DEFINING
THE FUTURE
NETWORK
2015 ANNUAL REPORT
1
Letter to Shareholders DEFINING
THE FUTURE
NETWORK
2015 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 © 2016 ADTRAN, Inc. All rights reserved. Printed in USA. AD10218A
Our vision is to enable a fully connected world
where the power to communicate is available to everyone, everywhere.
making the impossible
Broadband is advancing us into the future
and today’s expectations continue to grow
at an accelerating pace. Consumers not
only want to be connected everywhere
with everything networked, but they also
want to be fully empowered with real-
time information and the ability to take
immediate action. It is unprecedented,
complicated and exhilarating, all at the
same time. This is what drives us at
ADTRAN. It drives our innovation and
our quest to engineer highly automated
and programmable Gigabit network
solutions that are transforming every
aspect of how we live, work and play.
At ADTRAN, we come to work every day
with this goal in mind. It shapes how we
plan, innovate, create and communicate.
It shapes every conversation we have with
customers, partners, and our channel. It is
what inspires us to do more, create more
and deliver more value to our ecosystem.
For 30 years, ADTRAN has been making
the impossible possible—creating new
ways for communication service providers
to deliver these types of connections.
As our industry continues to evolve, one
thing remains constant: ADTRAN and its
customers are at the forefront of keeping
the world connected.
transforming
every aspect
of how we live,
work and play
POSSIBLE
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DEFINING THE FUTURE NETWORKLetter to ShareholdersADTRAN 2015 ANNUAL REPORT A LOOK BACK
We entered 2015 knowing it would be a
year filled with change for the industry
and ADTRAN. We saw the opportunity
to lead this change and leap ahead of the
market to help develop and define the
future network.
or underserved communities. Through
this program, the federal government
has committed $9 billion over a six-year
period to help service providers offset the
cost of building out broadband infrastructure.
Ten carriers accepted a combined total of
Boundless broadband capacity
The industry is ripe for innovation and
hungry for boundless broadband capacity
as evidenced by the rapid adoption of
ADTRAN’s Gigabit services technology
and widespread interest in our work on
G.fast, Super-Vectoring and NG-PON2
solutions. It is evolving toward a more
flexible, software-defined service delivery
framework that is not limited by rigid
technology silos in the access network.
Service providers want partners that help
them bridge these ideas together and have
increasingly turned to ADTRAN because
of our deep and unique domain expertise,
rich history of innovation and ability to
help our customers define networks that
work for them on every level.
Around the world, regulatory action
played a large role in how the market
developed in 2015 and set the course
for the near future. In the United States,
the Connect America Fund Phase II
(CAF-II) has been established to help
speed broadband penetration to unserved
$1.5 billion annually for the next six years.
As the primary broadband access supplier
to the large majority of the carriers that
have accepted CAF-II funding, ADTRAN
is an undeniable leader in broadband
access solutions and professional services
delivery for CAF projects. With a strong
history in these key accounts, we believe
the company is well-positioned to play a
key role in many of the CAF-II build-outs.
CAF-II, however, is just the beginning
of a significant infrastructure investment
cycle that will spur even greater investment
as other areas of the world position
themselves to follow suit. In Europe,
efforts are underway to increase broadband
speeds to 500Mbps. Deutsche Telekom is
investing €6 billion in an all-IP network
across Europe. In Australia, the National
Broadband Network (NBN) is investing
heavily in Fiber-to-the-x (FTTx) technolo-
gies that will deliver increased broadband
speeds. In Mexico, service providers like
América Móvil are pledging to invest bil-
lions over the next three years to increase
bandwidth and provide faster services to
their customers.
Service providers
have increasingly
turned to ADTRAN
because of our
deep and unique
domain expertise,
rich history of inno-
vation and ability to
help our customers
define networks that
work for them on
every level.
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5
DEFINING THE FUTURE NETWORKLetter to ShareholdersADTRAN 2015 ANNUAL REPORT ENABLING COMMUNITIES,
CONNECTING LIVES
ADTRAN’s
G.fast solution is
in trials with more
than 60 service
providers globally.
Another inflection point in the infrastruc-
ture investment cycle is Gigabit services
delivery and the recent introduction of
Software Defined Networking (SDN).
Operators no longer neatly fit into distinct
categories such as Telcos, MSOs and
emerging new market entrants. Instead,
they are service providers focused on
delivering Gigabit speeds, more content
and a better customer experience.
ADTRAN is well-positioned to take
advantage of this momentum with more
than 200 Gigabit communities already
enabled, as part of our Enabling Communities,
Connecting Lives initiative. The rollout of
Fiber-to-the-Home (FTTH) solutions to
deliver ultra-broadband and Gigabit
services is having unprecedented long-
term effects on the communities embracing
them. These communities are being
revitalized, attracting new businesses and
industries and enhancing the quality of
life for their citizens with new educational,
medical and cultural opportunities.
The road to Gigabit and beyond is not an
easy one. Traditional service providers are
fighting for mindshare with customers as
over-the-top (OTT) content providers and
wireless service providers erode traditional
revenue streams, despite the continued
growth in network traffic. In response,
ADTRAN is creating new innovative
ways to get more bandwidth from existing
infrastructure and developing new deploy-
ment methods, techniques and technolo-
gies such as G.fast, Super-Vectoring and
10-Gigabit PON (10G PON) that will
enable more people to benefit from
Gigabit speeds faster and more
economically than ever before.
G.fast has garnered the attention of
service providers for its ability to deliver
speeds up to 1Gbps over short distances.
ADTRAN’s solution is in trials with more
than 60 service providers globally and was
recently selected as the first SDN-enabled
access solution for a large Tier 1 operator
in the United States. Complementing this
technology are Vectoring and Super-Vectoring.
Simply stated, Vectoring is a noise cancel-
ation technique that enables signals over
twisted pairs to achieve near theoretical
performance parameters, allowing for
higher bandwidth and a superior user
experience. Super-Vectoring performs in
a similar manner but can achieve speeds
of up to 600Mbps for shorter distances in
applications such as Fiber-to-the-Cabinet
(FTTCab) and Fiber-to-the-Distribution-
Point (FTTdp). ADTRAN is pleased to be
the supplier for the world’s largest Vectoring
deployment that is underway
in Europe.
200+
GIGABIT
COMMUNITIES
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DEFINING THE FUTURE NETWORKLetter to ShareholdersADTRAN 2015 ANNUAL REPORT PREPARING FOR THE FUTURE
Like the customers we serve, we too have
to prepare for the future. To this end, we
placed a strong focus in 2015 on aligning
our organizational structure to leverage
the shifts in the industry to capture
additional market share and better
serve our customers’ strategic plans.
Over the past five years, we have been
transitioning into a more software-centric
company. This shift has made us more
resilient and flexible, better able to meet
the rapidly changing needs of our cus-
tomers and has enabled us to develop the
technologies that will be needed to move
our industry has been focused on hard-
ware development, that model is quickly
changing. Today, over 80 percent of our
engineering staff is working on software-
based projects and embedded designs. We
continue to sell hardware-based solutions,
but the added value of an ADTRAN
product is no longer just a unique hardware
design, but innovative virtualized functionality
delivered in software. As the industry
continues its adoption of SDN and
Network Function Virtualization (NFV),
we are well-positioned to continue our
leadership as a trusted provider of
networking solutions.
software-centric organization
the network forward. We are now better
aligned throughout the organization to
meet our customers’ needs globally. This
improved structure has already had a
meaningful impact on how we prioritize
Research & Development (R&D) on a
global basis and is enabling us to respond
faster, more efficiently and more innova-
tively to the needs of our customers.
The ADTRAN Operating System (AOS),
launched in the early 2000s, accelerated
our need for software expertise. Since that
time, we have been assembling software
engineers and computer scientists that
help us look at our products from a differ-
ent perspective and chart a course for the
network of the future. While traditionally
Seeing the industry move from conversa-
tions about SDN and NFV to network
implementations, we seized the opportunity
to realign our business to capture added
market share and better meet the needs of
our customers. This shift is creating new
opportunities that enable us to leverage our
unique domain expertise—understanding
what the enterprise needs to grow and what
the service provider can and will deliver in
terms of capacity and service. Enterprise
networks have been and continue to be an
important part of our business. As network
evolution continues, our alignment in this
area will not only maximize the utilization
of our resources and provide our custom-
ers with the best user experience possible
but break down the barriers of traditional
ADTRAN is
the only vendor
in the market
that offers
end-to-end
expertise from
the operator
to the desktop.
FPO
enterprise vendors. ADTRAN is the only
vendor in the market that offers end-to-
end expertise from the operator to the
desktop. This alignment will enable us to
strengthen our position, bringing even
greater value to ADTRAN solutions.
Operators must roll out services quickly
and efficiently to keep pace with customer
demand and competitive pressures. Our
shift to a software-centric organization
combined with decades of experience
in helping our customers maximize the
benefits of advances in access and enterprise
technologies positions ADTRAN as the
best partner to help them through the
transitions ahead. As a result, this has
created an excellent growth opportunity
for the company through services we
provide to our customers.
We established a new services organiza-
tion in 2015 to meet the growing need for
both professional and managed services
in our customer base. This organization
provides a holistic approach to services for
both service providers and end users alike
and serves as a strategic partner helping
customers with everything from network
design and planning to installation and
maintenance to development of recur-
ring revenue streams through managed
services. Our domain expertise has been
an invaluable asset, enabling this segment
of business to increase 58 percent year-
over-year in the U.S. and Canada, making
it the fastest growing area for the company
and a 12 percent contributor to company
revenue. We anticipate that services will
continue to be a revenue driver well into
the future with each customer purchase
providing the opportunity for
services attachment.
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DEFINING THE FUTURE NETWORKLetter to ShareholdersADTRAN 2015 ANNUAL REPORT ADTRAN quickly
emerged as a leader
in virtual access with
truly disruptive open
and software-defined
network architectures
INNOVATION THAT MATTERS
Another development was in the area
of Time and Wavelength Division
Multiplexed Passive Optical Network
(TWDM-PON). This NG-PON2 technol-
ogy opens up new avenues for service
providers to increase revenue, reduce
cost and lower risk. ADTRAN success-
fully developed low-cost, fast-switching,
time-tunable TWDM transceivers that
will enable service providers to have a
single architecture for the deployment
of both residential and business services.
In 2015, ADTRAN quickly emerged
as a leader in virtual access with truly
disruptive open and software-defined
network architectures, enabling our
customers to do more with less by
providing the unification of our
leading access technologies into our
Open Services Architecture (OSA).
This was complemented by the devel-
opment of our first Virtual Network
Functions (VNFs) based on our widely
adopted AOS. These innovations are
being tested in labs and field trials by
some of the largest and most innovative
service providers and network operators
around the world, enabling ADTRAN
to define the future network.
We saw a tremendous number of ground-
breaking innovations emerge from
ADTRAN Labs in 2015. ADTRAN Labs
leverages the company’s decades of domain
experience helping service providers
architect access networks, and enterprise
customers leverage enhanced broadband
connectivity. This expertise makes us
uniquely qualified to help solve some of
the biggest challenges facing our customers.
ADTRAN’s team of scientists and engineers
shattered conventional limits in connectivity
with major industry breakthroughs in 10G
PON technologies and global leadership in
G.fast solutions.
While service providers are moving forward
quickly with the deployment of 1Gbps ser-
vices, the unabated quest for even greater
bandwidth sparked the development of our
next-generation 10G PON solutions. This
optical technology offers the reliability and
flexibility needed for premium business and
backhaul services while also delivering the
price point and scale needed for mass-
market residential applications.
10G PON is being complemented by the
entry of XGS-PON, an innovation that
ADTRAN pioneered in the international
standards committees and industry forums.
These 10Gbps technologies deliver greater
bandwidth for residential services with
additional symmetrical capacity for new
services for business applications. In fact,
our research in this area resulted in a break-
through in Class-G optics that will further
reduce costs, making it ideal for network
operators who have found traditional
GPON upgrade paths too costly and/or
insufficient to meet the needs of business
customers. XGS-PON will enable operators
to reuse select NG-PON2 components and
optics designed for 10G EPON, reducing
both their cost and development time.
A LOOK AHEAD
Building on our momentum in 2015,
we anticipate a future with exciting
opportunities. The inflection points
and new broadband investment cycle
discussed in this letter will create new
opportunities for strong revenue growth
into the future. We will continue to focus
on global expansion, profitable growth
and customer diversification.
The definition of acceptable speeds for
broadband is constantly changing in this
highly competitive marketplace. As a
result, we anticipate growing demand
for our G.fast, NG-PON2 and other next-
generation technologies as current lab
trials move to deployments. We believe
that our software-centric approach to
service creation and delivery will enable
our customers to more efficiently expand
into new business models and realize faster
returns from emerging opportunities.
As our customers become more agile,
they are looking to ADTRAN as a strategic
partner to help them quickly scale and re-
spond to these new market opportunities.
As a result, we will see further growth in
our professional services business.
We will continue to work with our cus-
tomers and partners as advocates for the
changes needed to support their businesses
and their ability to grow. We will invest in
the technologies, products and service in-
frastructure to enable them to achieve their
business goals and market objectives. The
future is bright, and we are well-positioned
to take advantage of the opportunities
before us.
the future is bright
On a final note, I want to extend my sincere
thanks to our employees around the world.
This has been a year marked by exceptional
levels of change and transition and our
employees have responded in a positive
manner. These men and women have
answered the call. I have said it many
times before, and it has never been truer—
our employees are our greatest asset.
Thank you for a job well done!
Tom Stanton, Chairman & CEO
ADTRAN, Inc.
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DEFINING THE FUTURE NETWORKLetter to ShareholdersADTRAN 2015 ANNUAL REPORT
12
DEFINING THE FUTURE NETWORKADTRAN 2015 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
2015 Compared to 2014
2014 Compared to 2013
Liquidity and Capital Resources
Effect of Recent Accounting Pronouncements
Subsequent Events
32 Quantitative and Qualitative Disclosures About Market Risk
33 Report of Independent Registered Public Accounting Firm
34 Financial Statements
39 Notes to Consolidated Financial Statements
Note 1
– Nature of Business and Summary of Significant Accounting Policies
Note 2
– Stock Incentive Plans
Note 3
– Investments
Note 4
– Derivative Instruments and Hedging Activities
Note 5
– Inventory
Note 6
– Property, Plant and Equipment
Note 7
– Goodwill and Intangible Assets
Note 8
– Alabama State Industrial Development Authority Financing and Economic Incentives
Note 9
– Income Taxes
Note 10 – Employee Benefit Plans
Note 11 – Segment Information and Major Customers
Note 12 – Commitments and Contingencies
Note 13 – Earnings Per Share
Note 14 – Summarized Quarterly Financial Data (Unaudited)
Note 15 – Related Party Transactions
Note 16 – 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, 2015. 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 4, 2016,
ADTRAN had 199 stockholders of record and approximately 6,707 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
2015
High
Low
2014
High
Low
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$23.38
$18.32
$19.27
$15.98
$17.28
$14.38
$17.52
$14.46
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$27.24
$24.27
$26.11
$21.29
$23.17
$20.53
$22.16
$18.23
The following table shows the shareholder dividends paid in each quarter of 2015 and 2014. 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
2015
2014
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, 2015 – October 31, 2015
—
—
November 1, 2015 – November 30, 2015
22,600
$15.54
December 1, 2015 – December 31, 2015
Total
—
22,600
—
—
22,600
—
22,600
5,848,725
5,826,125
5,826,125
(1 Since 1997, our Board of Directors has approved multiple share repurchase programs that have authorized open market repurchase
transactions of up to 45.0 million shares of our common stock. On July 14, 2015, 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 50.0 million), which
will commence upon completion of the repurchase plan announced on May 14, 2014. This new authorization is being implemented
through open market or private purchases from time to time as conditions warrant.
14
ADTRAN 2015 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, 2010 through December 31, 2015, 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, 2010 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
12/31/2010
12/31/2011
12/31/2012
12/31/2013
12/31/2014
12/31/2015
ADTRAN, Inc.
NASDAQ Composite
NASDAQ Telecommunications
ADTRAN, Inc.
NASDAQ Composite
NASDAQ Telecommunications
12/31/10
12/31/11
12/31/12
12/31/13
12/31/14
12/31/15
$100.00
$100.00
$100.00
$84.12
$100.53
$89.84
$55.34
$116.92
$91.94
$77.71
$166.19
$128.06
$63.73
$188.78
$133.34
$51.43
$199.95
$128.91
15
Financial Results Selected Financial Data
Income Statement Data
(In thousands, except per share amounts)
Year Ended December 31,
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 (1)
Earnings per common share—basic
Earnings per common share—
assuming dilution (1)
Dividends declared and paid per common share
Balance Sheet Data
(In thousands)
At December 31,
Working capital (2)
Total assets
Total debt
Stockholders’ equity
2015
600,064
333,167
266,897
123,542
129,876
13,479
3,953
(596)
10,337
(1,465)
—
25,708
(7,062)
$18,646
2015
51,145
51,267
$0.36
$0.36
$0.36
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
2014
55,120
55,482
$0.81
$0.80
$0.36
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
2013
59,001
59,424
$0.78
$0.77
$0.36
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
2012
63,259
63,774
$0.75
$0.74
$0.36
2011
717,229
302,911
414,318
124,879
100,301
189,138
7,642
(2,398)
12,454
(694)
—
206,142
(67,565)
$138,577
2011
64,145
65,416
$2.16
$2.12
$0.36
2015
$238,143
$632,904
$28,900
2014
$232,080
$738,694
$30,000
2013
$277,335
$789,898
$46,500
2012
$337,979
$883,656
$46,500
2011
$329,311
$817,514
$47,000
$480,160
$549,013
$604,606
$692,406
$692,131
(1) Assumes exercise of dilutive stock options calculated under the treasury method. See Notes 1 and 13 of Notes to Consolidated
Financial Statements.
(2) Working capital consists of current assets less current liabilities.
16
ADTRAN 2015 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 many of the
United States’ and the world’s largest SPs, 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 SPs 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 Small Form Factor Pluggable (SFP), 10-Gigabit Fiber Small Form Factor
Pluggable (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
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 $600.1 million in 2015 compared to $630.0 million in 2014 and $641.7 million in 2013. Total sales of
products in our three core areas, Broadband Access, Optical and Internetworking, decreased 3.3% in 2015 compared to
2014 and increased 2.8% in 2014 compared to 2013. Our gross profit margin was 44.5% in 2015 compared to 49.4% in 2014
and 48.1% in 2013. Net income was $18.6 million in 2015 compared to $44.6 million in 2014 and $45.8 million in 2013.
Earnings per share, assuming dilution, were $0.36 in 2015 compared to $0.80 in 2014 and $0.77 in 2013. Earnings per share
in 2015, 2014 and 2013 include the effect of the repurchase of 4.0 million, 3.7 million and 5.6 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 14 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, 2015.
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 opera-
tions. 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 2015 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 Ex Works, per International Commercial
Terms. 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. Sales taxes invoiced to customers are included in revenue, 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 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 SIs. VARs and SIs 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 $26.7 million and $24.7 million at December 31, 2015 and 2014,
respectively. Inventory disposals charged against the reserve were $0.2 million, $2.1 million and $0.4 million for the
years ended December 31, 2015, 2014 and 2013, respectively.
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 (RSU) awards on the
date of grant, we use a Monte Carlo Simulation valuation method. The RSUs 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
19
Financial Results 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, 2015 and 2014 respectively,
the valuation allowance was $7.3 million and $7.5 million. As of December 31, 2015, we have state research tax credit
carry-forwards of $4.2 million, which will expire between 2016 and 2030. 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, 2015, we have a deferred tax asset of $8.7 million relating to net operating loss carry-
forwards which will expire between 2016 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 total systems. 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 $8.7 million and $8.4 million at December 31, 2015 and
2014, 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 $7.6 million and $10.2 million at December 31, 2015
and 2014, respectively. This liability is included in other non-current liabilities in the accompanying Consolidated
Balance Sheets.
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. Our assessment of relevant
qualitative factors enabled us to confirm that the fair value of the reporting unit exceeded the carrying amount in 2015;
therefore, we did not complete a quantitative assessment. As a result, there were no impairment losses recognized
during 2015, 2014 or 2013.
20
ADTRAN 2015 ANNUAL REPORT 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
Income before provision for income taxes
Provision for income taxes
Net income
2015
2014
2013
83.2%
16.8
100.0%
55.5
44.5
20.6
21.6
2.2
0.7
(0.1)
1.7
(0.2)
4.3
(1.2)
3.1%
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%
21
Financial Results 2015 Compared to 2014
Sales
Our sales decreased 4.8% from $630.0 million in 2014 to $600.1 million in 2015. The decrease in sales is primarily attributable
to a $16.5 million decrease in sales of our Internetworking products, a $10.8 million decrease in sales of our HDSL and other
legacy products, and a $3.9 million decrease in sales of our Broadband Access products.
Carrier Networks sales decreased 2.1% from $510.4 million in 2014 to $499.4 million in 2015. The decrease in sales is
primarily attributable to decreases in sales of Broadband Access products and HDSL and other legacy products. The decrease
in sales of our Broadband Access products is primarily attributable to decreased sales in the EMEA region and the impact of
the strengthening U.S. dollar against the Euro. 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 15.9% from $119.6 million in 2014 to $100.7 million in 2015. 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 weakness in sales of IP gateway products to the CLEC and MSO markets.
Internetworking product sales attributable to Enterprise Networks were 93.8% and 93.6% of the division’s sales in 2015
and 2014. Legacy products primarily comprise the remainder of Enterprise Networks sales. Enterprise Networks sales
as a percentage of total sales decreased from 19.0% in 2014 to 16.8% in 2015.
International sales, which are included in the Carrier Networks and Enterprise Networks amounts discussed above,
decreased 27.3% from $248.6 million in 2014 to $180.7 million in 2015. International sales, as a percentage of total sales,
decreased from 39.5% in 2014 to 30.1% in 2015. The decrease in international sales is primarily attributable to decreases
in sales in the EMEA region, Latin America, and the Asia-Pacific region.
Carrier Systems product sales decreased $9.3 million in 2015 compared to 2014 primarily due to a $3.9 million decrease
in Broadband Access product sales and a $6.6 million decrease in legacy product sales. The decrease in Carrier Systems
product sales is primarily attributable to the factors discussed above.
Business Networking product sales decreased $17.3 million in 2015 compared to 2014 primarily due to a $17.6 million
decrease in Internetworking product sales in the EN division, partially offset by a $1.1 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 $3.4 million in 2015 compared to 2014 primarily due to a $2.5 million decrease in
HDSL product sales, which is further discussed above.
Cost of Sales
As a percentage of sales, cost of sales increased from 50.6% in 2014 to 55.5% in 2015. The increase is primarily attributable
to the strengthening of the U.S. dollar against the Euro, growth in our service-related material sales in the U.S. market, and
customer and product mix.
Carrier Networks cost of sales increased from 52.3% of sales in 2014 to 58.1% of sales in 2015. The increase in Carrier
Networks cost of sales as a percentage of sales is primarily attributable to the strengthening of the U.S. dollar against the
Euro, growth in our service-related material sales in the U.S. market, and customer and product mix.
Enterprise Networks cost of sales decreased from 43.1% of sales in 2014 to 42.8% of sales in 2015. The decrease in
Enterprise Networks cost of sales as a percentage of sales is primarily attributable to product to services mix.
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.
22
ADTRAN 2015 ANNUAL REPORT Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 6.4% from $132.0 million in 2014 to $123.5 million in 2015.
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 attributable to decreases in compensation expense, travel expense, and
independent contractor expense, partially offset by an increase in professional services and restructuring charges.
Selling, general and administrative expenses as a percentage of sales decreased from 20.9% for the year ended December
31, 2014 to 20.6% for the year ended December 31, 2015. 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 decreased 1.8% from $132.3 million in 2014 to $129.9 million in 2015. The decrease
in research and development expenses is primarily attributable to decreases in compensation expense and independent
contractors, partially offset by an increase in engineering and testing expense and restructuring charges.
Research and development expenses as a percentage of sales increased from 21.0% for the year ended December 31, 2014
to 21.6% for the year ended December 31, 2015. 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 $5.0 million in 2014 to $4.0 million in 2015. 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, which is primarily related to our taxable revenue bond, decreased from $0.7 million in 2014 to $0.6 million
in 2015. The decrease is primarily attributable to a reduction in the principal and the impact of an interest rate reduction,
which occurred during the first quarter of 2014. See “Financing Activities” in “Liquidity and Capital Resources” below for
additional information on our taxable revenue bond.
Net Realized Investment Gain
Net realized investment gain increased from $7.3 million in 2014 to $10.3 million in 2015. The increase in realized investment
gains is primarily attributable to larger gains from the sale of equity securities in 2015. 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 $1.2 million of income in 2014 to
$1.5 million of expense in 2015. 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.
Income Taxes
Our effective tax rate increased from 25.5% in 2014 to 27.5% in 2015. The increase in the effective tax rate between the two
periods is primarily attributable to a foreign tax benefit from the elimination of a valuation allowance in 2014, partially offset
by a benefit from the closure of an audit and a higher R&D credit in 2015.
Net Income
As a result of the above factors, net income decreased from $44.6 million in 2014 to $18.6 million in 2015. As a percentage of
sales, net income decreased from 7.1% in 2014 to 3.1% in 2015.
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 2015 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
“Financing Activities” in “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 “Financing
Activities” in “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.
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, 2015, cash on hand was $84.6 million and short-term investments were $34.4 million, which placed our
short-term liquidity at $118.9 million. At December 31, 2014, our cash on hand of $73.4 million and short-term investments
of $46.9 million placed our short-term liquidity at $120.4 million. The decrease in short-term liquidity from 2014 to 2015
primarily reflects the timing of short-term cash management requirements.
Operating Activities
Our working capital, which consists of current assets less current liabilities, increased 2.6% from $232.1 million as of
December 31, 2014 to $238.1 million as of December 31, 2015. The quick ratio, defined as cash and cash equivalents, short-
term investments, and net accounts receivable, divided by current liabilities, increased from 1.75 as of December 31, 2014 to
2.06 as of December 31, 2015. The current ratio, defined as current assets divided by current liabilities, increased from 2.95 as
of December 31, 2014 to 3.57 as of December 31, 2015. The changes in our working capital, quick ratio and current ratio are
primarily attributable to a decrease in accounts payable, income taxes payable, and an increase in inventory, partially offset
by a decrease in short-term investments, accounts receivable, and other receivables. The decrease in income taxes payable is
primarily attributable to tax payments made in foreign jurisdictions during 2015. The decrease in short term investments is
primarily attributable to share repurchases during 2015.
Net accounts receivable decreased 18.7% from $88.5 million at December 31, 2014 to $71.9 million at December 31,
2015. Our allowance for doubtful accounts was $0.1 million at December 31, 2014 and $19 thousand at December 31, 2015.
Quarterly accounts receivable DSO decreased from 57 days as of December 31, 2014 to 48 days as of December 31, 2015. 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 decreased
from $33.3 million at December 31, 2014 to $19.3 million at December 31, 2015. The decrease in other receivables is primarily
attributable to the timing of filing returns and collections of value-added tax receivables in our international subsidiaries
and the collection of a receivable for additional consideration due from NSN for settlement of the working capital items at
December 31, 2014. 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 3.5 turns as of December 31, 2014 to 3.3 turns as of December 31, 2015.
Inventory increased 6.5% from December 31, 2014 to December 31, 2015. We expect 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 decreased 13.7% from $56.4 million at December 31, 2014 to $48.7 million at December 31, 2015.
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.
26
ADTRAN 2015 ANNUAL REPORT Investing Activities
Capital expenditures totaled approximately $11.8 million, $11.3 million and $8.2 million for the years ended December 31,
2015, 2014 and 2013, respectively. These expenditures were primarily used to purchase computer hardware, software,
manufacturing and test equipment, and building improvements.
Our combined short-term and long-term investments decreased $95.1 million from $327.6 million at December 31, 2014
to $232.4 million at December 31, 2015. 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, 2015, these investments included corporate bonds of $57.6 million, municipal
fixed-rate bonds of $26.4 million, asset-backed bonds of $19.2 million, mortgage/agency-backed bonds of $15.4 million
and government bonds of $35.4 million. 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.
As of December 31, 2015, our corporate bonds, municipal fixed-rate bonds, asset-backed bonds, mortgage/agency-backed
bonds, and government bonds were classified as available-for-sale and had a combined duration of 1.5 years with an average
credit rating of A+. Because our bond portfolio has a high quality rating and contractual maturities of a short duration, we
are able to obtain prices for these bonds derived from observable market inputs, or for similar securities traded in an active
market, on a daily basis.
Our long-term investments decreased 29.4% from $280.6 million at December 31, 2014 to $198.0 million at December 31,
2015. Long-term investments at December 31, 2015 and December 31, 2014 included an investment in a certificate of
deposit of $30.0 million, which serves as collateral for our revenue bond, as discussed below. We have investments in various
marketable equity securities classified as long-term investments at a cost of $31.6 million and $26.4 million, and with a fair
value of $34.3 million and $38.3 million, at December 31, 2015 and December 31, 2014, respectively.
Long-term investments at December 31, 2015 and 2014 also included $12.8 million and $16.3 million, respectively,
related to our deferred compensation plan, and $1.3 million and $1.5 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, 2015, 2014, and 2013, we recorded
charges of $0.2 million, $0.1 million and $25 thousand, respectively, related to the other-than-temporary impairment of
certain publicly traded equity securities and our deferred compensation plan assets.
27
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, and is currently outstanding in the aggregate principal
amount of $28.9 million. The estimated fair value of the bond using a level 2 valuation technique at December 31, 2015 was
approximately $28.7 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, 2015 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. We realized economic incentives related to payroll withholdings totaling $1.3 million for each
of the years ended December 31, 2015, 2014 and 2013.
We made a principal payment of $1.1 million and $16.5 million for the years ended December 31, 2015 and 2014,
respectively, and we anticipate making a principal payment in 2016. At December 31, 2015, $1.0 million of the bond debt
was classified as a current liability in accounts payable in the Consolidated Balance Sheets.
Dividends
During 2015, 2014 and 2013, we paid shareholder dividends totaling $18.4 million, $19.9 million and $21.4 million, respec-
tively. 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. The following table shows dividends paid to our
shareholders in each quarter of 2015, 2014 and 2013.
Dividends per Common Share
2015
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
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$0.09
$0.09
$0.09
$0.09
28
ADTRAN 2015 ANNUAL REPORT 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 45.0 million shares of our common stock. On July 14, 2015, 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 50.0 million), which will commence upon completion of the repurchase plan announced on May 14, 2014.
This new authorization will be implemented through open market or private purchases from time to time as conditions
warrant. For the years 2015, 2014 and 2013, we repurchased 4.0 million shares, 3.7 million shares and 5.6 million shares,
respectively, for a cost of $66.2 million, $80.6 million and $124.3 million, respectively, at an average price of $16.68, $21.96
and $22.16 per share, respectively. We currently have the authority to purchase an additional 5.8 million shares of our
common stock under the current plans 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 $1.0 million during the
year ended December 31, 2015, 0.1 million shares of treasury stock for $2.8 million during the year ended December 31, 2014,
and 0.2 million shares of treasury stock for $3.6 million during the year ended December 31, 2013.
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, 2015.
Contractual Obligations
(In millions)
Long-term debt
Interest on long-term debt
Purchase obligations
Operating lease obligations
Total
$28.9
2.3
102.2
13.7
2016
$1.0
0.6
99.8
3.8
Totals
$147.1
$105.2
2017
$—
0.6
1.7
3.1
$5.4
2018
$—
0.6
0.6
1.8
$3.0
2019
$—
0.5
0.1
0.9
$1.5
After 2019
$27.9
—
—
4.1
$32.0
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 $28.9 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 $1.1 million and $16.5 million for the
years ended December 31, 2015 and 2014, respectively. We anticipate making a principal payment in 2016. At
December 31, 2015 and 2014, $1.0 million and $1.2 million, respectively, of the bond debt were classified as a current
liability in accounts payable in the Consolidated Balance Sheets. See Note 8 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, 2015, 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 9 of Notes to Consolidated Financial Statements
for additional information.
29
Financial Results Effect of Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) 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. In August 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09 to fiscal years
beginning after December 31, 2017, including interim periods within those years. 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.
In April 2015, the FASB issued Accounting Standards Update No. 2015-05, Intangibles – Goodwill and Other –
Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (ASU
2015-05), which provides guidance on accounting for fees paid by a customer in a cloud computing arrangement. If a cloud
computing arrangement includes a software license, then the customer should account for the software license element
of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not
include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 is effective
for annual reporting periods beginning after December 15, 2015, including interim periods within those years. Early
adoption is permitted. The guidance may be applied either prospectively to all arrangements entered into or materially
modified after the effective date or retrospectively. We do not believe the adoption of ASU 2015-05 will have a material
impact on our financial position, results of operations and cash flows.
In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Inventory (Topic 330): Simplifying the
Measurement of Inventory (ASU 2015-11). Currently, Topic 330, Inventory, requires an entity to measure inventory at the
lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately
normal profit margin. ASU 2015-11 does not apply to inventory that is measured using last-in, first-out (LIFO) or the retail
inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in,
first-out (FIFO) or average cost. ASU 2015-11 requires an entity to measure in scope inventory at the lower of cost and
net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably
predictable costs of completion, disposal, and transportation. ASU 2015-11 is effective for annual reporting periods beginning
after December 15, 2016, including interim periods within those years. The guidance should be applied prospectively with
earlier application permitted as of the beginning of an interim or annual reporting period. We do not believe the adoption of
ASU 2015-05 will have a material impact on our financial position, results of operations and cash flows.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Balance Sheet Classification of Deferred
Taxes (ASU 2015-17). ASU 2015-17 amends the existing guidance on income taxes to require the classification of all
deferred tax assets and liabilities as non-current on the balance sheet. ASU 2015-17 is effective for fiscal years beginning
after December 15, 2016, including interim periods within those years. Early adoption is permitted. The guidance may be
applied either prospectively, for all deferred tax assets and liabilities, or retrospectively to all periods presented. We have not
selected a transition method or determined whether to early adopt ASU 2015-17 in 2016. Other than the revised balance
sheet presentation of current deferred tax assets and liabilities, we do not believe the adoption of ASU 2015-17 will have a
material impact on our financial position, results of operations and cash flows.
30
ADTRAN 2015 ANNUAL REPORT Subsequent Events
On January 19, 2016, 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 4, 2016. The quarterly dividend payment was $4.4 million and was paid on
February 18, 2016.
On February 8, 2016, the Board appointed Anthony Melone as a director filling a previously existing vacancy until the
2016 Annual Meeting of Stockholders.
During the first quarter and as of February 24, 2016, we have repurchased 0.6 million shares of our common stock through
open market purchases at an average cost of $18.38 per share. We currently have the authority to purchase an additional
5.2 million shares of our common stock under the current plan approved by the Board of Directors.
We are currently evaluating the way the Company’s chief operating decision maker reviews and measures performance of
the business. The conclusions of this evaluation may have an impact on our future presentation of our reportable segments.
31
Financial Results Quantitative and Qualitative Disclosures
About Market Risk
We are exposed to financial market risks, including changes in interest rates, foreign currency 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, fixed-rate bonds, and municipal money market instruments
denominated in U.S. 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, 2015,
$80.8 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, 2015, approximately $169.6 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, 2015, we held
$62.8 million of cash and variable-rate investments where a change in interest rates would impact our interest income. A
hypothetical 50 bps decline in interest rates as of December 31, 2015 would reduce annualized interest income on our cash
and investments by approximately $0.3 million. In addition, we held $106.1 million of fixed-rate 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, 2015
would reduce the fair value of our fixed-rate bonds by approximately $0.8 million.
As of December 31, 2014, interest income on approximately $258.4 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, 2014 would have reduced annualized interest income on our cash, money
market instruments, floating rate corporate bonds and municipal variable rate demand notes by approximately $0.5 million.
In addition, a hypothetical 50 bps increase in interest rates as of December 31, 2014 would have reduced the fair value of our
municipal and corporate bonds by approximately $1.1 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 some international customers, expenses, and assets and liabilities held in non-functional
currencies related to our foreign subsidiaries. Our primary exposures to foreign currency exchange rates are with our Mexican
subsidiary, whose functional currency is the United States dollar, 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 predominately 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. All non-functional currencies billed would result in a combined
hypothetical gain or loss of $0.1 million if the U.S. dollar weakened or strengthened 10% against the billing currencies.
Any gain or loss may be partially mitigated by these derivative instruments.
As of December 31, 2015, we had no material contracts, other than accounts receivable, accounts payable, and loans to
a subsidiary, denominated in foreign currencies. As of December 31, 2015, we had no forward contracts outstanding.
For further information about the fair value of our available-for-sale investments and our derivative and hedging
activities as of December 31, 2015, see Notes 3 and 4 of Notes to Consolidated Financial Statements.
32
ADTRAN 2015 ANNUAL REPORT 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, 2015 and December 31, 2014 and the results of
their operations and their cash flows for each of the three years in the period ended December 31, 2015 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, 2015, 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, 2016
33
Financial Results Financial Statements
ADTRAN, INC.
Consolidated Balance Sheets
December 31, 2015 and 2014
(In thousands, except per share amounts)
Assets
Current Assets
Cash and cash equivalents
Short-term investments
Accounts receivable, less allowance for doubtful accounts of
$19 and $136 at December 31, 2015 and 2014, respectively
Other receivables
Inventory, net
Prepaid expenses and other current assets
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
2015
2014
$84,550
34,396
71,917
19,321
91,533
10,145
18,924
330,786
73,233
18,091
3,492
9,276
198,026
$632,904
$48,668
16,615
12,108
12,857
2,395
92,643
7,965
24,236
27,900
152,744
$73,439
46,919
88,502
33,295
85,948
5,891
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
Commitments and contingencies (see Note 12)
Stockholders’ Equity
Common stock, par value $0.01 per share; 200,000 shares authorized;
79,652 shares issued and 49,558 shares outstanding at December 31, 2015
and 79,652 shares issued and 53,431 shares outstanding at December 31, 2014
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Less treasury stock at cost: 30,094 and 26,221 shares at December 31, 2015
and 2014, respectively
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
See notes to consolidated financial statements.
797
246,879
(8,969)
906,772
797
241,829
(75)
907,751
(665,319)
(601,289)
480,160
$632,904
549,013
$738,694
34
ADTRAN 2015 ANNUAL REPORT ADTRAN, INC.
Consolidated Statements of Income
Years ended December 31, 2015, 2014 and 2013
(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
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.
2015
$600,064
333,167
266,897
123,542
129,876
13,479
3,953
(596)
10,337
(1,465)
25,708
(7,062)
$18,646
51,145
51,267
$0.36
$0.36
2014
$630,007
2013
$641,744
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
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
35
Financial Results ADTRAN, INC.
Consolidated Statements of Comprehensive Income
Years ended December 31, 2015, 2014 and 2013
(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.
2015
$18,646
(7,032)
1,862
(3,724)
$(8,894)
$9,752
2014
$44,620
(1,773)
(4,866)
(4,189)
$(10,828)
$33,792
2013
$45,794
629
1,061
(2,205)
$(515)
$45,279
36
ADTRAN 2015 ANNUAL REPORT ADTRAN, INC.
Consolidated Statements of Changes in Stockholders’ Equity
Years ended December 31, 2015, 2014 and 2013
(In thousands)
Balance, December 31, 2012
Net income
Other comprehensive loss, net of tax
Dividend payments
Dividends accrued for unvested
restricted stock units
Stock options exercised: 191 shares
RSUs and restricted stock vested:
26 shares
Purchase of treasury stock:
5,608 shares
Income tax effect of stock
compensation arrangements
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
$224,517
$861,465
$(405,641)
$11,268
$692,406
45,794
(21,412)
(23)
(762)
(611)
4,391
611
(515)
45,794
(515)
(21,412)
(23)
3,629
(248)
(124,267)
(124,267)
169
9,073
(248)
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: 147 shares
RSUs and restricted stock vested:
35 shares
Purchase of treasury stock:
3,669 shares
Income tax effect of stock
compensation arrangements
Stock-based compensation expense
44,620
(19,947)
(19)
(558)
(796)
3,397
796
(80,576)
(326)
81
8,563
(10,828)
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
Net income
Other comprehensive loss, net of tax
Dividend payments
Dividends accrued for unvested
restricted stock units
Stock options exercised: 60 shares
RSUs and restricted stock vested:
34 shares
Purchase of treasury stock:
3,967 shares
Income tax effect of stock
compensation arrangements
Stock-based compensation expense
(8,894)
18,646
(18,449)
(7)
(402)
(767)
1,363
767
(66,160)
(69)
(1,593)
6,712
18,646
(8,894)
(18,449)
(7)
961
(69)
(66,160)
(1,593)
6,712
Balance, December 31, 2015
79,652
$797
$246,879
$906,772
$(665,319)
$(8,969)
$480,160
See notes to consolidated financial statements.
37
Financial Results ADTRAN, INC.
Consolidated Statements of Cash Flows
Years ended December 31, 2015, 2014 and 2013
(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 loss on disposal of property, plant, and equipment
Stock-based compensation expense
Deferred income taxes
Tax impact 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
2015
2014
2013
$18,646
$44,620
$45,794
14,245
2,402
(10,337)
644
6,712
(692)
(40)
(3)
14,918
11,704
(6,877)
(5,070)
(5,826)
(10,289)
(11,590)
18,547
14,845
4,360
(7,278)
142
8,563
(5,526)
81
(63)
(3,910)
(19,298)
2,144
(3,818)
9,973
(166)
11,168
55,837
14,628
5,956
(8,614)
3
9,073
(4,058)
169
(158)
(6,742)
(348)
9,502
752
5,206
(15,146)
3,747
59,764
(11,753)
(11,256)
(8,173)
183
1
—
Proceeds from sales and maturities of available-for-sale investments
280,435
230,019
343,567
Purchases of available-for-sale investments
Net cash provided by 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
(188,921)
(142,695)
(261,625)
79,944
76,069
73,769
961
(66,160)
(18,449)
(1,100)
3
2,839
(80,576)
(19,947)
(16,500)
63
3,629
(124,267)
(21,412)
—
158
(84,745)
(114,121)
(141,892)
13,746
(2,635)
73,439
17,785
(2,644)
58,298
$84,550
$73,439
(8,359)
(1,800)
68,457
$58,298
$598
$20,139
$758
$9,856
$2,325
$15,431
Purchases of property, plant and equipment included in accounts payable
$598
$467
$444
See notes to consolidated financial statements.
38
ADTRAN 2015 ANNUAL REPORT 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 many of the
United States’ and the world’s largest SPs, 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 reclassified $2.3 million from other receivables to accounts receivable and $0.8 million from inventory to prepaid expenses
and other current assets at December 31, 2014 to conform to the current period presentation.
Out of Period Adjustment
In connection with the preparation of our Consolidated Financial Statements, we recorded corrections of certain out of
period, immaterial misstatements that occurred in prior periods, the most significant of which resulted in an increase in Other
Expense of $1.3 million in the first quarter of 2015. The aggregate impact of the corrections was a $0.3 million reduction to
pre-tax income for the year ended December 31, 2015 and was not material to the current or prior year’s annual results.
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, 2015, $80.8 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 $28.9 million, compared to an estimated fair value of $28.7 million, based on
a debt security with a comparable interest rate and maturity and a Standard & Poor’s credit rating of AAA.
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.
39
Financial Results
Long-term investments represent a restricted certificate of deposit held at cost, deferred compensation plan assets,
corporate bonds, municipal fixed-rate bonds, asset-backed bonds, mortgage/agency backed bonds, government bonds,
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, 2015 and 2014 are classified as available-for-sale securities. See Note 3 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 and payment terms are established for each new customer, and are
reviewed periodically based on customer collection experience and other financial factors, for revision. At December 31,
2015, three customers accounted for 37.3% of our total accounts receivable. At December 31, 2014, two customers
accounted for 24.5% 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 $19 thousand and $0.1 million at December 31, 2015 and December 31, 2014, respectively.
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, 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 5 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. Gains and losses on the disposal of property, plant and equipment are recorded in
operating expenses. See Note 6 of Notes to Consolidated Financial Statements for additional information.
40
ADTRAN 2015 ANNUAL REPORT 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 total systems. 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 $8.7 million and $8.4 million at December 31, 2015 and 2014, 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, 2015, 2014 and 2013 is as follows:
(In thousands)
Year Ended December 31,
Balance at beginning of period
Plus: Amounts charged to cost and expenses
Less: Deductions
Balance at end of period
2015
$8,415
2,998
(2,674)
$8,739
2014
$8,977
3,103
(3,665)
$8,415
2013
$9,653
4,051
(4,727)
$8,977
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 2015, 2014, and 2013. 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 2015, 2014 and 2013 was approximately $6.7 million, $8.6 million and
$9.1 million, respectively. As of December 31, 2015, total compensation cost related to non-vested stock options, restricted
stock units and restricted stock not yet recognized was approximately $14.8 million, which is expected to be recognized over
an average remaining recognition period of 2.7 years. See Note 2 of Notes to Consolidated Financial Statements for additional
information.
41
Financial Results 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 2015, 2014 or 2013.
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 2015, 2014 or 2013. 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 $129.9 million, $132.3 million and $131.1 million for the years
ended December 31, 2015, 2014 and 2013, 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, 2013, 2014 and 2015:
Unrealized Gains
(Losses) on
Available-for-Sale
Securities
Defined
Benefit Plan
Adjustments
Foreign
Currency
Adjustments
$10,108
$(1,952)
$3,112
(2,205)
—
$907
Total
$11,268
4,364
(4,879)
$10,753
(4,189)
(6,692)
1,061
—
$(891)
(4,866)
—
—
$(5,757)
$(3,282)
1,589
(3,724)
(4,136)
$(75)
(2,979)
273
—
(5,915)
$(3,895)
$(7,006)
$(8,969)
5,508
(4,879)
$10,737
2,363
(4,136)
$8,964
(844)
(6,188)
$1,932
(In thousands)
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
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from accumulated other
comprehensive income
Balance at December 31, 2015
42
ADTRAN 2015 ANNUAL REPORT The following tables present the details of reclassifications out of accumulated other comprehensive income for the years
ended December 31, 2015, 2014 and 2013:
(In thousands)
2015
Details about Accumulated Other
Comprehensive Income Components
Unrealized gains (losses) on available-for-sale securities:
Net realized gain on sales of securities
Impairment expense
Defined benefit plan adjustments – actuarial losses
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
$10,348 Net realized investment gain
(203) Net realized investment gain
(396)
(1)
9,749
(3,834)
$5,915
(1) Included in the computation of net periodic pension cost. See Note 10 of Notes to Consolidated Financial Statements.
(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
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
43
Financial Results The following tables present the tax effects related to the change in each component of other comprehensive income for the
years ended December 31, 2015, 2014 and 2013:
(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)
(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
2015
Tax (Expense) Benefit
Net-of-Tax Amount
$(1,384)
(9,749)
2,303
(3,724)
$(12,554)
$540
3,834
(714)
—
$3,660
(844)
(5,915)
1,589
(3,724)
$(8,894)
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)
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)
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 exposures to foreign currency exchange rate movements are with our Mexican subsidiary,
whose functional currency is the United States dollar, 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).
44
ADTRAN 2015 ANNUAL REPORT 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 Ex Works, per International Commercial Terms. 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. 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 VARs and SIs. VARs and SIs may be affiliated with us as a channel partner, or they may purchase from the
distributor in an unaffiliated fashion. Additionally, with certain limitations our distributors may return unused and
unopened product for stock-balancing purposes when such returns are accompanied by offsetting orders for products
of equal or greater value.
We participate in cooperative advertising and market development programs with certain customers. We use these
programs to reimburse customers for certain forms of advertising, and in general, to allow our customers credits up
to a specified percentage of their net purchases. Our costs associated with these programs are estimated and included
in marketing expenses in our consolidated statements of income. We also participate in rebate programs to provide sales
incentives for certain products. Our costs associated with these programs are estimated and accrued at the time of sale,
and are recorded as a reduction of sales in our consolidated statements of income.
Unearned Revenue
Unearned revenue primarily represents customer billings on our maintenance service programs and unearned revenues
relating to multiple element contracts where we still have contractual obligations to our customers. We currently offer
maintenance contracts ranging from one to five years, primarily on Enterprise Networks Division products sold through
distribution channels. Revenue attributable to maintenance contracts is recognized on a straight-line basis over the related
contract term. In addition, we provide software maintenance and a variety of hardware maintenance services to Carrier
Networks Division customers under contracts with terms up to ten years. When we defer revenue related to multiple-element
contracts where we still have contractual obligations, we also defer the related costs. Deferred costs are included in prepaid
expenses and other assets and totaled $5.2 million and $0.8 million at December 31, 2015 and 2014, respectively.
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.
45
Financial Results 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 13 of
Notes to Consolidated Financial Statements for additional information.
Dividends
During 2015, 2014 and 2013, we paid shareholder dividends totaling $18.4 million, $19.9 million and $21.4 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. The following table shows
dividends paid to our shareholders in each quarter of 2015, 2014 and 2013.
Dividends per Common Share
2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2014
2013
$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
On January 19, 2016, 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 4, 2016. The ex-dividend date was February 2, 2016
and the payment date was February 18, 2016. The quarterly dividend payment was $4.4 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.
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (FASB) 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. In
August 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09 to fiscal years beginning after
December 31, 2017, including interim periods within those years. 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.
In April 2015, the FASB issued Accounting Standards Update No. 2015-05, Intangibles – Goodwill and Other –
Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement
(ASU 2015-05), which provides guidance on accounting for fees paid by a customer in a cloud computing arrangement.
If a cloud computing arrangement includes a software license, then the customer should account for the software license
element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does
not include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 is effective
for annual reporting periods beginning after December 15, 2015, including interim periods within those years. Early adoption
is permitted. The guidance may be applied either prospectively to all arrangements entered into or materially modified after
the effective date or retrospectively. We do not believe the adoption of ASU 2015-05 will have a material impact on our
financial position, results of operations and cash flows.
46
ADTRAN 2015 ANNUAL REPORT In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Inventory (Topic 330): Simplifying the
Measurement of Inventory (ASU 2015-11). Currently, Topic 330, Inventory, requires an entity to measure inventory at the
lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately
normal profit margin. ASU 2015-11 does not apply to inventory that is measured using last-in, first-out (LIFO) or the retail
inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in,
first-out (FIFO) or average cost. ASU 2015-11 requires an entity to measure in scope inventory at the lower of cost and net
realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably
predictable costs of completion, disposal, and transportation. ASU 2015-11 is effective for annual reporting periods beginning
after December 15, 2016, including interim periods within those years. The guidance should be applied prospectively with
earlier application permitted as of the beginning of an interim or annual reporting period. We do not believe the adoption
of ASU 2015-05 will have a material impact on our financial position, results of operations and cash flows.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Balance Sheet Classification of Deferred
Taxes (ASU 2015-17). ASU 2015-17 amends the existing guidance on income taxes to require the classification of all
deferred tax assets and liabilities as non-current on the balance sheet. ASU 2015-17 is effective for fiscal years beginning
after December 15, 2016, including interim periods within those years. Early adoption is permitted. The guidance may be
applied either prospectively, for all deferred tax assets and liabilities, or retrospectively to all periods presented. We have not
selected a transition method or determined whether to early adopt ASU 2015-17 in 2016. Other than the revised balance
sheet presentation of current deferred tax assets and liabilities, we do not believe the adoption of ASU 2015-17 will have a
material impact on our financial position, results of operations and cash flows.
2 Stock Incentive Plans
Stock Incentive Program Descriptions
On January 23, 2006, the Board of Directors adopted the ADTRAN, Inc. 2006 Employee Stock Incentive Plan (2006 Plan),
which authorized 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. The 2006 Plan was
replaced on May 13, 2015 by the ADTRAN, Inc. 2015 Employee Stock Incentive Plan (2015 Plan). Expiration dates of options
outstanding at December 31, 2015 under the 2006 Plan range from 2016 to 2025.
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. Expiration dates of options outstanding under
both plans at December 31, 2015 range from 2016 to 2019.
On January 20, 2015, the Board of Directors adopted the 2015 Plan, which authorizes 7.7 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 2015 Plan was adopted by stockholder approval at our
annual meeting of stockholders held on May 13, 2015. Restricted stock and restricted stock units granted under the 2015 Plan
reduce the shares authorized for issuance under the 2015 Plan by 2.5 shares of common stock for each share underlying the
award. Options granted under the 2015 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, 2015 under the 2015 Plan are in the year 2025.
47
Financial Results The following table summarizes stock-based compensation expense related to stock options, RSUs and restricted stock for
the years ended December 31, 2015, 2014 and 2013, 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
2015
$280
3,261
3,171
6,432
6,712
(862)
$5,850
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
At December 31, 2015, total compensation cost related to non-vested stock options not yet recognized was approximately
$13.3 million, which is expected to be recognized over an average remaining recognition period of 2.8 years.
Stock Options
The following table is a summary of our stock options outstanding as of December 31, 2014 and 2015 and the changes that
occurred during 2015:
(In thousands, except per share amounts)
Options outstanding, December 31, 2014
Options granted
Options exercised
Options forfeited
Options expired
Options outstanding, December 31, 2015
Options vested and expected to vest,
December 31, 2015
Options exercisable, December 31, 2015
Number of
Options
Weighted
Average
Exercise Price
Weighted Average
Remaining Contractual
Life in Years
Aggregate
Intrinsic
Value
6,981
1,204
(60)
(289)
(728)
7,108
6,954
4,506
$23.62
$15.35
$16.00
$20.86
$27.75
$21.97
$22.09
$24.29
6.45
$10,625
6.42
6.35
4.93
$3,284
$3,094
$978
All of the options above were issued at exercise prices that approximated fair market value at the date of grant.
At December 31, 2015, 6.7 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 2015 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, 2015. 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 2015, 2014 and 2013 was $0.1 million, $0.7 million and
$1.1 million, respectively. The fair value of options fully vesting during 2015, 2014 and 2013 was $6.6 million, $7.7 million
and $7.7 million, respectively.
The following table further describes our stock options outstanding as of December 31, 2015:
Range of
Exercise Prices
$14.88 – 16.96
$16.97 – 18.97
$18.98 – 23.46
$23.47 – 29.71
$29.72 – 41.92
Options Outstanding
Options
Outstanding
at 12/31/15
(in thousands)
Weighted Avg.
Remaining
Contractual Life
in Years
1,628
1,798
1,290
967
1,425
7,108
8.03
8.02
2.65
7.43
5.29
Weighted
Average
Exercise
Price
$15.32
$18.14
$23.08
$24.15
$31.94
Options Exercisable
Options
Exercisable
at 12/31/15
(in thousands)
Weighted
Average
Exercise
Price
430
827
1,288
536
1,425
4,506
$15.27
$17.63
$23.08
$24.38
$31.94
48
ADTRAN 2015 ANNUAL REPORT Restricted Stock and RSUs
Under the 2015 Plan, awards other than stock options, including restricted stock and RSUs, may be granted to certain
employees and officers. The number of shares of common stock earned by a recipient pursuant to the RSUs is subject
to a market condition based on ADTRAN’s relative total shareholder return against all companies in the NASDAQ
Telecommunications Index at the end of a three-year performance period. Depending on the relative total shareholder
return over the performance period, the recipient may earn from 0% to 150% of the shares underlying the RSUs, with the
shares earned distributed upon the vesting of the RSUs at the end of the three-year performance period. The fair value of
the award is based on the market price of our common stock on the date of grant, adjusted for the expected outcome of
the impact of market conditions using a Monte Carlo Simulation valuation method. A portion of the granted RSUs also
vest and the underlying shares become deliverable upon the death or disability of the recipient or upon a change of control
of ADTRAN, as defined by the 2015 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, 2014 and 2015 and the
changes that occurred during 2015:
(In thousands except per share amounts)
Unvested RSUs and restricted stock outstanding, December 31, 2014
RSUs and restricted stock granted
RSUs and restricted stock vested
RSUs and restricted stock forfeited
Adjustments to shares granted due to shares earned at vesting
Unvested RSUs and restricted stock outstanding, December 31, 2015
Number
of Shares
Weighted
Average Grant
Date Fair Value
104
57
(38)
(12)
(5)
106
$22.81
$17.47
$20.71
$23.10
$19.90
$21.09
At December 31, 2015, total compensation cost related to the non-vested portion of RSUs and restricted stock not yet
recognized was approximately $1.5 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 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
changes made during 2015 to the methodology used to determine our assumptions.
49
Financial Results The weighted-average estimated fair value of stock options granted to employees during the years ended December 31,
2015, 2014 and 2013 was $4.28 per share, $6.31 per share and $8.35 per share, respectively, with the following weighted-
average assumptions:
Expected volatility
Risk-free interest rate
Expected dividend yield
Expected live (in years)
2015
34.57%
1.81%
2.35%
6.23
2014
39.05%
1.79%
1.90%
6.33
2013
39.92%
1.71%
1.52%
6.36
We based our estimate of expected volatility for the years ended December 31, 2015, 2014 and 2013 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, 2015, 2014 and 2013 was
$17.64 per share, $22.11 per share and $27.72 per share, respectively, with the following assumptions:
Expected volatility
Risk-free interest rate
Expected dividend yield
2015
31.34%
1.20%
2.35%
2014
36.40%
0.96%
1.89%
2013
38.83%
0.61%
1.52%
Stock-based compensation expense recognized in our Consolidated Statements of Income for the years ended
December 31, 2015, 2014 and 2013 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 3.7% 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.
50
ADTRAN 2015 ANNUAL REPORT Investments
3
At December 31, 2015, 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
Asset-backed bonds
Mortgage/Agency-backed bonds
Government bonds
Marketable equity securities
Available-for-sale securities held at fair value
$198,100
Restricted investment held at cost
Other investments held at cost
Total carrying value of available-for-sale investments
Amortized
Cost
$11,325
Gross
Unrealized
Gains
$1,575
58,328
26,414
19,281
15,463
35,646
31,643
20
28
2
1
—
4,301
$5,927
Gross
Unrealized
Losses
$(66)
(734)
(18)
(44)
(91)
(248)
(1,693)
Fair Value/
Carrying
Value
$12,834
57,614
26,424
19,239
15,373
35,398
34,251
$(2,894)
$201,133
30,000
1,289
$232,422
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
As of December 31, 2015, corporate and municipal fixed-rate bonds had the following contractual maturities:
Asset-backed
bonds
Mortgage/
Agency-
backed bonds
Government
bonds
(In thousands)
Less than one year
One to two years
Two to three years
Three to five years
Five to ten years
More than ten years
Total
Corporate
bonds
$14,852
23,364
19,398
—
—
—
Municipal
fixed-rate
bonds
$19,544
4,982
1,679
219
—
—
$—
238
6,126
9,337
3,235
303
$57,614
$26,424
$19,239
$—
1,000
2,495
—
603
11,275
$15,373
$—
2,949
17,264
15,185
—
—
$35,398
51
Financial Results Our investment policy provides limitations for issuer concentration, which limits, at the time of purchase, the concentra-
tion 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, 2015, 2014 and 2013, we recorded a charge of $0.2
million, $0.1 million and $25 thousand, respectively, related to the other-than-temporary impairment of certain marketable
equity securities and our deferred compensation plan assets.
Realized gains and losses on sales of securities are computed under the specific identification method. The following table
presents gross realized gains and losses related to our investments for the years ended December 31, 2015, 2014 and 2013:
(In thousands)
Year Ended December 31,
Gross realized gains
Gross realized losses
2015
$10,906
$(569)
2014
$7,586
$(308)
2013
$8,932
$(318)
The following table presents the breakdown of investments with unrealized losses at December 31, 2015:
(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
Asset-backed bonds
Mortgage/Agency-backed bonds
Government bonds
Marketable equity securities
Total
$1,243
35,952
9,160
16,857
15,216
35,397
14,364
$128,189
$(53)
(566)
(18)
(44)
(91)
(248)
(1,564)
$(2,584)
$92
3,042
—
—
—
—
374
$3,508
$(13)
(168)
—
—
—
—
(129)
$(310)
$1,335
38,994
9,160
16,857
15,216
35,397
14,738
$131,697
$(66)
(734)
(18)
(44)
(91)
(248)
(1,693)
$(2,894)
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 increase in unrealized losses during 2015, as reflected in the table above results from changes in market positions
associated with our equity investment portfolio. At December 31, 2015, a total of 594 of our marketable equity securities
were in an unrealized loss position.
52
ADTRAN 2015 ANNUAL REPORT 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, 2015 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
Commercial paper
Cash equivalents
Available-for-sale securities
Deferred compensation plan assets
Available-for-sale debt securities
Corporate bonds
Municipal fixed-rate bonds
Asset-backed bonds
Mortgage/Agency-backed bonds
Government bonds
Available-for-sale marketable equity securities
Marketable equity securities—
technology industry
Marketable equity securities—other
Available-for-sale securities
Total
5,384
28,867
201,133
$214,100
Fair Value Measurements at December 31, 2014 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
9,661
28,594
296,062
$297,225
$1,271
11,696
12,967
12,834
57,614
26,424
19,239
15,373
35,398
$1,163
16,294
111,261
127,787
2,465
$1,271
—
1,271
12,834
—
—
—
—
35,398
5,384
28,867
82,483
$83,754
$—
11,696
11,696
—
57,614
26,424
19,239
15,373
—
—
—
118,650
$130,346
$—
$—
$—
—
—
—
—
—
—
—
—
—
$—
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
$—
—
—
—
—
—
—
—
$—
53
Financial Results The fair value of our Level 2 securities is calculated using a weighted average market price for each security. Market prices
are obtained from a variety of industry standard data providers, security master files from large financial institutions, and other
third-party sources. These multiple market prices are used as inputs into a distribution-curve-based algorithm to determine
the daily market value of each security.
Our municipal variable rate demand notes have a structure that implies a standard expected market price. The frequent
interest rate resets make it reasonable to expect the price to stay at par. These securities are priced at the expected market price.
4 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, 2015, we had no forward contracts outstanding.
The fair values of our derivative instruments recorded in the Consolidated Balance Sheet as of December 31, 2015 and
2014 were as follows:
(In thousands)
Balance Sheet Location
2015
Derivatives Not Designated as Hedging Instruments (Level 2):
Foreign exchange contracts – asset derivatives
Foreign exchange contracts – liability derivatives
Other receivables
Accounts payable
$—
$—
2014
$249
$(10)
The change in the fair values of our derivative instruments recorded in the Consolidated Statements of Income during the
years ended December 31, 2015 and 2014 were as follows:
(In thousands)
Income Statement Location
Derivatives Not Designated as Hedging Instruments:
Foreign exchange contracts
Other income (expense)
2015
$511
2014
$1,852
Inventory
5
At December 31, 2015 and 2014, inventory was comprised of the following:
(In thousands)
Raw materials
Work in process
Finished goods
Total Inventory, net
2015
$34,223
2,893
54,417
$91,533
2014
$34,831
3,750
47,367
$85,948
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, 2015 and 2014, raw materials reserves totaled $17.5 million and $16.9 million, respectively, and
finished goods inventory reserves totaled $9.2 million and $7.8 million, respectively.
54
ADTRAN 2015 ANNUAL REPORT 6 Property, Plant and Equipment
At December 31, 2015 and 2014, 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
2015
$4,575
25,667
68,301
17,347
76,389
112,132
304,411
(231,178)
$73,233
2014
$4,575
22,374
68,301
16,468
74,603
109,501
295,822
(220,994)
$74,828
Depreciation expense was $12.3 million, $12.5 million and $12.2 million in 2015, 2014, and 2013, respectively.
7 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, 2015 and 2014. 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 2015, we concluded that it was not necessary to perform the two-step impair-
ment test. There have been no impairment losses recognized since the acquisition in 2011.
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, 2015 and 2014:
(In thousands)
Customer relationships
Developed technology
Intellectual property
Trade names
Other
Total
2015
Accumulated
Amortization
Gross Value
$5,828
5,720
2,340
270
11
$(2,627)
(4,329)
(1,854)
(265)
(11)
2014
Accumulated
Amortization
Gross Value
$6,310
6,005
2,340
270
12
$(2,136)
(3,577)
(1,520)
(205)
(11)
Net
Value
$3,201
1,391
486
5
—
Net
Value
$4,174
2,428
820
65
1
$14,169
$(9,086)
$5,083
$14,937
$(7,449)
$7,488
Amortization expense was $1.9 million, $2.3 million and $2.4 million for the years ended December 31, 2015, 2014 and
2013, respectively.
As of December 31, 2015, the estimated future amortization expense of intangible assets is as follows:
(In thousands)
2016
2017
2018
2019
2020
Thereafter
Total
Amount
$1,657
1,150
694
301
279
1,002
$5,083
55
Financial Results 8 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, and is currently outstanding in the aggregate principal amount of $28.9 million. The esti-
mated fair value of the bond using a level 2 valuation technique at December 31, 2015 was approximately $28.7 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, 2015 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. We realized economic incentives related to payroll withholdings totaling $1.3 million for each
of the years ended December 31, 2015, 2014 and 2013.
We made a principal payment of $1.1 million and $16.5 million for the years ended December 31, 2015 and 2014,
respectively. At December 31, 2015, $1.0 million of the bond debt was classified as a current liability in accounts payable
in the Consolidated Balance Sheets.
Income Taxes
9
A summary of the components of the provision for income taxes for the years ended December 31, 2015, 2014 and 2013
is as follows:
(In thousands)
Current
Federal
State
International
Total Current
Deferred
Federal
State
International
Total Deferred
2015
2014
2013
$7,504
279
(29)
7,754
(585)
(66)
(41)
(692)
$7,626
599
12,587
20,812
(1,083)
(123)
(4,320)
(5,526)
$15,641
2,041
1,437
19,119
(3,606)
(412)
(40)
(4,058)
$15,061
Total Provision for Income Taxes
$7,062
$15,286
56
ADTRAN 2015 ANNUAL REPORT 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
2015
35.00%
4.86
(12.55)
2.10
(1.94)
(5.04)
6.91
(3.17)
1.30
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
27.47%
25.52%
24.75%
Income before provision for income taxes for the years ended December 31, 2015, 2014 and 2013 is as follows:
(In thousands)
U.S. entities
International entities
Total
2015
$27,400
(1,692)
$25,708
2014
$23,812
36,094
$59,906
2013
$51,752
9,103
$60,855
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
Accrued expenses
Intellectual property
Investments
Total Non-current Deferred Tax Liabilities
Net Deferred Tax Assets
2015
2014
$7
12,558
6,359
18,924
—
5,072
4,704
1,026
5,729
5,389
4,187
5,886
(7,250)
24,743
$43,667
$(3,315)
(2,791)
(476)
(70)
$(6,652)
$37,015
$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
57
Financial Results At December 31, 2015 and 2014, 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 $3.7 million and $3.3 million in 2015 and 2014, respectively, is recorded as an adjustment to other comprehensive income,
presented in the Consolidated Statements of Comprehensive Income.
Based upon our results of operations in 2015 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, 2015, 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 $16.3 million will expire between 2016 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 2015, 2014 and 2013, we recorded an income tax benefit (expense) of ($40) thousand, $0.1 million and
$0.2 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, 2015, 2014 and 2013 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
2015
$3,334
—
280
(29)
(103)
(945)
$2,537
2014
$3,240
—
522
—
—
(428)
$3,334
2013
$2,926
89
549
—
(141)
(183)
$3,240
As of December 31, 2015, 2014, and 2013, our total liability for unrecognized tax benefits was $2.5 million, $3.3 million,
and $3.2 million, respectively, of which $1.8 million, $2.6 million, and $2.5 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, 2015, 2014
and 2013, the balances of accrued interest and penalties were $0.9 million, $1.0 million and $1.0 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 2013.
58
ADTRAN 2015 ANNUAL REPORT 10 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, 2015 and 2014, 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 (unfunded) status at end of period
2015
2014
$(30,507)
$(23,354)
(1,314)
(615)
2,325
81
3,179
(1,189)
(836)
(8,166)
2
3,036
$(26,851)
$(30,507)
$20,338
988
(2,113)
$19,213
$(7,638)
$20,773
2,315
(2,750)
$20,338
$(10,169)
The accumulated benefit obligation was $25.1 million and $29.2 million at December 31, 2015 and 2014, respectively. The
decrease in the accumulated benefit obligation and the change in actuarial gain (loss) is primarily attributable to an increase in
the discount rate used in 2015 to determine the accumulated benefit obligation.
The net amounts recognized in the balance sheet for the unfunded pension liability as of December 31, 2015 and 2014 are
as follows:
(In thousands)
Current liability
Non-current liability
Total
2015
$—
(7,638)
$(7,638)
2014
$—
(10,169)
$(10,169)
The components of net periodic pension cost and amounts recognized in other comprehensive income for the years ended
December 31, 2015, 2014 and 2013 are as follows:
(In thousands)
Net periodic benefit cost:
Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial losses
Net periodic benefit cost
Other changes in plan assets and benefit obligations
recognized in other comprehensive income:
Net actuarial (gain) loss
Amortization of actuarial losses
Amount recognized in other comprehensive income
Total recognized in net periodic benefit cost and
other comprehensive income
2015
$1,314
615
(1,011)
407
1,325
(2,303)
(396)
(2,699)
$(1,374)
2014
$1,189
836
(1,086)
—
939
7,052
—
7,052
$7,991
2013
$1,198
745
(1,010)
—
933
(1,061)
—
(1,061)
$(128)
59
Financial Results The amounts recognized in accumulated other comprehensive income as of December 31, 2015 and 2014 are as follows:
(In thousands)
Net actuarial (gain) loss
2015
$5,245
2014
$7,943
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, 2015, 2014 and 2013 are as follows:
Discount rates
Rate of compensation increase
Expected long-term rates of return
2015
2.20%
2.25%
5.40%
2014
3.70%
2.25%
5.40%
2013
3.50%
2.25%
5.40%
The weighted-average assumptions that were used to determine the benefit obligation at December 31, 2015 and 2014:
Discount rates
Rate of compensation increase
2015
2.64%
2.25%
2014
2.20%
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 $0.2 million will be amortized from accumulated other comprehensive income into net periodic pension cost in 2016 for
the net actuarial loss.
We do not anticipate making a contribution to this pension plan in 2016. The following pension benefit payments, which
reflect expected future service, as appropriate, are expected to be paid to participants:
(In thousands)
2016
2017
2018
2019
2020
2021-2025
Total
60
$242
401
563
739
999
5,054
$7,998
ADTRAN 2015 ANNUAL REPORT 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, 2015 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)
$3
$—
$—
Fair Value
$3
11,633
1,960
4,604
258
755
19,210
$19,213
11,633
1,960
4,604
258
755
19,210
$19,213
—
—
—
—
—
—
$—
—
—
—
—
—
—
$—
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
—
—
—
—
—
—
$—
—
—
—
—
—
—
$—
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.
61
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
($265 thousand for 2015). 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 $4.7 million, $4.5 million and
$4.5 million in 2015, 2014 and 2013, respectively.
Deferred Compensation Plans
We maintain four deferred compensation programs for certain executive management employees and our Board of Directors.
For our executive management employees, the ADTRAN, Inc. Deferred Compensation Program for Employees 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. This 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. Under
this plan, 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.
For our Board of Directors, we maintain the ADTRAN, Inc. Deferred Compensation Program for Directors. This program
allows our Board of Directors to defer all or a portion of monetary remuneration paid to the Director, including, but not
limited to, meeting fees and annual retainers. We also maintain the ADTRAN, Inc. Equity Deferral Program for Directors.
Under this plan, participants may elect to defer all or a portion of their vested employer stock awards. 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 Director.
We have set aside the plan assets for all 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
2015
2014
$12,834
$12,834
$12,834
$12,834
$16,294
$16,294
$16,294
$16,294
62
ADTRAN 2015 ANNUAL REPORT Interest and dividend income of the Trust have been included in interest and dividend income in the accompanying 2015,
2014 and 2013 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 2015 and 2014 Consolidated Balance Sheets.
Changes in the fair value of the deferred compensation liability are included as selling, general and administrative expense in
the accompanying 2015, 2014 and 2013 Consolidated Statements of Income. Based on the changes in the total fair value of the
Trust’s assets, we recorded deferred compensation income (expense) in 2015, 2014 and 2013 of $0.3 million, $(0.7) million and
$(2.8) million, respectively.
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, 2015 and 2014, this liability totaled $0.2 million.
11 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 Ac-
counting Policies” (see Note 1) to the extent that such policies affect the reported segment information. We evaluate the perfor-
mance 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, 2015, 2014 and 2013. 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
2015
2014
2013
Sales
Gross Profit
Sales
Gross Profit
Sales
Gross Profit
$499,402
100,662
$600,064
$209,284
$510,373
$243,211
$500,733
57,613
119,634
68,116
141,011
$266,897
$630,007
$311,327
$641,744
$233,206
75,680
$308,886
Sales by Product
Our three major product categories are Carrier Systems, Business Networking and Loop Access.
Carrier Systems products are used by communications SPs 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 Small Form Factor Pluggable (SFP), 10-Gigabit Fiber Small Form Factor
Pluggable (XFP), and SFP+
63
Financial Results 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
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
The table below presents sales information by product category for the years ended December 31, 2015, 2014 and 2013:
(In thousands)
Carrier Systems
Business Networking
Loop Access
Total
2015
$433,373
139,693
26,998
$600,064
2014
$442,664
156,980
30,363
$630,007
2013
$427,850
168,871
45,023
$641,744
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, 2015, 2014 and 2013:
(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
2015
2014
2013
$364,537
56,615
$368,464
55,374
$340,560
55,615
135,720
152,223
164,422
$556,872
$576,061
$560,597
25,349
17,843
$43,192
$600,064
27,829
26,117
$53,946
$630,007
41,666
39,481
$81,147
$641,744
64
ADTRAN 2015 ANNUAL REPORT The following table presents sales information by geographic area for the years ended December 31, 2015, 2014 and 2013.
International sales correlate to shipments with a non-U.S. destination.
(In thousands)
United States
Germany
Other International
Total
2015
$419,366
111,666
69,032
$600,064
2014
$381,382
150,987
97,638
$630,007
2013
$455,996
97,151
88,597
$641,744
Customers comprising more than 10% of revenue can change from year to year. Single customers comprising more than
10% of our revenue in 2015 included three customers at 20%, 17% and 14%. 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%. No other customer accounted for 10% or more of our sales in 2015, 2014 or
2013. 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 14%, 22%, and 22% of total revenue in 2015, 2014 and 2013, 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, 2015, long-lived assets, net totaled $73.2 million, which includes $68.8 million held in the United
States and $4.4 million held outside the United States. 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.
12 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, 2015, future minimum rental payments under non-cancelable operating leases with original maturities of
greater than 12 months are as follows:
(In thousands)
2016
2017
2018
2019
Thereafter
Total
$3,827
3,155
1,773
869
4,121
$13,745
Rental expense was $4.9 million, $4.7 million and $4.8 million for the years ended December 31, 2015, 2014 and 2013,
respectively.
65
Financial Results 13 Earnings per Share
A summary of the calculation of basic and diluted earnings per share (EPS) for the years ended December 31, 2015, 2014 and
2013 is as follows:
(In thousands, except for per share amounts)
2015
2014
2013
Numerator
Net Income
Denominator
$18,646
$44,620
$45,794
Weighted average number of shares—basic
51,145
55,120
59,001
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
81
41
51,267
$0.36
$0.36
304
58
55,482
$0.81
$0.80
390
33
59,424
$0.78
$0.77
For each of the years ended December 31, 2015, 2014 and 2013, 6.1 million, 4.4 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.
14 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, 2015
June 30, 2015 September 30, 2015 December 31, 2015
Net sales
Gross profit
Operating income
Net income
Earnings per common share
Earnings per common share
assuming dilution (1)
$142,835
$65,563
$1,963
$3,317
$0.06
$0.06
$160,138
$68,246
$644
$2,544
$0.05
$0.05
$158,078
$70,649
$8,072
$7,067
$0.14
$0.14
$139,013
62,439
$2,800
$5,718
$0.12
$0.12
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
(1) Assumes exercise of dilutive stock options calculated under the treasury stock method.
66
ADTRAN 2015 ANNUAL REPORT 15 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 and 2013, we incurred fees of $0.1 million for these legal services.
16 Subsequent Events
On January 19, 2016, 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 4, 2016. The quarterly dividend payment was $4.4 million and was paid on
February 18, 2016. 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.
On February 8, 2016, the Board appointed Anthony Melone as a director filling a previously existing vacancy until the
2016 Annual Meeting of Stockholders.
During the first quarter and as of February 24, 2016, we have repurchased 0.6 million shares of our common stock through
open market purchases at an average cost of $18.38 per share. We currently have the authority to purchase an
additional 5.2 million shares of our common stock under the current plan approved by the Board of Directors.
We are currently evaluating the way the Company’s chief operating decision maker reviews and measures performance of
the business. The conclusions of this evaluation may have an impact on our future presentation of our reportable segments.
67
Financial Results Directors and Executive Officers
Thomas R. Stanton
Chairman and Chief Executive Officer
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)
Anthony J. Melone
Director of the Company
Former Executive Vice President and Chief Technology
Officer for Verizon Communications
Eduard Scheiterer
Senior Vice President
Engineering and Development
James D. Wilson, Jr.
Senior Vice President
Technology and Strategy
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
Balan Nair
Director of the Company
Executive Vice President and Chief Technology Officer
of Liberty Global, Inc.
Special Counsel
Dentons US LLP
Atlanta, Georgia
Form 10-K
ADTRAN’s 2015 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 2016 Annual Meeting of Stockholders will be held
at ADTRAN corporate headquarters, 901 Explorer
Boulevard, Huntsville, Alabama, on Wednesday,
May 11, 2016, at 10:30 a.m. Central time.
Roy J. Nichols
Director of the Company
Founder and 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
Roger D. Shannon
Senior Vice President of Finance, Chief Financial Officer,
Corporate Secretary and Treasurer
Raymond R. Schansman
Senior Vice President
Global Services and Support
68
ADTRAN 2015 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
Basingstoke, Hampshire, United Kingdom
ADTRAN Canada, Inc.
Montreal and Toronto, Canada
ADTRAN Networks S.A. de C.V.
Mexico, D.F., Mexico
ADTRAN Networks & Services S. de R.L. 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 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 Sp. z.o.o.
Warsaw, Poland
ADTRAN s.r.o.
Bratislava, Slovakia
ADTRAN Switzerland GmbH
Zurich, Switzerland
Saudi Arabian Branch of ADTRAN International, Inc.
Riyadh, Saudi Arabia
ADTRAN GmbH Permanent Establishment
Tunis, Tunisia