Bringing the
World Together
2014 ANNUAL REPORT
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.
TL19.1270
TL19.1270
Copyright © 2015 ADTRAN, Inc. All rights reserved. Printed in USA. AD432A
People have always found ways to connect. It’s in our nature.
What is remarkable is that today, we are now able to connect with
people around the world faster, easier and in more ways than ever before.
Time and distance no longer preclude real-time connections that are
full of context, content, collaboration and detail.
Over 3 billion people are now connected to
the Internet and this number will continue
to increase at an accelerated pace as people
find new and more convenient ways to
communicate. The way we communicate
has become more personal as we are able
to tailor the experience to individual pref-
erences and lifestyle. Being connected has
become an essential element of how we
live, work, play and learn. It’s at the core
of what we all want, independent of our
location, devices or how we express our
thoughts, emotions, and ideas.
What has been amazing for ADTRAN,
as we help our customers through this
transition, is just how seamless it has been
and how quickly we are moving forward
in this exciting new era. We are enter-
ing the world of smart cars and homes,
wearable technology, and the Internet of
Things. Connecting people with people,
devices with devices and devices with
people is quickly transforming the world
in which we live, providing an unprec-
edented level of information, collaboration
and efficiency that empowers individuals
to have access to the world’s resources
at their fingertips. We are now sharing
more information over a wider variety
of venues specifically designed for video,
chat, streaming, screen sharing and other
innovative means of communication.
This demand is placing an unprecedented
burden on today’s communications service
provider infrastructure.
ADTRAN solutions and services play a
key role in building the superhighway
for these new technologies, services, and
applications and how they are developed,
delivered and consumed. Over the past
year, hundreds of communities, from the
largest to the smallest, began to prioritize
Gigabit services as the underlying critical
infrastructure for economic development
and growth. It is creating a new founda-
tion for how we communicate that will
have a profound impact on where and
how we live, work, shop, and educate
our children.
Combine these carrier infrastructure
solutions with ADTRAN’s enterprise and
business products and services and the
entire ecosystem of businesses, schools,
universities, municipalities and individu-
als are positioned now to enable all of
the capabilities of an always-on, data-
driven economy. That’s the real power
of ADTRAN… delivering solutions that
bridge the gap between our end-customer
communities and their ability to efficiently
and quickly achieve more, become more
and do more.
Enabling every
person, everywhere,
the opportunity to
reach their fullest
potential.
2
BRINGING THE WORLD TOGETHERADTRAN 2014 ANNUAL REPORT Empowering
progress one
connection
at a time
3
Shareholder’s Letter At ADTRAN, our goal is to provide the
means to enable a fully connected world
where the power to communicate is avail-
able to everyone, everywhere and at any
time. Our understanding of the changing
world and the impact of a ubiquitous com-
munications network provides us with the
vision to develop dynamic solutions that
empower change by enabling every per-
son, everywhere, the opportunity to reach
their fullest potential. By doing so we
are at the forefront of bringing the world
together, by advancing human progress
through communications technologies.
The network is at a pivotal stage. Technol-
ogy has given birth to a new generation
of “smart” products that are themselves
dependent on the network. As the demand
for network connectivity continues to
grow at exponential rates, the network
must continue to evolve. ADTRAN
is driving technology innovation and
developing solutions that will enable the
network to meet the needs of humanity,
not only today, but for years to come. We
are empowering progress one connection
at a time.
2014 was a year of progress, both in terms
of network evolution and the evolution of
our business. We saw continued growth
in key product areas and geographies as
we introduced solutions to transform the
network and make connections possible.
Our core products continued to perform
well and now represent 91 percent of sales.
Broadband access extended its growth, up
eight percent over the previous year. As we
continued to focus on customer diversi-
fication, we saw growth in international
markets, with that segment up nearly 34
percent over 2013.
International Revenue
(in millions)
$249
$186
$150
$84
$32
2010
2011
2012
2013
2014
UP
34%
over 2013
4
BRINGING THE WORLD TOGETHERADTRAN 2014 ANNUAL REPORT
Advancing
human progress
through
communications
technologies
5
Shareholder’s Letter We continued to
push the envelope
of innovation
From a global view, we saw growth in
excess of 30 percent in both Latin America
and Europe. Vectoring took center stage in
Europe as we became the majority supplier
in the world’s largest vectored VDSL2 de-
ployment. We believe our innovations in
super vectoring will position the company
well for new investment rounds in Fiber-
to-the-Curb (FTTC) solutions. We also
demonstrated global leadership in G.fast, a
breakthrough technology that offers high-
bandwidth services over copper facilities
(up to 1 Gigabit per second) dependent
on loop length. Our success in these areas
continued to reaffirm the importance of
our Research and Development (R&D)
efforts - where we invested more than
$132 million in 2014 alone.
The expansion of higher-speed services
was a major focal point for our car-
rier customers both domestically and
internationally. We continued to push
the envelope of innovation as we began
to pioneer industry breakthroughs in
10 Gigabit PON technologies and the
development of multi-terabit platforms.
Domestically, we continued to enhance
our product portfolio to enable service
providers to reap the greatest benefit from
their existing infrastructure and to evolve
in support of exciting new, innovative
services. With the growth in fiber deploy-
ments, we enhanced our Gigabit services
offering with an expanded Fiber-to-the-
Premises (FTTP) solution suite, increased
automation to speed service delivery and
turn-up and introduced new products
which efficiently deliver Gigabit services
to high-density housing, allowing service
providers to reach a larger customer base.
We also expanded our industry-leading
vectoring technology across additional
platforms, enabling us to reach a broader
base of customers and address a broader
array of deployment scenarios.
6
BRINGING THE WORLD TOGETHERADTRAN 2014 ANNUAL REPORT Pioneering
industry
breakthroughs
7
Shareholder’s Letter Our Value Added Reseller (VAR) channel
continues to grow and is now more than
4,100 partners strong. I am pleased to
report that our VAR channel has warmly
embraced the ProCloud suite of man-
aged services which includes our virtual
wireless LAN (vWLAN) service offerings.
ProCloud services are enabling our VAR
partners to transform their businesses
from hardware sales to cloud-based
managed services with monthly recurring
revenue streams. This enables our VAR
partners to diversify their business offer-
ing and grow revenue.
From an enterprise perspective, we intro-
duced a new family of Carrier Ethernet
edge solutions that allow service provid-
ers to deliver ubiquitous service offerings
independent of access, service or media.
These Metro Ethernet Forum (MEF)-
compliant solutions provide unprec-
edented performance and offer reduced
infrastructure and operating costs for both
domestic and international customers.
To spur the growth of Hosted Voice over
IP (VoIP) services and Session Initiation
Protocol (SIP) trunking, we enhanced
our product portfolio with the addition
of enterprise session border controller
capabilities which strengthen security,
ease service turn-up and standardize the
interface for SIP services. We expanded
our Internetworking portfolio with high-
performance routers, switches, and gateway
solutions. Our service provider customers
also benefited as we introduced the next
generation of the world’s leading and most
widely deployed business gateway, deliver-
ing higher capacity to enable more
demanding services.
4,100+
Value Added Resellers
8
BRINGING THE WORLD TOGETHERADTRAN 2014 ANNUAL REPORT Being connected
has become an
essential element
9
Shareholder’s Letter Bringing
the World
Together
10
BRINGING THE WORLD TOGETHERADTRAN 2014 ANNUAL REPORT Looking Forward
As we look ahead to 2015, we anticipate
continued growth in network demand,
resulting in increased necessity for our
products and services. On the global
front, we anticipate further expansion in
the EMEA and LATAM regions. We also
expect to see significant growth in our
sales of enterprise products outside of the
United States.
Domestically, we are prepared to begin
to capitalize on Tier 1 market expansion
as well as accelerated Tier 2 broadband
spending from the Connect America Fund
(CAF) and meaningful deployments of
Gigabit broadband solutions. By year end,
hundreds of communities across the U.S.
will be using Gigabit networks powered by
ADTRAN to transform the lives of their
residents by attracting new jobs, better
educational opportunities and economic
growth. We also anticipate continued
growth in the Tier 3 market as these
service providers complete the Universal
Service Fund (USF) to CAF transition.
From a product perspective, our largest
growth area will be broadband access, led
by FTTP. We also anticipate continued
momentum in vectoring, G.fast and Car-
rier Ethernet solutions complemented by
growth in carrier services.
I must add a word of thanks to our work-
force, now over 2,200 strong. These men
and women from around the world are the
driving strength of our company. They are
focused on exceeding customer expecta-
tions and delivering the best technology
solutions possible. They are the key to the
company’s continued success.
Chairman & CEO
ADTRAN, Inc.
11
Shareholder’s Letter $717
$606
$621
$642
$630
$2.12
$1.78
Annual
Revenue
(In millions)
$0.74
$0.77
$0.80
Annual
Earnings
Per Share
(Diluted)
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
59%
58%
51%
49%
48%
$500
3
$476
2
4
$408
$396
1
5
$353
Gross Margin
Unrestricted
Cash and
Marketable
Securities
(In millions)
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
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
2014
2013
$630,007
$641,744
$59,906
$60,855
$44,620
$45,794
$0.80
$0.77
2014
2013
$232,080
$277,335
$738,694
$789,898
$549,013
$604,606
1
2
Net of $18 million in stock repurchases and
$23 million in dividend payments during 2010
3
Net of $39 million in stock repurchases and
$23 million in dividend payments during 2012
Net of $36 million in stock repurchases and
$23 million in dividend payments during 2011
4 Net of $124 million in stock repurchases and
$21 million in dividend payments during 2013
5
6
Net of $81 million in stock repurchases and
$20 million in dividend payments during 2014
Working capital consists of current assets
less current liabilities
12
BRINGING THE WORLD TOGETHERADTRAN 2014 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
2014 Compared to 2013
2013 Compared to 2012
Liquidity and Capital Resources
Effect of Recent Accounting Pronouncements
Subsequent Events
32 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, 2014. 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 5, 2015,
ADTRAN had 202 stockholders of record and approximately 7,266 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
2014
High
Low
2013
High
Low
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$27.24
$24.27
$26.11
$21.29
$23.17
$20.53
$22.16
$18.23
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$23.61
$19.07
$24.62
$18.55
$27.46
$23.47
$27.10
$23.27
The following table shows the shareholder dividends paid in each quarter of 2014 and 2013. 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
2014
2013
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.
Total
Number of
Shares
Purchased
Average
Price Paid
Per Share
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
Period
October 1, 2014 – October 31, 2014
November 1, 2014 – November 30, 2014
December 1, 2014 – December 31, 2014
180,422
748,510
—
$20.47
$19.69
—
Total
928,932
180,422
748,510
—
928,932
5,541,295
4,792,785
4,792,785
(1) Since 1997, our Board of Directors has approved multiple share repurchase programs that have authorized open market repurchase
transactions of up to 40.0 million shares of our common stock. On May 14, 2014, 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 45.0 million), which
commenced upon completion of the repurchase plan announced on May 1, 2013. This new authorization is being implemented
through open market or private purchases from time to time as conditions warrant.
14
ADTRAN 2014 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, 2009 through December 31, 2014, 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, 2009 in each of our common stock, the NASDAQ Telecommunications Index
and the NASDAQ Composite Index and also assume dividend reinvestment.
$250.00
$200.00
$150.00
$100.00
$50.00
$0.00
12/31/2009
12/31/2010
12/31/2011
12/31/2012
12/31/2013
12/31/2014
ADTRAN, Inc.
NASDAQ Telecommunications
NASDAQ Composite
ADTRAN, Inc.
NASDAQ Telecommunications
NASDAQ Composite
12/31/09
12/31/10
12/31/11
12/31/12
12/31/13
12/31/14
$100.00
$100.00
$100.00
$162.69
$107.95
$117.61
$136.86
$96.16
$118.70
$90.04
$100.40
$139.00
$126.43
$139.11
$196.83
$103.69
$148.69
$223.74
15
Financial Results Selected Financial Data
Income Statement Data (1)
(In thousands, except per share amounts)
Year Ended December 31,
2014
2013
2012
2011
2010
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
Year Ended December 31,
Weighted average shares outstanding—basic
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
$510,373
$500,733
$492,096
$569,579
$476,030
119,634
630,007
318,680
311,327
131,958
132,258
47,111
5,019
(677)
7,278
1,175
—
59,906
(15,286)
$44,620
2014
55,120
55,482
$0.81
$0.80
$0.36
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
2013
59,001
59,424
$0.78
$0.77
$0.36
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
2012
63,259
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
Balance Sheet Data
(In thousands)
At December 31,
Working capital (3)
Total assets
Total debt
Stockholders’ equity
2014
2013
$232,080
$738,694
$30,000
$277,335
$789,898
$46,500
2012
$337,979
$883,656
$46,500
2011
$329,311
$817,514
$47,000
2010
$304,952
$691,974
$48,000
$549,013
$604,606
$692,406
$692,131
$572,322
(1) Net income for 2014, 2013, 2012, 2011 and 2010 includes stock-based compensation expense of $7.4 million, $7.8 million,
$8.0 million, $7.8 million and $7.1 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 2014 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.
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 Series of Multi-Service Access Nodes (MSANs)
• hiX 5600 Series of MSANs
• Total Access 1100/1200 Series of Fiber to the Node (FTTN) products
• hiX 1100 Series of FTTN products
• VDSL2 Vectoring based Digital Subscriber Line Access Multiplexer (DSLAM) products
• ADTRAN 500 Series of FTTdp G.fast Distribution Point Units (DPU)
Optical
• Optical Networking Edge (ONE)
• NetVanta® 8000 Series of Fiber Ethernet Access Devices (EAD)
• NetVanta 8400 Series of 10 Gig Multi-service Edge Switches
• OPTI-6100 and Total Access 3000 optical Multi-Service Provisioning Platforms (MSPP)
• Pluggable Optical Products, including SFP, XFP, and SFP+
Time Division Multiplexed (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
– Access Routers
– Enterprise Session Border Controllers (eSBC)
– Managed Ethernet Switches
– IP Business Gateways
– Unified Communications (UC) solutions
– Carrier Ethernet Network Terminating Equipment (NTE)
– Carrier Ethernet Routers and Gateways
• Network Management Solutions
17
Financial Results Loop Access products are used by carrier and enterprise customers for access to copper-based communications networks.
This 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 $630.0 million in 2014 compared to $641.7 million in 2013 and $620.6 million in 2012. Total sales of
products in our three core areas, Broadband Access, Optical and Internetworking, increased 2.8% in 2014 compared to 2013
and increased 8.9% in 2013 compared to 2012. Our gross profit margin was 49.4% in 2014 compared to 48.1% in 2013 and
51.0% in 2012. Net income was $44.6 million in 2014 compared to $45.8 million in 2013 and $47.3 million in 2012. Earnings
per share, assuming dilution, were $0.80 in 2014 compared to $0.77 in 2013 and $0.74 in 2012. Earnings per share in 2014,
2013 and 2012 include the effect of the repurchase of 3.7 million, 5.6 million and 1.8 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, foreign currency
exchange rate movements, 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, 2014.
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 2014 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. In these instances, we use best estimates to allocate consideration to each respective unit
of accounting. These estimates include analysis of respective bills of material and review and analysis of similar product
and service offerings. We record revenue associated with installation services when respective contractual obligations
are complete. In instances where customer acceptance is required, revenue is deferred until respective 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, 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 VARs and system integrators. VARs 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 $24.7 million and $23.0 million at December 31, 2014
and 2013, respectively. Inventory disposals charged against the reserve were $2.1 million, $0.4 million and $0.5 million
for the years ended December 31, 2014, 2013 and 2012, 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
marketable equity securities. 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 marketable equity securities 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
19
Financial Results include information supplied by investees. At December 31, 2014, we categorized $54.5 million and $241.5 million of
our available-for-sale investments as Level 1 and Level 2, respectively, and $1.2 million of our cash equivalents as Level 1.
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.
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. For the years
ended December 31, 2014, 2013 and 2012, we recorded charges of $0.1 million, $25 thousand and $0.7 million,
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 2014, 2013 or 2012.
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, 2014 and 2013 respectively, the
valuation allowance was $7.5 million and $8.8 million. As of December 31, 2014, we have state research tax credit carry-
forwards of $3.9 million, which will expire between 2015 and 2029. These carry-forwards were caused by tax 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, 2014, we have a deferred tax asset of $9.2 million relating to net operating loss carry-forwards which
20
ADTRAN 2014 ANNUAL REPORT will expire between 2015 and 2030. These carry-forwards are the result of acquisitions in 2009 and in 2011. 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 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 $8.4 million and $9.0 million at December 31, 2014 and
2013, 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 $10.2 million and $2.6 million at December 31, 2014
and 2013, respectively. 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 2014; therefore, we did not complete a quantitative assessment. As a result, there were no impairment
losses recognized during 2014, 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
2014
2013
2012
81.0%
19.0
100.0%
50.6
49.4
20.9
21.0
7.5
0.8
(0.1)
1.2
0.2
—
9.5
(2.4)
7.1%
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%
22
ADTRAN 2014 ANNUAL REPORT Acquisition Expenses
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, 2014, 2013 and 2012 for this transaction is as follows:
(In Thousands)
Amortization of acquired intangible assets
Amortization of other purchase accounting adjustments
Acquisition related professional fees, travel and
other expenses
Total acquisition related expenses, amortizations
and adjustments
Tax effect
Total acquisition related expenses, amortizations
and adjustments, net of tax
2014
$1,153
1,117
282
2,552
(791)
$1,761
2013
$1,174
1,378
345
2,897
(898)
$1,999
2012
$762
2,305
4,860
7,927
(2,589)
$5,338
The acquisition related expenses, amortizations and adjustments above were recorded in the following Consolidated
Statements of Income categories for the years ended December 31, 2014, 2013 and 2012:
(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
2014
$595
171
766
311
1,475
1,786
2,552
(791)
$1,761
2013
$856
196
1,052
399
1,446
1,845
2,897
(898)
$1,999
2012
$1,225
946
2,171
4,510
1,246
5,756
7,927
(2,589)
$5,338
23
Financial Results 2014 Compared to 2013
Sales
Our sales decreased 1.8% from $641.7 million in 2013 to $630.0 million in 2014. The decrease in sales is primarily attributable
to a $27.2 million decrease in sales of our HDSL and other legacy products and a $12.2 million decrease in sales of our
Internetworking products, partially offset by a $27.9 million increase in sales of our Broadband Access products.
Carrier Networks sales increased 1.9% from $500.7 million in 2013 to $510.4 million in 2014. 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 and other legacy products. The increase in sales of our Broadband
Access products is primarily attributable to an increase in hiX product sales in the EMEA region. The increase in sales of
our Internetworking products is primarily attributable to increases in Carrier Ethernet sales and FTTP ONT sales to carriers
in North America. The increase in sales of our Optical products is primarily attributable to increased sales of Optical products
for broadband access globally and increased sales of our OPTI-6100 products to a domestic tier 1 carrier for Ethernet services
to enterprises for wireless backhaul. The decreases in sales of HDSL and other legacy products in North America have 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 decreased 15.2% from $141.0 million in 2013 to $119.6 million in 2014. The decrease is
attributable to a decrease in sales of our Internetworking products. The decrease in sales of our Internetworking products
for this division is primarily attributable to softer demand in North America and an inventory reduction, primarily at two
distribution partners. Internetworking product sales attributable to Enterprise Networks were 93.6% of the division’s sales in
2014 and 2013. Legacy products primarily comprise the remainder of Enterprise Networks sales. Enterprise Networks sales
as a percentage of total sales decreased from 22.0% in 2013 to 19.0% in 2014.
International sales, which are included in the Carrier Networks and Enterprise Networks amounts discussed above,
increased 33.9% from $185.7 million in 2013 to $248.6 million in 2014. International sales, as a percentage of total sales,
increased from 28.9% in 2013 to 39.5% in 2014. The increase in international sales is primarily attributable to increases in
sales in the EMEA region and Latin America, partially offset by a decrease in sales in the Asia-Pacific region.
Carrier Systems product sales increased $14.8 million in 2014 compared to 2013 primarily due to a $27.9 million increase
in Broadband Access product sales, partially offset by a $12.8 million decrease in legacy product sales. The increase in Carrier
Systems product sales is primarily attributable to the factors discussed above.
Business Networking product sales decreased $11.9 million in 2014 compared to 2013 primarily due to a $19.9 million
decrease in Internetworking product sales in the EN division, partially offset by a $7.7 million increase in Internetworking
product sales in the CN division. The changes in sales of our Internetworking products in both of our divisions are primarily
attributable to the factors discussed above.
Loop Access product sales decreased $14.7 million in 2014 compared to 2013 primarily due to a $13.8 million decrease
in HDSL product sales, which is further discussed above.
Cost of Sales
As a percentage of sales, cost of sales decreased from 51.9% in 2013 to 50.6% in 2014. The decrease is primarily attributable
to improving gross margins in our international business, primarily related to lower product costs, partially offset by shifts in
domestic customer mix and a higher services mix.
Carrier Networks cost of sales decreased from 53.4% of sales in 2013 to 52.3% of sales in 2014. The decrease in Carrier
Networks cost of sales as a percentage of sales is primarily attributable to improving gross margins in our international
business, partially offset by shifts in domestic customer mix and a higher services mix.
Enterprise Networks cost of sales decreased from 46.3% of sales in 2013 to 43.1% of sales in 2014. The decrease
in Enterprise Networks cost of sales as a percentage of sales is primarily attributable to shifts in customer mix and lower
product costs.
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.
24
ADTRAN 2014 ANNUAL REPORT Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 2.0% from $129.4 million in 2013 to $132.0 million in 2014. 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 attributable to increases in travel expenses, marketing expenses, contract services,
and legal expenses, partially offset by a decrease in compensation expense. The increase in travel and marketing expenses is
primarily attributable to our increased participation in trade shows in the U.S. and the EMEA region.
Selling, general and administrative expenses as a percentage of sales increased from 20.2% for the year ended December
31, 2013 to 20.9% for the year ended December 31, 2014. 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 0.9% from $131.1 million in 2013 to $132.3 million in 2014. The increase in
research and development expenses is primarily attributable to increases in compensation costs and travel expenses, partially
offset by a decrease in independent contractor expense.
Research and development expenses as a percentage of sales increased from 20.4% for the year ended December 31, 2013
to 21.0% for the year ended December 31, 2014. 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 $7.0 million in 2013 to $5.0 million in 2014. The decrease in interest and
dividend income is primarily attributable to an $18.3 million reduction of restricted funds that serves as a collateral deposit
against our taxable revenue bond during the first quarter of 2014 and a reduction in the interest rate of that investment from
4.8% to 1.6% (see “Interest Expense” below for corresponding decrease in the interest rate of our taxable revenue bond).
See “Liquidity and Capital Resources” below for additional information on our taxable revenue bond.
Interest Expense
Interest expense, which is primarily related to our taxable revenue bond, decreased from $2.3 million in 2013 to $0.7 million in
2014. The decrease is primarily attributable to a $16.5 million principal payment made on our taxable revenue bond during the
first quarter of 2014. In connection with this payment, we negotiated a reduction in the interest rate of that bond from 5.0%
to 2.0%, and, as noted above, a reduction in the interest rate on the collateral supporting the bond. See “Liquidity and Capital
Resources” below for additional information on our taxable revenue bond.
Net Realized Investment Gain
Net realized investment gain decreased from $8.6 million in 2013 to $7.3 million in 2014. The decrease in realized investment
gains is primarily attributable to lower gains from the sale of equity securities in 2014. 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 resulting from foreign currency
exchange rate movements, and investment account management fees, changed from $0.9 million of expense in 2013 to $1.2
million of income in 2014. The change is primarily attributable to a $2.4 million gain recorded in the fourth quarter of 2014
related to the settlement of working capital items from an acquisition transaction that closed in 2012, partially offset by
investment account management fees.
25
Financial Results Income Taxes
Our effective tax rate increased from 24.7% in 2013 to 25.5% in 2014. The increase in the effective tax rate between the two
periods is primarily attributable to two years of research tax credits being recognized in 2013, partially offset by an additional
foreign tax benefit from the elimination of a valuation allowance recorded in 2014. Based upon our results of operations in
2014 and expected profitability in future years in a certain international jurisdiction, we concluded that it is more likely than
not certain foreign deferred tax assets will be realized.
Net Income
As a result of the above factors, net income decreased from $45.8 million in 2013 to $44.6 million in 2014. As a percentage of
sales, net income was 7.1% in 2013 and 2014.
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
attributable 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 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
attributable 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.
26
ADTRAN 2014 ANNUAL REPORT 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.
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.
27
Financial Results 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.
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.
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, 2014, cash on hand was $73.4 million and short-term investments were $46.9 million, which placed our
short-term liquidity at $120.4 million. At December 31, 2013, our cash on hand of $58.3 million and short-term investments
of $105.8 million placed our short-term liquidity at $164.1 million. The decrease in short-term liquidity from 2013 to 2014
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 16.3% from $277.3 million as of
December 31, 2013 to $232.1 million as of December 31, 2014. The quick ratio, defined as cash and cash equivalents,
short-term investments, and net accounts receivable, divided by current liabilities, decreased from 2.44 as of December 31,
2013 to 1.74 as of December 31, 2014. The current ratio, defined as current assets divided by current liabilities, decreased
from 3.71 as of December 31, 2013 to 2.95 as of December 31, 2014. The changes in our working capital, quick ratio and
current ratio are primarily attributable to a decrease in short-term investments and an increase in accounts payable and
income tax payable, partially offset by an increase in other receivables. Short-term investments were used to fund share
repurchases during 2014.
Net accounts receivable increased 0.4% from $85.8 million at December 31, 2013 to $86.2 million at December 31, 2014.
Our allowance for doubtful accounts was $0.1 million at December 31, 2013 and 2014. Quarterly accounts receivable days
sales outstanding (DSO) increased from 50 days as of December 31, 2013 to 55 days as of December 31, 2014. 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 $18.2 million at December 31, 2013 to $35.6 million at December 31, 2014. The increase in other receivables is primarily
attributable to the timing of filing returns and collections of value-added tax receivables in our international subsidiaries.
At December 31, 2014 and 2013, other receivables also included a receivable for additional consideration due from NSN for
settlement of the working capital items. 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 decreased from 3.6 turns as of December 31, 2013 to 3.5 turns as of December 31, 2014.
Inventory decreased 3.8% from $90.1 million at December 31, 2013 to $86.7 million at December 31, 2014. We expect
28
ADTRAN 2014 ANNUAL REPORT inventory levels to fluctuate as we 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 16.8% from $48.3 million at December 31, 2013 to $56.4 million at December 31, 2014.
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 $11.3 million, $8.2 million and $12.3 million for the years ended December 31,
2014, 2013 and 2012, 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 as defined in the purchase
agreement. During the fourth quarter of 2014, the parties settled final working capital items, and as a result, we recorded a
$2.4 million gain in other income (expense), net. Additionally, $3.5 million is included in other receivables at December 31,
2014 for additional consideration due from NSN related to the settlement of the working capital items. This receivable was
subsequently collected in January 2015.
Our combined short-term and long-term investments decreased $87.4 million from $415.0 million at December 31,
2013 to $327.6 million at December 31, 2014. 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, 2014 these investments included corporate bonds of $111.3 million, municipal
fixed-rate bonds of $127.8 million and municipal variable rate demand notes of $2.5 million. 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. As of December 31, 2014, 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 0.9 years with an average
credit rating of AA-. 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 9.2% from $309.2 million at December 31, 2013 to $280.6 million at
December 31, 2014. Long-term investments at December 31, 2014 and December 31, 2013 included an investment in
a certificate of deposit of $30.0 million and $48.3 million, respectively, which serves as collateral for our revenue bonds, as
discussed below. We have investments in various marketable equity securities classified as long-term investments at a cost
of $26.4 million and $24.7 million, and with a fair value of $38.3 million and $38.5 million, at December 31, 2014 and
December 31, 2013, respectively.
Long-term investments at December 31, 2014 and 2013 also included $16.3 million and $15.1 million, respectively,
related to our deferred compensation plan, and $1.5 million and $1.7 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.
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. For the years ended December 31, 2014, 2013, and 2012, we recorded charges of
$0.1 million, $25 thousand and $0.7 million, 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 2% 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, 2014 was approximately $29.7 million, based on a debt security with a comparable interest rate and maturity
and a Standard & Poor’s credit rating of AAA. 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, 2014 is
$30.0 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, 2014, 2013 and 2012, we realized economic incentives related
to payroll withholdings totaling $1.3 million, $1.3 million and $1.4 million, respectively.
We made a principal payment of $16.5 million for the year ended December 31, 2014. We did not make a principal
payment for the year-ended December 31, 2013. We anticipate making a principal payment in 2015. At December 31, 2014,
$1.2 million of the bond debt was classified as a current liability in accounts payable in the Consolidated Balance Sheets.
The following table shows dividends paid to our shareholders in each quarter of 2014, 2013 and 2012. During 2014, 2013
and 2012, we paid shareholder dividends totaling $19.9 million, $21.4 million and $22.8 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
2014
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
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 40.0 million shares of our common stock. On May 14, 2014, 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 45.0 million), which commenced upon completion of the repurchase plan announced on May 1, 2013. This
new authorization is being implemented through open market or private purchases from time to time as conditions warrant.
For the years 2014, 2013 and 2012, we repurchased 3.7 million shares, 5.6 million shares and 1.8 million shares, respectively,
for a cost of $80.6 million, $124.3 million and $39.4 million, respectively, at an average price of $21.96, $22.16 and $22.03 per
share, respectively. We currently have the authority to purchase an additional 4.8 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 0.1 million shares of treasury stock for $2.8 million during the
year ended December 31, 2014, 0.2 million shares of treasury stock for $3.6 million during the year ended December 31,
2013, and 0.4 million shares of treasury stock for $6.0 million during the year ended December 31, 2012.
30
ADTRAN 2014 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, 2014.
Contractual Obligations
(In millions)
Long-term debt
Interest on long-term debt
Purchase obligations
Operating lease obligations
Totals
Total
$30.0
3.0
81.8
18.7
$133.5
2015
$1.2
0.6
78.0
4.9
$84.7
2016
$—
0.6
2.7
3.7
$7.0
2017
$—
0.6
0.5
3.2
$4.3
2018
$—
0.6
0.5
1.6
$2.7
After 2018
$28.8
0.6
0.1
5.3
$34.8
We are required to make payments necessary to pay the interest on the Amended and Restated Bond, currently
outstanding in the aggregate principal amount of $30.0 million. The bond matures on January 1, 2020, and bears interest
at the rate of 2% per annum. Included in long-term investments are $30.0 million of restricted funds, which is a collateral
deposit against the principal amount of this bond. We made a principal payment of $16.5 million for the year ended
December 31, 2014. We did not make a principal payment for the year-ended December 31, 2013. We anticipate making
a principal payment in 2015. At December 31, 2014 and 2013, $1.2 million and $0.3 million, respectively, of the bond
debt were classified as a current liability in accounts payable in the Consolidated Balance Sheets. See Note 9 of Notes to
Consolidated Financial Statements for additional information.
Purchase obligations primarily relate to open purchase orders to our contract manufacturers, component suppliers, and
other vendors.
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, 2014, 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
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers (ASU 2014-09), which supersedes the revenue recognition requirements
in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the
Industry Topics of the Codification. The core principle of ASU 2014-09 is to recognize revenues when promised goods
or services are transferred to customers in an amount that reflects the consideration that is expected to be received for
those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including
interim periods within that reporting period, and early application is not permitted. ASU 2014-09 allows for either full
retrospective or modified retrospective adoption. We are currently evaluating the transition method that will be elected
and the impact that the adoption of ASU 2014-09 will have on our financial position, results of operations and cash flows.
Subsequent Events
On January 20, 2015, 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 5, 2015. The quarterly dividend payment was $4.8 million and was paid on
February 19, 2015.
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, 2014,
$69.6 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, 2014, approximately $258.4 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, 2014, we held $112.0
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, 2014 would reduce annualized interest income on our cash, money market instruments, floating rate corporate bonds
and municipal variable rate demand notes by approximately $0.5 million. In addition, we held $239.0 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, 2014 would reduce the fair value of our municipal and corporate bonds by approximately
$1.1 million.
As of December 31, 2013, interest income on approximately $329.3 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, 2013 would have reduced 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, a hypothetical 50 bps increase in interest rates as of December 31, 2013 would have reduced the fair value of our
municipal and corporate bonds by approximately $1.4 million.
We are exposed to changes in foreign currency exchange rates to the extent that such changes affect our revenue and gross
margin on revenue derived from international customers, expenses, and assets and liabilities held in non-functional currencies
related to our foreign subsidiaries. Our primary exposure to foreign currency exchange rates is with our German subsidiary,
whose functional currency is the Euro, and our Australian subsidiary, whose functional currency is the Australian dollar.
We are exposed to changes in foreign currency exchange rates to the extent of our German subsidiaries use of contract
manufacturers and raw material suppliers whom we pay in U.S. dollars. As a result, changes in currency exchange rates
could cause variations in gross margin in the products that we sell in the EMEA region.
We have certain international customers who are invoiced or pay in a non-functional 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 Saudi Arabian Riyal is the predominant
currency of the customers who are billed in their local currency. Taking into account the effects of foreign currency
fluctuations of the Riyal versus the Euro, a hypothetical 10% weakening of the Euro as of December 31, 2014 would
provide a gain on foreign currency of approximately $0.1 million. Conversely, a hypothetical 10% strengthening of the
Euro as of December 31, 2014 would provide a loss on foreign currency of approximately $0.1 million. Any gain or loss
would be significantly mitigated by the hedges discussed in the following paragraph.
As of December 31, 2014, we had no material contracts, other than accounts receivable, accounts payable, and loans to a
subsidiary, denominated in foreign currencies. As of December 31, 2014, we had forward contracts outstanding with notional
amounts totaling €12.5 million ($15.1 million), which mature at various times throughout early 2015. The fair value of these
forward contracts was a net asset of approximately $0.2 million as of December 31, 2014.
32
ADTRAN 2014 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, 2014.
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 (2013).
Based on our assessment and those criteria, management has concluded that ADTRAN maintained effective internal
control over financial reporting as of December 31, 2014.
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, 2014 and December 31, 2013 and the results
of their operations and their cash flows for each of the three years in the period ended December 31, 2014 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, 2014, based on criteria established
in Internal Control - Integrated Framework (2013) 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 24, 2015
34
ADTRAN 2014 ANNUAL REPORT Financial Statements
ADTRAN, INC.
Consolidated Balance Sheets
December 31, 2014 and 2013
(In thousands, except per share amounts)
Assets
Current Assets
Cash and cash equivalents
Short-term investments
Accounts receivable, less allowance for doubtful accounts of
$136 and $130 at December 31, 2014 and 2013, 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 53,431 shares outstanding at December 31, 2014
and 79,652 shares issued and 56,918 shares outstanding at December 31, 2013
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings
Less treasury stock at cost: 26,221 and 22,734 shares at December 31, 2014
and 2013, respectively
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
See notes to consolidated financial statements.
2014
2013
$73,439
46,919
86,158
35,639
86,710
5,129
17,095
351,089
74,828
17,694
3,492
10,942
280,649
$738,694
$56,414
22,762
11,077
13,855
14,901
119,009
10,948
30,924
28,800
189,681
797
241,829
(75)
907,751
$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
(601,289)
(524,906)
549,013
$738,694
604,606
$789,898
35
Financial Results ADTRAN, INC.
Consolidated Statements of Income
Years ended December 31, 2014, 2013 and 2012
(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.
2014
$630,007
318,680
311,327
131,958
132,258
47,111
5,019
(677)
7,278
1,175
—
59,906
(15,286)
$44,620
55,120
55,482
$0.81
$0.80
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
36
ADTRAN 2014 ANNUAL REPORT ADTRAN, INC.
Consolidated Statements of Comprehensive Income
Years ended December 31, 2014, 2013 and 2012
(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.
2014
$44,620
(1,773)
(4,866)
(4,189)
$(10,828)
$33,792
2013
$45,794
629
1,061
(2,205)
$(515)
$45,279
2012
$47,263
(52)
(1,952)
170
$(1,834)
$45,429
37
Financial Results ADTRAN, INC.
Consolidated Statements of Changes in Stockholders’ Equity
Years ended December 31, 2014, 2013 and 2012
(In thousands)
Balance, December 31, 2011
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
Common
Shares
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income
Total
Stockholders’
Equity
79,652
$797
$213,560
$840,206
$(375,534)
$13,102
$692,131
(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
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:
3,669 shares
Income tax benefit from exercise of
stock options
Stock-based compensation expense
(10,828)
44,620
(19,947)
(19)
(558)
(796)
3,397
796
(80,576)
(326)
81
8,563
44,620
(10,828)
(19,947)
(19)
2,839
(326)
(80,576)
81
8,563
Balance, December 31, 2014
79,652
$797
$241,829
$907,751
$(601,289)
$(75)
$549,013
We issued 182 shares, 217 shares and 393 shares of treasury stock to accommodate employee stock option exercises,
vesting of restricted stock, and vesting of restricted stock units during 2014, 2013 and 2012, respectively.
See notes to consolidated financial statements.
38
ADTRAN 2014 ANNUAL REPORT ADTRAN, INC.
Consolidated Statements of Cash Flows
Years ended December 31, 2014, 2013 and 2012
(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
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
2014
2013
2012
$44,620
$45,794
$47,263
14,845
4,360
(7,278)
142
—
8,563
(5,526)
81
(63)
(2,769)
(20,439)
1,953
(3,627)
9,973
(166)
11,168
55,837
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
(11,256)
(8,173)
(12,320)
1
—
266
Proceeds from sales and maturities of available-for-sale investments
230,019
343,567
282,039
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
(142,695)
(261,625)
(282,740)
—
73,769
7,496
(5,259)
—
76,069
2,839
(80,576)
(19,947)
(16,500)
63
3,629
(124,267)
(21,412)
—
158
(114,121)
(141,892)
17,785
(2,644)
58,298
$73,439
(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
$758
$9,856
$2,325
$15,431
$2,348
$31,021
Purchases of property, plant and equipment included in accounts payable
$467
$444
$108
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
We corrected immaterial misclassifications between the operating and investing sections of our consolidated statements
of cash flows and adjusted our 2012 cash flows in these categories by $0.2 million, in order to be consistent with the 2014
and 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 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, 2014, $69.6 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.
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 $30.0 million, compared to an estimated fair value of $29.7 million, based
on a debt security with a comparable interest rate and maturity and a Standard & Poor’s credit rating of AAA.
40
ADTRAN 2014 ANNUAL REPORT
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, deferred compensation plan assets, 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, 2014 and 2013 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, 2014, two customers
accounted for 24.5% of our total accounts receivable. At December 31, 2013, one customer accounted for 13.1% 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 $0.1 million at December 31, 2014 and December 31, 2013.
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, amounts due from various jurisdictions
for value-added tax, and amounts due from employee stock option exercises. At December 31, 2014 and 2013, other
receivables also included a receivable due from NSN related to working capital items settled during the fourth quarter
of 2014 and collected in January 2015.
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 disposals are charged against the inventory reserve. See Note 6 of Notes to Consolidated
Financial Statements for additional information.
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. See Note 7 of Notes to Consolidated Financial Statements for
additional information.
41
Financial Results 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 $8.4 million and $9.0 million at December 31, 2014 and 2013, 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, 2014, 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
2014
$8,977
3,103
—
(3,665)
$8,415
2013
$9,653
4,051
—
(4,727)
$8,977
2012
$4,118
5,363
3,781
(3,609)
$9,653
Pension Benefit Plan Obligations
We maintain 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 certain of
our executive officers in 2014, 2013, and 2012. 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.
Stock-based compensation expense recognized in 2014, 2013 and 2012 was approximately $8.6 million, $9.1 million
and $9.3 million, respectively. As of December 31, 2014, total compensation cost related to non-vested stock options,
restricted stock units and restricted stock not yet recognized was approximately $17.7 million, which is expected to be
recognized over an average remaining recognition period of 2.8 years. See Note 3 of Notes to Consolidated Financial
Statements for additional information.
42
ADTRAN 2014 ANNUAL REPORT 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 2014, 2013 or 2012.
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 2014, 2013 or 2012. 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 $132.3 million, $131.1 million and $126.0 million for the years
ended December 31, 2014, 2013 and 2012, 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 table presents changes in accumulated other comprehensive income, net of tax, by component for the years
ended December 31, 2012, 2013 and 2014:
(In thousands)
Balance at December 31, 2011
Other comprehensive income (loss)
before reclassifications
Unrealized Gains
(Losses) on
Available-for-Sale
Securities
$10,160
5,426
Amounts reclassified from accumulated other
comprehensive income
(5,478)
—
Defined
Benefit Plan
Adjustments
Foreign
Currency
Adjustments
$—
$2,942
(1,952)
170
—
Total
$13,102
3,644
(5,478)
Balance at December 31, 2012
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from accumulated other
comprehensive income
Balance at December 31, 2013
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from accumulated other
comprehensive income
Balance at December 31, 2014
$10,108
$(1,952)
$3,112
$11,268
5,508
1,061
(2,205)
4,364
(4,879)
$10,737
2,363
(4,136)
$8,964
—
$(891)
(4,866)
—
$907
(4,879)
$10,753
(4,189)
(6,692)
—
—
$(5,757)
$(3,282)
(4,136)
$(75)
43
Financial Results The following tables present the details of reclassifications out of accumulated other comprehensive income for the years
ended December 31, 2014, 2013 and 2012:
(In thousands)
2014
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
$6,895 Net realized investment gain
(115) Net realized investment gain
6,780
(2,644)
$4,136
2013
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
The following tables present the tax effects related to the change in each component of other comprehensive income
for the years ended December 31, 2014, 2013 and 2012:
(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)
Before-Tax Amount
2014
Tax (Expense) Benefit
Net-of-Tax Amount
$3,874
(6,780)
(7,052)
(4,189)
$(14,147)
$(1,511)
2,644
2,186
—
$3,319
$2,363
(4,136)
(4,866)
(4,189)
$(10,828)
44
ADTRAN 2014 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
Defined benefit plan adjustments
Foreign currency translation adjustment
Total Other Comprehensive Income (Loss)
Before-Tax Amount
2013
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)
Before-Tax Amount
2012
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)
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 functional currency with any transaction gains or losses reported in
other income (expense). Our primary exposure to foreign currency exchange rate movements is with our German subsidiary,
whose functional currency is the Euro, and our Australian subsidiary, whose functional currency is the Australian dollar.
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. In these
instances, we use best estimates to allocate consideration to each respective unit of accounting. These estimates include
analysis of respective bills of material and review and analysis of similar product and service offerings. We record revenue
45
Financial Results associated with installation services when respective contractual obligations are complete. In instances where customer
acceptance is required, revenue is deferred until respective 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,
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 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 (VARs) and system integrators. VARs 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 relat-
ing 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 under contracts with terms up to ten years.
Other Income (Expense), Net
Other income (expense), net, is comprised primarily of miscellaneous income and expense, gains and losses on foreign
currency transactions, and investment account management fees. For the year ended December 31, 2014, other income
(expense), net included a $2.4 million gain related to the settlement of working capital items from an acquisition transaction
that closed in 2012.
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, 2014,
2013 and 2012, we paid $19.9 million, $21.4 million and $22.8 million, respectively, in shareholder dividends. On
January 20, 2015, 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 5, 2015. The ex-dividend date was February 3, 2015 and
the payment date was February 19, 2015. The quarterly dividend payment was $4.8 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 2014 ANNUAL REPORT Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue
from Contracts with Customers (ASU 2014-09), which supersedes the revenue recognition requirements in Topic 605,
Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics
of the Codification. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services
are transferred to customers in an amount that reflects the consideration that is expected to be received for those
goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016,
including interim periods within that reporting period, and early application is not permitted. ASU 2014-09 allows
for either full retrospective or modified retrospective adoption. We are currently evaluating the transition method
that will be elected and the impact that the adoption of ASU 2014-09 will have on our financial position, results
of operations and cash flows.
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. During the fourth quarter of 2014, the parties settled final working capital items, and as a result, we
recorded a $2.4 million gain in other income (expense), net. Additionally, $3.5 million is included in other receivables at
December 31, 2014 for additional consideration due from NSN for settlement of the working capital items. 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, 2014, 2013 and 2012, we incurred acquisition and integration related expenses and
amortization of acquired intangibles of $2.5 million, $2.9 million, and $7.9 million, respectively, related to this acquisition.
The following supplemental pro forma information presents the financial results of the combined entity for the years
ended December 31, 2012 and 2011. The pro forma results of the acquired NSN BBA business for the period January 1, 2012
to May 4, 2012 and January 1, 2011 to December 31, 2011 were not included in our consolidated financial results for the years
ended December 31, 2012 or 2011. There were no material, non-recurring pro forma adjustments to the historical data.
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 income
Weighted average exchange rate during the period (EURO/USD)
2012
$672,044
$57,906
2011
$913,485
$169,162
€1.00/$1.29
€1.00/$1.38
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 all options outstanding under the 1996 Plan at December 31, 2014 expire during 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, 2014 under the 2006 Plan range from 2016 to 2024.
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 also currently have options
outstanding under the 2005 Directors Stock Option Plan. Expiration dates of options outstanding under both plans at
December 31, 2014 range from 2015 to 2019.
48
ADTRAN 2014 ANNUAL REPORT The following table is a summary of our stock options outstanding as of December 31, 2013 and 2014 and the changes
that occurred during 2014:
(In thousands, except per share amounts)
Options outstanding, December 31, 2013
Options granted
Options forfeited
Options cancelled
Options exercised
Options outstanding, December 31, 2014
Options vested and expected to vest,
December 31, 2014
Options exercisable, December 31, 2014
Number of
Options
Weighted
Average
Exercise Price
Weighted Average
Remaining Contractual
Life in Years
Aggregate
Intrinsic
Value
6,358
1,181
(150)
(261)
(147)
6,981
6,787
4,397
$24.43
$18.98
$23.28
$24.87
$19.27
$23.62
$23.69
$25.15
6.60
$25,878
6.45
6.38
4.99
$10,625
$9,381
$5,153
All of the options above were issued at exercise prices that approximate fair market value at the date of grant.
At December 31, 2014, 5.2 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 2014 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, 2014. 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 2014, 2013 and 2012 was $0.7 million, $1.1 million
and $4.5 million, respectively. The fair value of options fully vesting during 2014, 2013 and 2012 was $7.7 million.
The following table further describes our stock options outstanding as of December 31, 2014:
Range of
Exercise Prices
$14.88 – 18.07
$18.08 – 22.40
$22.41 – 23.46
$23.47 – 30.04
$30.05 – 41.92
Options Outstanding
Options
Outstanding
at 12/31/14
(in thousands)
Weighted Avg.
Remaining
Contractual Life
in Years
1,340
1,201
1,415
1,421
1,604
6,981
6.40
9.71
3.65
6.71
6.30
Weighted
Average
Exercise
Price
$16.36
$19.02
$23.12
$25.47
$31.94
Options Exercisable
Options
Exercisable
at 12/31/14
(in thousands)
Weighted
Average
Exercise
Price
895
28
1,415
671
1,388
4,397
$16.06
$21.35
$23.12
$27.20
$32.17
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, up to 3.0 million shares of common
stock may be granted to certain employees and officers for awards other than stock options, including RSUs. 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
49
Financial Results 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 are 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, 2013 and 2014 and
the changes that occurred during 2014:
(In thousands except per share amounts)
Unvested RSUs and restricted stock outstanding, December 31, 2013
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, 2014
Number
of Shares
Weighted
Average Grant
Date Fair Value
95
50
(24)
(17)
104
$28.38
$21.97
$34.56
$38.73
$22.81
At December 31, 2014, total compensation cost related to the non-vested portion of RSUs and restricted stock not yet
recognized was approximately $1.6 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
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, 2014, 2013 and 2012, 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
2014
$479
4,185
3,899
8,084
8,563
(1,157)
$7,406
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
50
ADTRAN 2014 ANNUAL REPORT At December 31, 2014, total compensation cost related to non-vested stock options not yet recognized was approximately
$16.0 million, which is expected to be recognized over an average remaining recognition period of 2.9 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 2014 to the methodology used to determine our assumptions.
The weighted-average estimated fair value of stock options granted to employees during the years ended December 31,
2014, 2013 and 2012 was $6.31 per share, $8.35 per share and $5.60 per share, respectively, with the following weighted-
average assumptions:
Expected volatility
Risk-free interest rate
Expected dividend yield
Expected life (in years)
2014
39.05%
1.79%
1.90%
6.33
2013
39.92%
1.71%
1.52%
6.36
2012
39.46%
0.96%
2.05%
6.18
We based our estimate of expected volatility for the years ended December 31, 2014, 2013 and 2012 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, 2014, 2013 and 2012
was $22.11 per share, $27.72 per share and $19.46 per share, respectively, with the following assumptions:
Expected volatility
Risk-free interest rate
Expected dividend yield
2014
36.40%
0.96%
1.89%
2013
38.83%
0.61%
1.52%
2012
37.75%
0.38%
2.12%
Stock-based compensation expense recognized in our Consolidated Statements of Income for the years ended
December 31, 2014, 2013 and 2012 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 3.1% 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.
51
Financial Results Investments
4
At December 31, 2014, 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
$13,897
111,261
127,341
2,465
26,399
$281,363
Gross
Unrealized
Gains
$2,409
186
480
—
12,395
$15,470
Gross
Unrealized
Losses
Fair Value/
Carrying
Value
$(12)
(186)
(34)
—
(539)
$(771)
$16,294
111,261
127,787
2,465
38,255
$296,062
30,000
1,506
$327,568
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
As of December 31, 2014, corporate and municipal fixed-rate bonds had the following contractual maturities:
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
Municipal
fixed-rate
bonds
$22,730
69,680
34,160
1,217
Corporate
bonds
$20,413
67,732
23,116
—
$111,261
$127,787
(In thousands)
Less than one year
One to two years
Two to three years
Three to five years
Total
52
ADTRAN 2014 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. For each of the years ended December 31, 2014, 2013 and 2012, we
recorded a charge of $0.1 million, $25 thousand and $0.7 million, 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, 2014, 2013 and 2012:
(In thousands)
Year Ended December 31,
Gross realized gains
Gross realized losses
2014
$7,586
$(308)
2013
$8,932
$(318)
2012
$11,006
$(1,456)
The following table presents the breakdown of investments with unrealized losses at December 31, 2014:
(In thousands)
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
Deferred compensation plan assets
Corporate bonds
Municipal fixed-rate bonds
Marketable equity securities
$49
31,021
30,339
4,824
$(3)
(186)
(34)
(478)
Total
$66,233
$(701)
$278
—
—
208
$486
$(9)
—
—
(61)
$(70)
$327
31,021
30,339
5,032
$(12)
(186)
(34)
(539)
$66,719
$(771)
The following table presents the breakdown of investments with unrealized losses at December 31, 2013:
(In thousands)
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
Deferred compensation plan assets
Corporate bonds
Municipal fixed-rate bonds
Marketable equity securities
Total
$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 increase in unrealized losses during 2014, as reflected in the table above result from changes in market positions
associated with our equity investment portfolio. At December 31, 2014, a total of 265 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, 2014 Using
Quoted Prices
in Active
Markets for Identical
Assets (Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value
(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
9,661
28,594
296,062
$297,225
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
11,398
27,054
365,046
$368,995
$1,163
16,294
111,261
127,787
2,465
$3,949
15,123
166,859
136,302
8,310
Quoted Prices
in Active
Markets for Identical
Assets (Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value
$1,163
16,294
—
—
—
9,661
28,594
54,549
$55,712
$—
—
111,261
127,787
2,465
—
—
241,513
$241,513
$—
—
—
—
—
—
—
—
$—
$3,949
15,123
—
—
—
11,398
27,054
53,575
$57,524
$—
—
166,859
136,302
8,310
—
—
311,471
$311,471
$—
—
—
—
—
—
—
—
$—
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.
54
ADTRAN 2014 ANNUAL REPORT 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, 2014, we had forward contracts outstanding with notional amounts totaling €12.5 million
($15.1 million), which mature at various times throughout early 2015.
The fair values of our derivative instruments recorded in the Consolidated Balance Sheet as of December 31, 2014
and 2013 were as follows:
(In thousands)
Balance Sheet Location
2014
2013
Derivatives Not Designated as Hedging Instruments (Level 2):
Foreign exchange contracts – asset derivatives
Foreign exchange contracts – liability derivatives
Other receivables
Accounts payable
$249
$(10)
$18
$(15)
The change in the fair values of our derivative instruments recorded in the Consolidated Statements of Income
during the years ended December 31, 2014 and 2013 were as follows:
(In thousands)
Income Statement Location
2014
Derivatives Not Designated as Hedging Instruments:
Foreign exchange contracts
Other income (expense)
$1,852
2013
$750
Inventory
6
At December 31, 2014 and 2013, inventory was comprised of the following:
(In thousands)
Raw materials
Work in process
Finished goods
Total Inventory, net
2014
$34,831
3,750
48,129
$86,710
2013
$44,093
3,484
42,534
$90,111
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, 2014 and 2013, raw materials reserves totaled $16.9 million, and finished goods inventory
reserves totaled $7.8 million and $6.1 million, respectively.
55
Financial Results 7 Property, Plant and Equipment
At December 31, 2014 and 2013, 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
2014
$4,575
22,374
68,301
16,468
74,603
109,501
295,822
(220,994)
$74,828
2013
$4,263
21,776
68,479
16,465
70,468
104,584
286,035
(209,296)
$76,739
Depreciation expense was $12.5 million, $12.2 million and $12.1 million in 2014, 2013, and 2012, respectively.
8 Goodwill and Intangible Assets
Goodwill, all of which relates to our acquisition of Bluesocket, Inc. and is included in our Enterprise Networks division, was
$3.5 million at December 31, 2014 and 2013. 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. We have elected to first assess the qualitative factors to determine
whether it is more likely than not that the fair value of the reporting unit to which the goodwill is assigned is less than its
carrying amount as a basis for determining whether it is necessary to perform the two-step impairment test. If we determine
that it is more likely than not that its fair value is less than its carrying amount, then the two-step impairment test will be
performed. Based on the results of our qualitative assessment in 2014, we concluded that it was not necessary to perform
the two-step impairment test. There were no impairment losses recognized during 2014, 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, 2014 and 2013:
(In thousands)
Customer relationships
Developed technology
Intellectual property
Trade names
Other
Total
2014
Accumulated
Amortization
Gross Value
$6,310
6,005
2,340
270
12
$(2,136)
(3,577)
(1,520)
(205)
(11)
2013
Accumulated
Amortization
Gross Value
$6,996
6,537
2,340
270
14
$(1,555)
(2,692)
(1,185)
(145)
(8)
Net
Value
$4,174
2,428
820
65
1
Net
Value
$5,441
3,845
1,155
125
6
$14,937
$(7,449)
$7,488
$16,157
$(5,585)
$10,572
Amortization expense was $2.3 million, $2.4 million and $2.0 million for the years ended December 31, 2014, 2013 and
2012, respectively.
As of December 31, 2014, the estimated future amortization expense of intangible assets is as follows:
(In thousands)
2015
2016
2017
2018
2019
Thereafter
Total
56
Amount
$2,027
1,757
1,209
732
336
1,427
$7,488
ADTRAN 2014 ANNUAL REPORT 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 2% 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, 2014 was approximately $29.7 million, based on a debt security with a comparable interest rate and maturity
and a Standard & Poor’s credit rating of AAA. 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, 2014 is
$30.0 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, 2014, 2013 and 2012, we realized economic incentives related
to payroll withholdings totaling $1.3 million, $1.3 million and $1.4 million, respectively.
We made a principal payment of $16.5 million for the year ended December 31, 2014. We did not make a principal
payment for the year-ended December 31, 2013. At December 31, 2014, $1.2 million of the bond debt was classified as a
current liability in accounts payable in the Consolidated Balance Sheets.
10 Income Taxes
A summary of the components of the provision for income taxes for the years ended December 31, 2014, 2013 and 2012
is as follows:
(In thousands)
Current
Federal
State
International
Total Current
Deferred
Federal
State
International
Total Deferred
Total Provision for Income Taxes
2014
2013
2012
$7,626
599
12,587
20,812
(1,083)
(123)
(4,320)
(5,526)
$15,286
$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
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
Foreign taxes
Tax-exempt income
State tax incentives
Stock-based compensation
Domestic production activity deduction
Other, net
Effective Tax Rate
2014
35.00%
2.69
(4.05)
(7.26)
(1.25)
(2.21)
3.06
(1.15)
0.69
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)
25.52%
24.75%
35.23%
Income before provision for income taxes for the years ended December 31, 2014, 2013 and 2012 is as follows:
(In thousands)
U.S. entities
International entities
Total
2014
$23,812
36,094
$59,906
2013
$51,752
9,103
$60,855
2012
$80,926
(7,961)
$72,965
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
2014
2013
$53
10,405
6,637
17,095
1,232
6,424
5,832
1,176
4,844
3,547
4,023
6,998
(7,463)
26,613
$43,708
$(3,632)
(711)
(4,576)
$(8,919)
$34,789
$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
ADTRAN 2014 ANNUAL REPORT At December 31, 2014 and 2013, non-current deferred taxes related to our investments and our defined benefit pension
plan, reflect deferred taxes on the net unrealized gains on available-for-sale investments and deferred taxes on unrealized
losses in our pension plan. The net change in non-current deferred taxes associated with these items, a deferred tax benefit of
$3.3 million in 2014 and a deferred tax expense of $0.4 million in 2013, is recorded as an adjustment to other comprehensive
income, presented in the Consolidated Statements of Comprehensive Income.
Based upon our results of operations in 2014 and expected profitability in future years in a certain international
jurisdiction, we concluded that it is more likely than not certain foreign deferred tax assets will be realized. A reversal of the
valuation allowance on these deferred tax assets, which includes a change in estimate of the years beginning balance, resulted
in a deferred income tax benefit totaling $4.6 million in 2014. As of December 31, 2014, the remaining valuation allowance
primarily relates to deferred tax assets related to state credit carry-forwards 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 and net operating losses in foreign
jurisdictions. We believe it is more likely than not that we will not realize the full benefits of the deferred tax assets arising
from these losses and credits, and accordingly, we have provided a valuation allowance against these deferred tax assets.
The deferred tax assets for foreign and domestic carry-forwards, unamortized research and development costs, and state
credit carry-forwards of $15.5 million will expire between 2015 and 2030. The loss carry-forwards were acquired through
acquisitions in 2009 and 2011. We will continue to assess the realization of our deferred tax assets and related valuations
allowances. 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.
It is impracticable to determine the amount of any unrecognized deferred tax liability for temporary differences related
to investments in foreign subsidiaries.
During 2014, 2013 and 2012, we recorded an income tax benefit of $0.1 million, $0.2 million and $1.9 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 the years ended December 31, 2014, 2013 and 2012 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
2014
$3,240
2013
$2,926
2012
$2,970
—
522
—
—
(428)
$3,334
89
549
—
(141)
(183)
965
302
(49)
(507)
(755)
$3,240
$2,926
As of December 31, 2014, 2013, and 2012, our total liability for unrecognized tax benefits was $3.3 million, $3.2 million,
and $2.9 million, respectively, of which $2.6 million, $2.5 million, and $2.2 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, 2014, 2013
and 2012, the balances of accrued interest and penalties were $1.0 million, $1.0 million and $0.8 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 are currently under audit by the Internal Revenue Service. Generally, we are not subject
to changes in income taxes by any taxing jurisdiction for the years prior to 2011.
59
Financial Results 11 Employee Benefit Plans
Pension Benefit Plan
We maintain a defined benefit pension plan covering employees in certain foreign countries.
The pension benefit plan obligations and funded status at December 31, 2014 and 2013, are as follows:
(In thousands)
Change in projected benefit obligation:
Projected benefit obligation at beginning of period
Service cost
Interest cost
Actuarial gain (loss)
Benefit payments
Effects of 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
Actual return on plan assets
Effects of foreign currency exchange rate changes
Fair value of plan assets at end of period
Funded status at end of period
2014
2013
$(23,354)
(1,189)
(836)
(8,166)
2
3,036
$(30,507)
$20,773
2,315
(2,750)
$20,338
$(10,169)
$(21,181)
(1,198)
(745)
779
1
(1,010)
$(23,354)
$18,620
1,281
872
$20,773
$(2,581)
The accumulated benefit obligation was $29.2 million and $22.9 million at December 31, 2014 and 2013, respectively.
The increase in the accumulated benefit obligation and actuarial loss is primarily attributable to a decrease in the discount
rate used in 2014 to determine the accumulated benefit obligation.
The net amounts recognized in the balance sheet for the unfunded pension liability as of December 31, 2014 and 2013
are as follows:
(In thousands)
Current liability
Non-current liability
Total
2014
$—
(10,169)
$(10,169)
2013
$—
(2,581)
$(2,581)
The components of net periodic pension cost and amounts recognized in other comprehensive income for the years
ended December 31, 2014 and 2013 and the period May 4, 2012 to December 31, 2012 are as 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
Total recognized in net periodic benefit cost and
other comprehensive income
Year Ended
December 31, 2014
Year Ended
December 31, 2013
May 4, 2012 to
December 31, 2012
$1,189
836
(1,086)
939
7,052
$7,991
$1,198
745
(1,010)
933
(1,061)
$(128)
$766
494
(674)
586
1,952
$2,538
60
ADTRAN 2014 ANNUAL REPORT The amounts recognized in accumulated other comprehensive income as of December 31, 2014 and 2013 are as follows:
(In thousands)
Net actuarial (gain) loss
2014
$7,943
2013
$891
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 years ended
December 31, 2014 and 2013 and the period May 4, 2012 to December 31, 2012 are as follows:
Discount rates
Rate of compensation increase
Expected long-term rates of return
Year Ended
December 31, 2014
Year Ended
December 31, 2013
May 4, 2012 to
December 31, 2012
3.70%
2.25%
5.40%
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, 2014 and 2013:
Discount rates
Rate of compensation increase
2014
2.20%
2.25%
2013
3.70%
2.25%
Actuarial gains and losses are recorded in accumulated other comprehensive income. To the extent unamortized gains
and losses exceed 10% of the higher of the market-related value of assets or the projected benefit obligation, the excess is
amortized as a component of net periodic pension cost over the remaining service period of active participants. We estimate
that $0.4 million will be amortized from accumulated other comprehensive income into net periodic pension cost in 2015
for the net actuarial loss.
We do not anticipate making a contribution to our pension plan in 2015. The following pension benefit payments,
which reflect expected future service, as appropriate, are expected to be paid to participants:
(In thousands)
2015
2016
2017
2018
2019
2020-2023
Total
$249
284
459
628
812
5,444
$7,876
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, 2014 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
12,587
2,172
4,488
268
819
20,334
$20,338
12,587
2,172
4,488
268
819
20,334
$20,338
—
—
—
—
—
—
$—
—
—
—
—
—
—
$—
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
—
—
—
—
—
—
$—
—
—
—
—
—
—
$—
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
Financial Results 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 ($260 thousand for 2014). 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,
$4.5 million and $4.6 million in 2014, 2013 and 2012, 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 installments paid over a three or ten year term. Distributions will be made on a pro rata basis from each of the
hypothetical investments 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
2014
2013
$16,294
$16,294
$16,294
$16,294
$15,123
$15,123
$15,123
$15,123
Interest and dividend income of the Trust have been included in interest and dividend income in the accompanying 2014,
2013 and 2012 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 2014 and 2013 Consolidated Balance Sheets.
Changes in the fair value of the deferred compensation liability are included as selling, general and administrative expense
in the accompanying 2014, 2013 and 2012 Consolidated Statements of Income. Based on the changes in the total fair value
of the Trust’s assets, we recorded deferred compensation expense in 2014, 2013 and 2012 of $0.7 million, $2.8 million and
$0.9 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, 2014 and 2013, 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, 2014, 2013 and 2012. 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
2014
2013
2012
Sales
Gross Profit
Sales
Gross Profit
Sales
Gross Profit
$510,373
119,634
$630,007
$243,211
$500,733
$233,206
$492,096
68,116
141,011
75,680
128,518
$311,327
$641,744
$308,886
$620,614
$247,380
69,263
$316,643
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 Series of Multi-Service Access Nodes (MSANs)
• hiX 5600 Series of MSANs
• Total Access 1100/1200 Series of Fiber to the Node (FTTN) products
• hiX 1100 Series of FTTN products
• VDSL2 Vectoring based Digital Subscriber Line Access Multiplexer (DSLAM) products
• ADTRAN 500 Series of FTTdp G.fast Distribution Point Units (DPU)
Optical
• Optical Networking Edge (ONE)
• NetVanta 8000 Series of Fiber Ethernet Access Devices (EAD)
• NetVanta 8400 Series of 10 Gig Multi-service Edge Switches
• OPTI-6100 and Total Access 3000 optical Multi-Service Provisioning Platforms (MSPP)
• Pluggable Optical Products, including SFP, XFP, and SFP+
Time Division Multiplexed (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)
64
ADTRAN 2014 ANNUAL REPORT • NetVanta
– Access Routers
– Enterprise Session Border Controllers (eSBC)
– Managed Ethernet Switches
– IP Business Gateways
– Unified Communications (UC) solutions
– Carrier Ethernet Network Terminating Equipment (NTE)
– Carrier Ethernet Routers and Gateways
• Network Management Solutions
Loop Access products are used by carrier and enterprise customers for access to copper-based communications networks.
This 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, 2014, 2013 and 2012:
(In thousands)
Carrier Systems
Business Networking
Loop Access
Total
2014
$442,664
156,980
30,363
$630,007
2013
$427,850
168,871
45,023
$641,744
2012
$399,646
149,304
71,664
$620,614
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, 2014, 2013 and 2012:
(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
2014
2013
2012
$368,464
55,374
$340,560
55,615
$320,076
51,755
152,223
164,422
142,958
$576,061
$560,597
$514,789
27,829
26,117
$53,946
$630,007
41,666
39,481
$81,147
$641,744
66,974
38,851
$105,825
$620,614
The following table presents sales information by geographic area for the years ended December 31, 2014, 2013 and 2012.
International sales correlate to shipments with a non-U.S. destination.
(In thousands)
United States
Germany
Other International
Total
2014
$381,382
150,987
97,638
$630,007
2013
$455,996
97,151
88,597
$641,744
2012
$470,369
26,918
123,327
$620,614
65
Financial Results Customers comprising more than 10% of revenue can change from year to year. Single customers comprising more
than 10% of our revenue in 2014 included two customers at 21% and 14%. Single customers comprising more than 10%
of our revenue in 2013 included two customers at 17% and 14%. Only a single customer comprised more than 10% of
our revenue in 2012 at 23%. No other customer accounted for 10% or more of our sales in 2014, 2013 or 2012. 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%, 22%, and 34% of total revenue in 2014, 2013 and 2012, 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.
As of December 31, 2014, long-lived assets, net totaled $74.8 million, which includes $70.0 million held in the United
States and $4.8 million held outside the United States. 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.
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 2025. As of
December 31, 2014, future minimum rental payments under non-cancelable operating leases with original maturities
of greater than 12 months are as follows:
(In thousands)
2015
2016
2017
2018
Thereafter
Total
$4,894
3,701
3,190
1,563
5,340
$18,688
Rental expense was $4.7 million, $4.8 million and $3.9 million for the years ended December 31, 2014, 2013 and
2012, respectively.
14 Earnings per Share
A summary of the calculation of basic and diluted earnings per share (EPS) for the years ended December 31, 2014, 2013 and
2012 is as follows:
(In thousands, except for per share amounts)
2014
2013
2012
Numerator
Net Income
Denominator
$44,620
$45,794
$47,263
Weighted average number of shares—basic
55,120
59,001
63,259
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
304
58
55,482
$0.81
$0.80
390
33
59,424
$0.78
$0.77
488
27
63,774
$0.75
$0.74
For each of the years ended December 31, 2014, 2013 and 2012, 4.4 million, 3.2 million and 3.2 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 2014 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, 2014
June 30, 2014 September 30, 2014 December 31, 2014
Net sales
Gross profit
Operating income
Net income
Earnings per common share
Earnings per common share
assuming dilution (1)
$147,004
$77,790
$11,298
$9,607
$0.17
$0.17
$176,129
$86,797
$19,339
$14,395
$0.26
$0.26
$162,892
$78,257
$12,495
$11,326
$0.21
$0.21
$143,982
$68,483
$3,979
$9,292
$0.17
$0.17
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
(1) Assumes exercise of dilutive stock options calculated under the treasury stock method.
16 Related Party Transactions
We employed the law firm of our director emeritus for legal services. All bills for services rendered by this firm were 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. The services of our director emeritus ended with his death on September 7, 2014.
For the years ended 2014, 2013 and 2012, we incurred fees of $0.1 million for these legal services.
17 Subsequent Events
On January 20, 2015, 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 5, 2015. The quarterly dividend payment was $4.8 million and was paid on
February 19, 2015. 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.
67
Financial Results Directors and Executive Officers
James D. Wilson, Jr.
Senior Vice President and General Manager,
Carrier Networks Division
Robert A. Fredrickson
Vice President – Carrier Networks Sales
Kevin W. Schneider
Vice President – Chief Technology Officer
Transfer Agent
American Stock Transfer and Trust Company
New York, NY
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
Birmingham, Alabama
Special Counsel
McKenna Long & Aldridge LLP
Atlanta, Georgia
Form 10-K
ADTRAN’s 2014 Annual Report on Form 10-K
(without exhibits) as filed with the Securities and
Exchange Commission is available to stockholders
without charge upon written request to:
Investor Relations
ADTRAN, Inc.
901 Explorer Blvd.
P.O. Box 140000
Huntsville, Alabama 35814-4000
256 963-8220 or 256 963-7600
investorrelations@adtran.com (email)
Annual Meeting
The 2015 Annual Meeting of Stockholders will be held
at ADTRAN corporate headquarters, 901 Explorer
Boulevard, Huntsville, Alabama, on Wednesday,
May 13, 2015, at 10:30 a.m. Central time.
Thomas R. Stanton
Chairman and Chief Executive Officer
James E. Matthews
Senior Vice President – Finance,
Chief Financial Officer,
Treasurer, Secretary and Director
H. Fenwick Huss
Director of the Company
Willem Kooyker Dean of the Zicklin School of Business
at Baruch College
William L. Marks
Director of the Company
Former Chairman of the Board and Chief Executive
Officer of Whitney Holding Corp. (holding company
for Whitney National Bank of New Orleans)
Balan Nair
Director of the Company
Executive Vice President and Chief Technology Officer
of Liberty Global, Inc.
Roy J. Nichols
Director of the Company
Founder & former President of
Nichols Research Corporation
Kathryn A. Walker
Director of the Company
Managing Director for OpenAir Equity Partners
Michael K. Foliano
Senior Vice President – Global Operations
Kevin P. Heering
Senior Vice President,
Quality and Administration
Raymond R. Schansman
Senior Vice President and General Manager,
Enterprise Networks Division
Eduard Scheiterer
Senior Vice President and Managing Director,
International Markets
68
ADTRAN 2014 ANNUAL REPORT 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