EVOLVEGROWCHANGE A YEAR OF
2013 EMERGED AS A YEAR OF
OPPORTUNITY FOR ADTRAN
core product revenue, deliver world-class
customer satisfaction and substantially diversify
and I am pleased to report that we capitalized
our customer base. In short, we took the right
on these opportunities across multiple markets,
steps in 2013 to move our company forward at
geographies and technologies. During the year,
every level. More importantly, we provided the
we launched innovative products that have
framework that will enable our customers to
expanded our opportunities and introduced
evolve, change and grow; meeting their needs
new services that help set the groundwork for
as they looked to make their networks stronger,
ADTRAN to thrive in the systemic changes that
faster and able to compete in an always-on,
are ongoing in our industry. Innovation, commitment
globally connected marketplace.
and focus enabled us to substantially grow our
A YEAR OF
3
Shareholder’s Letter EVOLVE
For nearly three decades, ADTRAN’s continued
evolution has enabled the company to advance
in a dynamic and challenging marketplace.
A key evolutionary objective for the company has
sales when compared to the second half of 2012. For
been to successfully transition our customers from
the full year, international sales were up 24 percent
legacy products to the next-generation core solutions
and company revenue came in at $641.7 million, up
of the future. In 2013, that strategy proved effective as
three percent over the previous year.
core solutions grew to 87 percent of company revenue.
The successful transition of our business has enabled
Another evolutionary objective for the company
the company to meet the changing needs of our global
was globalization. While we continued to gain
customer base. As we strengthened our focus on core
market share with traditional U.S. carrier custom-
products, we continued to maintain a strong investment
ers, we also realized significant growth from some
in Research and Development (R&D). This focus on
of the largest network operators around the world.
product development enabled us to capitalize in the
The U.S. carrier market remained soft throughout
major product initiatives underway in areas such as
the year; however our globalization efforts began to
Ultra Broadband, IP transition and cloud services.
make a meaningful contribution in the second half.
These initiatives represent significant market op-
This resulted in a 48 percent increase in International
portunities for our company and our industry as a
whole and we are positioning the company to remain
at the technology forefront as these initiatives evolve.
Our R&D investment paid dividends in 2013 as we
successfully secured several major market wins in
$185.75
the U.S., Europe and Latin America. It also resulted
in several significant new product announcements
in 2013, including exciting new gigabit services
platforms, the industry’s first advanced services fiber
access gateway for Enterprise and mobile connectiv-
ity, packet optical solutions for high-capacity access
aggregation, expansion of our market-leading Carrier
Ethernet portfolio and ProCloudSM, ADTRAN’s first
cloud service offering.
International
Revenue ($M)
$150.25
$84.43
$31.83
$27.78
2009
2010
2011
2012
2013
(Percent of Total Company Revenue)
4
ADTRAN 2013 Annual Report
5
Shareholder’s Letter 6
ADTRAN 2013 Annual Report CHANGE
Today, there is a synergistic reaction, a perfect storm of
technical capabilities that is accelerating the rate of change
in innovation. As a result, we believe the demand for
connectivity and capacity will continue to escalate.
We are a few years removed from when governments
through was pioneered by ADTRAN and implemented
around the world set aspirational targets of 100 Mbps
by the combined efforts of our U.S. and European
speeds and 2013 was a milestone year for this
engineering teams and marks the most successful
initiative as carriers around the world established
product launch in company history.
concrete plans to deliver on those targets.
In terms of bandwidth, hundred megabit service is
Today, ADTRAN’s hundred megabit equipment
just the beginning. During the year, we introduced
is being deployed in the U.S., Europe and Latin
several products that squarely focused on gigabit
America and we expect that this wave of deploy-
service delivery. We worked with service providers
ment will last several years into the future. However,
who are taking a leadership role in moving the in-
change requires breakthroughs and breakthroughs
dustry forward in global innovation. Our innovative
require time, as with the recent launch of system-
gigabit broadband platforms, like the Total Access
level vectoring in the second half of 2013.
5004 introduced in late 2013, have differentiated us
in the marketplace as demonstrated by our leading
In 2007, ADTRAN presented its research and
Fiber-to-the-Premises (FTTP) market momentum
technical findings to the leading industry standards
and recent major customer wins across multiple mar-
body. This changed the trajectory of this promising
kets. Our gigabit services delivery architecture boasts
technology, enabling system-level vectoring to
industry-leading throughput capacity, advanced
become a viable mass-market solution. This technol-
traffic management and simplified service automa-
ogy holds the promise to enable carriers to deliver
tion that will fuel the market penetration of gigabit
hundred megabit services to customers around the
broadband services within the residential, cloud and
world via existing infrastructure, overcoming major
backhaul segments.
economic deployment hurdles. This industry break-
7
Shareholder’s Letter 8
ADTRAN 2013 Annual ReportGROW GROW
As a global market leader, ADTRAN is committed
to our investors, customers, and employees.
We were able to significantly increase our
by the market adoption of our Optical Networking
performance in 2013 in a number of key areas.
Edge (ONE) solution and we expect to see growing
From a market share perspective, we achieved the
adoption of this solution in 2014 and beyond. Our
number two position in global Broadband DSL
broadband success continues to be driven by sales of
aggregation revenue and the number two position
the hi-X and the Total Access 5000 product families.
in broadband revenue for our target markets of
North America and EMEA.1 We continued to
Strengthening our channels to market remains a
diversify our customer mix and increased our global
priority for the company. We successfully grew our
penetration to 68 countries. An expanded customer
VAR program with the addition of over 300 new
base and diversified customer mix will be essential
resellers in 2013, bringing our total to approximately
to the long-term, sustainable growth of the company.
3,800 partners. We also provided a range of new
International markets now account for 29 percent of
products and services, for the VAR Channel, includ-
our total revenue, rising from just five percent in 2010.
ing our first cloud-based managed service offering,
that enabled our partners to develop new commercial
From a product perspective, we reported growth
opportunities, expand addressable markets and win
across all three of our core product segments.
new business for both themselves and ADTRAN.
Internetworking led the way with 15 percent year-
over-year growth, followed by Optical at seven
In our ongoing focus to return value to our share-
percent and Broadband Access at six percent. Our
holders, we continued to reinvest in the company
success in Internetworking was fueled by contin-
through a stock buyback program. In May 2013, an
ued demand for our industry-leading IP Business
additional five million shares were added to this pro-
Gateways by service providers and Cable/MSOs, as
gram. Throughout the year, the company repurchased
well as increased demand for our Ethernet switch
5.6 million shares of ADTRAN stock valued at $124.3
products through our Value-Added Reseller (VAR)
million. As of December 31, 2013, there were 3.5 mil-
channel. Growth in our Optical products was helped
lion shares remaining under this program.
1 Infonetics Research
9
Shareholder’s LetterGROW 10
ADTRAN 2013 Annual ReportA BRIGHT FUTUREA BRIGHT FUTUREA BRIGHT FUTURE A BRIGHT FUTURE
Looking ahead, we believe that 2014 shows great promise.
We are confident that the markets will continue to mend,
and a progressively better economy will allow companies
to accelerate their capital expenditures.
From a technology perspective, we feel we are
unlocked, and we are well positioned to be in
entering a period of rapid progression and
the driver’s seat as carriers look for solutions
adoption. We believe that technologies like
that can underpin a wave of high-capacity
ultra broadband, GPON and vectoring will be
applications and services such as HD streaming
deployed in substantial quantities, and ADTRAN
video, cloud services and real-time data backup.
is well positioned to benefit from this adoption.
To meet these needs, carriers will need to reinvent
We believe that new network architectures, like
their access networks and evolve to gigabit services
Software-Defined Networks (SDN) and Network
and beyond.
Function Virtualization (NFV), will be explored
and adopted by carriers at a pace that we have not
Finally, I would like to extend my appreciation
seen since the late 90s. All of these technologies and
to each of our employees for their commitment
architectures have scores of business opportunities
to the company, our shareholders and our
underlying them. Their positive impact will be felt
customers. Their dedication and teamwork
across multiple business lines. Likewise, we believe
enabled us to successfully conquer the challenges
they will enable significant growth opportunities for
placed before us. Our employees remain our
agile companies, like ADTRAN, to continue to gain
company’s greatest asset. With their continued
market momentum.
support, ADTRAN will remain at the forefront
of the industry bringing increased value to our
We believe 2014 will be the time that the pent-up
shareholders and enabling our customers to
demand for ultra broadband technologies will be
evolve, change and grow.
Chairman & CEO
ADTRAN, Inc.
11
Shareholder’s LetterA BRIGHT FUTUREA BRIGHT FUTUREA BRIGHT FUTURE $717
$642
$606
$621
$484
$2.12
$1.78
$1.17
Annual
Revenue
(In millions)
$0.74
$0.77
Annual
Earnings
Per Share
(Diluted)
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
59%
59%
58%
51%
48%
$500
4
$476
3
5
$408
$396
2
$3051
Gross Margin
Unrestricted
Cash and
Marketable
Securities
(In millions)
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
Consolidated Statements of Income Data
(In thousands, except per share amounts)
Years Ended December 31
Total sales
Income before provision for
income taxes
Net income
Earnings per common share (Diluted)
Consolidated Balance Sheets Data
(In thousands)
Years Ended December 31
Working capital 6
Total assets
Stockholders’ equity
2013
2012
$641,744
$620,614
$60,855
$72,965
$45,794
$47,263
$0.77
$0.74
2013
2012
$277,335
$337,979
$789,898
$883,656
$604,606
$692,406
1
2
Net of $16 million in stock repurchases and
$22 million in dividend payments during 2009
3
Net of $36 million in stock repurchases and
$23 million in dividend payments during 2011
Net of $18 million in stock repurchases and
$23 million in dividend payments during 2010
4 Net of $39 million in stock repurchases and
$23 million in dividend payments during 2012
5
6
Net of $124 million in stock repurchases and
$21 million in dividend payments during 2013
Working capital consists of current assets
less current liabilities
12
ADTRAN 2013 Annual Report
Financial Results
14 Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
15 Stock Performance Graph
16 Selected Financial Data
17 Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Overview
Critical Accounting Policies and Estimates
Results of Operations
Acquisition Expenses
2013 Compared to 2012
2012 Compared to 2011
Liquidity and Capital Resources
Effect of Recent Accounting Pronouncements
Subsequent Events
Quantitative and Qualitative Disclosures About Market Risk
33 Management’s Report on Internal Control Over Financial Reporting
34 Report of Independent Registered Public Accounting Firm
35 Financial Statements
40 Notes to Consolidated Financial Statements
Note 1 – Nature of Business and Summary of Significant Accounting Policies
Note 2 – Business Combinations
Note 3 – Stock Incentive Plans
Note 4 – Investments
Note 5 – Derivative Instruments and Hedging Activities
Note 6 – Inventory
Note 7 – Property, Plant and Equipment
Note 8 – Goodwill and Intangible Assets
Note 9 – Alabama State Industrial Development
Authority Financing and Economic Incentives
Note 10 – Income Taxes
Note 11 – Employee Benefit Plans
Note 12 – Segment Information and Major Customers
Note 13 – Commitments and Contingencies
Note 14 – Earnings Per Share
Note 15 – Summarized Quarterly Financial Data (Unaudited)
Note 16 – Related Party Transactions
Note 17 – Subsequent Events
This annual report contains forward-looking statements which reflect management’s best judgment based on factors
currently known. However, these statements involve risks and uncertainties, including the successful development and
market acceptance of new products, the degree of competition in the market for such products, the product and channel
mix, component costs, manufacturing efficiencies, and other risks detailed in our annual report on Form 10-K for the year
ended December 31, 2013. These risks and uncertainties could cause actual results to differ materially from those in the
forward-looking statements included in this annual report.
13
Financial Results
Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer
Purchases of Equity Securities
ADTRAN’s common stock is traded on the NASDAQ Global Select Market under the symbol ADTN. As of February 6, 2014,
ADTRAN had 209 stockholders of record and approximately 5,400 beneficial owners of shares held in street name. The
following table shows the high and low closing prices per share for our common stock as reported by NASDAQ for the
periods indicated.
Common Stock Prices
2013
High
Low
2012
High
Low
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$23.61
$19.07
$24.62
$18.55
$27.46
$23.47
$27.10
$23.27
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$38.42
$29.01
$31.07
$28.02
$29.55
$17.28
$20.14
$15.65
The following table shows the shareholder dividends paid in each quarter of 2013 and 2012. The Board of Directors
presently anticipates that it will declare a regular quarterly dividend so long as the present tax treatment of dividends exists
and adequate levels of liquidity are maintained.
Dividends per Common Share
2013
2012
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$0.09
$0.09
$0.09
$0.09
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$0.09
$0.09
$0.09
$0.09
Stock Repurchases
The following table sets forth repurchases of our common stock for the months indicated.
Period
October 1, 2013 – October 31, 2013
November 1, 2013 – November 30, 2013
December 1, 2013 – December 31, 2013
Total
Number of
Shares
Purchased
425,620
424,717
—
Average
Price Paid
Per Share
$23.85
$23.47
—
Total
850,337
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs (1)
Maximum Number of
Shares That May Yet
Be Purchased Under
the Plans or Programs
425,620
424,717
—
850,337
3,886,848
3,462,131
3,462,131
(1) Since 1997, our Board of Directors has approved multiple share repurchase programs that have authorized open market repurchase
transactions of up to 35 million shares of our common stock. On May 1, 2013, our Board of Directors authorized the repurchase
of an additional 5.0 million shares of our common stock (bringing the total shares authorized for repurchase to 40 million), which
commenced upon completion of the repurchase plan announced on October 11, 2011. This new authorization is being implemented
through open market or private purchases from time to time as conditions warrant.
14
ADTRAN 2013 Annual Report Stock Performance Graph
Our common stock began trading on the NASDAQ National Market on August 9, 1994. The price information reflected
for our common stock in the following performance graph and accompanying table represents the closing sales prices of
the common stock for the period from December 31, 2008 through December 31, 2013, on an annual basis. The graph
and the accompanying table compare the cumulative total stockholders’ return on our common stock with the NASDAQ
Telecommunications Index and the NASDAQ Composite Index. The calculations in the following graph and table assume
that $100 was invested on December 31, 2008 in each of our common stock, the NASDAQ Telecommunications Index
and the NASDAQ Composite Index and also assume dividend reinvestment.
$300.00
$250.00
$200.00
$150.00
$100.00
$50.00
$0.00
12/31/2008
12/31/2009
12/31/2010
12/31/2011
12/31/2012
12/31/2013
ADTRAN, Inc.
NASDAQ Telecommunications Index
NASDAQ Composite Index
12/31/08
12/31/09
12/31/10
12/31/11
12/31/12
12/31/13
ADTRAN, Inc.
NASDAQ Telecommunications Index
NASDAQ Composite Index
$100.00
$100.00
$100.00
$154.27
$137.81
$144.88
$250.99
$148.84
$170.58
$211.14
$131.52
$171.30
$138.91
$136.58
$199.99
$195.04
$189.00
$283.39
15
Financial Results Selected Financial Data
Income Statement Data (1)
(In thousands, except per share amounts)
Year Ended December 31,
2013
2012
2011
2010
2009
$500,733
$492,096
$569,579
$476,030
$371,349
Sales
Carrier Networks Division
Enterprise Networks Division
Total sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Research and development expenses
Operating income
Interest and dividend income
Interest expense
Net realized investment gain (loss)
Other income (expense), net
Gain on bargain purchase of a business
Income before provision for income taxes
Provision for income taxes
Net income
141,011
641,744
332,858
308,886
129,366
131,055
48,465
7,012
(2,325)
8,614
(911)
—
60,855
(15,061)
$45,794
128,518
620,614
303,971
316,643
134,523
125,951
56,169
7,657
(2,347)
9,550
183
1,753
72,965
(25,702)
$47,263
Year Ended December 31,
Weighted average shares outstanding—basic
2013
59,001
2012
63,259
Weighted average shares outstanding—
assuming dilution (2)
Earnings per common share—basic
Earnings per common share—assuming
dilution (2)
Dividends declared and paid per common share
59,424
$0.78
$0.77
$0.36
63,774
$0.75
$0.74
$0.36
147,650
717,229
302,911
414,318
124,879
100,301
189,138
7,642
(2,398)
12,454
(694)
—
206,142
(67,565)
129,644
605,674
246,811
358,863
114,699
90,300
153,864
6,557
(2,436)
11,008
(804)
—
168,189
(54,200)
$138,577
$113,989
2011
64,145
65,416
$2.16
$2.12
$0.36
2010
62,490
63,879
$1.82
$1.78
$0.36
112,836
484,185
197,223
286,962
99,446
83,285
104,231
6,933
(2,430)
(1,297)
131
—
107,568
(33,347)
$74,221
2009
62,459
63,356
$1.19
$1.17
$0.36
Balance Sheet Data
(In thousands)
At December 31,
Working capital (3)
Total assets
Total debt
Stockholders’ equity
2013
2012
2011
2010
2009
$277,335
$337,979
$329,311
$304,952
$278,044
$789,898
$883,656
$817,514
$691,974
$564,463
$46,500
$46,500
$47,000
$48,000
$48,250
$604,606
$692,406
$692,131
$572,322
$452,515
(1) Net income for 2013, 2012, 2011, 2010 and 2009 includes stock-based compensation expense of $7.8 million, $8.0 million,
$7.8 million, $7.1 million and $6.4 million, respectively, net of tax, related to stock option awards. See Note 3 of Notes to the
Consolidated Financial Statements.
(2) Assumes exercise of dilutive stock options calculated under the treasury method. See Notes 1 and 14 of Notes to Consolidated
Financial Statements.
(3) Working capital consists of current assets less current liabilities.
16
ADTRAN 2013 Annual Report Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Overview
ADTRAN, Inc. is a leading global provider of networking and communications equipment. Our solutions enable voice,
data, video and Internet communications across a variety of network infrastructures. These solutions are deployed by some
of the world’s largest service providers, distributed enterprises and small and medium-sized businesses, public and private
enterprises, and millions of individual users worldwide.
Our success depends upon our ability to increase unit volume and market share through the introduction of new products
and succeeding generations of products having lower selling prices and increased functionality as compared to both the prior
generation of a product and to the products of competitors. An important part of our strategy is to reduce the cost of each
succeeding product generation and then lower the product’s selling price based on the cost savings achieved in order to gain
market share and/or improve gross margins. As a part of this strategy, we seek in most instances to be a high-quality, low-cost
provider of products in our markets. Our success to date is attributable in large measure to our ability to design our products
initially with a view to their subsequent redesign, allowing both increased functionality and reduced manufacturing costs in
each succeeding product generation. This strategy enables us to sell succeeding generations of products to existing customers,
while increasing our market share by selling these enhanced products to new customers.
Carrier Systems products are used by communications service providers to provide data, voice and video services to
consumers and enterprises. This category includes the following product areas and related services:
Broadband Access
• Total Access® 5000 Multi-Service Access Node (MSAN)
• hiX family of MSANs
• Total Access 1100/1200 Series of Fiber to the Node (FTTN) products
• Ultra Broadband Ethernet (UBE)
• Digital Subscriber Line Access Multiplexer (DSLAM) products
Optical
• Optical Networking Edge (ONE)
• NetVanta® 8000 Series of Fiber Ethernet Access Devices (EAD)
• OPTI-6100 and Total Access 3000 optical Multi-Service Provisioning Platforms (MSPP)
• Pluggable Optical Products, including SFP, XFP, and SFP+
TDM Systems
Business Networking products provide access to communication services and facilitate the delivery of cloud connectivity
and enterprise communications to the Small and Mid-sized Enterprise (SME) market. This category includes the following
product areas and related services:
Internetworking Products
• Total Access IP Business Gateways
• Optical Network Terminals (ONTs)
• Bluesocket® virtual Wireless LAN (vWLAN®)
• NetVanta
– Multiservice Routers
– Managed Ethernet Switches
– IP Business Gateways
– Unified Communications (UC) solutions
– Carrier Ethernet Network Terminating Equipment (NTE)
• Network Management Solutions
Integrated Access Devices (IADs)
17
Financial Results Loop Access products are used by carrier and enterprise customers for access to copper-based communications networks.
The Loop Access category includes the following product areas and related services:
• High bit-rate Digital Subscriber Line (HDSL) products
• Digital Data Service (DDS)
• Integrated Services Digital Network (ISDN) products
• T1/E1/T3 Channel Service Units/Data Service Units (CSUs/DSUs)
• TRACER fixed-wireless products
In addition, we identify subcategories of product revenues, which we divide into core products and legacy products.
Our core products consist of Broadband Access and Optical products (included in Carrier Systems) and Internetworking
products (included in Business Networking). Our legacy products include HDSL products (included in Loop Access) and
other products not included in the aforementioned core products. Many of our customers are migrating their networks to
deliver higher bandwidth services by utilizing newer technologies. We believe that products and services offered in our core
product areas position us well for this migration. Despite occasional increases, we anticipate that revenues of many of our
legacy products, including HDSL, will decline over time; however, revenues from these products may continue for years
because of the time required for our customers to transition to newer technologies.
Sales were $641.7 million in 2013 compared to $620.6 million in 2012 and $717.2 million in 2011. Total sales of products
in our three core areas, Broadband Access, Optical and Internetworking, increased 8.9% in 2013 compared to 2012 and
decreased 1.7% in 2012 compared to 2011. Our gross profit margin decreased in 2013 to 48.1% from 51.0% in 2012 and
57.8% in 2011. Net income was $45.8 million in 2013 compared to $47.3 million in 2012 and $138.6 million in 2011.
Earnings per share, assuming dilution, were $0.77 in 2013 compared to $0.74 in 2012 and $2.12 in 2011. Earnings per share
in 2013, 2012 and 2011 include the effect of the repurchase of 5.6 million, 1.8 million and 1.1 million shares of our stock in
those years, respectively.
Our operating results have fluctuated on a quarterly basis in the past, and may vary significantly in future periods due
to a number of factors, including customer order activity and backlog. Backlog levels vary because of seasonal trends, the
timing of customer projects and other factors that affect customer order lead times. Many of our customers require prompt
delivery of products. This requires us to maintain sufficient inventory levels to satisfy anticipated customer demand. If
near-term demand for our products declines, or if potential sales in any quarter do not occur as anticipated, our financial
results could be adversely affected. Operating expenses are relatively fixed in the short term; therefore, a shortfall in quarterly
revenues could significantly impact our financial results in a given quarter.
Our operating results may also fluctuate as a result of a number of other factors, including a decline in general
economic and market conditions, increased competition, customer order patterns, changes in product and services mix,
timing differences between price decreases and product cost reductions, product warranty returns, expediting costs and
announcements of new products by us or our competitors. Additionally, maintaining sufficient inventory levels to assure
prompt delivery of our products increases the amount of inventory that may become obsolete and increases the risk that
the obsolescence of this inventory may have an adverse effect on our business and operating results. Also, not maintaining
sufficient inventory levels to assure prompt delivery of our products may cause us to incur expediting costs to meet customer
delivery requirements, which may negatively impact our operating results in a given quarter.
Accordingly, our historical financial performance is not necessarily a meaningful indicator of future results, and, in
general, management expects that our financial results may vary from period to period. See Note 15 of Notes to Consolidated
Financial Statements for additional information. For a discussion of risks associated with our operating results, see Item 1A
of our Form 10-K for the year ended December 31, 2013.
Critical Accounting Policies and Estimates
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about
matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used,
or if changes in the accounting estimate that are reasonably likely to occur could materially impact the results of financial
operations. We believe the following critical accounting policies affect our more significant judgments and estimates used
in the preparation of our consolidated financial statements. These policies have been consistently applied across our two
reportable segments: (1) Carrier Networks Division and (2) Enterprise Networks Division.
18
ADTRAN 2013 Annual Report n Revenue is generally recognized when persuasive evidence of an arrangement exists, delivery has occurred, the
product price is fixed or determinable, collection of the resulting receivable is reasonably assured, and product returns
are reasonably estimable. For product sales, revenue is generally recognized upon shipment of the product to our
customer in accordance with the title transfer terms of the sales agreement, generally FOB shipping point. In the case
of consigned inventory, revenue is recognized when the end customer assumes ownership of the product. Contracts
that contain multiple deliverables are evaluated to determine the units of accounting, and the consideration from the
arrangement is allocated to each unit of accounting based on the relative selling price and corresponding terms of
the contract. We use vendor-specific objective evidence of selling price. When this evidence is not available, we are
generally not able to determine third-party evidence of selling price because of the extent of customization among
competing products or services from other companies. We record revenue associated with installation services when
all contractual obligations are complete. In instances where customer acceptance is required, revenue is deferred
until all acceptance criteria have been met. Contracts that include both installation services and product sales are
evaluated for revenue recognition in accordance with contract terms. As a result, depending on contract terms,
installation services may be considered a separate deliverable or may be considered a combined single unit of
accounting with the delivered product. Generally, either the purchaser, ADTRAN, or a third party can perform
the installation of our products. Shipping fees are recorded as revenue and the related cost is included in cost of sales.
Revenue is recorded net of discounts.
n A significant portion of Enterprise Networks products are sold in the United States through a non-exclusive distribution
network of major technology distributors. These organizations then distribute or provide fulfillment services to an
extensive network of value-added resellers and system integrators. Value-added resellers and system integrators may be
affiliated with us as a channel partner, or they may purchase from the distributor on an unaffiliated basis. Additionally,
with certain limitations, our distributors may return unused and unopened product for stock-balancing purposes when
these returns are accompanied by offsetting orders for products of equal or greater value.
n We carry our inventory at the lower of cost or market, with cost being determined using the first-in, first-out method.
We use standard costs for material, labor, and manufacturing overhead to value our inventory. Our standard costs are
updated on at least a quarterly basis and any variances are expensed in the current period; therefore, our inventory costs
approximate actual costs at the end of each reporting period. We write down our inventory for estimated obsolescence
or unmarketable inventory by an amount equal to the difference between the cost of inventory and the estimated
fair value based upon assumptions about future demand and market conditions. If actual future demand or market
conditions are less favorable than those projected by management, we may be required to make additional inventory
write-downs. Our reserve for excess and obsolete inventory was $23.0 million and $12.0 million at December 31, 2013
and 2012, respectively. Inventory write-downs charged to the reserve were $0.4 million, $0.5 million and $0.7 million
for the years ended December 31, 2013, 2012 and 2011, respectively.
n The objective of our short-term investment policy is to preserve principal and maintain adequate liquidity with
appropriate diversification, while achieving market returns. The objective of our long-term investment policy is
principal preservation and total return; that is, the aggregate return from capital appreciation, dividend income, and
interest income. These objectives are achieved through investments with appropriate diversification in fixed and variable
rate income securities, public equity, and private equity portfolios. Our investment policy provides limitations for issuer
concentration, which limits, at the time of purchase, the concentration in any one issuer to 5% of the market value of our
total investment portfolio. We have experienced significant volatility in the market prices of our publicly traded equity
investments. These investments are recorded on the consolidated balance sheets at fair value with unrealized gains and
losses reported as a component of accumulated other comprehensive income, net of tax. The ultimate realized value on
these equity investments is subject to market price volatility.
We have categorized our cash equivalents held in money market funds and our investments held at fair value into
a three-level fair value hierarchy based on the priority of the inputs to the valuation technique for the cash equivalents
and investments as follows: Level 1 – Values based on unadjusted, quoted prices in active markets for identical assets or
liabilities; Level 2 – Values based on inputs other than quoted prices included within Level 1 that are directly or indirectly
observable for the asset or liability; Level 3 – Values based on unobservable inputs for the asset or liability. These inputs
include information supplied by investees. At December 31, 2013, we categorized $53.6 million and $311.5 million of our
available-for-sale investments as Level 1 and Level 2, respectively, and $3.9 million of our cash equivalents as Level 1. At
December 31, 2012, we categorized $47.2 million and $395.9 million of our available-for-sale investments as Level 1 and
Level 2, respectively, and $28.1 million of our cash equivalents as Level 1.
19
Financial Results We review our investment portfolio for potential “other-than-temporary” declines in value on an individual
investment basis. We assess, on a quarterly basis, significant declines in value which may be considered other-than-
temporary and, if necessary, recognize and record the appropriate charge to write-down the carrying value of such
investments. In making this assessment, we take into consideration qualitative and quantitative information, including
but not limited to the following: the magnitude and duration of historical declines in market prices, credit rating activity,
assessments of liquidity, public filings, and statements made by the issuer. We generally begin our identification of
potential other-than-temporary impairments by reviewing any security with a fair value that has declined from its
original or adjusted cost basis by 25% or more for six or more consecutive months. We then evaluate the individual
security based on the previously identified factors to determine the amount of the write-down, if any. As a result of our
review, we recorded an other-than-temporary impairment charge of $11 thousand during the fourth quarter of 2013.
For the years ended December 31, 2013, 2012 and 2011, we recorded charges of $25 thousand, $0.7 million and $68
thousand, respectively, related to the other-than-temporary impairment of certain publicly traded equity securities and
our deferred compensation plan assets. Actual losses, if any, could ultimately differ from these estimates. Future adverse
changes in market conditions or poor operating results of underlying investments could result in additional losses that
may not be reflected in an investment’s current carrying value, thereby possibly requiring an impairment charge in
the future. See Note 4 of Notes to the Consolidated Financial Statements in this report for more information about
our investments.
We also invest in privately held entities and private equity funds and record these investments at cost. We review
these investments periodically in order to determine if circumstances (both financial and non-financial) exist that
indicate that we will not recover our initial investment. Impairment charges are recorded on investments having a cost
basis that is greater than the value that we would reasonably expect to receive in an arm’s length sale of the investment.
We have not been required to record any impairment losses relating to these investments in 2013, 2012 or 2011.
n For purposes of determining the estimated fair value of our stock option awards on the date of grant, we use the
Black-Scholes Model. This model requires the input of certain assumptions that require subjective judgment. These
assumptions include, but are not limited to, expected stock price volatility over the term of the awards and actual and
projected employee stock option exercise behaviors. Because our stock option awards have characteristics significantly
different from those of traded options, and because changes in the input assumptions can materially affect the fair value
estimate, the existing model may not provide a reliable single measure of the fair value of our stock option awards.
For purposes of determining the estimated fair value of our performance-based restricted stock unit awards on the
date of grant, we use a Monte Carlo Simulation valuation method. The restricted stock units are subject to a market
condition based on the relative total shareholder return of ADTRAN against all of the companies in the NASDAQ
Telecommunications Index and vest at the end of a three-year performance period. The fair value of restricted stock
issued to our Directors is equal to the closing price of our stock on the date of grant. Management will continue to
assess the assumptions and methodologies used to calculate the estimated fair value of stock-based compensation.
Circumstances may change and additional data may become available over time, which could result in changes to
these assumptions and methodologies and thereby materially impact our fair value determination. If factors change
in future periods, the compensation expense that we record may differ significantly from what we have recorded in
the current period.
n We estimate our income tax provision or benefit in each of the jurisdictions in which we operate, including estimating
exposures related to examinations by taxing authorities. We also make judgments regarding the realization of deferred
tax assets, and establish valuation allowances where we believe it is more likely than not that future taxable income in
certain jurisdictions will be insufficient to realize these deferred tax assets. Our estimates regarding future taxable income
and income tax provision or benefit may vary due to changes in market conditions, changes in tax laws, or other factors.
If our assumptions, and consequently our estimates, change in the future, the valuation allowances we have established
may be increased or decreased, impacting future income tax expense. At December 31, 2013 and 2012 respectively, the
valuation allowance was $8.8 million and $10.9 million. As of December 31, 2013, we have state research tax credit
carry-forwards of $3.6 million, which will expire between 2015 and 2028. These carry-forwards were caused by tax
20
ADTRAN 2013 Annual Report credits in excess of our annual tax liabilities to an individual state where we no longer generate sufficient state income.
In addition, as of December 31, 2013, we have a deferred tax asset of $11.9 million relating to net operating loss carry-
forwards which will expire between 2014 and 2030. These carry-forwards are the result of acquisitions in 2009 and in
2011, plus losses generated in 2012 by a foreign entity. The acquired net operating losses are in excess of the amount of
estimated earnings. We believe it is more likely than not that we will not realize the full benefits of our deferred tax asset
arising from these credits and net operating losses, and accordingly, have provided a full valuation allowance against
them. This valuation allowance is included in non-current deferred tax liabilities in the accompanying balance sheets.
We establish reserves to remove some or all of the tax benefit of any of our tax positions at the time we determine that
the positions become uncertain. We adjust these reserves, including any impact on the related interest and penalties, as
facts and circumstances change.
n Our products generally include warranties of 90 days to ten years for product defects. We accrue for warranty returns
at the time revenue is recognized based on our estimate of the cost to repair or replace the defective products. We engage
in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our
component suppliers. Our products continue to become more complex in both size and functionality as many of our
product offerings migrate from line card applications to systems products. The increasing complexity of our products
will cause warranty incidences, when they arise, to be more costly. Our estimates regarding future warranty obligations
may change due to product failure rates, material usage, and other rework costs incurred in correcting a product failure.
In addition, from time to time, specific warranty accruals may be recorded if unforeseen problems arise. Should our
actual experience relative to these factors be worse than our estimates, we will be required to record additional warranty
expense. Alternatively, if we provide for more reserves than we require, we will reverse a portion of such provisions in
future periods. The liability for warranty obligations totaled $9.0 million and $9.7 million at December 31, 2013 and
2012, respectively. These liabilities are included in accrued expenses in the accompanying Consolidated Balance Sheets.
n Pension benefit plan obligations are based on various assumptions used by our actuaries in calculating these amounts.
These assumptions include discount rates, compensation rate increases, expected return on plan assets, retirement rates,
and mortality rates. Actual results that differ from the assumptions and changes in assumptions could affect future
expenses and obligations. Our net pension liability totaled $2.6 million at December 31, 2013 and 2012. This liability
is included in other non-current liabilities in the accompanying Consolidated Balance Sheets.
n We use the acquisition method to account for business combinations. Under the acquisition method of accounting, we
recognize the assets acquired and liabilities assumed at their fair value on the acquisition date. Goodwill is measured as
the excess of the consideration transferred over the net assets acquired. The acquisition method of accounting requires us
to exercise judgment and make significant estimates and assumptions regarding the fair value of the assets acquired and
liabilities assumed, including the fair values of inventory, unearned revenue, warranty liabilities, identifiable intangible
assets and deferred tax asset valuation allowances. This method also requires us to refine these estimates over a one-year
measurement period to reflect information obtained about facts and circumstances that existed as of the acquisition date
that, if known, would have affected the measurement of the asset and liabilities recorded on that date, which could affect
our net income.
n We evaluate the carrying value of goodwill during the fourth quarter of each year and between annual evaluations if
events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below
its carrying amount. When evaluating whether goodwill is impaired, we first assess qualitative factors to determine
whether it is necessary to perform the two-step quantitative goodwill impairment test. If we determine that the two-step
quantitative test is necessary, then we compare the fair value of the reporting unit to which the goodwill is assigned to
the reporting unit’s carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair
value, then the amount of the impairment loss is measured. We passed the qualitative assessment in 2013 and 2012;
therefore, we did not complete a quantitative assessment. As a result, there were no impairment losses recognized
during 2013 or 2012.
21
Financial Results Results of Operations
The following table presents selected financial information derived from our consolidated statements of income expressed
as a percentage of sales for the years indicated.
Year Ended December 31,
Sales
Carrier Networks Division
Enterprise Networks Division
Total sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Research and development expenses
Operating income
Interest and dividend income
Interest expense
Net realized investment gain
Other income (expense), net
Gain on bargain purchase of a business
Income before provision for income taxes
Provision for income taxes
Net income
2013
2012
2011
78.0%
22.0
100.0%
51.9
48.1
20.2
20.4
7.6
1.1
(0.4)
1.3
(0.1)
—
9.5
(2.3)
7.1%
79.3%
20.7
100.0%
49.0
51.0
21.7
20.3
9.1
1.2
(0.4)
1.5
—
0.3
11.8
(4.1)
7.6%
79.4%
20.6
100.0%
42.2
57.8
17.4
14.0
26.4
1.1
(0.3)
1.7
(0.1)
—
28.7
(9.4)
19.3%
22
ADTRAN 2013 Annual Report Acquisition Expenses
On August 4, 2011, we closed on the acquisition of Bluesocket, Inc. and on May 4, 2012, we closed on the acquisition of the
NSN BBA business. Acquisition related expenses, amortizations and adjustments for the years ended December 31, 2013,
2012 and 2011 for both transactions are as follows:
(In Thousands)
Bluesocket, Inc. acquisition
Amortization of acquired intangible assets
Amortization of other purchase accounting adjustments
Acquisition related professional fees, travel and
other expenses
Subtotal
NSN BBA acquisition
Amortization of acquired intangible assets
Amortization of other purchase accounting adjustments
Acquisition related professional fees, travel and
other expenses
Subtotal
Total acquisition related expenses, amortizations
and adjustments
Tax effect
Total acquisition related expenses, amortizations
and adjustments, net of tax
2013
2012
$1,069
73
—
$1,142
$1,174
1,378
345
$2,897
$4,039
(1,343)
$2,696
$1,020
443
—
$1,463
$762
2,305
4,860
$7,927
$9,390
(3,148)
$6,242
2011
$495
521
730
$1,746
—
—
2,027
$2,027
$3,773
(1,434)
$2,339
The acquisition related expenses, amortizations and adjustments above were recorded in the following Consolidated
Statements of Income categories for the years ended December 31, 2013, 2012 and 2011:
(In Thousands)
Revenue (adjustments to unearned revenue recognized
in the period)
Cost of goods sold
Subtotal
Selling, general and administrative expenses
Research and development expenses
Subtotal
Total acquisition related expenses, amortizations
and adjustments
Tax effect
Total acquisition related expenses, amortizations
and adjustments, net of tax
2013
$929
196
$1,125
$399
2,515
$2,914
$4,039
(1,343)
$2,696
2012
$1,528
1,086
$2,614
4,510
2,266
$6,776
$9,390
(3,148)
$6,242
2011
$362
165
$527
2,557
689
$3,246
$3,773
(1,434)
$2,339
23
Financial Results 2013 Compared to 2012
Sales
Our sales increased 3.4% from $620.6 million in 2012 to $641.7 million in 2013. The increase in sales is primarily attributable
to a $21.5 million increase in sales of our Internetworking products, a $20.5 million increase in sales of our Broadband Access
products, a $3.9 million increase in sales of our Optical products, partially offset by a $24.7 million decrease in sales of our
HDSL and other legacy products.
Carrier Networks sales increased 1.8% from $492.1 million in 2012 to $500.7 million in 2013. The increase in sales is
primarily attributable to increases in sales of Broadband Access products, Internetworking products, and Optical products,
partially offset by a decrease in sales of our HDSL products. The increase in sales of our Broadband Access products is
primarily attributable to initial VDSL2 vectoring technology shipments to Europe, partially offset by fluctuations in project
installation activities at a Latin American carrier. The increase in sales of our Internetworking products is primarily attribut-
able to an improved spending environment and increases in EFM NTE sales and FTTP ONT sales to carriers. The increase
in sales of our Optical products is primarily attributable to a technology shift from Time Division Multiplexed (TDM) and
SONET/SDH architectures to Ethernet-based packet networks. We offer Ethernet-based solutions within our Optical products
that address this technology change, and we expect sales of our Optical products will increase over time due to this transition.
The decrease in sales of HDSL and other legacy products has been expected as customers continue to upgrade their networks
to deliver higher bandwidth services by migrating to newer technologies, including to our core products from our Broadband
Access, Internetworking and Optical product lines. While we expect that revenues from HDSL and our other legacy products
will continue to decline over time, these revenues may continue for years because of the time required for our customers to
transition to newer technologies.
Enterprise Networks sales increased 9.7% from $128.5 million in 2012 to $141.0 million in 2013. The increase is attribut-
able to an increase in sales of our Internetworking products, partially offset by decreases in sales of our legacy products. The
increase in sales of our Internetworking products is primarily attributable to an improved spending environment and reflected
an increase in sales of Ethernet switches and IP business gateways to both carriers and value added resellers. The decrease
in legacy products was expected and is discussed further above. Internetworking product sales attributable to Enterprise
Networks were 93.6% of the division’s sales in 2013 compared with 91.5% in 2012. Legacy products primarily comprise the
remainder of Enterprise Networks sales. Enterprise Networks sales as a percentage of total sales increased from 20.7% in
2012 to 22.0% in 2013.
International sales, which are included in the Carrier Networks and Enterprise Networks amounts discussed above,
increased 23.6% from $150.2 million in 2012 to $185.7 million in 2013. International sales, as a percentage of total sales,
increased from 24.2% in 2012 to 28.9% in 2013. The increase in international sales is primarily attributable to an increase in
sales in the EMEA region, partially offset by a decrease in sales in Latin America and the Asia-Pacific region.
Carrier Systems product sales increased $28.2 million in 2013 compared to 2012 primarily due to a $20.5 million
increase in Broadband Access product sales, a $3.9 million increase in Optical product sales, and a $3.9 million increase in
legacy product sales. The increase in Carrier Systems product sales is primarily attributable to the factors discussed above.
Business Networking product sales increased $19.6 million in 2013 compared to 2012 primarily due to a $21.5 million
increase in Internetworking product sales across both divisions, partially offset by a $1.9 million decrease in legacy product
sales. The increase in sales of our Internetworking products was primarily attributable to an improved spending environment
and reflected an increase in sales to both carriers and value added resellers. The decrease in legacy products was expected and
is further discussed above.
Loop Access product sales decreased $26.6 million in 2013 compared to 2012 primarily due to a $25.3 million decrease in
HDSL product sales, which is further discussed above.
Cost of Sales
As a percentage of sales, cost of sales increased from 49.0% in 2012 to 51.9% in 2013. The increase was primarily attributable
to a higher volume of the lower gross margin products related to the broadband access business we acquired in 2012,
customer price movements to achieve market share position and shifts in customer mix.
Carrier Networks cost of sales increased from 49.7% of sales in 2012 to 53.4% of sales in 2013. The increase in Carrier
Networks cost of sales as a percentage of sales was primarily attributable to a higher volume of the lower gross margin
products related to the acquired broadband access business, customer price movements to achieve market share position
and shifts in customer mix.
24
ADTRAN 2013 Annual Report Enterprise Networks cost of sales increased from 46.1% of sales in 2012 to 46.3% of sales in 2013. The increase in
Enterprise Networks cost of sales as a percentage of sales was primarily attributable to customer price movements to achieve
market share position and the impact of cost allocations between divisions, partially offset by higher cost absorption due to
the higher production volumes.
An important part of our strategy is to reduce the product cost of each succeeding product generation and then to lower
the product’s price based on the cost savings achieved. This may cause variations in our gross profit percentage due to timing
differences between the recognition of cost reductions and the lowering of product selling prices.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 3.8% from $134.5 million in 2012 to $129.4 million in 2013. Selling,
general and administrative expenses include personnel costs for administration, finance, information systems, human
resources, sales and marketing, and general management, as well as rent, utilities, legal and accounting expenses, bad debt
expense, advertising, promotional material, trade show expenses, and related travel costs. The decrease in selling, general
and administrative expenses is primarily related to decreases in professional services, legal services and travel expenses,
which were higher in 2012 due to pre-acquisition activities related to the acquired broadband access business, and decreased
independent contractor expense.
Selling, general and administrative expenses as a percentage of sales decreased from 21.7% for the year ended December
31, 2012 to 20.2% for the year ended December 31, 2013. Selling, general and administrative expenses as a percentage of sales
will generally fluctuate whenever there is a significant fluctuation in revenues for the periods being compared.
Research and Development Expenses
Research and development expenses increased 4.1% from $126.0 million in 2012 to $131.1 million in 2013. The increase in
research and development expenses is primarily attributable to increases in staffing and fringe benefit costs due to increased
headcount related to the broadband access business acquired on May 4, 2012, increases in amortization of acquired intangible
assets and depreciation of acquired fixed assets, partially offset by a decrease in independent contractor expenses.
Research and development expenses as a percentage of sales increased from 20.3% for the year ended December 31, 2012
to 20.4% for the year ended December 31, 2013. Research and development expenses as a percentage of sales will fluctuate
whenever there are incremental product development activities or a significant fluctuation in revenues for the periods being
compared.
We expect to continue to incur research and development expenses in connection with our new and existing products and
our expansion into international markets. We continually evaluate new product opportunities and engage in intensive research
and product development efforts which provide for new product development, enhancement of existing products and product
cost reductions. We may incur significant research and development expenses prior to the receipt of revenues from a major
new product group.
Interest and Dividend Income
Interest and dividend income decreased from $7.7 million in 2012 to $7.0 million in 2013. The decrease in interest and
dividend income is primarily attributable to a reduction in the average rate of return on our investments as well as a
decrease in our average investment balances.
Interest Expense
Interest expense remained consistent at $2.3 million in 2012 and 2013, as we had no substantial change in our fixed rate
borrowings. See “Liquidity and Capital Resources” below for additional information.
Net Realized Investment Gain
Net realized investment gain decreased from $9.6 million in 2012 to $8.6 million in 2013. The decrease in realized
investment gains is primarily attributable to lower gains from the sale of equity securities in 2013. See “Investing Activities”
in “Liquidity and Capital Resources” below for additional information.
Other Income (Expense), net
Other income (expense), net, comprised primarily of miscellaneous income, gains and losses on foreign currency transactions,
investment account management fees, and gains or losses on the disposal of property, plant and equipment occurring in the
normal course of business, changed from $0.2 million of income in 2012 to $0.9 million of expense in 2013.
25
Financial Results Income Taxes
Our effective tax rate decreased from 35.2% in 2012 to 24.7% in 2013. The decrease in the effective tax rate between the two
periods is primarily attributable to an acquired business that incurred losses in the prior year for which no tax benefit was
recognized and the improved profitability of that business in the current year, the net effect of recording the benefit for the
research tax credit for the 2012 tax year in January 2013 pursuant to the American Taxpayer Relief Act of 2012, and the
inclusion of the benefit of the estimated 2013 research tax credit in the estimated annual effective rate for 2013.
Net Income
As a result of the above factors, net income decreased from $47.3 million in 2012 to $45.8 million in 2013. As a percentage
of sales, net income decreased from 7.6% in 2012 to 7.1% in 2013.
2012 Compared to 2011
Sales
ADTRAN’s sales decreased 13.5% from $717.2 million in 2011 to $620.6 million in 2012. The decrease in sales is primarily
attributable to an $87.6 million decrease in sales of our HDSL and other legacy products, a $30.8 million decrease in sales of
our Optical products, an $8.6 million decrease in sales of our Internetworking products, partially offset by a $30.3 million
increase in sales of our Broadband Access products.
Carrier Networks sales decreased 13.6% from $569.6 million in 2011 to $492.1 million in 2012. The decrease is primarily
attributable to decreases in sales of Optical products, HDSL products and other legacy products. These declines were partially
offset by the added sales of the NSN BBA business and an increase in sales of our Internetworking NTE products. Our organic
Broadband Access sales in 2012 were negatively impacted by decreased capital expenditures at two substantial Broadband
Access customers. The decrease in sales of Optical products in 2012 is primarily attributable to the market transitioning to
Ethernet and our transition to new products to address this market. The declining trend in HDSL and other legacy products
has been expected as we evolve our products towards packet-based technologies, but was larger than anticipated due to a large
carrier customer that initiated a significant acceleration of their installed inventory reuse program.
Enterprise Networks sales decreased 13.0% from $147.7 million in 2011 to $128.5 million in 2012. The decrease is
attributable to decreases in sales of Internetworking products and legacy products. The decrease in Internetworking product
sales in 2012 is primarily due to a decline in Carrier spending caused by the macroeconomic environment, partially offset
by growth in the value-added reseller channel and by the addition of our vWLAN solutions. Internetworking product sales
attributable to Enterprise Networks were 91.5% of the division’s sales in 2012 compared with 87.4% in 2011. Legacy products
primarily comprise the remainder of Enterprise Networks sales. Enterprise Networks sales as a percentage of total sales
increased from 20.6% in 2011 to 20.7% in 2012.
International sales, which are included in the Carrier Networks and Enterprise Networks amounts discussed above,
increased 77.9% from $84.4 million in 2011 to $150.2 million in 2012. International sales, as a percentage of total sales,
increased from 11.8% in 2011 to 24.2% in 2012. The increase in international sales in 2012 was primarily due to sales
attributable to the acquired NSN BBA business and an increase in organic sales in Latin America.
Carrier Systems product sales decreased $20.6 million in 2012 compared to 2011 primarily due to a $30.8 million decrease
in Optical product sales and a $20.2 million decrease in legacy product sales, partially offset by an increase of $30.3 million
in Broadband Access product sales. The decrease in sales of Optical products in 2012 is primarily attributable to the market
transitioning to Ethernet and our transition to new products to address this market. The increase in Broadband Access
product sales was due to the added sales of the NSN BBA business, partially offset by a decline in organic Broadband Access
product sales. Our organic Broadband Access sales in 2012 were negatively impacted by decreased capital expenditures at
two substantial Broadband Access customers.
Business Networking product sales decreased $12.9 million in 2012 compared to 2011 primarily due to an $8.6 million
decrease in Internetworking product sales across both divisions and a $4.3 million decrease in legacy product sales. The
decrease in Internetworking product sales in 2012 is primarily due to a decline in Carrier spending caused by the macroeco-
nomic environment, partially offset by growth in the value-added reseller channel and by the addition of our vWLAN
solutions. The decrease in sales of legacy products is a result of customers shifting to newer technologies. Many of these
newer technologies are integral to our Internetworking product area.
Loop Access product sales decreased $63.1 million in 2012 compared to 2011 primarily due to a $60.0 million decrease
in HDSL product sales. The declining trend in HDSL and other legacy products has been expected as we evolve our products
26
ADTRAN 2013 Annual Report towards packet-based technologies, but was larger than anticipated due to a large carrier customer that initiated a significant
acceleration of their installed inventory reuse program.
Cost of Sales
As a percentage of sales, cost of sales increased from 42.2% in 2011 to 49.0% in 2012. The increase was primarily attributable
to lower gross margins related to the acquired NSN BBA business, lower cost absorption due to the lower production volumes,
customer price movements to achieve market share position and higher warranty costs.
Carrier Networks cost of sales increased from 42.4% of sales in 2011 to 49.7% of sales in 2012. The increase in Carrier
Networks cost of sales as a percentage of sales was primarily attributable to lower gross margins related to the acquired
NSN BBA business, lower cost absorption due to the lower production volumes, customer price movements to achieve
market share position and higher warranty costs.
Enterprise Networks cost of sales increased from 41.4% of sales in 2011 to 46.1% of sales in 2012. The increase in
Enterprise Networks cost of sales as a percentage of sales was primarily attributable to lower cost absorption due to the
lower production volumes and customer price movements to achieve market share position.
An important part of our strategy is to reduce the product cost of each succeeding product generation and then to lower
the product’s price based on the cost savings achieved. This may cause variations in our gross profit percentage due to timing
differences between the recognition of cost reductions and the lowering of product selling prices.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 7.7% from $124.9 million in 2011 to $134.5 million in 2012. Selling,
general and administrative expenses include personnel costs for administration, finance, information systems, human
resources, sales and marketing, and general management, as well as rent, utilities, legal and accounting expenses, bad debt
expense, advertising, promotional material, trade show expenses, and related travel costs. The increase in selling, general
and administrative expenses is primarily related to increases in staffing and fringe benefit costs due to increased headcount,
professional services, legal services and amortization of acquired intangible assets. These increases were primarily related to
the NSN BBA business, which was acquired on May 4, 2012, and Bluesocket Inc., which was acquired on August 4, 2011.
Selling, general and administrative expenses as a percentage of sales increased from 17.4% for the year ended December
31, 2011 to 21.7% for the year ended December 31, 2012. Selling, general and administrative expenses as a percentage of sales
will generally fluctuate whenever there is a significant fluctuation in revenues for the periods being compared.
Research and Development Expenses
Research and development expenses increased 25.6% from $100.3 million in 2011 to $126.0 million in 2012. The increase
in research and development expense is primarily related to increases in staffing and fringe benefit costs due to increased
headcount, including expenses and increased headcount related to the NSN BBA business acquired on May 4, 2012 and
Bluesocket, Inc., which was acquired on August 4, 2011, amortization of acquired intangible assets related to both acquisitions,
and increases in independent contractor expense and office lease expense related to the NSN BBA business.
Research and development expenses as a percentage of sales increased from 14.0% for the year ended December 31, 2011
to 20.3% for the year ended December 31, 2012. Research and development expenses as a percentage of sales will fluctuate
whenever there are incremental product development activities or a significant fluctuation in revenues for the periods
being compared.
We expect to continue to incur research and development expenses in connection with our new and existing products
and our expansion into international markets. We continually evaluate new product opportunities and engage in intensive
research and product development efforts which provide for new product development, enhancement of existing products
and product cost reductions. We may incur significant research and development expenses prior to the receipt of revenues
from a major new product group.
Interest and Dividend Income
Interest and dividend income remained consistent at $7.6 million in 2011 and $7.7 million in 2012, as we had no substantial
change in interest-bearing investment balances or interest rates.
Interest Expense
Interest expense remained consistent at $2.4 million in 2011 and $2.3 million in 2012, as we had no substantial change in our
fixed rate borrowing. See “Liquidity and Capital Resources” below for additional information.
27
Financial Results Net Realized Investment Gain
Net realized investment gain decreased from $12.5 million in 2011 to $9.6 million in 2012. This change is primarily related to
a $1.3 million decrease related to sales of marketable equity securities and impaired marketable equity securities, a $0.6 million
decrease in distributions from two private equity funds, and a $0.6 million increase in impairment of deferred compensation
plan assets. See “Investing Activities” in “Liquidity and Capital Resources” below for additional information.
Other Income (Expense), net
Other income (expense), net, comprised primarily of miscellaneous income, gains and losses on foreign currency transactions,
investment account management fees, and gains or losses on the disposal of property, plant and equipment occurring in the
normal course of business, changed from $0.7 million of expense in 2011 to $0.2 million of income in 2012.
Income Taxes
Our effective tax rate increased from 32.8% in 2011 to 35.2% in 2012. This increase is primarily attributable to the exclusion
of the research tax credit in 2012 and our inability to utilize losses generated by our foreign subsidiaries where a full valuation
allowance was provided. These tax rate increases were partially offset by increased state tax incentives in 2012. In 2013, we will
recognize a benefit from the research tax credit related to 2012 and 2013, of which we estimate $3.1 million will be attributable
to 2012.
Net Income
As a result of the above factors, net income decreased from $138.6 million in 2011 to $47.3 million in 2012. As a percentage
of sales, net income decreased from 19.3% in 2011 to 7.6% in 2012.
Liquidity and Capital Resources
Liquidity
We intend to finance our operations with cash flow from operations. We have used, and expect to continue to use, the
cash generated from operations for working capital, purchases of treasury stock, shareholder dividends, and other general
corporate purposes, including (i) product development activities to enhance our existing products and develop new products
and (ii) expansion of sales and marketing activities. We believe our cash and cash equivalents, investments and cash generated
from operations to be adequate to meet our operating and capital needs for at least the next 12 months.
At December 31, 2013, cash on hand was $58.3 million and short-term investments were $105.8 million, which placed
our short-term liquidity at $164.1 million. At December 31, 2012, our cash on hand of $68.5 million and short-term
investments of $160.5 million placed our short-term liquidity at $228.9 million. The decrease in short-term liquidity from
2012 to 2013 primarily reflects funds used for share repurchases, shareholder dividends, and equipment acquisitions, partially
offset by funds provided by our operating activities, and proceeds from stock option exercises.
Operating Activities
Our working capital, which consists of current assets less current liabilities, decreased 17.9% from $338.0 million as of
December 31, 2012 to $277.3 million as of December 31, 2013. The quick ratio, defined as cash and cash equivalents, short-
term investments, and net accounts receivable, divided by current liabilities, decreased from 2.93 as of December 31, 2012 to
2.44 as of December 31, 2013. The current ratio, defined as current assets divided by current liabilities, decreased from 4.20 as
of December 31, 2012 to 3.71 as of December 31, 2013. The changes in our working capital, quick ratio and current ratio are
primarily attributable to a decrease in short-term investments, which proceeds were primarily used to fund share repurchases
during the year.
Net accounts receivable increased 7.7% from $79.7 million at December 31, 2012 to $85.8 million at December 31, 2013.
Our allowance for doubtful accounts increased from $6 thousand at December 31, 2012 to $130 thousand at December 31,
2013. Quarterly accounts receivable days sales outstanding (DSO) decreased from 52 days as of December 31, 2012 to 50 days
as of December 31, 2013. The change in net accounts receivable and DSO is due to changes in customer mix and the timing of
sales and collections during the quarter. Certain international customers can have longer payment terms than U.S. customers.
Other receivables increased from $16.3 million at December 31, 2012 to $18.2 million at December 31, 2013. At December 31,
2013 and 2012, other receivables included an estimated receivable due from NSN related to working capital adjustments under
negotiation. Other receivables will also fluctuate due to the timing of shipments and collections for materials supplied to our
contract manufacturers during the quarter.
Quarterly inventory turnover increased from 2.8 turns as of December 31, 2012 to 3.6 turns as of December 31, 2013.
Inventory decreased 11.1% from December 31, 2012 to December 31, 2013. We expect inventory levels to fluctuate as we
28
ADTRAN 2013 Annual Report attempt to maintain sufficient inventory in response to seasonal cycles of our business ensuring competitive lead times while
managing the risk of inventory obsolescence that may occur due to rapidly changing technology and customer demand.
Accounts payable increased 14.5% from $42.2 million at December 31, 2012 to $48.3 million at December 31, 2013.
Accounts payable will fluctuate due to variations in the timing of the receipt of supplies, inventory and services and our
subsequent payments for these purchases.
Investing Activities
Capital expenditures totaled approximately $8.2 million, $12.3 million and $11.8 million for the years ended December 31,
2013, 2012 and 2011, respectively. These expenditures were primarily used to purchase computer hardware, software and
manufacturing and test equipment.
On May 4, 2012, we acquired the NSN BBA business. This acquisition provides us with an established customer base
in key markets and complementary, market-focused products and was accounted for as a business combination. Upon
acquisition, we received a cash payment of $7.5 million from NSN and recorded a bargain purchase gain of $1.8 million,
net of income taxes, subject to customary working capital adjustments between the parties during the three months ended
June 30, 2012. We are currently negotiating the final working capital adjustments in accordance with the provisions of the
underlying purchase agreement.
Our combined short-term and long-term investments decreased $78.2 million from $493.2 million at December 31, 2012
to $415.0 million at December 31, 2013. This decrease reflects the impact of our cash needs for share repurchases, shareholder
dividends, equipment acquisitions, as well as net realized and unrealized losses and amortization of net premiums on our
combined investments, partially offset by additional funds available for investment provided by our operating activities and
stock option exercises by our employees.
We invest all available cash not required for immediate use in operations primarily in securities that we believe bear
minimal risk of loss. At December 31, 2013 these investments included corporate bonds of $166.9 million, municipal
fixed-rate bonds of $136.3 million and municipal variable rate demand notes of $8.3 million. At December 31, 2012, these
investments included corporate bonds of $186.4 million, municipal fixed-rate bonds of $175.1 million and municipal
variable rate demand notes of $34.4 million. As of December 31, 2013, our corporate bonds, municipal fixed-rate bonds,
and municipal variable rate demand notes were classified as available-for-sale and had a combined duration of 0.95 years
with an average credit rating of A+. Because our bond portfolio has a high quality rating and contractual maturities of a short
duration, we are able to obtain prices for these bonds derived from observable market inputs, or for similar securities traded
in an active market, on a daily basis.
Our long-term investments decreased 7.1% from $332.7 million at December 31, 2012 to $309.2 million at December 31,
2013. Long-term investments at December 31, 2013 and December 31, 2012 included an investment in a certificate of deposit
of $48.3 million, which serves as collateral for our revenue bonds, as discussed below. We have various equity investments
included in long-term investments at a cost of $24.7 million and $21.0 million, and with a fair value of $38.5 million and
$35.2 million, at December 31, 2013 and December 31, 2012, respectively.
Long-term investments at December 31, 2013 and 2012 also included $15.1 million and $11.5 million, respectively,
related to our deferred compensation plan, and $1.7 million and $1.9 million, respectively, of other investments carried at
cost, consisting of interests in two private equity funds and an investment in a privately held telecommunications equipment
manufacturer. At December 31, 2012, long-term investments also included $0.5 million of a fixed income bond fund.
We review our investment portfolio for potential “other-than-temporary” declines in value on an individual investment
basis. We assess, on a quarterly basis, significant declines in value which may be considered other-than-temporary and, if
necessary, recognize and record the appropriate charge to write-down the carrying value of such investments. In making this
assessment, we take into consideration qualitative and quantitative information, including but not limited to the following: the
magnitude and duration of historical declines in market prices, credit rating activity, assessments of liquidity, public filings,
and statements made by the issuer. We generally begin our identification of potential other-than-temporary impairments by
reviewing any security with a fair value that has declined from its original or adjusted cost basis by 25% or more for six or
more consecutive months. We then evaluate the individual security based on the previously identified factors to determine
the amount of the write-down, if any. As a result of our review, we recorded an other-than-temporary impairment charge of
$11 thousand during the fourth quarter of 2013 related to four marketable equity securities. For the years ended December 31,
2013, 2012 and 2011 we recorded charges of $25 thousand, $0.7 million and $68 thousand, respectively, related to the
other-than-temporary impairment of certain publicly traded equity securities and our deferred compensation plan assets.
29
Financial Results Financing Activities
In conjunction with an expansion of our Huntsville, Alabama, facility, we were approved for participation in an incentive
program offered by the State of Alabama Industrial Development Authority (the “Authority”). Pursuant to the program, on
January 13, 1995, the Authority issued $20.0 million of its taxable revenue bonds and loaned the proceeds from the sale of
the bonds to ADTRAN. The bonds were originally purchased by AmSouth Bank of Alabama, Birmingham, Alabama (the
“Bank”). Wachovia Bank, N.A., Nashville, Tennessee (formerly First Union National Bank of Tennessee) (the “Bondholder”),
which was acquired by Wells Fargo & Company on December 31, 2008, purchased the original bonds from the Bank and
made further advances to the Authority, bringing the total amount outstanding to $50.0 million. An Amended and Restated
Taxable Revenue Bond (“Amended and Restated Bond”) was issued and the original financing agreement was amended.
The Amended and Restated Bond bears interest, payable monthly. The interest rate is 5% per annum. The Amended and
Restated Bond matures on January 1, 2020. The estimated fair value of the bond at December 31, 2013 was approximately
$45.4 million, based on a debt security with a comparable interest rate and maturity and a Standard & Poor’s credit rating
of A-. We are required to make payments to the Authority in amounts necessary to pay the interest on the Amended and
Restated Bond. Included in long-term investments at December 31, 2013 is $48.3 million which is invested in a restricted
certificate of deposit. These funds serve as a collateral deposit against the principal of this bond, and we have the right to
set-off the balance of the Bond with the collateral deposit in order to reduce the balance of the indebtedness.
In conjunction with this program, we are eligible to receive certain economic incentives from the state of Alabama that
reduce the amount of payroll withholdings that we are required to remit to the state for those employment positions that
qualify under the program. For the years ended December 31, 2013, 2012 and 2011, we realized economic incentives related
to payroll withholdings totaling $1.3 million, $1.4 million and $1.9 million, respectively.
We did not make a principal payment for the year-ended December 31, 2013. We made a principal payment of
$0.5 million for the year ended December 31, 2012. We anticipate making a principal payment in 2014. At December 31,
2013 and 2012, $0.3 million and $0.5 million, respectively, of the bond debt were classified as a current liability in accounts
payable in the Consolidated Balance Sheets at December 31, 2013.
The following table shows dividends paid to our shareholders in each quarter of 2013, 2012 and 2011. During 2013,
2012 and 2011, we paid shareholder dividends totaling $21.4 million, $22.8 million and $23.1 million, respectively. The
Board of Directors presently anticipates that it will declare a regular quarterly dividend so long as the present tax treatment
of dividends exists and adequate levels of liquidity are maintained.
Dividends per Common Share
2013
2012
2011
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$0.09
$0.09
$0.09
$0.09
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$0.09
$0.09
$0.09
$0.09
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$0.09
$0.09
$0.09
$0.09
Stock Repurchase Program
Since 1997, our Board of Directors has approved multiple share repurchase programs that have authorized open market
repurchase transactions of up to 35 million shares of our common stock. On May 1, 2013, our Board of Directors authorized
the repurchase of an additional 5.0 million shares of our common stock (bringing the total shares authorized for repurchase
to 40 million), which commenced upon completion of the repurchase plan announced on October 11, 2011. This new
authorization is being implemented through open market or private purchases from time to time as conditions warrant.
For the years 2013, 2012 and 2011, we repurchased 5.6 million shares, 1.8 million shares and 1.1 million shares, respectively,
for a cost of $124.3 million, $39.4 million and $35.6 million, respectively, at an average price of $22.16, $22.03 and $31.97 per
share, respectively. We currently have the authority to purchase an additional 3.5 million shares of our common stock under
the current plan approved by the Board of Directors.
Stock Option Exercises
To accommodate employee stock option exercises, we issued 0.2 million shares of treasury stock for $3.6 million during the
year ended December 31, 2013, 0.4 million shares of treasury stock for $6.0 million during the year ended December 31, 2012,
and 1.8 million shares of treasury stock for $34.1 million during the year ended December 31, 2011.
30
ADTRAN 2013 Annual Report Off-Balance Sheet Arrangements and Contractual Obligations
We do not have off-balance sheet financing arrangements and have not engaged in any related party transactions or
arrangements with unconsolidated entities or other persons that are reasonably likely to materially affect liquidity or the
availability of or requirements for capital resources.
We have various contractual obligations and commercial commitments. The following table sets forth, in millions,
the annual payments we are required to make under contractual cash obligations and other commercial commitments at
December 31, 2013.
Contractual Obligations
(In millions)
Long-term debt
Interest on long-term debt
Purchase obligations
Operating lease obligations
Totals
Total
$46.5
14.0
75.0
13.5
$149.0
2014
$0.3
2.3
74.9
4.5
$82.0
2015
$—
2.3
0.1
3.6
$6.0
2016
$—
2.3
—
2.5
$4.8
2017
$—
2.3
—
2.2
$4.5
After 2017
$46.2
4.8
—
0.7
$51.7
We are required to make payments necessary to pay the interest on the Taxable Revenue Bond, Series 1995, as amended,
currently outstanding in the aggregate principal amount of $46.5 million. The bond matures on January 1, 2020, and bears
interest at the rate of 5% per annum. Included in long-term investments are $48.3 million of restricted funds, which is a
collateral deposit against the principal amount of this bond. We did not make a principal payment for the year-ended
December 31, 2013. We made a principal payment of $0.5 million for the year ended December 31, 2012. We anticipate
making a principal payment in 2014. At December 31, 2013 and 2012, $0.3 million and $0.5 million, respectively, of the
bond debt were classified as a current liability in accounts payable in the Consolidated Balance Sheets at December 31, 2013.
See Note 9 of Notes to Consolidated Financial Statements for additional information.
We have committed to invest up to an aggregate of $7.9 million in two private equity funds, and we have contributed
$8.4 million as of December 31, 2013, of which $7.7 million has been applied to these commitments. The additional
$0.2 million commitment has been excluded from the table above due to uncertainty of when it will be applied.
We also have obligations related to uncertain income tax positions that have been excluded from the table above due to
the uncertainty of when the related expense will be recognized. See Note 10 of Notes to Consolidated Financial Statements
for additional information.
Effect of Recent Accounting Pronouncements
During 2013, we adopted the following accounting standards, which had no material effect on our consolidated results of
operations or financial condition:
In February 2013, the FASB issued Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out
of Accumulated Other Comprehensive Income (ASU 2013-02). ASU 2013-02 requires entities to provide information about
the amounts reclassified out of accumulated other comprehensive income by component either on the face of the financial
statements or in the footnotes. ASU 2013-02 does not change the current requirements for reporting net income or other
comprehensive income in the financial statements. This update is effective prospectively for reporting periods beginning
after December 15, 2012. We adopted this amendment during the first quarter of 2013, and we have provided the disclosures
required for the years ended December 31, 2013, 2012 and 2011 in Note 1 of Notes to Consolidated Financial Statements.
Subsequent Events
On January 21, 2014, the Board declared a quarterly cash dividend of $0.09 per common share to be paid to shareholders
of record at the close of business on February 6, 2014. The quarterly dividend payment was $5.1 million and was paid on
February 20, 2014.
In February 2014, we made a decision to make a $16.5 million principal payment on the Amended and Restated Bond.
The restricted certificate of deposit included in our long-term investments will be reduced by the amount of the payment.
We anticipate this payment will be made during the first quarter of 2014.
Since January 1, 2014 and as of February 27, 2014, we have repurchased 0.4 million shares of our common stock through
open market purchases at an average cost of $25.13 per share. We currently have the authority to purchase an additional
3.1 million shares of our common stock under the current plan approved by the Board of Directors.
31
Financial Results Quantitative and Qualitative Disclosures About Market Risk
We are exposed to financial market risks, including changes in interest rates and prices of marketable equity and fixed-
income securities. The primary objective of the large majority of our investment activities is to preserve principal while
at the same time achieving appropriate yields without significantly increasing risk. To achieve this objective, a majority of
our marketable securities are investment grade, municipal, fixed-rate bonds, municipal variable rate demand notes and
municipal money market instruments denominated in United States dollars. Our investment policy provides limitations
for issuer concentration, which limits, at the time of purchase, the concentration in any one issuer to 5% of the market value
of our total investment portfolio.
We maintain depository investments with certain financial institutions. Although these depository investments may
exceed government insured depository limits, we have evaluated the credit worthiness of these financial institutions, and
determined the risk of material financial loss due to exposure of such credit risk to be minimal. As of December 31, 2013,
$53.5 million of our cash and cash equivalents, primarily certain domestic money market funds and foreign depository
accounts, were in excess of government provided insured depository limits.
As of December 31, 2013, approximately $329.3 million of our cash and investments may be directly affected by
changes in interest rates. We have performed a hypothetical sensitivity analysis assuming market interest rates increase or
decrease by 50 basis points (bps) for an entire year, while all other variables remain constant. At December 31, 2013, we
held $144.2 million of cash, money market instruments, floating rate corporate bonds and municipal variable rate demand
notes where a change in interest rates would impact our interest income. A hypothetical 50 bps decline in interest rates as of
December 31, 2013 would reduce annualized interest income on our cash, money market instruments, floating rate corporate
bonds and municipal variable rate demand notes by approximately $0.7 million. In addition, we held $303.2 million of
municipal and corporate bonds whose fair values may be directly affected by a change in interest rates. A hypothetical
50 bps increase in interest rates as of December 31, 2013 would reduce the fair value of our municipal and corporate bonds
by approximately $1.4 million.
As of December 31, 2012, interest income on approximately $412.5 million of our cash and investments was subject to
being directly affected by changes in interest rates. We performed a hypothetical sensitivity analysis assuming market interest
rates increase or decrease by 50 bps for an entire year, while all other variables remain constant. A hypothetical 50 bps decline
in interest rates as of December 31, 2012 would have reduced annualized interest income on our money market instruments
and municipal variable rate demand notes by approximately $0.6 million. In addition, a hypothetical 50 bps increase
in interest rates as of December 31, 2012 would have reduced the fair value of our municipal and corporate bonds by
approximately $1.7 million.
We are directly exposed to changes in foreign currency exchange rates to the extent that such changes affect our revenue
derived from international customers, expenses related to our foreign sales offices, and our foreign assets and liabilities. We
attempt to manage these risks by primarily denominating contractual and other foreign arrangements in U.S. dollars. Our
primary exposure in regard to our foreign assets and liabilities is with our German subsidiary whose functional currency
is the Euro and our Australian subsidiary whose functional currency is the Australian dollar. We are indirectly exposed to
changes in foreign currency exchange rates to the extent of our use of foreign contract manufacturers and foreign raw
material suppliers whom we pay in U.S. dollars. As a result, changes in the local currency rates of these vendors in relation
to the U.S. dollar could cause an increase in the price of products that we purchase.
We have certain international customers who are invoiced in their local currency. Changes in the monetary exchange
rates used to invoice such customers versus the functional currency of the entity billing such customers may adversely
affect our results of operations and financial condition. To manage the volatility relating to these typical business exposures,
we may enter into various derivative transactions, when appropriate. We do not hold or issue derivative instruments for
trading or other speculative purposes. The Yen and Riyal are the predominant currencies of the customers who are billed in
their local currency. Taking into account the effects of foreign currency fluctuations of the Yen and Riyal versus the Euro, a
hypothetical 10% weakening of the Euro as of December 31, 2013 would provide a gain on foreign currency of approximately
$0.4 million. Conversely, a hypothetical 10% strengthening of the Euro as of December 31, 2013 would provide a loss on
foreign currency of approximately $0.4 million. Any gain or loss would be significantly mitigated by the hedges discussed in
the following paragraph.
As of December 31, 2013, we had no material contracts, other than accounts receivable, accounts payable, and loans
to a subsidiary, denominated in foreign currencies. As of December 31, 2013, we had forward contracts outstanding with
notional amounts totaling €18.5 million ($25.5 million), which mature at various times throughout 2014. The fair value of
these forward contracts was a net asset of approximately $3 thousand as of December 31, 2013.
32
ADTRAN 2013 Annual Report Management’s Report on Internal Control over
Financial Reporting
Management of ADTRAN, Inc. is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. ADTRAN’s
internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. ADTRAN’s internal control over financial reporting includes those policies and procedures that:
n pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of ADTRAN;
n provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of ADTRAN are being
made only in accordance with authorizations of management and directors of ADTRAN; and
n provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of ADTRAN’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of ADTRAN’s internal control over financial reporting as of December 31, 2013.
In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated Framework (1992).
Based on our assessment and those criteria, management has concluded that ADTRAN maintained effective internal
control over financial reporting as of December 31, 2013.
The effectiveness of our internal control over financial reporting has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report which appears herein.
33
Financial Results Report of Independent Registered Public
Accounting Firm
To Board of Directors and Stockholders of ADTRAN, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects,
the financial position of ADTRAN, Inc. and its subsidiaries at December 31, 2013 and December 31, 2012 and the results of
their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with
accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in
all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established
in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report On Internal Control Over Financial Reporting. Our responsibility is
to express opinions on these financial statements, and on the Company’s internal control over financial reporting based
on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
Birmingham, Alabama
February 27, 2014
34
ADTRAN 2013 Annual Report Financial Statements
ADTRAN, INC.
Consolidated Balance Sheets
December 31, 2013 and 2012
(In thousands, except per share amounts)
Assets
Current Assets
Cash and cash equivalents
Short-term investments
Accounts receivable, less allowance for doubtful accounts of
$130 and $6 at December 31, 2013 and 2012, respectively
Other receivables
Inventory, net
Prepaid expenses
Deferred tax assets, net
Total Current Assets
Property, plant and equipment, net
Deferred tax assets, net
Goodwill
Other assets
Long-term investments
Total Assets
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable
Unearned revenue
Accrued expenses
Accrued wages and benefits
Income tax payable, net
Total Current Liabilities
Non-current unearned revenue
Other non-current liabilities
Bonds payable
Total Liabilities
Commitments and contingencies (see Note 13)
Stockholders’ Equity
Common stock, par value $0.01 per share; 200,000 shares authorized;
79,652 shares issued and 56,918 shares outstanding at December 31, 2013 and
79,652 shares issued and 62,310 shares outstanding at December 31, 2012
Additional paid-in capital
Accumulated other comprehensive income
Retained earnings
Less treasury stock at cost: 22,734 and 17,342 shares at December 31, 2013 and
2012, respectively
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
See notes to consolidated financial statements.
2013
2012
$58,298
105,760
85,814
18,249
90,111
4,325
17,083
379,640
76,739
9,622
3,492
11,180
309,225
$789,898
$48,282
22,205
12,776
14,040
5,002
102,305
14,643
22,144
46,200
185,292
797
233,511
10,753
884,451
(524,906)
604,606
$789,898
$68,457
160,481
79,675
16,253
101,377
4,148
13,055
443,446
80,246
10,261
3,492
13,482
332,729
$883,656
$42,173
35,326
11,735
15,022
1,211
105,467
22,377
17,406
46,000
191,250
797
224,517
11,268
861,465
(405,641)
692,406
$883,656
35
Financial Results ADTRAN, INC.
Consolidated Statements of Income
Years ended December 31, 2013, 2012 and 2011
(In thousands, except per share amounts)
Sales
Cost of sales
Gross Profit
Selling, general and administrative expenses
Research and development expenses
Operating Income
Interest and dividend income
Interest expense
Net realized investment gain
Other income (expense), net
Gain on bargain purchase of a business
Income before provision for income taxes
Provision for income taxes
Net Income
Weighted average shares outstanding—basic
Weighted average shares outstanding—diluted
Earnings per common share—basic
Earnings per common share—diluted
See notes to consolidated financial statements.
2013
$641,744
332,858
308,886
129,366
131,055
48,465
7,012
(2,325)
8,614
(911)
—
60,855
(15,061)
$45,794
59,001
59,424
$0.78
$0.77
2012
$620,614
303,971
316,643
134,523
125,951
56,169
7,657
(2,347)
9,550
183
1,753
72,965
(25,702)
$47,263
63,259
63,774
$0.75
$0.74
2011
$717,229
302,911
414,318
124,879
100,301
189,138
7,642
(2,398)
12,454
(694)
—
206,142
(67,565)
$138,577
64,145
65,416
$2.16
$2.12
36
ADTRAN 2013 Annual Report ADTRAN, INC.
Consolidated Statements of Comprehensive Income
Years ended December 31, 2013, 2012 and 2011
(In thousands)
Net Income
Other Comprehensive Loss, net of tax:
Net unrealized gains (losses) on available-for-sale securities
Defined benefit plan adjustments
Foreign currency translation
Other Comprehensive Loss, net of tax
Comprehensive Income, net of tax
See notes to consolidated financial statements.
2013
$45,794
629
1,061
(2,205)
(515)
2012
$47,263
(52)
(1,952)
170
(1,834)
$45,279
$45,429
2011
$138,577
(13,692)
—
(154)
(13,846)
$124,731
37
Financial Results ADTRAN, INC.
Consolidated Statements of Changes in Stockholders’ Equity
Years ended December 31, 2013, 2012 and 2011
(In thousands)
Balance, December 31, 2010
Net income
Other comprehensive loss, net of tax
Dividend payments
Dividends accrued for unvested
restricted stock units
Stock options exercised
Restricted stock units vested
Purchase of treasury stock: 1,112 shares
Income tax benefit from exercise of
stock options
Stock-based compensation expense
Common
Shares
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income
Total
Stockholders’
Equity
79,652
$797
$193,866
$731,962
$(381,251)
$26,948
(13,846)
138,577
(23,124)
(52)
(6,345)
(812)
40,470
812
(35,565)
10,525
9,169
$572,322
138,577
(13,846)
(23,124)
(52)
34,125
—
(35,565)
10,525
9,169
Balance, December 31, 2011
79,652
$797
$213,560
$840,206
$(375,534)
$13,102
$692,131
Net income
Other comprehensive loss, net of tax
Dividend payments
Dividends accrued for unvested
restricted stock units
Stock options exercised
Restricted stock units vested
Purchase of treasury stock: 1,786 shares
Income tax benefit from exercise of
stock options
Stock-based compensation expense
(1,834)
47,263
(22,813)
15
(2,659)
(547)
8,708
547
(39,362)
(212)
1,905
9,264
47,263
(1,834)
(22,813)
15
6,049
(212)
(39,362)
1,905
9,264
Balance, December 31, 2012
79,652
$797
$224,517
$861,465
$(405,641)
$11,268
$692,406
Net income
Other comprehensive loss, net of tax
Dividend payments
Dividends accrued for unvested
restricted stock units
Stock options exercised
Restricted stock units vested
Purchase of treasury stock: 5,608 shares
Income tax benefit from exercise of
stock options
Stock-based compensation expense
45,794
(21,412)
(23)
(762)
(611)
4,391
611
(124,267)
(248)
169
9,073
(515)
45,794
(515)
(21,412)
(23)
3,629
(248)
(124,267)
169
9,073
Balance, December 31, 2013
79,652
$797
$233,511
$884,451
$(524,906)
$10,753
$604,606
We issued 217 shares, 393 shares and 1,813 shares of treasury stock to accommodate employee stock option exercises,
vesting of restricted stock, and vesting of restricted stock units during 2013, 2012 and 2011, respectively. During 2011, we
received 7 shares, previously held by employees for at least six months as payment of the exercise price for employee stock
options. None of the transactions with respect to these shares were made in the open market. The average price paid per
share with respect to these transactions was based on the closing price of the common stock on the NASDAQ Global
Select Market on the date of the transaction. There were no such transactions during 2012 and 2013.
See notes to consolidated financial statements.
38
ADTRAN 2013 Annual Report ADTRAN, INC.
Consolidated Statements of Cash Flows
Years ended December 31, 2013, 2012 and 2011
(In thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Amortization of net premium on available-for-sale investments
Net realized gain on long-term investments
Net (gain) loss on disposal of property, plant, and equipment
Gain on bargain purchase of a business
Stock-based compensation expense
Deferred income taxes
Tax benefit from stock option exercises
Excess tax benefits from stock-based compensation arrangements
Change in operating assets and liabilities:
Accounts receivable, net
Other receivables
Income tax receivable, net
Inventory
Prepaid expenses and other assets
Accounts payable
Accrued expenses and other liabilities
Income taxes payable, net
Net cash provided by operating activities
Cash flows from investing activities
Purchases of property, plant, and equipment
Proceeds from disposals of property, plant and equipment
2013
2012
2011
$45,794
$47,263
$138,577
14,628
5,956
(8,614)
3
—
9,073
(4,058)
169
(158)
(5,541)
(1,549)
—
10,265
(11)
5,206
(15,146)
3,747
59,764
14,079
8,257
(9,550)
(214)
(1,753)
9,264
(3,785)
1,905
(1,456)
(2,847)
2,977
—
8,333
(1,045)
7,510
8,895
(1,960)
85,873
11,499
6,617
(12,454)
6
—
9,169
575
10,525
(9,373)
(4,939)
(5,781)
2,741
(12,734)
522
6,044
6,309
3,169
150,472
(8,173)
(12,320)
(11,778)
—
266
—
Proceeds from sales and maturities of available-for-sale investments
343,567
282,039
466,243
Purchases of available-for-sale investments
Acquisition of business, net of cash acquired
Net cash provided by (used in) investing activities
Cash flows from financing activities
Proceeds from stock option exercises
Purchases of treasury stock
Dividend payments
Payments on long-term debt
Excess tax benefits from stock-based compensation arrangements
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Effect of exchange rate changes
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosure of cash flow information
Cash paid during the year for interest
Cash paid during the year for income taxes
Supplemental disclosure of non-cash investing activities
(261,625)
(282,740)
(554,629)
—
73,769
7,496
(5,259)
(22,661)
(122,825)
3,629
(124,267)
(21,412)
—
158
(141,892)
(8,359)
(1,800)
68,457
$58,298
6,049
(39,362)
(22,813)
(500)
1,456
(55,170)
25,444
34
42,979
$68,457
34,125
(35,565)
(23,124)
(1,000)
9,373
(16,191)
11,456
(154)
31,677
$42,979
$2,325
$15,431
$2,348
$31,021
$2,396
$51,402
Purchases of property, plant and equipment included in accounts payable
$444
$108
$353
See notes to consolidated financial statements.
39
Financial Results Notes to Consolidated Financial Statements
1 Nature of Business and Summary of Significant Accounting Policies
ADTRAN, Inc. is a leading global provider of networking and communications equipment. Our solutions enable voice,
data, video and Internet communications across a variety of network infrastructures. These solutions are deployed by some
of the world’s largest service providers, distributed enterprises and small and medium-sized businesses, public and private
enterprises, and millions of individual users worldwide.
Principles of Consolidation
Our consolidated financial statements include ADTRAN and its wholly owned subsidiaries. All inter-company accounts
and transactions have been eliminated in consolidation.
Changes in Classifications
Certain balance sheet amounts (including inventory, accounts receivable, unearned revenue and accrued expenses) and related
disclosures have been revised to correct immaterial misclassifications in 2012 that were corrected in 2013. The revisions
decreased both total assets and total liabilities each by $2.7 million at December 31, 2012. The revisions had no impact on our
previously reported stockholders’ equity, income statement, comprehensive income, or earnings per share. Additionally, we
corrected immaterial misclassifications between the operating and investing sections of our consolidated statements of cash
flows and adjusted our 2012 and 2011 cash flows in these categories by $0.2 million and $0.1 million, respectively, in order to
be consistent with the 2013 presentation.
Additionally, changes in classifications have been made to the prior period balances in other comprehensive income
to conform to the current period’s presentation as a result of our adoption of Accounting Standards Update No. 2013-02,
Reporting of Amounts Reclassified Out of Accumulated Comprehensive Income.
Out of Period Adjustment
During the year ended December 31, 2013, we identified two adjustments in the acquired NSN (formerly Nokia Siemens
Networks) Broadband Access business (NSN BBA business) relating to customer payment discounts for one customer, and
recoverable VAT taxes on certain vendor freight invoices that should have been recorded in prior periods. These adjustments
resulted from a $0.4 million understatement of net income in 2012. We evaluated the impact of the adjustments on the results
of our previously issued financial statements for the prior period affected and concluded that the impact was not material.
We also evaluated the impact of the cumulative effect of the adjustments in the current year and concluded that the impact
was not material to our results for the year 2013. Accordingly, during the year ended December 31, 2013 we recorded an
out of period adjustment to correct these issues.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America 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. Our more significant estimates include the obsolete and excess inventory reserves,
warranty reserves, customer rebates, determination of the deferred revenue components of multiple element sales agreements,
estimated costs to complete obligations associated with deferred revenues, estimated income tax provision and income tax
contingencies, the fair value of stock-based compensation, impairment of goodwill, valuation and estimated lives of intangible
assets, estimated working capital adjustments under negotiation related to the NSN BBA business acquisition, estimated
pension liability, fair value of investments, and the evaluation of other-than-temporary declines in the value of investments.
Actual amounts could differ significantly from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents represent demand deposits, money market funds, and short-term investments classified as
available-for-sale with original maturities of three months or less. We maintain depository investments with certain financial
institutions. Although these depository investments may exceed government insured depository limits, we have evaluated
the credit worthiness of these applicable financial institutions, and determined the risk of material financial loss due to
the exposure of such credit risk to be minimal. As of December 31, 2013, $53.5 million of our cash and cash equivalents,
primarily certain domestic money market funds and foreign depository accounts, were in excess of government provided
insured depository limits.
40
ADTRAN 2013 Annual Report Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, and
accounts payable approximate fair value due to the immediate or short-term maturity of these financial instruments. The
carrying amount reported for bonds payable was $46.5 million, compared to an estimated fair value of $45.4 million, based
on a debt security with a comparable interest rate and maturity and a Standard & Poor’s credit rating of A-.
Investments with contractual maturities beyond one year, such as our municipal variable rate demand notes, may be
classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of
cash that is available for current operations. Despite the long-term nature of their stated contractual maturities, we routinely
buy and sell these securities and we believe we have the ability to quickly sell them to the remarketing agent, tender agent, or
issuer at par value plus accrued interest in the event we decide to liquidate our investment in a particular variable rate demand
note. All income generated from these investments was recorded as interest income. We have not been required to record any
losses relating to municipal variable rate demand notes.
Long-term investments represent a restricted certificate of deposit held at cost, municipal fixed-rate bonds, corporate
bonds, a fixed income bond fund, marketable equity securities, and other equity investments. Marketable equity securities
are reported at fair value as determined by the most recently traded price of the securities at the balance sheet date, although
the securities may not be readily marketable due to the size of the available market. Unrealized gains and losses, net of tax,
are reported as a separate component of stockholders’ equity. Realized gains and losses on sales of securities are computed
under the specific identification method and are included in current income. We periodically review our investment portfolio
for investments considered to have sustained an other-than-temporary decline in value. Impairment charges for other-than-
temporary declines in value are recorded as realized losses in the accompanying consolidated statements of income. All of our
investments at December 31, 2013 and 2012 are classified as available-for-sale securities. See Note 4 of Notes to Consolidated
Financial Statements for additional information.
Accounts Receivable
We record accounts receivable at net realizable value. Prior to issuing payment terms to a new customer, we perform a
detailed credit review of the customer. Credit limits are established for each new customer based on the results of this credit
review. Payment terms are established for each new customer, and collection experience is reviewed periodically in order
to determine if the customer’s payment terms and credit limits need to be revised. At December 31, 2013, one customer
accounted for 13.1% of our total accounts receivable. At December 31, 2012, one customer accounted for 10.4% of our total
accounts receivable.
We maintain an allowance for doubtful accounts for losses resulting from the inability of our customers to make
required payments. We regularly review the allowance for doubtful accounts and consider factors such as the age of accounts
receivable balances, the current economic conditions that may affect a customer’s ability to pay, significant one-time events
and our historical experience. If the financial condition of a customer deteriorates, resulting in an impairment of their ability
to make payments, we may be required to record an allowance for doubtful accounts. If circumstances change with regard to
individual receivable balances that have previously been determined to be uncollectible (and for which a specific reserve has
been established), a reduction in our allowance for doubtful accounts may be required. Our allowance for doubtful accounts
was $130 thousand at December 31, 2013 and $6 thousand at December 31, 2012.
Other Receivables
Other receivables are comprised primarily of amounts due from subcontract manufacturers for product component
transfers, accrued interest on investments and on a restricted certificate of deposit, and amounts due from employee stock
option exercises. At December 31, 2013 and 2012, other receivables also included an estimated receivable due from NSN
related to working capital adjustments that are currently under negotiation.
Inventory
Inventory is carried at the lower of cost or market, with cost being determined using the first-in, first-out method. Standard
costs for material, labor and manufacturing overhead are used to value inventory. Standard costs are updated at least quarterly;
therefore, inventory costs approximate actual costs at the end of each reporting period. We establish reserves for estimated
excess, obsolete or unmarketable inventory equal to the difference between the cost of the inventory and the estimated fair
value of the inventory based upon assumptions about future demand and market conditions. When we dispose of excess and
obsolete inventories, the related write-downs are charged against the inventory reserve. See Note 6 of Notes to Consolidated
Financial Statements for additional information.
41
Financial Results Property, Plant and Equipment
Property, plant and equipment, which is stated at cost, is depreciated using the straight-line method over the estimated useful
lives of the assets. We depreciate building and land improvements from five to 39 years, office machinery and equipment
from three to seven years, engineering machinery and equipment from three to seven years, and computer software from
three to five years. Expenditures for repairs and maintenance are charged to expense as incurred. Betterments that materially
prolong the lives of the assets are capitalized. The cost of assets retired or otherwise disposed of and the related accumulated
depreciation are removed from the accounts, and the gain or loss on such disposition is included in other income (expense),
net in the accompanying consolidated statements of income. See Note 7 of Notes to Consolidated Financial Statements for
additional information.
Liability for Warranty
Our products generally include warranties of 90 days to ten years for product defects. We accrue for warranty returns at
the time revenue is recognized based on our estimate of the cost to repair or replace the defective products. We engage
in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our
component suppliers. Our products continue to become more complex in both size and functionality as many of our
product offerings migrate from line card applications to systems products. The increasing complexity of our products will
cause warranty incidences, when they arise, to be more costly. Our estimates regarding future warranty obligations may
change due to product failure rates, material usage, and other rework costs incurred in correcting a product failure. In
addition, from time to time, specific warranty accruals may be recorded if unforeseen problems arise. Should our actual
experience relative to these factors be worse than our estimates, we will be required to record additional warranty expense.
Alternatively, if we provide for more reserves than we require, we will reverse a portion of such provisions in future periods.
The liability for warranty obligations totaled $9.0 million and $9.7 million at December 31, 2013 and 2012, respectively.
These liabilities are included in accrued expenses in the accompanying consolidated balance sheets.
A summary of warranty expense and write-off activity for the years ended December 31, 2013 and 2012 is as follows:
(In thousands)
Year Ended December 31,
Balance at beginning of period
Plus: Amounts charged to cost and expenses
Amounts assumed on acquisition
Less: Deductions
Balance at end of period
2013
$9,653
4,051
—
(4,727)
$8,977
2012
$4,118
5,363
3,781
(3,609)
$9,653
Pension Benefit Plan Obligations
As a result of our acquisition of the NSN BBA business, we assumed a defined benefit pension plan covering employees
in certain foreign countries. Pension benefit plan obligations are based on various assumptions used by our actuaries in
calculating these amounts. These assumptions include discount rates, compensation rate increases, expected return on plan
assets, retirement rates and mortality rates. Actual results that differ from the assumptions and changes in assumptions could
affect future expenses and obligations.
Stock-Based Compensation
We have two Board and stockholder approved stock option plans from which stock options and other awards are available
for grant to employees and directors. All employee and director stock options granted under our stock option plans have an
exercise price equal to the fair market value of the award, as defined in the plan, of the underlying common stock on the grant
date. There are currently no vesting provisions tied to performance or market conditions for any option awards; vesting for all
outstanding option grants is based only on continued service as an employee or director of ADTRAN. All of our outstanding
stock option awards are classified as equity awards.
Under the provisions of our approved plans, we made grants of performance-based restricted stock units to five of our
executive officers in 2013, 2012 and 2011. The restricted stock units are subject to a market condition based on the relative
total shareholder return of ADTRAN against all the companies in the NASDAQ Telecommunications Index and vest at the
end of a three-year performance period. The restricted stock units are converted into shares of common stock upon vesting.
Depending on the relative total shareholder return over the performance period, the executive officers may earn from 0%
to 150% of the number of restricted stock units granted. The fair value of the award is based on the market price of our
common stock on the date of grant, adjusted for the expected outcome of the impact of market conditions using a Monte
Carlo Simulation valuation method. The recipients of the restricted stock units also earn dividend credits during the
performance period, which will be paid in cash upon the issuance of common stock for the restricted stock units.
42
ADTRAN 2013 Annual Report Stock-based compensation expense recognized in 2013, 2012 and 2011 was approximately $9.1 million, $9.3 million
and $9.2 million, respectively. As of December 31, 2013, total compensation cost related to non-vested stock options,
restricted stock units and restricted stock not yet recognized was approximately $18.8 million, which is expected to be
recognized over an average remaining recognition period of 2.7 years. See Note 3 of Notes to Consolidated Financial
Statements for additional information.
Impairment of Long-Lived Assets
We review long-lived assets used in operations for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable and the undiscounted cash flows estimated to be generated by the
asset are less than the asset’s carrying value. An impairment loss would be recognized in the amount by which the recorded
value of the asset exceeds the fair value of the asset, measured by the quoted market price of an asset or an estimate based on
the best information available in the circumstances. There were no impairment losses recognized during 2013, 2012 or 2011.
Goodwill and Purchased Intangible Assets
We evaluate the carrying value of goodwill during the fourth quarter of each year and between annual evaluations if events
occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying
amount. When evaluating whether goodwill is impaired, we first assess qualitative factors to determine whether it is necessary
to perform the two-step quantitative goodwill impairment test. If we determine that the two-step quantitative test is necessary,
then we compare the fair value of the reporting unit to which the goodwill is assigned to the reporting unit’s carrying amount,
including goodwill. If the carrying amount of the reporting unit exceeds its fair value, then the amount of the impairment
loss is measured. There were no impairment losses recognized during 2013, 2012 or 2011. Purchased intangible assets with
finite lives are carried at cost, less accumulated amortization. Amortization is recorded over the estimated useful lives of the
respective assets, which is 2.5 to 14 years.
Research and Development Costs
Research and development costs include compensation for engineers and support personnel, outside contracted services,
depreciation and material costs associated with new product development, the enhancement of current products, and
product cost reductions. We continually evaluate new product opportunities and engage in intensive research and product
development efforts. Research and development costs totaled $131.1 million, $126.0 million and $100.3 million for the years
ended December 31, 2013, 2012 and 2011, respectively.
Other Comprehensive Income
Other comprehensive income consists of unrealized gains (losses) on available-for-sale securities, reclassification adjustments
for amounts included in net income related to impairments of available-for-sale securities and realized gains (losses) on
available-for-sale securities, defined benefit plan adjustments and foreign currency translation adjustments.
The following tables present changes in accumulated other comprehensive income, net of tax, by component for the years
ended December 31, 2011, 2012 and 2013:
(In thousands)
Balance at December 31, 2010
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other
comprehensive income
Balance at December 31, 2011
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from accumulated other
comprehensive income
Balance at December 31, 2012
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from accumulated other
comprehensive income
Balance at December 31, 2013
Unrealized Gains (Losses)
on Available-for-Sale
Securities
Defined
Benefit Plan
Adjustments
Foreign
Currency
Adjustments
$23,852
(6,784)
(6,908)
$10,160
—
—
—
—
5,426
(1,952)
(5,478)
—
$3,096
(154)
Total
$26,948
(6,938)
—
(6,908)
$2,942
$13,102
170
—
3,644
(5,478)
$10,108
$(1,952)
$3,112
$11,268
5,508
1,061
(2,205)
4,364
(4,879)
$10,737
—
$(891)
—
$907
(4,879)
$10,753
43
Financial Results The following tables present the details of reclassifications out of accumulated other comprehensive income for the years
ended December 31, 2013, 2012 and 2011:
(In thousands)
2013
Details about Accumulated Other
Comprehensive Income Components
Unrealized gains (losses) on available-for-sale securities:
Net realized gain on sales of securities
Impairment expense
Total reclassifications for the period, before tax
Tax (expense) benefit
Total reclassifications for the period, net of tax
(In thousands)
Details about Accumulated Other
Comprehensive Income Components
Unrealized gains (losses) on available-for-sale securities:
Net realized gain on sales of securities
Impairment expense
Total reclassifications for the period, before tax
Tax (expense) benefit
Total reclassifications for the period, net of tax
(In thousands)
Details about Accumulated Other
Comprehensive Income Components
Unrealized gains (losses) on available-for-sale securities:
Net realized gain on sales of securities
Impairment expense
Total reclassifications for the period, before tax
Tax (expense) benefit
Total reclassifications for the period, net of tax
Amount Reclassified from
Accumulated Other
Comprehensive Income
Affected Line Item in the
Statement Where Net Income
Is Presented
$8,023 Net realized investment gain
(25) Net realized investment gain
7,998
(3,119)
$4,879
2012
Amount Reclassified from
Accumulated Other
Comprehensive Income
Affected Line Item in the
Statement Where Net Income
Is Presented
$9,662 Net realized investment gain
(682) Net realized investment gain
8,980
(3,502)
$5,478
2011
Amount Reclassified from
Accumulated Other
Comprehensive Income
Affected Line Item in the
Statement Where Net Income
Is Presented
$11,393 Net realized investment gain
(68) Net realized investment gain
11,325
(4,417)
$6,908
The following tables present the tax effects related to the change in each component of other comprehensive income for
the years ended December 31, 2013, 2012 and 2011:
(In thousands)
Unrealized gains (losses) on
available-for-sale securities
Reclassification adjustment for amounts included
in net income
Defined benefit plan adjustments
Foreign currency translation adjustment
Total Other Comprehensive Income (Loss)
2013
Before-Tax Amount Tax (Expense) Benefit Net-of-Tax Amount
$9,030
(7,998)
1,061
(2,205)
$(112)
$(3,522)
3,119
—
—
$(403)
$5,508
(4,879)
1,061
(2,205)
$(515)
44
ADTRAN 2013 Annual Report (In thousands)
Unrealized gains (losses) on
available-for-sale securities
Reclassification adjustment for amounts included
in net income
Defined benefit plan adjustments
Foreign currency translation adjustment
Total Other Comprehensive Income (Loss)
(In thousands)
Unrealized gains (losses) on
available-for-sale securities
Reclassification adjustment for amounts included
in net income
Foreign currency translation adjustment
Total Other Comprehensive Income (Loss)
2012
Before-Tax Amount Tax (Expense) Benefit Net-of-Tax Amount
$8,895
(8,980)
(1,952)
170
$(1,867)
$(3,469)
3,502
—
—
$33
$5,426
(5,478)
(1,952)
170
$(1,834)
2011
Before-Tax Amount Tax (Expense) Benefit Net-of-Tax Amount
$(11,121)
(11,325)
(154)
$(22,600)
$4,337
4,417
—
$8,754
$(6,784)
(6,908)
(154)
$(13,846)
Income Taxes
The provision for income taxes has been determined using the asset and liability approach of accounting for income taxes.
Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts
of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the
current year plus the change in deferred taxes during the year. Deferred taxes result from the difference between financial
and tax bases of our assets and liabilities and are adjusted for changes in tax rates and tax laws when such changes are enacted.
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not
be realized.
We establish reserves to remove some or all of the tax benefit of any of our tax positions at the time we determine that the
positions become uncertain. We adjust these reserves, including any impact on the related interest and penalties, as facts and
circumstances change.
Foreign Currency
We record transactions denominated in foreign currencies on a monthly basis using exchange rates from throughout the
year. Assets and liabilities denominated in foreign currencies are translated at the balance sheet dates using the closing rates
of exchange between those foreign currencies and the U.S. dollar with any transaction gains or losses reported in other
income (expense). Adjustments resulting from translating financial statements of international subsidiaries are recorded
as a component of accumulated other comprehensive income (loss).
Revenue Recognition
Revenue is generally recognized when persuasive evidence of an arrangement exists, delivery has occurred, the product
price is fixed or determinable, collection of the resulting receivable is reasonably assured, and product returns are reasonably
estimable. For product sales, revenue is generally recognized upon shipment of the product to our customer in accordance
with the title transfer terms of the sales agreement, generally FOB shipping point. In the case of consigned inventory, revenue
is recognized when the end customer assumes ownership of the product. Contracts that contain multiple deliverables are
evaluated to determine the units of accounting, and the consideration from the arrangement is allocated to each unit of
accounting based on the relative selling price and corresponding terms of the contract. We use vendor-specific objective
evidence of selling price. When this evidence is not available, we are generally not able to determine third-party evidence
of selling price because of the extent of customization among competing products or services from other companies. We
record revenue associated with installation services when all contractual obligations are complete. In instances where customer
acceptance is required, revenue is deferred until all acceptance criteria have been met. Contracts that include both installation
services and product sales are evaluated for revenue recognition in accordance with contract terms. As a result, depending on
contract terms, installation services may be considered a separate deliverable or may be considered a combined single unit of
accounting with the delivered product. Generally, either the purchaser, ADTRAN, or a third party can perform the installation
of our products. Shipping fees are recorded as revenue and the related cost is included in cost of sales. Sales taxes invoiced to
45
Financial Results customers are included in revenues, and represent less than one percent of total revenues. The corresponding sales taxes paid
are included in cost of goods sold. Value added taxes collected from customers in international jurisdictions are recorded in
accrued expenses as a liability. Revenue is recorded net of discounts. Sales returns are accrued based on historical sales return
experience, which we believe provides a reasonable estimate of future returns.
A portion of Enterprise Networks products are sold to a non-exclusive distribution network of major technology
distributors in the United States. These large organizations then distribute or provide fulfillment services to an extensive
network of value-added resellers and system integrators. Value-added resellers and system integrators may be affiliated with
us as a channel partner, or they may purchase from the distributor in an unaffiliated fashion. Additionally, with certain
limitations our distributors may return unused and unopened product for stock-balancing purposes when such returns are
accompanied by offsetting orders for products of equal or greater value.
We participate in cooperative advertising and market development programs with certain customers. We use these
programs to reimburse customers for certain forms of advertising, and in general, to allow our customers credits up to
a specified percentage of their net purchases. Our costs associated with these programs are estimated and included in
marketing expenses in our consolidated statements of income. We also participate in rebate programs to provide sales
incentives for certain products. Our costs associated with these programs are estimated and accrued at the time of sale,
and are recorded as a reduction of sales in our consolidated statements of income.
Unearned Revenue
Unearned revenue primarily represents customer billings on our maintenance service programs and unearned revenues
relating to multiple element contracts where we still have contractual obligations to our customers. We currently offer
maintenance contracts ranging from one to five years, primarily on Enterprise Networks Division products sold through
distribution channels. Revenue attributable to maintenance contracts is recognized on a straight-line basis over the related
contract term. In addition, we provide software maintenance and a variety of hardware maintenance services to Carrier
Networks Division customers, which include customers of the acquired NSN BBA business, under contracts with terms up
to ten years. At December 31, 2013 and 2012, unearned revenue was as follows:
(In thousands)
Current unearned revenue
Non-current unearned revenue
Total
2013
$22,205
14,643
$36,848
2012
$35,326
22,377
$57,703
Other Income (Expense), Net
Other income (expense), net, is comprised primarily of miscellaneous income and expense, gains and losses on foreign
currency transactions, investment account management fees, and gains or losses on the disposal of property, plant and
equipment occurring in the normal course of business.
Earnings per Share
Earnings per common share, and earnings per common share assuming dilution, are based on the weighted average number
of common shares and, when dilutive, common equivalent shares outstanding during the year. See Note 14 of Notes to
Consolidated Financial Statements for additional information.
Dividends
The Board of Directors presently anticipates that it will declare a regular quarterly dividend as long as the current tax treatment
of dividends exists and adequate levels of liquidity are maintained. During the years ended December 31, 2013, 2012 and 2011,
we paid $21.4 million, $22.8 million and $23.1 million, respectively, in shareholder dividends. On January 21, 2014, the Board
of Directors declared a quarterly cash dividend of $0.09 per common share to be paid to shareholders of record at the close of
business on February 6, 2014. The ex-dividend date was February 4, 2014 and the payment date was February 20, 2014. The
quarterly dividend payment was $5.1 million.
Business Combinations
We use the acquisition method to account for business combinations. Under the acquisition method of accounting, we
recognize the assets acquired and liabilities assumed at their fair value on the acquisition date. Goodwill is measured as the
excess of the consideration transferred over the net assets acquired. Costs incurred to complete the business combination,
such as legal, accounting or other professional fees, are charged to general and administrative expenses as they are incurred.
46
ADTRAN 2013 Annual Report Recently Issued Accounting Standards
During 2013, we adopted the following accounting standards, which had no material effect on our consolidated results of
operations or financial condition:
In February 2013, the FASB issued Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out
of Accumulated Other Comprehensive Income (ASU 2013-02). ASU 2013-02 requires entities to provide information about
the amounts reclassified out of accumulated other comprehensive income by component either on the face of the financial
statements or in the footnotes. ASU 2013-02 does not change the current requirements for reporting net income or other
comprehensive income in the financial statements. This update is effective prospectively for reporting periods beginning
after December 15, 2012. We adopted this amendment during the first quarter of 2013, and we have provided the disclosures
required for the years ended December 31, 2013, 2012 and 2011 in Note 1 of Notes to Consolidated Financial Statements.
2 Business Combinations
On May 4, 2012, we acquired the NSN BBA business. This acquisition provides us with an established customer base in key
markets and complementary, market-focused products and was accounted for as a business combination. We have included
the financial results of the NSN BBA business in our consolidated financial statements since the date of acquisition. These
revenues are included in the Carrier Networks division in the Broadband Access subcategory.
Upon acquisition, we received a cash payment of $7.5 million from NSN and recorded a bargain purchase gain of
$1.8 million, net of income taxes, subject to customary working capital adjustments between the parties as defined in
the purchase agreement. As of December 31, 2013, the parties were in the process of negotiating final working capital
adjustments. We have adjusted the purchase price allocation to record additional estimated liabilities and an estimated
receivable from NSN related to working capital adjustments under negotiation. The bargain purchase gain of $1.8 million
represents the excess of the consideration exchanged over the fair value of the assets acquired and liabilities assumed.
We have assessed the recognition and measurements of the assets acquired and liabilities assumed based on historical
and pro forma data for future periods and have concluded that our valuation procedures and resulting measures were
appropriate. The gain is included in the line item “Gain on bargain purchase of a business” in the 2012 Consolidated
Statements of Income.
The allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the
acquisition date is as follows:
(In thousands)
Other receivables
Inventory
Property, plant and equipment
Accounts payable
Unearned revenue
Accrued expenses
Accrued wages and benefits
Deferred tax liability
Non-current unearned revenue
Net liabilities assumed
Customer relationships
Developed technology
Other
Gain on bargain purchase of a business, net of tax
Net consideration received by seller
$9,486
21,068
5,035
(5,194)
(18,203)
(3,361)
(2,251)
(788)
(19,886)
(14,094)
5,162
3,176
13
(1,753)
$(7,496)
The fair value of the customer relationships acquired was calculated using a discounted cash flow method (excess earnings)
and is being amortized using a declining balance method derived from projected customer revenue over an average estimated
useful life of 13 years. The fair value of the developed technology acquired was calculated using a discounted cash flow method
(relief from royalty) and is being amortized using the straight-line method over an estimated useful life of five years.
47
Financial Results For the years ended December 31, 2013 and 2012, we incurred acquisition and integration related expenses and
amortization of acquired intangibles of $2.9 million and $7.9 million, respectively, related to this acquisition.
The following supplemental pro forma information presents the financial results of the acquired NSN BBA business
for the years ended December 31, 2012 and 2011. The pro forma results for the period January 1, 2012 to May 4, 2012 and
January 1, 2011 to December 31, 2011 are not included in our consolidated financial results.
This supplemental pro forma information does not purport to be indicative of what would have occurred had the
acquisition of the NSN BBA business been completed on January 1, 2011, nor are they indicative of any future results.
(In thousands) (Unaudited)
Pro forma revenue
Pro forma pre-tax loss
Weighted average exchange rate during the period (EURO/USD)
2012
$119,600
$(23,621)
2011
$196,256
$(36,980)
€1.00/$1.29
€1.00/$1.38
On August 4, 2011, we acquired all of the outstanding stock of Bluesocket, Inc., a provider of wireless network solutions
with virtual control, for $23.7 million in cash. The acquisition provides us with IEEE802.11N enterprise class wireless LAN
expertise, technology, and products to address the growing transition within small-medium enterprises and large enterprises
to wireless networks and mobile devices. We have included the financial results of Bluesocket in our consolidated financial
statements since the date of acquisition. Pro forma results of operations prior to the closing date for the acquisition have not
been presented because the effect of the acquisition was not material to our financial results. The allocation of the purchase
price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date is as follows:
(In thousands)
Cash
Accounts receivable
Inventory
Prepaid expenses
Property, plant and equipment
Deferred tax assets, net
Accounts payable
Unearned revenue
Accrued expenses
Net assets acquired
Customer relationships
Developed technology
Intellectual property
Trade names
Goodwill
Total purchase price
$1,027
298
792
357
173
12,962
(441)
(600)
(332)
14,236
1,530
3,230
930
270
3,492
$23,688
During the fourth quarter of 2011, the purchase price and purchase price allocation were adjusted for our final
valuations. The adjustments resulted in a decrease to the goodwill recognized in the transaction.
The net deferred tax assets acquired are primarily related to net operating losses and previously capitalized and
unamortized research and development expense for tax deduction purposes.
The fair value of the customer relationships, developed technology and intellectual property acquired was calculated
using an income approach (excess earnings method) and is being amortized using the straight-line method. The customer
relationships and intellectual property are being amortized over an estimated useful life of 7 years and the developed
technology is being amortized over an average estimated useful life of 4.5 years.
48
ADTRAN 2013 Annual Report The fair value of the trade names acquired was calculated using an income approach (relief from royalty method) and is
being amortized using the straight-line method over the estimated useful life of 4.5 years.
The goodwill of $3.5 million generated from this acquisition is primarily related to expected synergies and was assigned
to our Enterprise Networks division. The goodwill will not be deductible for U.S. federal income tax purposes.
For the years ended December 31, 2013, 2012 and 2011, we incurred integration related expenses and amortization of
acquired intangibles of $1.1 million, $1.5 million and $1.7 million, respectively, related to this acquisition.
3 Stock Incentive Plans
Stock Incentive Program Descriptions
Our Board of Directors adopted the 1996 Employee Incentive Stock Option Plan (1996 Plan) effective February 14, 1996, as
amended, under which 17.0 million shares of common stock were authorized for issuance to certain employees and officers
through incentive stock options and non-qualified stock options. Options granted under the 1996 Plan typically become
exercisable beginning after one year of continued employment, normally pursuant to a four or five-year vesting schedule
beginning on the first anniversary of the grant date, and have a ten-year contractual term. The 1996 Plan expired February 14,
2006, and expiration dates of options outstanding at December 31, 2013 under the 1996 Plan range from 2014 to 2015.
On January 23, 2006, the Board of Directors adopted the 2006 Employee Stock Incentive Plan (2006 Plan), which
authorizes 13.0 million shares of common stock for issuance to certain employees and officers through incentive stock
options and non-qualified stock options, stock appreciation rights, restricted stock and restricted stock units. The 2006 Plan
was adopted by stockholder approval at our annual meeting of stockholders held on May 9, 2006. Options granted under the
2006 Plan typically become exercisable beginning after one year of continued employment, normally pursuant to a four-year
vesting schedule beginning on the first anniversary of the grant date, and have a ten-year contractual term. Expiration dates
of options outstanding at December 31, 2013 under the 2006 Plan range from 2016 to 2023.
Our stockholders approved the 2010 Directors Stock Plan (2010 Directors Plan) on May 5, 2010, under which 0.5 million
shares of common stock have been reserved. This plan replaces the 2005 Directors Stock Option Plan. The 2010 Directors
Plan provides that the Company may issue stock options, restricted stock and restricted stock units to our non-employee
directors. Stock awards issued under the 2010 Directors Plan normally become vested in full on the first anniversary of the
grant date. Options issued under the 2010 Directors Plan have a ten-year contractual term. We currently also have options
outstanding under the 1995 Directors Plan, as amended, and the 2005 Directors Stock Option Plan. Expiration dates of
options outstanding under both plans at December 31, 2013 range from 2014 to 2019.
The following table is a summary of our stock options outstanding as of December 31, 2012 and 2013 and the changes
that occurred during 2013:
(In thousands, except per share amounts)
Options outstanding, December 31, 2012
Options granted
Options cancelled/forfeited
Options exercised
Options outstanding, December 31, 2013
Options exercisable, December 31, 2013
Number of
Options
Weighted Average
Exercise Price
6,035
1,005
(491)
(191)
6,358
3,911
$24.81
$23.64
$29.60
$19.07
$24.43
$24.75
Weighted Average
Remaining Contractual
Life in Years
Aggregate
Intrinsic
Value
6.69
$5,154
6.60
5.19
$25,878
$15,336
All of the options above were issued at exercise prices that approximate fair market value at the date of grant.
At December 31, 2013, 6.0 million options were available for grant under the shareholder approved plans.
The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value (the difference between
ADTRAN’s closing stock price on the last trading day of 2013 and the exercise price, multiplied by the number of
in-the-money options) that would have been received by the option holders had all option holders exercised their
options on December 31, 2013. The amount of aggregate intrinsic value will change based on the fair market value
of ADTRAN’s stock.
The total pre-tax intrinsic value of options exercised during 2013, 2012 and 2011 was $1.1 million, $4.5 million
and $39.8 million, respectively. The fair value of options fully vesting during 2013, 2012 and 2011 was $7.7 million,
$7.7 million and $7.3 million, respectively.
49
Financial Results The following table further describes our stock options outstanding as of December 31, 2013:
Range of
Exercise Prices
$14.88 – 18.07
$18.08 – 23.36
$23.37 – 26.06
$26.07 – 30.04
$30.05 – 30.36
$30.37 – 41.92
Options Outstanding
Options
Outstanding
at 12/31/13
(in thousands)
Weighted Avg.
Remaining
Contractual Life
in Years
1,456
1,002
1,745
466
905
784
6,358
7.42
3.04
8.10
3.59
7.67
6.84
Weighted
Average
Exercise
Price
$16.37
$22.59
$23.60
$29.39
$30.36
$33.78
Options Exercisable
Options
Exercisable
at 12/31/13
(in thousands)
Weighted
Average
Exercise
Price
742
1,001
745
383
454
586
3,911
$15.79
$22.59
$23.54
$29.71
$30.36
$33.76
Restricted Stock Program Description
On November 6, 2008, the Compensation Committee of the Board of Directors approved the Performance Shares Agreement
under the 2006 Plan which sets forth the terms and conditions of awards of performance-based restricted stock units (RSUs).
Of the 13.0 million shares of common stock authorized for issuance under the 2006 Plan, we may grant up to 5.0 million
shares of common stock for issuance to certain employees and officers for awards other than stock options, which would
include RSUs. Under a proposal that was approved by the Board of Directors and shareholders at the 2010 annual meeting,
the number of shares available for awards other than stock options under all stock plans was reduced to 3.3 million. The
number of shares of common stock earned by a recipient pursuant to the RSUs is subject to a market condition based on
ADTRAN’s relative total shareholder return against all companies in the NASDAQ Telecommunications Index at the end
of a three-year performance period. Depending on the relative total shareholder return over the performance period, the
recipient may earn from 0% to 150% of the shares underlying the RSUs, with the shares earned distributed upon the vesting
of the RSUs at the end of the three-year performance period. The fair value of the award is based on the market price of our
common stock on the date of grant, adjusted for the expected outcome of the impact of market conditions using a Monte
Carlo Simulation valuation method. A portion of the granted RSUs also vest and the underlying shares become deliverable
upon the death or disability of the recipient or upon a change of control of ADTRAN, as defined by the 2006 Plan. The
recipients of the RSUs receive dividend credits based on the shares of common stock underlying the RSUs. The dividend
credits are vested and earned in the same manner as the RSUs and will be paid in cash upon the issuance of common stock
for the RSUs.
The following table is a summary of our RSUs and restricted stock outstanding as of December 31, 2012 and 2013 and
the changes that occurred during 2013:
(In thousands except per share amounts)
Unvested RSUs and restricted stock outstanding, December 31, 2012
RSUs and restricted stock granted
RSUs and restricted stock vested
Adjustments to shares granted due to shares earned at vesting
Unvested RSUs and restricted stock outstanding, December 31, 2013
Number
of Shares
Weighted
Average Grant
Date Fair Value
103
41
(39)
(10)
95
$29.25
$27.47
$29.42
$39.21
$28.38
At December 31, 2013, total compensation cost related to the non-vested portion of RSUs and restricted stock not yet
recognized was approximately $1.7 million, which is expected to be recognized over an average remaining recognition period
of 1.9 years.
Valuation and Expense Information
We use the Black-Scholes option pricing model (Black-Scholes Model) for the purpose of determining the estimated fair
value of stock option awards on the date of grant. The Black-Scholes Model requires the input of certain assumptions that
involve judgment. Because our stock options have characteristics significantly different from those of traded options, and
because changes in the input assumptions can materially affect the fair value estimate, existing models may not provide
reliable measures of fair value of our stock options. We use a Monte Carlo Simulation valuation method to value our
50
ADTRAN 2013 Annual Report performance-based RSUs. The fair value of restricted stock issued is equal to the closing price of our stock on the date of
grant. We will continue to assess the assumptions and methodologies used to calculate the estimated fair value of stock-based
compensation. If circumstances change, and additional data becomes available over time, we may change our assumptions
and methodologies, which may materially impact our fair value determination.
The following table summarizes stock-based compensation expense related to stock options, RSUs and restricted stock
for the years ended December 31, 2013, 2012 and 2011, which was recognized as follows:
(In thousands)
Stock-based compensation expense included in cost of sales
Selling, general and administrative expense
Research and development expense
Stock-based compensation expense included in operating expenses
Total stock-based compensation expense
Tax benefit for expense associated with non-qualified options
Total stock-based compensation expense, net of tax
2013
$465
4,443
4,165
8,608
9,073
(1,298)
$7,775
2012
$422
4,351
4,491
8,842
9,264
(1,234)
$8,030
2011
$412
4,316
4,441
8,757
9,169
(1,321)
$7,848
At December 31, 2013, total compensation cost related to non-vested stock options not yet recognized was approximately
$17.1 million, which is expected to be recognized over an average remaining recognition period of 2.8 years.
The stock option pricing model requires the use of several assumptions that impact the fair value estimate. These variables
include, but are not limited to, the volatility of our stock price and employee exercise behaviors. There were no material
changes made during 2013 to the methodology used to determine our assumptions.
The weighted-average estimated fair value of stock options granted to employees and directors during the years ended
December 31, 2013, 2012 and 2011 was $8.35 per share, $5.60 per share and $9.53 per share, respectively, with the following
weighted-average assumptions:
Expected volatility
Risk-free interest rate
Expected dividend yield
Expected life (in years)
2013
39.92%
1.71%
1.52%
6.36
2012
39.46%
0.96%
2.05%
6.18
2011
38.32%
1.01%
1.19%
5.15
We based our estimate of expected volatility for the years ended December 31, 2013, 2012 and 2011 on the sequential
historical daily trading data of our common stock for a period equal to the expected life of the options granted. The selection
of the historical volatility method was based on available data indicating our historical volatility is as equally representative
of our future stock price trends as is our implied volatility. We have no reason to believe the future volatility of our stock
price is likely to differ from its past volatility.
The risk-free interest rate assumption is based upon implied yields of U.S. Treasury zero-coupon bonds on the date
of grant having a remaining term equal to the expected life of the options granted. The dividend yield is based on our
historical and expected dividend payouts.
The expected life of our stock options is based upon historical exercise and cancellation activity of our previous
stock-based grants with a ten-year contractual term.
The RSU pricing model also requires the use of several significant assumptions that impact the fair value estimate.
The estimated fair value of the RSUs granted to employees during the years ended December 31, 2013, 2012 and 2011
was $27.72 per share, $19.46 per share and $38.73 per share, respectively, with the following assumptions:
Expected volatility
Risk-free interest rate
Expected dividend yield
2013
38.83%
0.61%
1.52%
2012
37.75%
0.38%
2.12%
2011
39.32%
0.37%
1.08%
51
Financial Results Stock-based compensation expense recognized in our Consolidated Statements of Income for the years ended
December 31, 2013, 2012 and 2011 is based on RSUs and options ultimately expected to vest, and has been reduced for
estimated forfeitures. Estimates for forfeiture rates are based upon historical experience and are evaluated quarterly.
We expect our forfeiture rate for stock option awards to be approximately 2.5% annually. We estimated a 0% forfeiture
rate for our RSUs and restricted stock due to the limited number of recipients and historical experience for these awards.
Investments
4
At December 31, 2013, we held the following securities and investments, recorded at either fair value or cost:
(In thousands)
Deferred compensation plan assets
Corporate bonds
Municipal fixed-rate bonds
Municipal variable rate demand notes
Marketable equity securities
Available-for-sale securities held at fair value
Restricted investment held at cost
Other investments held at cost
Total carrying value of available-for-sale investments
Amortized
Cost
$12,300
166,370
135,773
8,310
24,654
$347,407
Gross
Unrealized
Gains
$2,847
534
583
—
13,975
$17,939
Gross
Unrealized
Losses
Fair Value/
Carrying
Value
$(24)
(45)
(54)
—
(177)
$(300)
$15,123
166,859
136,302
8,310
38,452
$365,046
48,250
1,689
$414,985
At December 31, 2012, we held the following securities and investments, recorded at either fair value or cost:
(In thousands)
Deferred compensation plan assets
Corporate bonds
Municipal fixed-rate bonds
Municipal variable rate demand notes
Fixed income bond fund
Marketable equity securities
Available-for-sale securities held at fair value
Restricted investment held at cost
Other investments held at cost
Total carrying value of available-for-sale investments
Amortized
Cost
$10,688
185,464
174,530
34,375
444
20,966
$426,467
As of December 31, 2013, corporate and municipal fixed-rate bonds had the following contractual maturities:
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value/
Carrying
Value
$846
966
627
—
12
14,630
$17,081
$(7)
(18)
(73)
—
—
(392)
$(490)
$11,527
186,412
175,084
34,375
456
35,204
$443,058
48,250
1,902
$493,210
Municipal
fixed-rate
bonds
$46,606
25,284
55,358
9,054
Corporate
bonds
$55,396
37,838
70,447
3,178
$166,859
$136,302
(In thousands)
Less than one year
One to two years
Two to three years
Three to five years
Total
52
ADTRAN 2013 Annual Report Our investment policy provides limitations for issuer concentration, which limits, at the time of purchase, the
concentration in any one issuer to 5% of the market value of our total investment portfolio.
We review our investment portfolio for potential “other-than-temporary” declines in value on an individual investment
basis. We assess, on a quarterly basis, significant declines in value which may be considered other-than-temporary and, if
necessary, recognize and record the appropriate charge to write-down the carrying value of such investments. In making this
assessment, we take into consideration qualitative and quantitative information, including but not limited to the following: the
magnitude and duration of historical declines in market prices, credit rating activity, assessments of liquidity, public filings,
and statements made by the issuer. We generally begin our identification of potential other-than-temporary impairments by
reviewing any security with a fair value that has declined from its original or adjusted cost basis by 25% or more for six or
more consecutive months. We then evaluate the individual security based on the previously identified factors to determine
the amount of the write-down, if any. As a result of our review, we recorded an other-than-temporary impairment charge of
$11 thousand during the fourth quarter of 2013. For each of the years ended December 31, 2013, 2012 and 2011 we recorded
a charge of $25 thousand, $0.7 million and $68 thousand, respectively, related to the other-than-temporary impairment of
certain marketable equity securities and our deferred compensation plan assets.
Realized gains and losses on sales of securities are computed under the specific identification method. The following table
presents gross realized gains and losses related to our investments for the years ended December 31, 2013, 2012 and 2011:
(In thousands)
Year Ended December 31,
Gross realized gains
Gross realized losses
2013
$8,932
$(318)
2012
$11,006
$(1,456)
2011
$13,641
$(1,187)
The following table presents the breakdown of investments with unrealized losses at December 31, 2013:
(In thousands)
Deferred compensation plan assets
Corporate bonds
Municipal fixed-rate bonds
Marketable equity securities
Total
Continuous Unrealized
Loss Position for Less
than 12 Months
Continuous Unrealized
Loss Position for 12
Months or Greater
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$48
20,697
13,733
2,758
$37,236
$(6)
(45)
(54)
(173)
$(278)
$409
—
—
31
$(18)
—
—
(4)
$457
20,697
13,733
2,789
$440
$(22)
$37,676
$(24)
(45)
(54)
(177)
$(300)
The following table presents the breakdown of investments with unrealized losses at December 31, 2012.
(In thousands)
Deferred compensation plan assets
Corporate bonds
Municipal fixed-rate bonds
Marketable equity securities
Total
Continuous Unrealized
Loss Position for Less
than 12 Months
Continuous Unrealized
Loss Position for 12
Months or Greater
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
915
20,204
34,297
6,171
$61,587
$(7)
(17)
(73)
(355)
$(452)
$—
1,600
—
230
$1,830
$—
(1)
—
(37)
$(38)
$915
21,804
34,297
6,401
$63,417
$(7)
(18)
(73)
(392)
$(490)
The decrease in unrealized losses during 2013, as reflected in the table above, is primarily due to the restructuring of
our investment portfolio relating to marketable equity securities in December 2013 resulting in the sale of several securities
in an unrealized loss position. At December 31, 2013, a total of 168 of our marketable equity securities were in an unrealized
loss position.
53
Financial Results We have categorized our cash equivalents held in money market funds and our investments held at fair value into a
three-level fair value hierarchy based on the priority of the inputs to the valuation technique for the cash equivalents and
investments as follows: Level 1 - Values based on unadjusted quoted prices for identical assets or liabilities in an active
market; Level 2 - Values based on quoted prices in markets that are not active or model inputs that are observable either
directly or indirectly; Level 3 - Values based on prices or valuation techniques that require inputs that are both unobservable
and significant to the overall fair value measurement. These inputs include information supplied by investees.
Fair Value Measurements at December 31, 2013 Using
(In thousands)
Cash equivalents
Money market funds
Available-for-sale securities
Deferred compensation plan assets
Available-for-sale debt securities
Corporate bonds
Municipal fixed-rate bonds
Municipal variable rate demand notes
Available-for-sale marketable equity securities
Marketable equity securities—
technology industry
Marketable equity securities—other
Available-for-sale securities
Total
Quoted Prices
in Active
Markets for Identical
Assets (Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value
$3,949
15,123
166,859
136,302
8,310
11,398
27,054
365,046
$368,995
$3,949
15,123
—
—
—
11,398
27,054
53,575
$57,524
$—
—
166,859
136,302
8,310
—
—
311,471
$311,471
$—
—
—
—
—
—
—
—
$—
Fair Value Measurements at December 31, 2012 Using
(In thousands)
Cash equivalents
Money market funds
Available-for-sale securities
Deferred compensation plan assets
Available-for-sale debt securities
Corporate bonds
Municipal fixed-rate bonds
Municipal variable rate demand notes
Fixed income bond fund
Available-for-sale marketable equity securities
Marketable equity securities—
technology industry
Marketable equity securities—other
Available-for-sale securities
Total
Quoted Prices
in Active
Markets for Identical
Assets (Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value
$28,071
$28,071
11,527
186,412
175,084
34,375
456
14,099
21,105
443,058
$471,129
11,527
—
—
—
456
14,099
21,105
47,187
$75,258
$—
—
186,412
175,084
34,375
—
—
—
395,871
$395,871
$—
—
—
—
—
—
—
—
—
$—
54
ADTRAN 2013 Annual Report The fair value of our Level 2 securities is calculated using a weighted average market price for each security. Market
prices are obtained from a variety of industry standard data providers, security master files from large financial institutions,
and other third-party sources. These multiple market prices are used as inputs into a distribution-curve-based algorithm to
determine the daily market value of each security.
Our municipal variable rate demand notes have a structure that implies a standard expected market price. The frequent
interest rate resets make it reasonable to expect the price to stay at par. These securities are priced at the expected market price.
5 Derivative Instruments and Hedging Activities
We have certain international customers who are billed in their local currency. Changes in the monetary exchange rates
may adversely affect our results of operations and financial condition. When appropriate, we enter into various derivative
transactions to enhance our ability to manage the volatility relating to these typical business exposures. We do not hold
or issue derivative instruments for trading or other speculative purposes. Our derivative instruments are recorded in the
Consolidated Balance Sheets at their fair values. Our derivative instruments do not qualify for hedge accounting, and
accordingly, all changes in the fair value of the instruments are recognized as other income (expense) in the Consolidated
Statements of Income. The maximum contractual period for our derivatives is currently less than twelve months. Our
derivative instruments are not subject to master netting arrangements and are not offset in the Consolidated Balance Sheets.
As of December 31, 2013, we had forward contracts outstanding with notional amounts totaling €18.5 million
($25.5 million), which mature through 2014.
The fair values of our derivative instruments recorded in the Consolidated Balance Sheet as of December 31, 2013
were as follows:
(In thousands)
Balance, December 31, 2013
Balance Sheet Location
Fair Value
Derivatives Not Designated as Hedging Instruments (Level 2):
Foreign exchange contracts – asset derivatives
Foreign exchange contracts – liability derivatives
Other receivables
Accounts payable
$18
$(15)
The change in the fair values of our derivative instruments recorded in the Consolidated Statements of Income during
the year ended December 31, 2013 were as follows:
(In thousands)
Income Statement Location
Derivatives Not Designated as Hedging Instruments:
Foreign exchange contracts
Other income (expense)
Inventory
6
At December 31, 2013 and 2012, inventory was comprised of the following:
(In thousands)
Raw materials
Work in process
Finished goods
Total Inventory, net
2013
$44,093
3,484
42,534
$90,111
2013
$750
2012
$47,054
3,262
51,061
$101,377
We establish reserves for estimated excess, obsolete, or unmarketable inventory equal to the difference between the
cost of the inventory and the estimated fair value of the inventory based upon assumptions about future demand and market
conditions. At December 31, 2013 and 2012, raw materials reserves totaled $16.9 million and $9.9 million, respectively, and
finished goods inventory reserves totaled $6.1 million and $2.1 million, respectively.
55
Financial Results 7 Property, Plant and Equipment
At December 31, 2013 and 2012, property, plant and equipment were comprised of the following:
(In thousands)
Land
Building and land improvements
Building
Furniture and fixtures
Computer hardware and software
Engineering and other equipment
Total Property, Plant and Equipment
Less accumulated depreciation
Total Property, Plant and Equipment, net
2013
$4,263
21,776
68,479
16,465
70,468
104,584
286,035
(209,296)
$76,739
2012
$4,263
20,915
68,479
16,631
68,596
99,081
277,965
(197,719)
$80,246
Depreciation expense was $12.2 million, $12.1 million and $10.8 million in 2013, 2012 and 2011, respectively.
8 Goodwill and Intangible Assets
The changes in the carrying value of goodwill, all of which is included in our Enterprise Networks division, for the year ended
December 31, 2013 are as follows:
(In thousands)
Balance, December 31, 2012
Acquisitions
Impairment losses
Balance, December 31, 2013
Balance as of December 31, 2013
Goodwill
Accumulated impairment losses
Total goodwill
$3,492
—
—
$3,492
$3,492
—
$3,492
We evaluate the carrying value of goodwill during the fourth quarter of each year and between annual evaluations
if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its
carrying amount. When evaluating whether goodwill is impaired, we compare the fair value of the reporting unit to which
the goodwill is assigned to the reporting unit’s carrying amount, including goodwill. If the carrying amount of the reporting
unit exceeds its fair value, then the amount of the impairment loss is measured. There were no impairment losses recognized
during 2013 or 2012.
Intangible assets are included in other assets in the accompanying Consolidated Balance Sheets and include intangible
assets acquired in conjunction with our acquisition of Objectworld Communications Corporation on September 15, 2009,
Bluesocket, Inc. on August 4, 2011, and the NSN BBA business on May 4, 2012.
The following table presents our intangible assets as of December 31, 2013 and 2012:
(In thousands)
December 31, 2013
December 31, 2012
Customer relationships
Developed technology
Intellectual property
Trade names
Other
Total
Gross Value
Accumulated
Amortization
$6,996
6,537
2,340
270
14
$(1,555)
(2,692)
(1,185)
(145)
(8)
Net
Value
$5,441
3,845
1,155
125
6
Gross Value
Accumulated
Amortization
$6,769
6,397
2,340
270
13
$(766)
(1,354)
(851)
(85)
(3)
Net
Value
$6,003
5,043
1,489
185
10
$16,157
$(5,585)
$10,572
$15,789
$(3,059)
$12,730
Amortization expense was $2.4 million, $2.0 million and $0.7 million in 2013, 2012 and 2011, respectively.
56
ADTRAN 2013 Annual Report As of December 31, 2013, the estimated future amortization expense of intangible assets is as follows:
(In thousands)
2014
2015
2016
2017
2018
Thereafter
Total
Amount
$2,335
2,199
1,925
1,302
784
2,027
$10,572
9 Alabama State Industrial Development Authority Financing and Economic Incentives
In conjunction with an expansion of our Huntsville, Alabama, facility, we were approved for participation in an incentive
program offered by the State of Alabama Industrial Development Authority (the “Authority”). Pursuant to the program, on
January 13, 1995, the Authority issued $20.0 million of its taxable revenue bonds and loaned the proceeds from the sale of
the bonds to ADTRAN. The bonds were originally purchased by AmSouth Bank of Alabama, Birmingham, Alabama (the
“Bank”). Wachovia Bank, N.A., Nashville, Tennessee (formerly First Union National Bank of Tennessee) (the “Bondholder”),
which was acquired by Wells Fargo & Company on December 31, 2008, purchased the original bonds from the Bank and
made further advances to the Authority, bringing the total amount outstanding to $50.0 million. An Amended and Restated
Taxable Revenue Bond (“Amended and Restated Bond”) was issued and the original financing agreement was amended. The
Amended and Restated Bond bears interest, payable monthly. The interest rate is 5% per annum. The Amended and Restated
Bond matures on January 1, 2020. The estimated fair value of the bond using a level 2 valuation technique at December 31,
2013 was approximately $45.4 million, based on a debt security with a comparable interest rate and maturity and a Standard
& Poor’s credit rating of A-. We are required to make payments to the Authority in amounts necessary to pay the interest on
the Amended and Restated Bond. Included in long-term investments at December 31, 2013 is $48.3 million which is invested
in a restricted certificate of deposit. These funds serve as a collateral deposit against the principal of this bond, and we have the
right to set-off the balance of the Bond with the collateral deposit in order to reduce the balance of the indebtedness.
In conjunction with this program, we are eligible to receive certain economic incentives from the state of Alabama that
reduce the amount of payroll withholdings that we are required to remit to the state for those employment positions that
qualify under the program. For the years ended December 31, 2013, 2012 and 2011, we realized economic incentives related
to payroll withholdings totaling $1.3 million, $1.4 million and $1.9 million, respectively.
We did not make a principal payment for the year-ended December 31, 2013. We made a principal payment of
$0.5 million for the year ended December 31, 2012. We anticipate making a principal payment in 2014. At December 31,
2013 and 2012, $0.3 million and $0.5 million, respectively, of the bond debt were classified as a current liability in accounts
payable in the Consolidated Balance Sheets at December 31, 2013.
10 Income Taxes
A summary of the components of the provision for income taxes for the years ended December 31, 2013, 2012 and 2011
is as follows:
(In thousands)
Current
Federal
State
International
Total Current
Deferred
Federal
State
International
Total Deferred
Total Provision for Income Taxes
2013
2012
2011
$15,641
2,041
1,437
19,119
(3,606)
(412)
(40)
(4,058)
$15,061
$26,225
3,766
(504)
29,487
(3,395)
(388)
(2)
(3,785)
$25,702
$59,382
7,177
431
66,990
527
60
(12)
575
$67,565
57
Financial Results Our effective income tax rate differs from the federal statutory rate due to the following:
Tax provision computed at the federal statutory rate
State income tax provision, net of federal benefit
Federal research credits
International
Tax-exempt income
State tax incentives
Stock-based compensation
Domestic production activity deduction
Other, net
Effective Tax Rate
2013
35.00%
3.98
(9.24)
(2.93)
(1.11)
(2.19)
2.97
(1.80)
0.07
2012
35.00%
3.78
—
3.80
(1.01)
(4.46)
2.36
(3.21)
(1.03)
2011
35.00%
3.19
(2.50)
—
(0.27)
(0.90)
0.03
(1.84)
0.07
24.75%
35.23%
32.78%
Income before provision for income taxes for the years ended December 31, 2013, 2012 and 2011 is as follows:
(In thousands)
U.S. entities
International
Total
2013
$51,752
9,103
$60,855
2012
$80,926
(7,961)
$72,965
2011
$204,652
1,490
$206,142
Income before provision for income taxes for international entities reflects income based on statutory transfer pricing
agreements. This amount does not correlate to consolidated international revenues, many of which occur from our U.S. entity.
Deferred income taxes on the balance sheet result from temporary differences between the amount of assets and liabilities
recognized for financial reporting and tax purposes. The principal components of our current and non-current deferred taxes
are as follows:
(In thousands)
Current deferred tax assets
Accounts receivable
Inventory
Accrued expenses
Total Current Deferred Tax Assets
Non-current deferred tax assets
Accrued expenses
Deferred compensation
Stock-based compensation
Uncertain tax positions related to state taxes and related interest
Pensions
Foreign losses
State losses and credit carry-forwards
Federal loss and research carry-forwards
Valuation allowance
Total Non-current Deferred Tax Assets
Total Deferred Tax Assets
Non-current Deferred Tax Liabilities
Property, plant and equipment
Intellectual property
Investments
Total Non-current Deferred Tax Liabilities
Net Deferred Tax Assets
58
2013
2012
$51
9,877
7,155
17,083
140
5,972
5,331
1,107
301
5,702
3,737
8,322
(8,842)
21,770
$38,853
$(5,499)
(1,006)
(5,643)
$(12,148)
$26,705
$2
7,507
5,546
13,055
116
4,456
4,569
1,005
605
6,978
4,349
12,210
(10,939)
23,349
$36,404
$(6,405)
(1,839)
(4,844)
$(13,088)
$23,316
ADTRAN 2013 Annual Report At December 31, 2013 and 2012, non-current deferred tax liabilities and non-current deferred tax assets, respectively,
related to our investments, reflect deferred taxes on unrealized gains and losses on available-for-sale investments. The net
change in non-current deferred taxes associated with these investments, a deferred tax expense of $0.4 million in 2013 and a
deferred tax benefit of $33 thousand in 2012, is recorded as an adjustment to other comprehensive income, presented in the
Consolidated Statements of Comprehensive Income.
We have deferred tax assets for foreign and domestic loss carry-forwards, unamortized research and development costs
and state credit carry-forwards of $19.0 million which will expire between 2014 and 2030. The foreign loss carry-forwards
were generated through the acquisition of a foreign entity in 2009 and through current losses at a foreign subsidiary. The
unamortized research and development costs are related to our acquisition of Bluesocket in 2011. The state credit carry-for-
wards result from tax credits in excess of our annual tax liability to an individual state where we do not generate sufficient
state income to offset the credit. We believe it is more likely than not that we will not realize the full benefits of the deferred
tax asset arising from these losses and credits in various states and foreign countries, and accordingly, we have provided a
valuation allowance against these deferred tax assets. We do not provide for U.S. income tax on undistributed earnings of
our foreign operations, whose earnings are intended to be permanently reinvested. These earnings are not required to
service debt or fund our U.S. operations.
During 2013, 2012 and 2011, we recorded an income tax benefit of $0.2 million, $1.9 million and $10.5 million,
respectively, as an adjustment to equity. This deduction is calculated on the difference between the exercise price of stock
option exercises and the market price of the underlying common stock upon exercise.
The change in the unrecognized income tax benefits for 2013, 2012 and 2011 is reconciled below:
(In thousands)
Balance at beginning of period
Increases for tax position related to:
Prior years
Current year
Decreases for tax positions related to:
Prior years
Settlements with taxing authorities
Expiration of applicable statute of limitations
Balance at end of period
2013
$2,926
2012
$2,970
2011
$2,593
89
549
—
(141)
(183)
965
302
(49)
(507)
(755)
—
840
(92)
(354)
(17)
$3,240
$2,926
$2,970
As of December 31, 2013, 2012, and 2011, our total liability for unrecognized tax benefits was $3.2 million, $2.9 million,
and $3.0 million, respectively, of which $2.5 million, $2.2 million, and $2.4 million, respectively, would reduce our effective tax
rate if we were successful in upholding all of the uncertain positions and recognized the amounts recorded. We classify interest
and penalties recognized on the liability for unrecognized tax benefits as income tax expense. As of December 31, 2013, 2012
and 2011, the balances of accrued interest and penalties were $1.0 million, $0.8 million and $1.2 million, respectively.
We do not anticipate a single tax position generating a significant increase or decrease in our liability for unrecognized tax
benefits within 12 months of this reporting date. We file income tax returns in the U.S. federal and various state jurisdictions
and several foreign jurisdictions. We have been audited by the Internal Revenue Service and the state of Alabama through the
2009 tax year. Generally, we are not subject to changes in income taxes by any taxing jurisdiction for the years prior to 2010.
11 Employee Benefit Plans
Pension Benefit Plan
As a result of our acquisition of the NSN BBA business, we assumed a defined benefit pension plan covering employees
in certain foreign countries. We established a Contribution Trust Arrangement (CTA) to hold the pension assets, and NSN
transferred assets to us equal to the defined benefit obligation as of the May 4, 2012 acquisition date.
59
Financial Results The pension benefit plan obligations and funded status at December 31, 2013 and 2012, are as follows:
(In thousands)
Change in projected benefit obligation:
Projected benefit obligation at beginning of period
Business combination
Service cost
Interest cost
Actuarial gain (loss)
Benefit payments
Foreign currency exchange rate changes
Projected benefit obligation at end of period
Change in plan assets:
Fair value of plan assets at beginning of period
Business combination
Actual return on plan assets
Foreign currency exchange rate changes
Fair value of plan assets at end of period
Funded status at end of period
2013
2012
$(21,181)
—
(1,198)
(745)
779
(1)
(1,008)
$(23,354)
$18,620
—
1,281
872
$20,773
$(2,581)
$—
(18,063)
(766)
(494)
(1,862)
—
4
$(21,181)
$—
18,063
592
(35)
$18,620
$(2,561)
The accumulated benefit obligation was $22.9 million and $20.8 million at December 31, 2013 and 2012, respectively.
The net amounts recognized in the balance sheet for the unfunded pension liability as of December 31, 2013 and
2012 are as follows:
(In thousands)
Current liability
Non-current liability
Total
2013
—
(2,581)
$(2,581)
2012
$(609)
(1,952)
$(2,561)
The components of net periodic pension cost and amounts recognized in other comprehensive income for the year
ended December 31, 2013 and the period May 4, 2012 to December 31, 2012 are as follows:
(In thousands)
Net periodic benefit cost:
Service cost
Interest cost
Expected return on plan assets
Net periodic benefit cost
Other changes in plan assets and benefit obligations
recognized in other comprehensive income:
Net actuarial (gain) loss
Net unrealized (gain) loss on plan assets
Other comprehensive (income) loss
Total recognized in net periodic benefit cost and
other comprehensive income
Year Ended
December 31, 2013
May 4, 2012 to
December 31, 2012
$1,198
745
(1,010)
933
(779)
(282)
(1,061)
$(128)
$766
494
(674)
586
1,862
90
1,952
$2,538
60
ADTRAN 2013 Annual Report The amounts recognized in accumulated other comprehensive income as of December 31, 2013 and 2012 are as follows:
(In thousands)
Net actuarial (gain) loss
Net unrealized (gain) loss on plan assets
Total
2013
$1,083
(192)
$891
2012
$1,862
90
$1,952
The defined benefit pension plan is accounted for on an actuarial basis, which requires the selection of various
assumptions, including an expected rate of return on plan assets and a discount rate. The expected return on our German
plan assets that is utilized in determining the benefit obligation and net periodic benefit cost is derived from periodic studies,
which include a review of asset allocation strategies, anticipated future long-term performance of individual asset classes,
risks using standard deviations and correlations of returns among the asset classes that comprise the plans’ asset mix. While
the studies give appropriate consideration to recent plan performance and historical returns, the assumptions are primarily
long-term, prospective rates of return.
Another key assumption in determining net pension expense is the assumed discount rate to be used to discount plan
obligations. The discount rate has been derived from the returns of high-quality, corporate bonds denominated in Euro
currency with durations close to the duration of our pension obligations.
The weighted-average assumptions that were used to determine the net periodic benefit cost for the year ended
December 31, 2013 and the period May 4, 2012 to December 31, 2012 are as follows:
(In thousands)
Discount rates
Rate of compensation increase
Expected long-term rates of return
Year Ended
December 31, 2013
May 4, 2012 to
December 31, 2012
3.50%
2.25%
5.40%
3.96%
2.25%
5.40%
The weighted-average assumptions that were used to determine the benefit obligation at December 31, 2013 and 2012:
Discount rates
Rate of compensation increase
2013
3.70%
2.25%
2012
3.50%
2.25%
No amounts will be amortized from accumulated other comprehensive income into net periodic benefit cost during 2014.
We do not anticipate making a contribution to our pension plan in 2014. The following pension benefit payments, which
reflect expected future service, as appropriate, are expected to be paid to participants:
(In thousands)
2014
2015
2016
2017
2018
2019-2023
Total
$357
312
223
390
650
4,427
$6,359
61
Financial Results We have categorized our cash equivalents and our investments held at fair value into a three-level fair value
hierarchy based on the priority of the inputs to the valuation technique for the cash equivalents and investments as
follows: Level 1 - Values based on unadjusted quoted prices for identical assets or liabilities in an active market; Level 2 -
Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly;
Level 3 - Values based on prices or valuation techniques that require inputs that are both unobservable and significant to the
overall fair value measurement. These inputs include information supplied by investees.
Fair Value Measurements at December 31, 2013 Using
(In thousands)
Cash equivalents
Available-for-sale securities
Bond funds
Corporate bonds
Government bonds
Equity funds
Large cap blend
Large cap value
Balanced fund
Available-for-sale securities
Total
Quoted Prices
in Active
Markets for Identical
Assets (Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$4
$—
$—
Fair Value
$4
12,976
1,915
4,720
287
871
20,769
$20,773
12,976
1,915
4,720
287
871
20,769
$20,773
—
—
—
—
—
—
$—
—
—
—
—
—
—
$—
Fair Value Measurements at December 31, 2012 Using
(In thousands)
Cash equivalents
Available-for-sale securities
Bond funds
Corporate bonds
Government bonds
Equity funds
Large cap blend
Large cap value
Balanced fund
Available-for-sale securities
Total
Quoted Prices
in Active
Markets for Identical
Assets (Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$6
$—
$—
Fair Value
$6
12,041
1,839
3,740
235
759
18,614
$18,620
12,041
1,839
3,740
235
759
18,614
$18,620
—
—
—
—
—
—
$—
—
—
—
—
—
—
$—
Our investment policy includes various guidelines and procedures designed to ensure assets are invested in a manner
necessary to meet expected future benefits earned by participants. The investments guidelines consider a broad range of
economic conditions. Central to the policy are target allocation ranges by asset class, which is currently 75% for bond funds
and 25% for equity funds.
The objectives of the target allocations are to maintain investment portfolios that diversify risk through prudent asset
allocation parameters, achieve asset returns that meet or exceed the plans’ actuarial assumptions, and achieve asset returns
that are competitive with like institutions employing similar investment strategies.
The investment policy is periodically reviewed by us and a designated third-party fiduciary for investment matters. The
policy is established and administered in a manner that is compliant at all times with applicable government regulations.
62
ADTRAN 2013 Annual Report 401(k) Savings Plan
We maintain the ADTRAN, Inc. 401(k) Retirement Plan (Savings Plan) for the benefit of our eligible employees. The Savings
Plan is intended to qualify under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended (Code), and
is intended to be a “safe harbor” 401(k) plan under Code Section 401(k)(12). The Savings Plan allows employees to save for
retirement by contributing part of their compensation to the plan on a tax-deferred basis. The Savings Plan also requires us
to contribute a “safe harbor” amount each year. We match up to 4% of employee contributions (100% of an employee’s first
3% of contributions and 50% of their next 2% of contributions), beginning on the employee’s one year anniversary date.
In calculating our matching contribution, we only use compensation up to the statutory maximum under the Code
($255 thousand for 2013). All contributions under the Savings Plan are 100% vested. Expenses recorded for employer
contributions and plan administration costs for the Savings Plan amounted to approximately $4.5 million, $4.6 million
and $4.3 million in 2013, 2012 and 2011, respectively.
Deferred Compensation Plans
We maintain the ADTRAN, Inc. Deferred Compensation Plan (Deferred Compensation Plan). This plan is offered as a
supplement to our tax-qualified 401(k) plan and is available to certain executive management employees who have been
designated by our Board of Directors. The deferred compensation plan allows participants to defer all or a portion of
certain specified bonuses and up to 25% of remaining cash compensation, and permits us to make matching contributions
on a discretionary basis, without the limitations that apply to the 401(k) plan. To date, we have not made any matching
contributions under this plan.
We also maintain the ADTRAN, Inc. Equity Deferral Program for Employees for the purpose of providing deferred
compensation for certain executive management employees. Participants may elect to defer all or a portion of their vested
Performance Share awards to the Plan. Such deferrals shall continue to be held and deemed to be invested in shares of
ADTRAN stock unless and until the amounts are distributed or such deferrals are moved to another deemed investment
pursuant to an election made by the Participant.
We have set aside the plan assets for both plans in a rabbi trust (Trust) and all contributions are credited to bookkeeping
accounts for the participants. The Trust assets are subject to the claims of our creditors in the event of bankruptcy or
insolvency. The assets of the Trust are deemed to be invested in pre-approved mutual funds as directed by each participant,
and the participant’s bookkeeping account is credited with the earnings and losses attributable to those investments. Benefits
are scheduled to be distributed six months after termination of employment in a single lump sum payment or annual install-
ments paid over a three or ten year term. Distributions will be made on a pro rata basis from each of the hypothetical invest-
ments of the Participant’s account in cash. Any whole shares of ADTRAN, Inc. common stock that are distributed
will be distributed in-kind.
Assets of the Trust are deemed invested in mutual funds that cover an investment spectrum ranging from equities to
money market instruments. These mutual funds are publicly quoted and reported at fair value. The fair value of the assets
held by the Trust and the amounts payable to the plan participants are as follows:
(In thousands)
Fair Value of Plan Assets
Long-term Investments
Total Fair Value of Plan Assets
Amounts Payable to Plan Participants
Non-current Liabilities
Total Amounts Payable to Plan Participants
2013
2012
$15,123
$11,527
$15,123
$11,527
$15,123
$11,527
$15,123
$11,527
Interest and dividend income of the Trust have been included in interest and dividend income in the accompanying 2013,
2012 and 2011 Consolidated Statements of Income. Changes in the fair value of the plan assets held by the Trust have been
included in accumulated other comprehensive income in the accompanying 2013 and 2012 Consolidated Balance Sheets.
Changes in the fair value of the deferred compensation liability are included as selling, general and administrative expense
in the accompanying 2013, 2012 and 2011 Consolidated Statements of Income. Based on the changes in the total fair value
of the Trust’s assets, we recorded deferred compensation adjustments in 2013, 2012 and 2011 of $2.8 million, $0.9 million and
$(0.2) million, respectively.
63
Financial Results Retiree Medical Coverage
We provide medical, dental and prescription drug coverage to one retired former officer and his spouse, for his life,
on the same terms as provided to our active officers, and to the spouse of a former deceased officer for up to 30 years.
At December 31, 2013 and 2012, this liability totaled $0.2 million.
12 Segment Information and Major Customers
We operate in two reportable segments: (1) the Carrier Networks Division and (2) the Enterprise Networks Division. The
accounting policies of the segments are the same as those described in the “Nature of Business and Summary of Significant
Accounting Policies” (see Note 1) to the extent that such policies affect the reported segment information. We evaluate the
performance of our segments based on gross profit; therefore, selling, general and administrative expense, research and
development expenses, interest income and dividend income, interest expense, net realized investment gain/loss, other
income/expense and provision for taxes are reported on an entity-wide basis only. There are no inter-segment revenues.
The following table presents information about the reported sales and gross profit of our reportable segments for each
of the years ended December 31, 2013, 2012 and 2011. Asset information by reportable segment is not reported, since we
do not produce such information internally.
(In thousands)
Sales and Gross Profit by
Market Segment
Carrier Networks
Enterprise Networks
Total
2013
2012
2011
Sales
Gross Profit
Sales
Gross Profit
Sales
Gross Profit
$500,733
141,011
$641,744
$233,206
$492,096
$247,380
$569,579
$327,813
75,680
128,518
69,263
147,650
86,505
$308,886
$620,614
$316,643
$717,229
$414,318
Sales by Product
Our three major product categories are Carrier Systems, Business Networking and Loop Access.
Carrier Systems products are used by communications service providers to provide data, voice and video services to
consumers and enterprises. This category includes the following product areas and related services:
Broadband Access
• Total Access® 5000 Multi-Service Access Node (MSAN)
• hiX family of MSANs
• Total Access 1100/1200 Series of Fiber to the Node (FTTN) products
• Ultra Broadband Ethernet (UBE)
• Digital Subscriber Line Access Multiplexer (DSLAM) products
Optical
• Optical Networking Edge (ONE)
• NetVanta® 8000 Series of Fiber Ethernet Access Devices (EAD)
• OPTI-6100 and Total Access 3000 optical Multi-Service Provisioning Platforms (MSPP)
• Pluggable Optical Products, including SFP, XFP, and SFP+
TDM Systems
Business Networking products provide access to communication services and facilitate the delivery of cloud connectivity
and enterprise communications to the Small and Mid-sized Enterprise (SME) market. This category includes the following
product areas and related services:
Internetworking Products
• Total Access IP Business Gateways
• Optical Network Terminals (ONTs)
• Bluesocket® virtual Wireless LAN (vWLAN®)
• NetVanta
– Multiservice Routers
– Managed Ethernet Switches
– IP Business Gateways
– Unified Communications (UC) solutions
– Carrier Ethernet Network Terminating Equipment (NTE)
• Network Management Solutions
Integrated Access Devices (IADs)
64
ADTRAN 2013 Annual Report Loop Access products are used by carrier and enterprise customers for access to copper-based communications networks.
The Loop Access category includes the following product areas and related services:
• High bit-rate Digital Subscriber Line (HDSL) products
• Digital Data Service (DDS)
• Integrated Services Digital Network (ISDN) products
• T1/E1/T3 Channel Service Units/Data Service Units (CSUs/DSUs)
• TRACER fixed-wireless products
The table below presents sales information by product category for the years ended December 31, 2013, 2012 and 2011:
(In thousands)
Carrier Systems
Business Networking
Loop Access
Total
2013
2012
2011
$427,850
$399,646
$420,289
168,871
45,023
149,304
71,664
162,186
134,754
$641,744
$620,614
$717,229
In addition, we identify subcategories of product revenues, which we divide into core products and legacy products.
Our core products consist of Broadband Access and Optical products (included in Carrier Systems), and Internetworking
products (included in Business Networking). Our legacy products include HDSL products (included in Loop Access) and
other products not included in the aforementioned core products.
The table below presents subcategory revenues for the years ended December 31, 2013, 2012 and 2011:
(In thousands)
Core Products
Broadband Access (included in Carrier Systems)
Optical (included in Carrier Systems)
Internetworking (NetVanta and Multi-service Access Gateways)
(included in Business Networking)
Subtotal
Legacy Products
HDSL (does not include T1) (included in Loop Access)
Other products (excluding HDSL)
Subtotal
Total
2013
2012
2011
$340,560
55,615
164,422
$560,597
41,666
39,481
$81,147
$641,744
$320,076
51,755
142,958
$514,789
66,974
38,851
$105,825
$620,614
$289,776
82,535
151,536
$523,847
126,976
66,406
$193,382
$717,229
The following table presents sales information by geographic area for the years ended December 31, 2013, 2012 and 2011.
International sales correlate to shipments with a non-U.S. destination.
(In thousands)
United States
Germany
Other International
Total
2013
$455,996
97,151
88,597
$641,744
2012
$470,369
26,918
123,327
$620,614
2011
$632,795
554
83,880
$717,229
Customers comprising more than 10% of revenue can change from year to year. Single customers comprising more than
10% of our revenue in 2013 included two customers at 17% and 14%, respectively. Only a single customer comprised more
than 10% of our revenue in 2012 at 23%. Single customers comprising more than 10% of our revenue in 2011 included two
customers at 25% and 10%, respectively. No other customer accounted for 10% or more of our sales in 2013, 2012 or 2011.
Our five largest customers, other than those with more than 10 percent of revenues disclosed above, can change from year to
year. These customers represented 22%, 34% and 29% of total revenue in 2013, 2012 and 2011, respectively. Revenues in this
disclosure do not include distributor agents who predominately provide fulfillment services to end users. In such cases where
known, that revenue is associated with the end user.
65
Financial Results As of December 31, 2013, long-lived assets, net totaled $76.7 million, which includes $71.2 million held in the United
States and $5.5 million held outside the United States. As of December 31, 2012, long-lived assets, net totaled $80.2 million,
which includes $73.9 million held in the United States and $6.3 million held outside the United States.
13 Commitments and Contingencies
In the ordinary course of business, we may be subject to various legal proceedings and claims, including employment
disputes, patent claims, disputes over contract agreements and other commercial disputes. In some cases, claimants seek
damages or other relief, such as royalty payments related to patents, which, if granted, could require significant expenditures.
Although the outcome of any claim or litigation can never be certain, it is our opinion that the outcome of all contingencies
of which we are currently aware will not materially affect our business, operations, financial condition or cash flows.
We lease office space and equipment under operating leases which expire at various dates through 2018. As of
December 31, 2013, future minimum rental payments under non-cancelable operating leases with original maturities
of greater than 12 months are approximately as follows:
(In thousands)
2014
2015
2016
2017
Thereafter
Total
$4,523
3,556
2,506
2,156
686
$13,427
Rental expense was approximately $4.8 million, $3.9 million and $2.4 million for the years ended December 31, 2013, 2012
and 2011, respectively.
14 Earnings per Share
A summary of the calculation of basic and diluted earnings per share (EPS) for the years ended December 31, 2013, 2012 and
2011 is as follows:
(In thousands, except for per share amounts)
2013
2012
2011
Numerator
Net Income
Denominator
$45,794
$47,263
$138,577
Weighted average number of shares—basic
59,001
63,259
64,145
Effect of dilutive securities:
Stock options
Restricted stock and restricted stock units
Weighted average number of shares—diluted
Net income per share—basic
Net income per share—diluted
390
33
59,424
$0.78
$0.77
488
27
63,774
$0.75
$0.74
1,236
35
65,416
$2.16
$2.12
For each of the years ended December 31, 2013, 2012 and 2011, 3.2 million, 3.2 million and 1.2 million stock options
were outstanding but were not included in the computation of that year’s diluted EPS because the options’ exercise prices
were greater than the average market price of the common shares, therefore making them anti-dilutive under the treasury
stock method.
66
ADTRAN 2013 Annual Report 15 Summarized Quarterly Financial Data (Unaudited)
The following table presents unaudited quarterly operating results for each of our last eight fiscal quarters. This information
has been prepared on a basis consistent with our audited financial statements and includes all adjustments, consisting only of
normal recurring adjustments, considered necessary for a fair presentation of the data.
Unaudited Quarterly Operating Results
(In thousands, except for per share amounts)
Three Months Ended
March 31, 2013
June 30, 2013 September 30, 2013
December 31, 2013
Net sales
Gross profit
Operating income
Net income
Earnings per common share
Earnings per common share
assuming dilution (1)
$143,013
$69,677
$6,563
$7,890
$0.13
$0.13
$162,233
$79,798
$14,053
$9,859
$0.17
$0.17
$177,404
$82,547
$17,210
$16,205
$0.28
$0.28
$159,094
$76,864
$10,639
$11,840
$0.21
$0.20
Three Months Ended
March 31, 2012
June 30, 2012 September 30, 2012
December 31, 2012
Net sales
Gross profit
Operating income
Net income
Earnings per common share
Earnings per common share
assuming dilution (1)
$134,735
$74,087
$16,181
$12,960
$0.20
$0.20
$183,998
$95,201
$26,838
$21,070
$0.33
$0.33
$162,125
$79,972
$10,276
$9,272
$0.15
$0.15
$139,756
$67,383
$2,874
$3,961
$0.06
$0.06
(1) Assumes exercise of dilutive stock options calculated under the treasury stock method.
16 Related Party Transactions
We employ the law firm of our director emeritus for legal services. All bills for services rendered by this firm are reviewed and
approved by our Chief Financial Officer. We believe that the fees for such services are comparable to those charged by other
firms for services rendered to us. For the years ended 2013, 2012 and 2011, we incurred fees of $10 thousand per month for
these legal services.
17 Subsequent Events
On January 21, 2014, the Board declared a quarterly cash dividend of $0.09 per common share to be paid to shareholders
of record at the close of business on February 6, 2014. The quarterly dividend payment was $5.1 million and was paid on
February 20, 2014. In July 2003, our Board of Directors elected to begin declaring quarterly dividends on our common stock
considering the tax treatment of dividends and adequate levels of Company liquidity.
In February 2014, we made a decision to make a $16.5 million principal payment on the Amended and Restated Bond.
The restricted certificate of deposit included in our long-term investments will be reduced by the amount of the payment.
We anticipate this payment will be made during the first quarter of 2014.
As of February 27, 2014, we have repurchased 0.4 million shares of our common stock through open market purchases
at an average cost of $25.13 per share. We currently have the authority to purchase an additional 3.1 million shares of our
common stock under the current plan approved by the Board of Directors.
67
Financial Results EVOLVEGROWCHANGE Corporate
Headquarters
ADTRAN, Inc.
901 Explorer Boulevard
Huntsville, AL 35806
USA
P.O. Box 140000
Huntsville, AL 35814-4000
1 800 9ADTRAN
1 256 963-8000
1 256 963-8004 fax
investorrelations@adtran.com
www.adtran.com
International Offices
ADTRAN Networks Pty. Ltd.
Sydney and Melbourne, Australia
ADTRAN Singapore Pte. Ltd.
Singapore
ADTRAN Europe Limited
Theale, Reading, United Kingdom
ADTRAN Canada, Inc.
Montreal and Toronto, Canada
ADTRAN Networks Canada, Inc.
Ottawa, Canada
ADTRAN Networks S.A. de C.V.
Mexico, D.F., Mexico
ADTRAN International, Inc.
Hong Kong
ADTRAN Peru S.R.L.
Lima, Peru
ADTRAN GmbH
Berlin, Bruchsal, Greifswald, Leipzig, and Munich,
Germany
ADTRAN Networks Comunicações Ltda.
Campinas, São Paulo, Brazil
ADTRAN d.o.o.
Zagreb, Croatia
ADTRAN Oy
Helsinki, Finland
ADTRAN M.E.P.E.
Athens, Greece
ADTRAN Networks India Private Limited
Hyderabad, India
ADTRAN Holdings Ltd.
Tel Aviv, Israel
ADTRAN S.R.L.
Milan, Italy
ADTRAN K.K.
Tokyo, Japan
ADTRAN Sp. z.o.o.
Warsaw, Poland
ADTRAN, Unipessoal Lda.
Lisbon, Portugal
ADTRAN LLC
Moscow, Russia
ADTRAN s.r.o.
Bratislava, Slovakia
ADTRAN Switzerland GmbH
Zurich, Switzerland
ADTRAN International, Inc. – Saudi Arabia
Riyadh, Saudi Arabia
TL19.1270
ADTRAN is an ISO 9001, ISO 14001, and a TL 9000 certified supplier.
ADTRAN, Inc. is an Equal Opportunity Employer committed to utilizing
Minority Business Enterprises (MBE), Woman-Owned Business Enterprises
(WBE) and Disabled Veteran Business Enterprises (DVBE) whenever possible
and practical for procurements supporting ADTRAN and our customers.
ADTRAN, NETVANTA, Bluesocket, vWLAN and Total Access are registered
trademarks of ADTRAN, Inc. ATLAS is a trademark of ADTRAN, Inc.
All other trademarks and registered trademarks mentioned in
this publication are the property of their respective owners.
An Export License is required if these ADTRAN products are sold to a
Government Entity outside of the EU+8 (Austria, Australia, Belgium,
Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France,
Germany, Greece, Hungary, Ireland, Italy, Japan, Latvia, Lithuania,
Luxembourg, Malta, Netherlands, New Zealand, Norway, Poland, Portugal,
Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, and the
United Kingdom). This is per DOC/BIS ruling G030477 issued June 6, 2003.
Copyright © 2014 ADTRAN, Inc. All rights reserved. Printed in USA. AD345A