 200,000 shares authorized;

      79,652 shares issued and 48,388 shares outstanding as of March 31, 2021 and

      79,652 shares issued and 48,241 shares outstanding as of December 31, 2020

 

 

797

 

 

 

797

 

Additional paid-in capital

 

 

283,273

 

 

 

281,466

 

Accumulated other comprehensive loss

 

 

(13,595

)

 

 

(11,639

)

Retained earnings

 

 

776,121

 

 

 

781,813

 

Treasury stock at cost: 31,128 and 31,280 shares at March 31, 2021 and

   December 31, 2020, respectively

 

 

(676,221

)

 

 

(679,493

)

Total Stockholders’ Equity

 

 

370,375

 

 

 

372,944

 

Total Liabilities and Stockholders’ Equity

 

$

530,763

 

 

$

525,679

 

 

See accompanying notes to condensed consolidated financial statements.

6


ADTRAN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited)

(In thousands, except per share amounts)

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Revenue

 

 

 

 

 

 

 

 

Network Solutions

 

$

113,809

 

 

$

97,372

 

Services & Support

 

 

13,724

 

 

 

17,151

 

Total Revenue

 

 

127,533

 

 

 

114,523

 

Cost of Revenue

 

 

 

 

 

 

 

 

Network Solutions

 

 

65,001

 

 

 

51,626

 

Services & Support

 

 

8,931

 

 

 

11,297

 

Total Cost of Revenue

 

 

73,932

 

 

 

62,923

 

Gross Profit

 

 

53,601

 

 

 

51,600

 

Selling, general and administrative expenses

 

 

27,435

 

 

 

26,620

 

Research and development expenses

 

 

27,501

 

 

 

29,859

 

Asset impairments

 

 

 

 

 

65

 

Operating Loss

 

 

(1,335

)

 

 

(4,944

)

Interest and dividend income

 

 

290

 

 

 

356

 

Interest expense

 

 

(6

)

 

 

(1

)

Net investment gain (loss)

 

 

996

 

 

 

(10,877

)

Other income, net

 

 

1,999

 

 

 

1,129

 

Income (Loss) Before Income Taxes

 

 

1,944

 

 

 

(14,337

)

Income tax (expense) benefit

 

 

(1,048

)

 

 

4,368

 

Net Income (Loss)

 

$

896

 

 

$

(9,969

)

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

 

48,336

 

 

 

47,957

 

Weighted average shares outstanding – diluted

 

 

49,004

 

 

 

47,957

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share – basic

 

$

0.02

 

 

$

(0.21

)

Earnings (loss) per common share – diluted

 

$

0.02

 

 

$

(0.21

)

 

See accompanying notes to condensed consolidated financial statements.

 

 

7


 

ADTRAN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Net Income (Loss)

 

$

896

 

 

$

(9,969

)

Other Comprehensive Loss, net of tax

 

 

 

 

 

 

 

 

Net unrealized gains (losses) on available-for-sale securities

 

 

(192

)

 

 

117

 

Defined benefit plan adjustments

 

 

99

 

 

 

141

 

Foreign currency translation

 

 

(1,863

)

 

 

(1,650

)

Other Comprehensive Loss, net of tax

 

 

(1,956

)

 

 

(1,392

)

Comprehensive Loss, net of tax

 

$

(1,060

)

 

$

(11,361

)

 

See accompanying notes to condensed consolidated financial statements.

 

 


8


 

ADTRAN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except per share amounts)

 

 

 

Common

Shares

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Retained

Earnings

 

 

Treasury

Stock

 

 

Accumulated Other Comprehensive Loss

 

 

Total

Stockholders'

Equity

 

Balance as of January 1, 2020

 

 

79,652

 

 

$

797

 

 

$

274,632

 

 

$

806,702

 

 

$

(685,288

)

 

$

(16,417

)

 

$

380,426

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(9,969

)

 

 

 

 

 

 

 

 

(9,969

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,392

)

 

 

(1,392

)

Dividend payments ($0.09 per share)

 

 

 

 

 

 

 

 

 

 

 

(4,328

)

 

 

 

 

 

 

 

 

(4,328

)

Dividends accrued on unvested RSUs

 

 

 

 

 

 

 

 

 

 

 

(32

)

 

 

 

 

 

 

 

 

(32

)

Deferred compensation adjustments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,758

)

 

 

 

 

 

(2,758

)

PSUs, RSUs and restricted stock vested

 

 

 

 

 

 

 

 

 

 

 

(1,524

)

 

 

1,501

 

 

 

 

 

 

(23

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,791

 

 

 

 

 

 

 

 

 

 

 

 

1,791

 

Balance as of March 31, 2020

 

 

79,652

 

 

$

797

 

 

$

276,423

 

 

$

790,849

 

 

$

(686,545

)

 

$

(17,809

)

 

$

363,715

 

 

 

 

 

Common

Shares

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Retained

Earnings

 

 

Treasury

Stock

 

 

Accumulated Other Comprehensive Loss

 

 

Total

Stockholders'

Equity

 

Balance as of January 1, 2021

 

 

79,652

 

 

$

797

 

 

$

281,466

 

 

$

781,813

 

 

$

(679,493

)

 

$

(11,639

)

 

$

372,944

 

Net income

 

 

 

 

 

 

 

 

 

 

 

896

 

 

 

 

 

 

 

 

 

896

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,956

)

 

 

(1,956

)

Dividend payments ($0.09 per share)

 

 

 

 

 

 

 

 

 

 

 

(4,361

)

 

 

 

 

 

 

 

 

(4,361

)

Dividends accrued on unvested RSUs

 

 

 

 

 

 

 

 

 

 

 

(68

)

 

 

 

 

 

 

 

 

(68

)

Deferred compensation adjustments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50

)

 

 

 

 

 

(50

)

PSUs, RSUs and restricted stock vested

 

 

 

 

 

 

 

 

 

 

 

(1,683

)

 

 

1,602

 

 

 

 

 

 

(81

)

Stock options exercised

 

 

 

 

 

 

 

 

 

 

 

(476

)

 

 

1,720

 

 

 

 

 

 

1,244

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,807

 

 

 

 

 

 

 

 

 

 

 

 

1,807

 

Balance as of March 31, 2021

 

 

79,652

 

 

$

797

 

 

$

283,273

 

 

$

776,121

 

 

$

(676,221

)

 

$

(13,595

)

 

$

370,375

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

9


 

ADTRAN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

896

 

 

$

(9,969

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

4,122

 

 

 

4,365

 

(Gain) loss on investments

 

 

(1,161

)

 

 

10,877

 

Stock-based compensation expense

 

 

1,807

 

 

 

1,791

 

Other

 

 

84

 

 

 

115

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(4,762

)

 

 

3,052

 

Other receivables

 

 

(1,220

)

 

 

(6,707

)

Inventory, net

 

 

1,893

 

 

 

(1,598

)

Prepaid expenses and other assets

 

 

(417

)

 

 

2,206

 

Accounts payable, net

 

 

5,629

 

 

 

2,712

 

Accrued expenses and other liabilities

 

 

3,317

 

 

 

(6,680

)

Income taxes payable

 

 

497

 

 

 

(188

)

Net cash provided by (used in) operating activities

 

 

10,685

 

 

 

(24

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(741

)

 

 

(1,406

)

Proceeds from sales and maturities of available-for-sale investments

 

 

10,087

 

 

 

46,440

 

Purchases of available-for-sale investments

 

 

(11,350

)

 

 

(16,879

)

Acquisition of note receivable

 

 

 

 

 

(523

)

Net cash provided by (used in) investing activities

 

 

(2,004

)

 

 

27,632

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Dividend payments

 

 

(4,361

)

 

 

(4,328

)

Proceeds from stock option exercises

 

 

1,244

 

 

 

 

Tax withholdings related to stock-based compensation settlements

 

 

(113

)

 

 

 

Repayment of bonds payable

 

 

 

 

 

(24,600

)

Net cash used in financing activities

 

 

(3,230

)

 

 

(28,928

)

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

5,451

 

 

 

(1,320

)

Effect of exchange rate changes

 

 

(1,734

)

 

 

(1,168

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

60,179

 

 

 

73,773

 

Cash, cash equivalents and restricted cash, end of period

 

$

63,896

 

 

$

71,285

 

 

 

 

 

 

 

 

 

 

Supplemental Cash Flow Information:

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for lease obligations

 

$

248

 

 

$

85

 

Non-cash Investing Activities:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment included in accounts payable

 

$

199

 

 

$

302

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

10


 

ADTRAN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of ADTRAN®, Inc. and its subsidiaries (“ADTRAN”, the “Company”, “we”, “our” or “us”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information presented in Quarterly Reports on Form 10-Q. Accordingly, certain information and notes required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for complete financial statements are not included herein. The December 31, 2020 Condensed Consolidated Balance Sheet is derived from audited financial statements but does not include all disclosures required by U.S. GAAP.

In the opinion of management, all adjustments necessary to fairly state these interim statements have been recorded and are of a normal and recurring nature. The results of operations for an interim period are not necessarily indicative of the results for the full year. The interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in ADTRAN’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 26, 2021.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. The more significant estimates include excess and obsolete inventory reserves, warranty reserves, customer rebates, determination and accrual of deferred revenue components of multiple element sales agreements, estimated costs to complete obligations associated with deferred and accrued revenues and network installations, estimated income tax provision and income tax contingencies, fair value of stock-based compensation, assessment of goodwill and other intangibles for impairment, estimated lives of intangible assets, estimated pension, and liability and fair value of investments, evaluation of other-than-temporary declines in the value of investments and the allowance for current expected credit losses. Actual amounts could differ significantly from these estimates.

We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts of the novel coronavirus (“COVID-19”) as of March 31, 2021 and through the date of this report. The accounting matters assessed included, but were not limited to, the allowance for doubtful accounts, stock-based compensation, carrying value of goodwill, intangibles and other long-lived assets, financial assets, valuation allowances for tax assets and revenue recognition. While there was not a material impact to our consolidated financial statements as of and for the quarter ended March 31, 2021 resulting from these assessments, future assessments related to the COVID-19 pandemic, as well as other factors, could result in material impacts to our consolidated financial statements in future reporting periods.

Correction of an Immaterial Misstatement

During the three months ended March 31, 2020, it was determined that certain investments held in the Company’s stock for a deferred compensation plan accounted for as a Rabbi trust were incorrectly classified as Long-term investments with the fair value of such investments incorrectly marked to market at each period end rather than classified as Treasury stock held at historical cost. This plan has been in existence since 2011. The Company corrected this misstatement as an out-of-period adjustment in the three months ended March 31, 2020 by remeasuring the investment assets to their historical cost basis through the recording of a Net investment gain of $1.5 million in the unaudited Condensed Consolidated Statement of Income (Loss) and then correcting the classification by decreasing the Long-term investment balance at its remeasured cost basis of $2.8 million to Treasury stock in the unaudited Condensed Consolidated Balance Sheet as of March 31, 2020. Management has determined that this misstatement was not material to any of its previously issued financial statements and that the correction of the misstatement was not material to the Company’s 2020 annual financial results on either a quantitative or qualitative basis.

11


Recently Adopted Accounting Pronouncements

We recently adopted the following accounting standards, which had the following impacts on our consolidated financial statements:

 

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans, which makes changes to and clarifies the disclosure requirements related to defined benefit pension and other postretirement plans. ASU 2018-14 requires additional disclosures related to the reasons for significant gains and losses affecting the benefit obligation and an explanation of any other significant changes in the benefit obligation or plan assets that are not otherwise apparent in other disclosures required by Accounting Standards Codification (“ASC”) 715. ASU 2018-14 also clarifies the guidance in ASC 715 to require disclosure of the projected benefit obligation (“PBO”) and fair value of plan assets for pension plans with PBOs in excess of plan assets and the accumulated benefit obligation (“ABO”) and fair value of plan assets for pension plans with ABOs in excess of plan assets. ASU 2018-14 became effective for public business entities for fiscal years ending after December 15, 2020. The adoption of this standard did not have a material effect on the disclosures in the condensed consolidation financial statements.

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing various exceptions, such as the exception to the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items. The amendments in this update also simplify the accounting for income taxes related to income-based franchise taxes and require that an entity reflect enacted tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The Company early adopted ASU 2019-12 on April 1, 2020, which was applied on a prospective basis as if the Company adopted the standard on January 1, 2020. The Company early adopted the standard to take advantage of the simplification of rules for income taxes on intra-period tax allocations. Specifically, the adoption of this standard resulted in the recognition of approximately $0.1 million of tax benefit in other comprehensive income (loss) for the three months ended March 31, 2020, that otherwise would have been recognized in continuing operations had the intra-period tax allocation been completed. There were no other impacts from this standard on the Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Income (Loss) or Condensed Consolidated Statements of Cash Flows.

 

Recent Accounting Pronouncements Not Yet Adopted

There are currently no recent accounting pronouncements that have not yet been adopted and that would have a material effect, once adopted, on the Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Income (Loss) or Condensed Consolidated Statements of Cash Flows.

2. CASH, CASH EQUIVALENTS AND RESTRICTED CASH

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance