ADTRAN INC, 10-Q filed on 11/4/2015
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2015
Oct. 20, 2015
Document And Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Sep. 30, 2015 
 
Document Fiscal Year Focus
2015 
 
Document Fiscal Period Focus
Q3 
 
Trading Symbol
ADTN 
 
Entity Registrant Name
ADTRAN INC 
 
Entity Central Index Key
0000926282 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
49,560,245 
Consolidated Balance Sheets (Unaudited) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2015
Dec. 31, 2014
Current Assets
 
 
Cash and cash equivalents
$ 83,687 
$ 73,439 
Short-term investments
42,081 
46,919 
Accounts receivable, less allowance for doubtful accounts of $21 and $136 at September 30, 2015 and December 31, 2014, respectively
86,176 
88,502 
Other receivables
20,858 
33,295 
Inventory, net
100,705 
86,710 
Prepaid expenses
5,935 
5,129 
Deferred tax assets, net
17,517 
17,095 
Total Current Assets
356,959 
351,089 
Property, plant and equipment, net
73,656 
74,828 
Deferred tax assets, net
23,341 
17,694 
Goodwill
3,492 
3,492 
Other assets
9,893 
10,942 
Long-term investments
204,513 
280,649 
Total Assets
671,854 
738,694 
Current Liabilities
 
 
Accounts payable
69,372 
56,414 
Unearned revenue
16,484 
22,762 
Accrued expenses
13,427 
11,077 
Accrued wages and benefits
14,842 
13,855 
Income tax payable, net
12,923 
14,901 
Total Current Liabilities
127,048 
119,009 
Non-current unearned revenue
8,685 
10,948 
Other non-current liabilities
29,680 
30,924 
Bonds payable
28,800 
28,800 
Total Liabilities
194,213 
189,681 
Commitments and contingencies (see Note 14)
   
   
Stockholders' Equity
 
 
Common stock, par value $0.01 per share; 200,000 shares authorized; 79,652 shares issued and 49,560 shares outstanding at September 30, 2015 and 79,652 shares issued and 53,431 shares outstanding at December 31, 2014
797 
797 
Additional paid-in capital
246,577 
241,829 
Accumulated other comprehensive loss
(10,238)
(75)
Retained earnings
905,928 
907,751 
Less treasury stock at cost: 30,092 and 26,221 shares at September 30, 2015 and December 31, 2014, respectively
(665,423)
(601,289)
Total Stockholders' Equity
477,641 
549,013 
Total Liabilities and Stockholders' Equity
$ 671,854 
$ 738,694 
Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Sep. 30, 2015
Dec. 31, 2014
Statement of Financial Position [Abstract]
 
 
Allowance for doubtful accounts
$ 21 
$ 136 
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
200,000,000 
200,000,000 
Common stock, shares issued
79,652,000 
79,652,000 
Common stock, shares outstanding
49,560,000 
53,431,000 
Treasury stock, shares
30,092,000 
26,221,000 
Consolidated Statements of Income (Unaudited) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Income Statement [Abstract]
 
 
 
 
Sales
$ 158,078 
$ 162,892 
$ 461,051 
$ 486,025 
Cost of sales
87,429 
84,635 
256,593 
243,181 
Gross Profit
70,649 
78,257 
204,458 
242,844 
Selling, general and administrative expenses
30,016 
32,438 
93,203 
100,165 
Research and development expenses
32,561 
33,324 
100,576 
99,547 
Operating Income
8,072 
12,495 
10,679 
43,132 
Interest and dividend income
839 
992 
2,680 
3,340 
Interest expense
(151)
(150)
(448)
(525)
Net realized investment gain
2,060 
2,687 
8,430 
7,219 
Other income (expense), net
52 
(963)
(848)
(1,615)
Income before provision for income taxes
10,872 
15,061 
20,493 
51,551 
Provision for income taxes
(3,805)
(3,735)
(7,565)
(16,223)
Net Income
$ 7,067 
$ 11,326 
$ 12,928 
$ 35,328 
Weighted average shares outstanding - basic
49,862 
54,521 
51,682 
55,552 
Weighted average shares outstanding - diluted
49,927 
54,824 
51,792 
55,976 
Earnings per common share - basic
$ 0.14 
$ 0.21 
$ 0.25 
$ 0.64 
Earnings per common share - diluted
$ 0.14 
$ 0.21 
$ 0.25 
$ 0.63 
Dividend per share
$ 0.09 
$ 0.09 
$ 0.27 
$ 0.27 
Consolidated Statements of Comprehensive Income (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Statement of Comprehensive Income [Abstract]
 
 
 
 
Net Income
$ 7,067 
$ 11,326 
$ 12,928 
$ 35,328 
Other Comprehensive Income (Loss), net of tax:
 
 
 
 
Net unrealized losses on available-for-sale securities
(4,291)
(3,148)
(6,577)
(2,850)
Defined benefit plan adjustments
71 
 
211 
 
Foreign currency translation
(1,351)
(2,568)
(3,797)
(2,182)
Other Comprehensive income (loss), net of tax
(5,571)
(5,716)
(10,163)
(5,032)
Comprehensive Income, net of tax
$ 1,496 
$ 5,610 
$ 2,765 
$ 30,296 
Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Cash flows from operating activities:
 
 
Net Income
$ 12,928 
$ 35,328 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
10,765 
11,127 
Amortization of net premium on available-for-sale investments
2,085 
3,363 
Net realized gain on long-term investments
(8,430)
(7,219)
Net loss on disposal of property, plant and equipment
189 
109 
Stock-based compensation expense
4,788 
6,296 
Deferred income taxes
(2,332)
(122)
Tax benefit from stock option exercises
(40)
71 
Excess tax benefits from stock-based compensation arrangements
(3)
(53)
Changes in operating assets and liabilities:
 
 
Accounts receivable, net
843 
(15,807)
Other receivables
10,532 
(10,726)
Inventory
(14,945)
2,413 
Prepaid expenses and other assets
(1,665)
(4,095)
Accounts payable
13,687 
3,563 
Accrued expenses and other liabilities
(3,996)
7,507 
Income tax payable, net
(1,137)
9,265 
Net cash provided by operating activities
23,269 
41,020 
Cash flows from investing activities:
 
 
Purchases of property, plant and equipment
(7,843)
(8,162)
Proceeds from disposals of property, plant and equipment
122 
Proceeds from sales and maturities of available-for-sale investments
189,728 
187,013 
Purchases of available-for-sale investments
(113,227)
(127,074)
Net cash provided by investing activities
68,780 
51,778 
Cash flows from financing activities:
 
 
Proceeds from stock option exercises
907 
2,311 
Purchases of treasury stock
(65,808)
(62,144)
Dividend payments
(13,989)
(15,060)
Payments on long-term debt
 
(16,500)
Excess tax benefits from stock-based compensation arrangements
53 
Net cash used in financing activities
(78,887)
(91,340)
Net increase in cash and cash equivalents
13,162 
1,458 
Effect of exchange rate changes
(2,914)
(1,341)
Cash and cash equivalents, beginning of period
73,439 
58,298 
Cash and cash equivalents, end of period
83,687 
58,415 
Supplemental disclosure of non-cash investing activities:
 
 
Purchases of property, plant and equipment included in accounts payable
$ 1,303 
$ 598 
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements of ADTRAN®, Inc. and its subsidiaries (ADTRAN) have been prepared pursuant to the rules and regulations for reporting on Quarterly Reports on Form 10-Q. Accordingly, certain information and notes required by generally accepted accounting principles for complete financial statements are not included herein. The December 31, 2014 Consolidated Balance Sheet is derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States.

In the opinion of management, all adjustments necessary to fairly state these interim statements have been recorded and are of a normal and recurring nature. The results of operations for an interim period are not necessarily indicative of the results for the full year. The interim statements should be read in conjunction with the financial statements and notes thereto included in ADTRAN’s Annual Report on Form 10-K for the year ended December 31, 2014, filed on February 24, 2015 with the SEC.

Changes in Classifications

We reclassified $2.3 million from other receivables to accounts receivable at December 31, 2014 to conform to the current period presentation.

Out of Period Adjustment

In connection with the preparation of our Condensed 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 $0.8 million reduction to pre-tax income for the nine months ended September 30, 2015 and is not expected to be material to the current year 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.

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, and interim periods within those fiscal 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 that reporting period. Early adoption is permitted. The amendments 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 that reporting period. The amendments 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.

Income Taxes
Income Taxes

2. INCOME TAXES

Our effective tax rate increased from 31.5% in the nine months ended September 30, 2014 to 36.9% in the nine months ended September 30, 2015. The increase in the effective tax rate between the two periods is primarily attributable to the release of a valuation allowance attributable to a foreign subsidiary in 2014, partially offset by settlements with tax authorities and expiration of statutes in 2015.

Pension Benefit Plan
Pension Benefit Plan

3. PENSION BENEFIT PLAN

We maintain a defined benefit pension plan covering employees in certain foreign countries.

The following table summarizes the components of net periodic pension cost for the three and nine months ended September 30, 2015 and 2014:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
(In thousands)    2015      2014      2015      2014  

Service cost

   $ 328       $ 299       $ 992       $ 910   

Interest cost

     153         209         464         640   

Expected return on plan assets

     (252      (272      (763      (831

Amortization of actuarial losses

     102         —           307         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net periodic pension cost

   $ 331       $ 236       $ 1,000       $ 719   
  

 

 

    

 

 

    

 

 

    

 

 

Stock-Based Compensation
Stock-Based Compensation

4. STOCK-BASED COMPENSATION

The following table summarizes the stock-based compensation expense related to stock options, restricted stock units (RSUs) and restricted stock for the three and nine months ended September 30, 2015 and 2014, which was recognized as follows:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
(In thousands)    2015      2014      2015      2014  

Stock-based compensation expense included in cost of sales

   $ 59       $ 124       $ 202       $ 359   
  

 

 

    

 

 

    

 

 

    

 

 

 

Selling, general and administrative expense

     812         1,048         2,226         3,089   

Research and development expense

     803         975         2,360         2,848   
  

 

 

    

 

 

    

 

 

    

 

 

 

Stock-based compensation expense included in operating expenses

     1,615         2,023         4,586         5,937   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

     1,674         2,147         4,788         6,296   

Tax benefit for expense associated with non-qualified options

     (218      (298      (620      (878
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense, net of tax

   $ 1,456       $ 1,849       $ 4,168       $ 5,418   
  

 

 

    

 

 

    

 

 

    

 

 

 

The fair value of our stock options is estimated using the Black-Scholes model. The determination of the fair value of stock options on the date of grant using the Black-Scholes model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables that may have a significant impact on the fair value estimate.

There were no options granted during the three months ended September 30, 2014. The weighted-average assumptions and value of options granted during the three and nine months ended September 30, 2015 and the nine months ended September 30, 2014 are as follows:

 

     Three months ended     Nine Months Ended  
     September 30,
2015
    September 30,
2015
    September 30,
2014
 

Expected volatility

     34.80     36.24     39.57

Risk-free interest rate

     1.84     1.70     1.86

Expected dividend yield

     2.13     1.94     1.38

Expected life (in years)

     6.24        6.32        6.25   

Weighted-average estimated value

   $ 4.89      $ 5.89      $ 9.28   

The fair value of our RSUs is calculated using a Monte Carlo Simulation valuation method. No RSUs were granted or vested during the three and nine months ended September 30, 2015 and 2014. Twelve thousand RSUs were forfeited during the nine months ended September 30, 2015.

The fair value of restricted stock is equal to the closing price of our stock on the date of grant. No restricted stock was granted or forfeited during the three and nine months ended September 30, 2015 and 2014. Two thousand shares of restricted stock vested during the nine months ended September 30, 2015.

Stock-based compensation expense recognized in our Consolidated Statements of Income for the three and nine months ended September 30, 2015 and 2014 is based on options, RSUs and restricted stock ultimately expected to vest, and has been reduced for estimated forfeitures. Estimated forfeitures for stock options are based upon historical experience and approximate 3.3% 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.

 

As of September 30, 2015, total compensation expense related to non-vested stock options, RSUs and restricted stock not yet recognized was approximately $10.6 million, which is expected to be recognized over an average remaining recognition period of 2.4 years.

The following table is a summary of our stock options outstanding as of December 31, 2014 and September 30, 2015 and the changes that occurred during the nine months ended September 30, 2015:

 

(In thousands, except per share amounts)    Number of
Options
     Weighted Avg.
Exercise Price
     Weighted Avg.
Remaining
Contractual
Life In Years
     Aggregate
Intrinsic
Value
 

Options outstanding, December 31, 2014

     6,981       $ 23.62         6.45       $ 10,625   

Options granted

     5       $ 18.98         

Options forfeited

     (294    $ 20.92         

Options expired

     (406    $ 26.23         

Options exercised

     (57    $ 16.02         
  

 

 

    

 

 

    

 

 

    

 

 

 

Options outstanding, September 30, 2015

     6,229       $ 23.64         5.69       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Options vested and expected to vest, September 30, 2015

     6,154       $ 23.69         5.66       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Options exercisable, September 30, 2015

     4,149       $ 25.43         4.33       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value (the difference between the closing price of our stock on the last trading day of the quarter 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 September 30, 2015. The aggregate intrinsic value will change based on the fair market value of our stock.

The total pre-tax intrinsic value of options exercised during the three and nine months ended September 30, 2015 was $4 thousand and $0.1 million, respectively.

Investments
Investments

5. INVESTMENTS

At September 30, 2015, we held the following securities and investments, recorded at either fair value or cost.

 

(In thousands)    Amortized
Cost
     Gross Unrealized      Carrying
Value
 
      Gains      Losses     

Deferred compensation plan assets

   $ 14,226       $ 1,536       $ (221    $ 15,541   

Corporate bonds

     87,555         38         (790      86,803   

Municipal fixed-rate bonds

     51,971         129         (20      52,080   

Asset-backed bonds

     5,490         —           (3      5,487   

Mortgage/Agency-backed bonds

     8,422         21         (15      8,428   

Government bonds

     14,217         74         (2      14,289   

Marketable equity securities

     29,508         5,462         (2,375      32,595   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities held at fair value

   $ 211,389       $ 7,260       $ (3,426    $ 215,223   
  

 

 

    

 

 

    

 

 

    

Restricted investment held at cost

              30,000   

Other investments held at cost

              1,371   
           

 

 

 

Total carrying value of available-for-sale investments

            $ 246,594   
           

 

 

 

At December 31, 2014, we held the following securities and investments, recorded at either fair value or cost.

 

(In thousands)    Amortized
Cost
     Gross Unrealized      Carrying
Value
 
      Gains      Losses     

Deferred compensation plan assets

   $ 13,897       $ 2,409       $ (12    $ 16,294   

Corporate bonds

     111,261         186         (186      111,261   

Municipal fixed-rate bonds

     127,341         480         (34      127,787   

Municipal variable rate demand notes

     2,465         —           —           2,465   

Marketable equity securities

     26,399         12,395         (539      38,255   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities held at fair value

   $ 281,363       $ 15,470       $ (771    $ 296,062   
  

 

 

    

 

 

    

 

 

    

Restricted investment held at cost

              30,000   

Other investments held at cost

              1,506   
           

 

 

 

Total carrying value of available-for-sale investments

            $ 327,568   
           

 

 

 

 

As of September 30, 2015, our corporate bonds, municipal fixed-rate bonds, asset-backed bonds, mortgage/agency-backed bonds, and government bonds had the following contractual maturities:

 

(In thousands)    Corporate
bonds
     Municipal
fixed-rate
bonds
     Asset-
backed
bonds
     Mortgage /
Agency-
backed bonds
     Government
bonds
 

Less than one year

   $ 23,732       $ 16,034       $ —         $ 775       $ —     

One to two years

     35,429         27,312         —           —           4,198   

Two to three years

     27,642         7,310         1,065         1,000         1,878   

Three to five years

     —           1,424         4,422         —           8,213   

Five to ten years

     —           —           —           684         —     

More than ten years

     —           —           —           5,969         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 86,803       $ 52,080       $ 5,487       $ 8,428       $ 14,289   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Actual maturities may differ from contractual maturities because some borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

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.

At September 30, 2015, we held a $30.0 million restricted certificate of deposit, which is carried at cost. This investment serves as a collateral deposit against the principal amount outstanding under loans made to ADTRAN pursuant to an Alabama State Industrial Development Authority revenue bond (the Bond). At September 30, 2015, the estimated fair value of the Bond using a level 2 valuation technique was approximately $30.1 million, based on a debt security with a comparable interest rate and maturity and a Standard and Poor’s credit rating of AAA. For more information on the Bond, see “Debt” under “Liquidity and Capital Resources” in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Item 2 of Part I of this report.

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 three and nine months ended September 30, 2015 and 2014, other-than-temporary impairment charges were not significant.

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.

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
(In thousands)    2015      2014      2015      2014  

Gross realized gains

   $ 2,251       $ 2,728       $ 8,856       $ 7,363   

Gross realized losses

   $ (191    $ (41    $ (426    $ (144

As of September 30, 2015 and 2014, gross unrealized losses related to individual securities in a continuous loss position for 12 months or longer were not significant.

 

We have categorized our cash equivalents held in money market funds and our investments held at fair value into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique for the cash equivalents and investments as follows: Level 1 - Values based on unadjusted quoted prices for identical assets or liabilities in an active market; Level 2 - Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly; Level 3 - Values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs include information supplied by investees.

 

     Fair Value Measurements at September 30, 2015 Using  
(In thousands)    Fair Value      Quoted Prices
in Active
Market for
Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Cash equivalents

           

Money market funds

   $ 6,171       $ 6,171       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

           

Deferred compensation plan assets

     15,541         15,541         —           —     

Available-for-sale debt securities

           

Corporate bonds

     86,803         —           86,803         —     

Municipal fixed-rate bonds

     52,080         —           52,080         —     

Asset-backed bonds

     5,487         —           5,487         —     

Mortgage/Agency-backed bonds

     8,428         —           8,428         —     

Government bonds

     14,289         13,289         1,000         —     

Available-for-sale marketable equity securities

           

Marketable equity securities – technology industry

     5,701         5,701         —           —     

Marketable equity securities – other

     26,894         26,894         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

     215,223         61,425         153,798         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 221,394       $ 67,596       $ 153,798       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measurements at December 31, 2014 Using  
(In thousands)    Fair Value      Quoted Prices
in Active
Market for
Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Cash equivalents

           

Money market funds

   $ 1,163       $ 1,163       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

           

Deferred compensation plan assets

     16,294         16,294         —           —     

Available-for-sale debt securities

           

Corporate bonds

     111,261         —           111,261         —     

Municipal fixed-rate bonds

     127,787         —           127,787         —     

Municipal variable rate demand notes

     2,465         —           2,465         —     

Available-for-sale marketable equity securities

           

Marketable equity securities – technology industry

     9,661         9,661         —           —     

Marketable equity securities – other

     28,594         28,594         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

     296,062         54,549         241,513         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 297,225       $ 55,712       $ 241,513       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

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.

Derivative Instruments and Hedging Activities
Derivative Instruments and Hedging Activities

6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We have certain customers and suppliers who are invoiced or pay in a non-functional 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 September 30, 2015, we had forward contracts outstanding with notional amounts totaling €7.1 million ($8.0 million), which mature in the fourth quarter of 2015.

 

The fair values of our derivative instruments recorded in the Consolidated Balance Sheet as of September 30, 2015 and December 31, 2014 were as follows:

 

(In thousands)    Balance Sheet
Location
     September 30,
2015
     December 31,
2014
 

Derivatives Not Designated as Hedging Instruments (Level 2):

        

Foreign exchange contracts – asset derivatives

     Other receivables       $ —         $ 249   

Foreign exchange contracts – liability derivatives

     Accounts payable       $ (306    $ (10

The change in the fair values of our derivative instruments recorded in the Consolidated Statements of Income during the three and nine months ended September 30, 2015 and 2014 were as follows:

 

    

Income Statement

Location

  Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
(In thousands)      2015     2014     2015     2014  

Derivatives Not Designated as Hedging Instruments:

          

Foreign exchange contracts

   Other income (expense)   $ 30      $ (191   $ 208      $ (739
Inventory
Inventory

7. INVENTORY

At September 30, 2015 and December 31, 2014, inventory consisted of the following:

 

(In thousands)    September 30,
2015
     December 31,
2014
 

Raw materials

   $ 38,071       $ 34,831   

Work in process

     2,865         3,750   

Finished goods

     59,769         48,129   
  

 

 

    

 

 

 

Total

   $ 100,705       $ 86,710   
  

 

 

    

 

 

 

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 September 30, 2015 and December 31, 2014, raw materials reserves totaled $16.3 million and $16.9 million, respectively, and finished goods inventory reserves totaled $8.3 million and $7.8 million, respectively.

Goodwill and Intangible Assets
Goodwill and Intangible Assets

8. GOODWILL AND INTANGIBLE ASSETS

Goodwill, all of which relates to our acquisition of Bluesocket, Inc. and is included in our Enterprise Networks division, was $3.5 million at September 30, 2015 and December 31, 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. There have been no impairment losses recorded since acquisition.

Intangible assets are included in other assets in the accompanying Consolidated Balance Sheets and include intangibles acquired in conjunction with our acquisitions 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 September 30, 2015 and December 31, 2014:

 

     September 30, 2015      December 31, 2014  
(In thousands)    Gross
Value
     Accumulated
Amortization
    Net Value      Gross
Value
     Accumulated
Amortization
    Net Value  

Customer relationships

   $ 5,953       $ (2,514   $ 3,439       $ 6,310       $ (2,136   $ 4,174   

Developed technology

     5,794         (4,185     1,609         6,005         (3,577     2,428   

Intellectual property

     2,340         (1,771     569         2,340         (1,520     820   

Trade names

     270         (250     20         270         (205     65   

Other

     11         (11     —           12         (11     1   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 14,368       $ (8,731   $ 5,637       $ 14,937       $ (7,449   $ 7,488   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Amortization expense, all of which relates to business acquisitions, was $0.5 million and $0.6 million for the three months ended September 30, 2015 and 2014, respectively, and $1.5 million and $1.7 million for the nine months ended September 30, 2015 and 2014, respectively.

As of September 30, 2015, the estimated future amortization expense of our intangible assets is as follows:

 

(In thousands)    Amount  

Remainder of 2015

   $ 456   

2016

     1,682   

2017

     1,166   

2018

     704   

2019

     310   

Thereafter

     1,319   
  

 

 

 

Total

   $ 5,637   
  

 

 

Stockholders' Equity
Stockholders' Equity

9. STOCKHOLDERS’ EQUITY

A summary of the changes in stockholders’ equity for the nine months ended September 30, 2015 is as follows:

 

(In thousands)    Stockholders’
Equity
 

Balance, December 31, 2014

   $ 549,013   

Net income

     12,928   

Dividend payments

     (13,989

Dividends accrued for unvested restricted stock units

     5   

Net unrealized losses on available-for-sale securities (net of tax)

     (6,577

Defined benefit plan adjustments

     211   

Foreign currency translation adjustment

     (3,797

Proceeds from stock option exercises

     907   

Purchase of treasury stock

     (65,808

Income tax benefit from exercise of stock options

     (40

Stock-based compensation expense

     4,788   
  

 

 

 

Balance, September 30, 2015

   $ 477,641   
  

 

 

 

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 50.0 million shares of our common stock. During the nine months ended September 30, 2015, we repurchased 3.9 million shares of our common stock at an average price of $16.69 per share. As of September 30, 2015, we 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

We issued 0.1 million shares of treasury stock during the nine months ended September 30, 2015 to accommodate employee stock option exercises. The stock options had exercise prices ranging from $15.29 to $22.53. We received proceeds totaling $0.9 million from the exercise of these stock options during the nine months ended September 30, 2015.

Dividend Payments

During the nine months ended September 30, 2015, we paid cash dividends as follows (in thousands except per share amounts):

 

Record Date

   Payment Date    Per Share Amount      Total Dividend Paid  

February 5, 2015

   February 19, 2015    $ 0.09       $ 4,811   

May 7, 2015

   May 21, 2015    $ 0.09       $ 4,698   

July 30, 2015

   August 13, 2015    $ 0.09       $ 4,480   

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, realized gains (losses) on available-for-sale securities, and amortization of actuarial gains (losses) related to our defined benefit plan, defined benefit plan adjustments, and foreign currency translation adjustments.

The following tables present changes in accumulated other comprehensive income, net of tax, by component for the three months ended September 30, 2015 and 2014:

 

     Three Months Ended September 30, 2015  
(In thousands)    Unrealized
Gains
(Losses) on
Available-
for-Sale
Securities
     Defined
Benefit Plan
Adjustments
     Foreign
Currency
Adjustments
     Total  

Beginning balance

   $ 6,678       $ (5,617    $ (5,728    $ (4,667

Other comprehensive income (loss) before reclassifications

     (3,034      —           (1,351      (4,385

Amounts reclassified from accumulated other comprehensive income

     (1,257      71         —           (1,186
  

 

 

    

 

 

    

 

 

    

 

 

 

Net current period other comprehensive income (loss)

     (4,291      71         (1,351      (5,571
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 2,387       $ (5,546    $ (7,079    $ (10,238
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Three Months Ended September 30, 2014  
(In thousands)    Unrealized
Gains
(Losses) on
Available-
for-Sale
Securities
     Defined
Benefit Plan
Adjustments
     Foreign
Currency
Adjustments
     Total  

Beginning balance

   $ 11,035       $ (891    $ 1,293       $ 11,437   

Other comprehensive income (loss) before reclassifications

     (1,602      —           (2,568      (4,170

Amounts reclassified from accumulated other comprehensive income

     (1,546      —           —           (1,546
  

 

 

    

 

 

    

 

 

    

 

 

 

Net current period other comprehensive income (loss)

     (3,148      —           (2,568      (5,716
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 7,887       $ (891    $ (1,275    $ 5,721   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following tables present changes in accumulated other comprehensive income, net of tax, by component for the nine months ended September 30, 2015 and 2014:

 

     Nine Months Ended September 30, 2015  
(In thousands)    Unrealized
Gains
(Losses) on
Available-
for-Sale
Securities
     Defined
Benefit Plan
Adjustments
     Foreign
Currency
Adjustments
     Total  

Beginning balance

   $ 8,964       $ (5,757    $ (3,282    $ (75

Other comprehensive income (loss) before reclassifications

     (1,497      —           (3,797      (5,294

Amounts reclassified from accumulated other comprehensive income

     (5,080      211         —           (4,869
  

 

 

    

 

 

    

 

 

    

 

 

 

Net current period other comprehensive income (loss)

     (6,577      211         (3,797      (10,163
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 2,387       $ (5,546    $ (7,079    $ (10,238
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Nine Months Ended September 30, 2014  
(In thousands)    Unrealized
Gains
(Losses) on
Available-
for-Sale
Securities
     Defined
Benefit Plan
Adjustments
     Foreign
Currency
Adjustments
     Total  

Beginning balance

   $ 10,737       $ (891    $ 907       $ 10,753   

Other comprehensive income (loss) before reclassifications

     1,316         —           (2,182      (866

Amounts reclassified from accumulated other comprehensive income

     (4,166      —           —           (4,166
  

 

 

    

 

 

    

 

 

    

 

 

 

Net current period other comprehensive income (loss)

     (2,850      —           (2,182      (5,032
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 7,887       $ (891    $ (1,275    $ 5,721   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

The following tables present the details of reclassifications out of accumulated other comprehensive income for the three months ended September 30, 2015 and 2014:

 

(In thousands)   Three Months Ended September 30, 2015

Details about Accumulated Other

Comprehensive Income Components

  Amount Reclassified
from Accumulated
Other Comprehensive
Income
   

Affected Line Item in the

Statement Where Net

Income Is Presented

Unrealized gains (losses) on available-for-sale securities:

   

Net realized gain on sales of securities

  $  2,098      Net realized investment gain

Impairment expense

    (37   Net realized investment gain

Defined benefit plan adjustments – actuarial losses

    (103   (1)
 

 

 

   

Total reclassifications for the period, before tax

    1,958     

Tax (expense) benefit

    (772  
 

 

 

   

Total reclassifications for the period, net of tax

  $ 1,186     
 

 

 

   

 

(1) Included in the computation of net periodic pension cost. See Note 3 of Notes to Consolidated Financial Statements.

 

(In thousands)   Three Months Ended September 30, 2014

Details about Accumulated Other

Comprehensive Income Components

  Amount Reclassified
from Accumulated
Other Comprehensive
Income
   

Affected Line Item in the

Statement Where Net

Income Is Presented

Unrealized gains (losses) on available-for-sale securities:

   

Net realized gain on sales of securities

  $ 2,565      Net realized investment gain

Impairment expense

    (30   Net realized investment gain
 

 

 

   

Total reclassifications for the period, before tax

    2,535     

Tax (expense) benefit

    (989  
 

 

 

   

Total reclassifications for the period, net of tax

  $ 1,546     
 

 

 

   

The following tables present the details of reclassifications out of accumulated other comprehensive income for the nine months ended September 30, 2015 and 2014:

 

(In thousands)   Nine Months Ended September 30, 2015

Details about Accumulated Other

Comprehensive Income Components

  Amount Reclassified
from Accumulated
Other Comprehensive
Income
   

Affected Line Item in the

Statement Where Net

Income Is Presented

Unrealized gains (losses) on available-for-sale securities:

   

Net realized gain on sales of securities

  $ 8,438      Net realized investment gain

Impairment expense

    (110   Net realized investment gain

Defined benefit plan adjustments – actuarial losses

    (306   (1)
 

 

 

   

Total reclassifications for the period, before tax

    8,022     

Tax (expense) benefit

    (3,153  
 

 

 

   

Total reclassifications for the period, net of tax

  $ 4,869     
 

 

 

   

 

(1) Included in the computation of net periodic pension cost. See Note 3 of Notes to Consolidated Financial Statements.

 

(In thousands)   Nine Months Ended September 30, 2014

Details about Accumulated Other

Comprehensive Income Components

  Amount Reclassified
from Accumulated
Other Comprehensive
Income
   

Affected Line Item in the

Statement Where Net

Income Is Presented

Unrealized gains (losses) on available-for-sale securities:

   

Net realized gain on sales of securities

  $ 6,895      Net realized investment gain

Impairment expense

    (64   Net realized investment gain
 

 

 

   

Total reclassifications for the period, before tax

    6,831     

Tax (expense) benefit

    (2,665  
 

 

 

   

Total reclassifications for the period, net of tax

  $ 4,166     
 

 

 

   

The following table presents the tax effects related to the change in each component of other comprehensive income for the three months ended September 30, 2015 and 2014:

 

     Three Months Ended
September 30, 2015
    Three Months Ended
September 30, 2014
 
(In thousands)    Before-Tax
Amount
    Tax
(Expense)
Benefit
     Net-of-Tax
Amount
    Before-Tax
Amount
    Tax
(Expense)
Benefit
     Net-of-Tax
Amount
 

Unrealized gains (losses) on available-for-sale securities

   $ (4,974   $ 1,940       $ (3,034   $ (2,626   $ 1,024       $ (1,602

Reclassification adjustment for amounts included in net income

     (1,958     772         (1,186     (2,535     989         (1,546

Foreign currency translation adjustment

     (1,351     —           (1,351     (2,568     —           (2,568
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total Other Comprehensive Income (Loss)

   $ (8,283   $ 2,712       $ (5,571   $ (7,729   $ 2,013       $ (5,716
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

The following table presents the tax effects related to the change in each component of other comprehensive income for the nine months ended September 30, 2015 and 2014:

 

     Nine Months Ended
September 30, 2015
    Nine Months Ended
September 30, 2014
 
(In thousands)    Before-Tax
Amount
    Tax
(Expense)
Benefit
     Net-of-Tax
Amount
    Before-Tax
Amount
    Tax
(Expense)
Benefit
    Net-of-Tax
Amount
 

Unrealized gains (losses) on available-for-sale securities

   $ (2,454   $ 957       $ (1,497   $ 2,157      $ (841   $ 1,316   

Reclassification adjustment for amounts included in net income

     (8,022     3,153         (4,869     (6,831     2,665        (4,166

Foreign currency translation adjustment

     (3,797     —           (3,797     (2,182     —          (2,182
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total Other Comprehensive Income (Loss)

   $ (14,273   $ 4,110       $ (10,163   $ (6,856   $ 1,824      $ (5,032
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

Earnings per Share
Earnings per Share

10. EARNINGS PER SHARE

A summary of the calculation of basic and diluted earnings per share for the three and nine months ended September 30, 2015 and 2014 is as follows:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
(In thousands, except per share amounts)    2015      2014      2015      2014  

Numerator

           

Net income

   $ 7,067       $ 11,326       $ 12,928       $ 35,328   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator

           

Weighted average number of shares – basic

     49,862         54,521         51,682         55,552   

Effect of dilutive securities

           

Stock options

     29         266         94         402   

Restricted stock and restricted stock units

     36         37         16         22   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of shares – diluted

     49,927         54,824         51,792         55,976   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income per share – basic

   $ 0.14       $ 0.21       $ 0.25       $ 0.64   

Net income per share – diluted

   $ 0.14       $ 0.21       $ 0.25       $ 0.63   

Anti-dilutive options to purchase common stock outstanding were excluded from the above calculations. Anti-dilutive options totaled 6.0 million and 4.5 million for the three months ended September 30, 2015 and 2014, respectively, and 6.1 million and 3.1 million for the nine months ended September 30, 2015 and 2014, respectively.

Segment Information
Segment Information

11. SEGMENT INFORMATION

We operate in two reportable segments: (1) the Carrier Networks Division and (2) the Enterprise Networks Division. We evaluate the performance of our segments based on gross profit; therefore, selling, general and administrative expenses, research and development expenses, interest 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 tables present information about the reported sales and gross profit of our reportable segments for the three and nine months ended September 30, 2015 and 2014. Asset information by reportable segment is not reported, since we do not produce such information internally.

 

     Three Months Ended  
     September 30, 2015      September 30, 2014  
(In thousands)    Sales      Gross Profit      Sales      Gross Profit  

Carrier Networks

   $ 131,273       $ 55,796       $ 132,972       $ 61,687   

Enterprise Networks

     26,805         14,853         29,920         16,570   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 158,078       $ 70,649       $ 162,892       $ 78,257   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Nine Months Ended  
     September 30, 2015      September 30, 2014  
(In thousands)    Sales      Gross Profit      Sales      Gross Profit  

Carrier Networks

   $ 382,684       $ 160,354       $ 394,589       $ 191,093   

Enterprise Networks

     78,367         44,104         91,436         51,751   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 461,051       $ 204,458       $ 486,025       $ 242,844   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Sales by Product

Our three major product categories are Carrier Systems, Business Networking and Loop Access.

Carrier Systems products are used by communications service providers to provide data, voice, and video services to consumers and enterprises. This category includes the following product areas and related services:

 

    Broadband Access

 

    Total Access® 5000 Series of Multi-Service Access Node (MSAN)

 

    hiX 5600 Series of MSANs

 

    Total Access 1100/1200 Series of Fiber to the Node (FTTN) products

 

    hiX 1100 Series of Fiber to the Node (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 10Gig Multi-service Edge Switches

 

    OPTI-6100 and Total Access 3000 optical Multi-Service Provisioning Platforms (MSPP)

 

    Pluggable Optical Products, including SFP, XFP, and SFP+

 

    Time Division Multiplexed (TDM) systems

Business Networking products provide access to communication services and facilitate the delivery of cloud connectivity and enterprise communications to the small and mid-sized enterprise (SME) market. This category includes the following product areas and related services:

 

    Internetworking products

 

    Total Access IP Business Gateways

 

    Optical Network Terminals (ONTs)

 

    Bluesocket® virtual Wireless LAN (vWLAN®)

 

    NetVanta®

 

    Access Routers

 

    Enterprise Session Border Controllers (eSBC)

 

    Managed Ethernet Switches

 

    IP Business Gateways

 

    Unified Communications (UC) solutions

 

    Carrier Ethernet Network Terminating Equipment (NTE)

 

    Carrier Ethernet Routers and Gateways

 

    Network Management Solutions

Loop Access products are used by carrier and enterprise customers for access to copper-based communications networks. This category includes the following product areas and related services:

 

    High bit-rate Digital Subscriber Line (HDSL) products

 

    Digital Data Service (DDS)

 

    Integrated Services Digital Network (ISDN) products

 

    T1/E1/T3 Channel Service Units/Data Service Units (CSUs/DSUs)

 

    TRACER fixed-wireless products

 

The table below presents sales information by product category for the three and nine months ended September 30, 2015 and 2014:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
(In thousands)    2015      2014      2015      2014  

Carrier Systems

   $ 111,044       $ 113,950       $ 330,522       $ 342,327   

Business Networking

     39,127         39,746         108,718         119,634   

Loop Access

     7,907         9,196         21,811         24,064   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 158,078       $ 162,892       $ 461,051       $ 486,025   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 three and nine months ended September 30, 2015 and 2014:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
(In thousands)    2015      2014      2015      2014  

Core Products

           

Broadband Access (included in Carrier Systems)

   $ 94,116       $ 96,084       $ 279,656       $ 285,920   

Optical (included in Carrier Systems)

     13,733         13,686         42,669         42,308   

Internetworking (included in Business Networking)

     38,123         38,630         105,440         116,562   
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     145,972         148,400         427,765         444,790   

Legacy Products

           

HDSL (does not include T1) (included in Loop Access)

     7,397         8,400         20,499         22,075   

Other products (excluding HDSL)

     4,709         6,092         12,787         19,160   
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     12,106         14,492         33,286         41,235   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 158,078       $ 162,892       $ 461,051       $ 486,025   
Liability for Warranty Returns
Liability for Warranty Returns

12. LIABILITY FOR WARRANTY RETURNS

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 September 30, 2015 and December 31, 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 nine months ended September 30, 2015 and 2014 is as follows:

 

     Nine Months Ended
September 30,
 
(In thousands)    2015      2014  

Balance at beginning of period

   $ 8,415       $ 8,977   

Plus: Amounts charged to cost and expenses

     1,905         2,770   

Less: Deductions

     (1,604      (3,099
  

 

 

    

 

 

 

Balance at end of period

   $ 8,716       $ 8,648   
  

 

 

    

 

 

Related Party Transactions
Related Party Transactions

13. RELATED PARTY TRANSACTIONS

During 2014, 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 were 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 three and nine months ended September 30, 2014, we incurred fees of $10 thousand and $70 thousand, respectively, for these legal services.

Commitments and Contingencies
Commitments and Contingencies

14. 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 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 September 30, 2015, of which $7.7 million has been applied to these commitments.

Subsequent Events
Subsequent Events

15. SUBSEQUENT EVENTS

On October 13, 2015, we announced that our Board of Directors declared a quarterly cash dividend of $0.09 per common share to be paid to stockholders of record at the close of business on October 29, 2015. The payment date will be November 12, 2015. The quarterly dividend payment will be approximately $4.5 million. 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.

Summary of Significant Accounting Policies (Policies)

Basis of Presentation

The accompanying unaudited consolidated financial statements of ADTRAN®, Inc. and its subsidiaries (ADTRAN) have been prepared pursuant to the rules and regulations for reporting on Quarterly Reports on Form 10-Q. Accordingly, certain information and notes required by generally accepted accounting principles for complete financial statements are not included herein. The December 31, 2014 Consolidated Balance Sheet is derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States.

In the opinion of management, all adjustments necessary to fairly state these interim statements have been recorded and are of a normal and recurring nature. The results of operations for an interim period are not necessarily indicative of the results for the full year. The interim statements should be read in conjunction with the financial statements and notes thereto included in ADTRAN’s Annual Report on Form 10-K for the year ended December 31, 2014, filed on February 24, 2015 with the SEC.

Changes in Classifications

We reclassified $2.3 million from other receivables to accounts receivable at December 31, 2014 to conform to the current period presentation.

Out of Period Adjustment

In connection with the preparation of our Condensed 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 $0.8 million reduction to pre-tax income for the nine months ended September 30, 2015 and is not expected to be material to the current year 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.

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, and interim periods within those fiscal 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 that reporting period. Early adoption is permitted. The amendments 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.

Pension Benefit Plan (Tables)
Summarization of Components of Net Periodic Pension Cost

The following table summarizes the components of net periodic pension cost for the three and nine months ended September 30, 2015 and 2014:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
(In thousands)    2015      2014      2015      2014  

Service cost

   $ 328       $ 299       $ 992       $ 910   

Interest cost

     153         209         464         640   

Expected return on plan assets

     (252      (272      (763      (831

Amortization of actuarial losses

     102         —           307         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net periodic pension cost

   $ 331       $ 236       $ 1,000       $ 719   
  

 

 

    

 

 

    

 

 

    

 

 

Stock-Based Compensation (Tables)

The following table summarizes the stock-based compensation expense related to stock options, restricted stock units (RSUs) and restricted stock for the three and nine months ended September 30, 2015 and 2014, which was recognized as follows:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
(In thousands)    2015      2014      2015      2014  

Stock-based compensation expense included in cost of sales

   $ 59       $ 124       $ 202       $ 359   
  

 

 

    

 

 

    

 

 

    

 

 

 

Selling, general and administrative expense

     812         1,048         2,226         3,089   

Research and development expense

     803         975         2,360         2,848   
  

 

 

    

 

 

    

 

 

    

 

 

 

Stock-based compensation expense included in operating expenses

     1,615         2,023         4,586         5,937   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

     1,674         2,147         4,788         6,296   

Tax benefit for expense associated with non-qualified options

     (218      (298      (620      (878
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense, net of tax

   $ 1,456       $ 1,849       $ 4,168       $ 5,418   
  

 

 

    

 

 

    

 

 

    

 

 

The weighted-average assumptions and value of options granted during the three and nine months ended September 30, 2015 and the nine months ended September 30, 2014 are as follows:

 

     Three months ended     Nine Months Ended  
     September 30,
2015
    September 30,
2015
    September 30,
2014
 

Expected volatility

     34.80     36.24     39.57

Risk-free interest rate

     1.84     1.70     1.86

Expected dividend yield

     2.13     1.94     1.38

Expected life (in years)

     6.24        6.32        6.25   

Weighted-average estimated value

   $ 4.89      $ 5.89      $ 9.28   

The following table is a summary of our stock options outstanding as of December 31, 2014 and September 30, 2015 and the changes that occurred during the nine months ended September 30, 2015:

 

(In thousands, except per share amounts)    Number of
Options
     Weighted Avg.
Exercise Price
     Weighted Avg.
Remaining
Contractual
Life In Years
     Aggregate
Intrinsic
Value
 

Options outstanding, December 31, 2014

     6,981       $ 23.62         6.45       $ 10,625   

Options granted

     5       $ 18.98         

Options forfeited

     (294    $ 20.92         

Options expired

     (406    $ 26.23         

Options exercised

     (57    $ 16.02         
  

 

 

    

 

 

    

 

 

    

 

 

 

Options outstanding, September 30, 2015

     6,229       $ 23.64         5.69       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Options vested and expected to vest, September 30, 2015

     6,154       $ 23.69         5.66       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Options exercisable, September 30, 2015

     4,149       $ 25.43         4.33       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

Investments (Tables)

At September 30, 2015, we held the following securities and investments, recorded at either fair value or cost.

 

(In thousands)    Amortized
Cost
     Gross Unrealized      Carrying
Value
 
      Gains      Losses     

Deferred compensation plan assets

   $ 14,226       $ 1,536       $ (221    $ 15,541   

Corporate bonds

     87,555         38         (790      86,803   

Municipal fixed-rate bonds

     51,971         129         (20      52,080   

Asset-backed bonds

     5,490         —           (3      5,487   

Mortgage/Agency-backed bonds

     8,422         21         (15      8,428   

Government bonds

     14,217         74         (2      14,289   

Marketable equity securities

     29,508         5,462         (2,375      32,595   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities held at fair value

   $ 211,389       $ 7,260       $ (3,426    $ 215,223   
  

 

 

    

 

 

    

 

 

    

Restricted investment held at cost

              30,000   

Other investments held at cost

              1,371   
           

 

 

 

Total carrying value of available-for-sale investments

            $ 246,594   
           

 

 

 

At December 31, 2014, we held the following securities and investments, recorded at either fair value or cost.

 

(In thousands)    Amortized
Cost
     Gross Unrealized      Carrying
Value
 
      Gains      Losses     

Deferred compensation plan assets

   $ 13,897       $ 2,409       $ (12    $ 16,294   

Corporate bonds

     111,261         186         (186      111,261   

Municipal fixed-rate bonds

     127,341         480         (34      127,787   

Municipal variable rate demand notes

     2,465         —           —           2,465   

Marketable equity securities

     26,399         12,395         (539      38,255   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities held at fair value

   $ 281,363       $ 15,470       $ (771    $ 296,062   
  

 

 

    

 

 

    

 

 

    

Restricted investment held at cost

              30,000   

Other investments held at cost

              1,506   
           

 

 

 

Total carrying value of available-for-sale investments

            $ 327,568   
           

 

 

 

As of September 30, 2015, our corporate bonds, municipal fixed-rate bonds, asset-backed bonds, mortgage/agency-backed bonds, and government bonds had the following contractual maturities:

 

(In thousands)    Corporate
bonds
     Municipal
fixed-rate
bonds
     Asset-
backed
bonds
     Mortgage /
Agency-
backed bonds
     Government
bonds
 

Less than one year

   $ 23,732       $ 16,034       $ —         $ 775       $ —     

One to two years

     35,429         27,312         —           —           4,198   

Two to three years

     27,642         7,310         1,065         1,000         1,878   

Three to five years

     —           1,424         4,422         —           8,213   

Five to ten years

     —           —           —           684         —     

More than ten years

     —           —           —           5,969         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 86,803       $ 52,080       $ 5,487       $ 8,428       $ 14,289   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

The following table presents gross realized gains and losses related to our investments.

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
(In thousands)    2015      2014      2015      2014  

Gross realized gains

   $ 2,251       $ 2,728       $ 8,856       $ 7,363   

Gross realized losses

   $ (191    $ (41    $ (426    $ (144

We have categorized our cash equivalents held in money market funds and our investments held at fair value into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique for the cash equivalents and investments as follows: Level 1 - Values based on unadjusted quoted prices for identical assets or liabilities in an active market; Level 2 - Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly; Level 3 - Values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs include information supplied by investees.

 

     Fair Value Measurements at September 30, 2015 Using  
(In thousands)    Fair Value      Quoted Prices
in Active
Market for
Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Cash equivalents

           

Money market funds

   $ 6,171       $ 6,171       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

           

Deferred compensation plan assets

     15,541         15,541         —           —     

Available-for-sale debt securities

           

Corporate bonds

     86,803         —           86,803         —     

Municipal fixed-rate bonds

     52,080         —           52,080         —     

Asset-backed bonds

     5,487         —           5,487         —     

Mortgage/Agency-backed bonds

     8,428         —           8,428         —     

Government bonds

     14,289         13,289         1,000         —     

Available-for-sale marketable equity securities

           

Marketable equity securities – technology industry

     5,701         5,701         —           —     

Marketable equity securities – other

     26,894         26,894         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

     215,223         61,425         153,798         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 221,394       $ 67,596       $ 153,798       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measurements at December 31, 2014 Using  
(In thousands)    Fair Value      Quoted Prices
in Active
Market for
Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Cash equivalents

           

Money market funds

   $ 1,163       $ 1,163       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

           

Deferred compensation plan assets

     16,294         16,294         —           —     

Available-for-sale debt securities

           

Corporate bonds

     111,261         —           111,261         —     

Municipal fixed-rate bonds

     127,787         —           127,787         —     

Municipal variable rate demand notes

     2,465         —           2,465         —     

Available-for-sale marketable equity securities

           

Marketable equity securities – technology industry

     9,661         9,661         —           —     

Marketable equity securities – other

     28,594         28,594         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

     296,062         54,549         241,513         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 297,225       $ 55,712       $ 241,513       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

Derivative Instruments and Hedging Activities (Tables)

The fair values of our derivative instruments recorded in the Consolidated Balance Sheet as of September 30, 2015 and December 31, 2014 were as follows:

 

(In thousands)    Balance Sheet
Location
     September 30,
2015
     December 31,
2014
 

Derivatives Not Designated as Hedging Instruments (Level 2):

        

Foreign exchange contracts – asset derivatives

     Other receivables       $ —         $ 249   

Foreign exchange contracts – liability derivatives

     Accounts payable       $ (306    $ (10

The change in the fair values of our derivative instruments recorded in the Consolidated Statements of Income during the three and nine months ended September 30, 2015 and 2014 were as follows:

 

    

Income Statement

Location

  Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
(In thousands)      2015     2014     2015     2014  

Derivatives Not Designated as Hedging Instruments:

          

Foreign exchange contracts

   Other income (expense)   $ 30      $ (191   $ 208      $ (739
Inventory (Tables)
Components of Inventory

At September 30, 2015 and December 31, 2014, inventory consisted of the following:

 

(In thousands)    September 30,
2015
     December 31,
2014
 

Raw materials

   $ 38,071       $ 34,831   

Work in process

     2,865         3,750   

Finished goods

     59,769         48,129   
  

 

 

    

 

 

 

Total

   $ 100,705       $ 86,710   
  

 

 

    

 

 

 
Goodwill and Intangible Assets (Tables)

The following table presents our intangible assets as of September 30, 2015 and December 31, 2014:

 

     September 30, 2015      December 31, 2014  
(In thousands)    Gross
Value
     Accumulated
Amortization
    Net Value      Gross
Value
     Accumulated
Amortization
    Net Value  

Customer relationships

   $ 5,953       $ (2,514   $ 3,439       $ 6,310       $ (2,136   $ 4,174   

Developed technology

     5,794         (4,185     1,609         6,005         (3,577     2,428   

Intellectual property

     2,340         (1,771     569         2,340         (1,520     820   

Trade names

     270         (250     20         270         (205     65   

Other

     11         (11     —           12         (11     1   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 14,368       $ (8,731   $ 5,637       $ 14,937       $ (7,449   $ 7,488   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

As of September 30, 2015, the estimated future amortization expense of our intangible assets is as follows:

 

(In thousands)    Amount  

Remainder of 2015

   $ 456   

2016

     1,682   

2017

     1,166   

2018

     704   

2019

     310   

Thereafter

     1,319   
  

 

 

 

Total

   $ 5,637   
  

 

 

Stockholders' Equity (Tables)

A summary of the changes in stockholders’ equity for the nine months ended September 30, 2015 is as follows:

 

(In thousands)    Stockholders’
Equity
 

Balance, December 31, 2014

   $ 549,013   

Net income

     12,928   

Dividend payments

     (13,989

Dividends accrued for unvested restricted stock units

     5   

Net unrealized losses on available-for-sale securities (net of tax)

     (6,577

Defined benefit plan adjustments

     211   

Foreign currency translation adjustment

     (3,797

Proceeds from stock option exercises

     907   

Purchase of treasury stock

     (65,808

Income tax benefit from exercise of stock options

     (40

Stock-based compensation expense

     4,788   
  

 

 

 

Balance, September 30, 2015

   $ 477,641   
  

 

 

During the nine months ended September 30, 2015, we paid cash dividends as follows (in thousands except per share amounts):

 

Record Date

   Payment Date    Per Share Amount      Total Dividend Paid  

February 5, 2015

   February 19, 2015    $ 0.09       $ 4,811   

May 7, 2015

   May 21, 2015    $ 0.09       $ 4,698   

July 30, 2015

   August 13, 2015    $ 0.09       $ 4,480   

The following tables present changes in accumulated other comprehensive income, net of tax, by component for the three months ended September 30, 2015 and 2014:

 

     Three Months Ended September 30, 2015  
(In thousands)    Unrealized
Gains
(Losses) on
Available-
for-Sale
Securities
     Defined
Benefit Plan
Adjustments
     Foreign
Currency
Adjustments
     Total  

Beginning balance

   $ 6,678       $ (5,617    $ (5,728    $ (4,667

Other comprehensive income (loss) before reclassifications

     (3,034      —           (1,351      (4,385

Amounts reclassified from accumulated other comprehensive income

     (1,257      71         —           (1,186
  

 

 

    

 

 

    

 

 

    

 

 

 

Net current period other comprehensive income (loss)

     (4,291      71         (1,351      (5,571
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 2,387       $ (5,546    $ (7,079    $ (10,238
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Three Months Ended September 30, 2014  
(In thousands)    Unrealized
Gains
(Losses) on
Available-
for-Sale
Securities
     Defined
Benefit Plan
Adjustments
     Foreign
Currency
Adjustments
     Total  

Beginning balance

   $ 11,035       $ (891    $ 1,293       $ 11,437   

Other comprehensive income (loss) before reclassifications

     (1,602      —           (2,568      (4,170

Amounts reclassified from accumulated other comprehensive income

     (1,546      —           —           (1,546
  

 

 

    

 

 

    

 

 

    

 

 

 

Net current period other comprehensive income (loss)

     (3,148      —           (2,568      (5,716
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 7,887       $ (891    $ (1,275    $ 5,721   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following tables present changes in accumulated other comprehensive income, net of tax, by component for the nine months ended September 30, 2015 and 2014:

 

     Nine Months Ended September 30, 2015  
(In thousands)    Unrealized
Gains
(Losses) on
Available-
for-Sale
Securities
     Defined
Benefit Plan
Adjustments
     Foreign
Currency
Adjustments
     Total  

Beginning balance

   $ 8,964       $ (5,757    $ (3,282    $ (75

Other comprehensive income (loss) before reclassifications

     (1,497      —           (3,797      (5,294

Amounts reclassified from accumulated other comprehensive income

     (5,080      211         —           (4,869
  

 

 

    

 

 

    

 

 

    

 

 

 

Net current period other comprehensive income (loss)

     (6,577      211         (3,797      (10,163
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 2,387       $ (5,546    $ (7,079    $ (10,238
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Nine Months Ended September 30, 2014  
(In thousands)    Unrealized
Gains
(Losses) on
Available-
for-Sale
Securities
     Defined
Benefit Plan
Adjustments
     Foreign
Currency
Adjustments
     Total  

Beginning balance

   $ 10,737       $ (891    $ 907       $ 10,753   

Other comprehensive income (loss) before reclassifications

     1,316         —           (2,182      (866

Amounts reclassified from accumulated other comprehensive income

     (4,166      —           —           (4,166
  

 

 

    

 

 

    

 

 

    

 

 

 

Net current period other comprehensive income (loss)

     (2,850      —           (2,182      (5,032
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 7,887       $ (891    $ (1,275    $ 5,721   
  

 

 

    

 

 

    

 

 

    

 

 

The following tables present the details of reclassifications out of accumulated other comprehensive income for the three months ended September 30, 2015 and 2014:

 

(In thousands)   Three Months Ended September 30, 2015

Details about Accumulated Other

Comprehensive Income Components

  Amount Reclassified
from Accumulated
Other Comprehensive
Income
   

Affected Line Item in the

Statement Where Net

Income Is Presented

Unrealized gains (losses) on available-for-sale securities:

   

Net realized gain on sales of securities

  $  2,098      Net realized investment gain

Impairment expense

    (37   Net realized investment gain

Defined benefit plan adjustments – actuarial losses

    (103   (1)
 

 

 

   

Total reclassifications for the period, before tax

    1,958     

Tax (expense) benefit

    (772  
 

 

 

   

Total reclassifications for the period, net of tax

  $ 1,186     
 

 

 

   

 

(1) Included in the computation of net periodic pension cost. See Note 3 of Notes to Consolidated Financial Statements.

 

(In thousands)   Three Months Ended September 30, 2014

Details about Accumulated Other

Comprehensive Income Components

  Amount Reclassified
from Accumulated
Other Comprehensive
Income
   

Affected Line Item in the

Statement Where Net

Income Is Presented

Unrealized gains (losses) on available-for-sale securities:

   

Net realized gain on sales of securities

  $ 2,565      Net realized investment gain

Impairment expense

    (30   Net realized investment gain
 

 

 

   

Total reclassifications for the period, before tax

    2,535     

Tax (expense) benefit

    (989  
 

 

 

   

Total reclassifications for the period, net of tax

  $ 1,546     
 

 

 

   

The following tables present the details of reclassifications out of accumulated other comprehensive income for the nine months ended September 30, 2015 and 2014:

 

(In thousands)   Nine Months Ended September 30, 2015

Details about Accumulated Other

Comprehensive Income Components

  Amount Reclassified
from Accumulated
Other Comprehensive
Income
   

Affected Line Item in the

Statement Where Net

Income Is Presented

Unrealized gains (losses) on available-for-sale securities:

   

Net realized gain on sales of securities

  $ 8,438      Net realized investment gain

Impairment expense

    (110   Net realized investment gain

Defined benefit plan adjustments – actuarial losses

    (306   (1)
 

 

 

   

Total reclassifications for the period, before tax

    8,022     

Tax (expense) benefit

    (3,153  
 

 

 

   

Total reclassifications for the period, net of tax

  $ 4,869     
 

 

 

   

 

(1) Included in the computation of net periodic pension cost. See Note 3 of Notes to Consolidated Financial Statements.

 

(In thousands)   Nine Months Ended September 30, 2014

Details about Accumulated Other

Comprehensive Income Components

  Amount Reclassified
from Accumulated
Other Comprehensive
Income
   

Affected Line Item in the

Statement Where Net

Income Is Presented

Unrealized gains (losses) on available-for-sale securities:

   

Net realized gain on sales of securities

  $ 6,895      Net realized investment gain

Impairment expense

    (64   Net realized investment gain
 

 

 

   

Total reclassifications for the period, before tax

    6,831     

Tax (expense) benefit

    (2,665  
 

 

 

   

Total reclassifications for the period, net of tax

  $ 4,166     
 

 

 

   

The following table presents the tax effects related to the change in each component of other comprehensive income for the three months ended September 30, 2015 and 2014:

 

     Three Months Ended
September 30, 2015
    Three Months Ended
September 30, 2014
 
(In thousands)    Before-Tax
Amount
    Tax
(Expense)
Benefit
     Net-of-Tax
Amount
    Before-Tax
Amount
    Tax
(Expense)
Benefit
     Net-of-Tax
Amount
 

Unrealized gains (losses) on available-for-sale securities

   $ (4,974   $ 1,940       $ (3,034   $ (2,626   $ 1,024       $ (1,602

Reclassification adjustment for amounts included in net income

     (1,958     772         (1,186     (2,535     989         (1,546

Foreign currency translation adjustment

     (1,351     —           (1,351     (2,568     —           (2,568
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total Other Comprehensive Income (Loss)

   $ (8,283   $ 2,712       $ (5,571   $ (7,729   $ 2,013       $ (5,716
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

The following table presents the tax effects related to the change in each component of other comprehensive income for the nine months ended September 30, 2015 and 2014:

 

     Nine Months Ended
September 30, 2015
    Nine Months Ended
September 30, 2014
 
(In thousands)    Before-Tax
Amount
    Tax
(Expense)
Benefit
     Net-of-Tax
Amount
    Before-Tax
Amount
    Tax
(Expense)
Benefit
    Net-of-Tax
Amount
 

Unrealized gains (losses) on available-for-sale securities

   $ (2,454   $ 957       $ (1,497   $ 2,157      $ (841   $ 1,316   

Reclassification adjustment for amounts included in net income

     (8,022     3,153         (4,869     (6,831     2,665        (4,166

Foreign currency translation adjustment

     (3,797     —           (3,797     (2,182     —          (2,182
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total Other Comprehensive Income (Loss)

   $ (14,273   $ 4,110       $ (10,163   $ (6,856   $ 1,824      $ (5,032
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

Earnings per Share (Tables)
Summary of Calculation of Basic and Diluted Earnings Per Share

A summary of the calculation of basic and diluted earnings per share for the three and nine months ended September 30, 2015 and 2014 is as follows:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
(In thousands, except per share amounts)    2015      2014      2015      2014  

Numerator

           

Net income

   $ 7,067       $ 11,326       $ 12,928       $ 35,328   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator

           

Weighted average number of shares – basic

     49,862         54,521         51,682         55,552   

Effect of dilutive securities

           

Stock options

     29         266         94         402   

Restricted stock and restricted stock units

     36         37         16         22   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of shares – diluted

     49,927         54,824         51,792         55,976   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income per share – basic

   $ 0.14       $ 0.21       $ 0.25       $ 0.64   

Net income per share – diluted

   $ 0.14       $ 0.21       $ 0.25       $ 0.63   
Segment Information (Tables)

The following tables present information about the reported sales and gross profit of our reportable segments for the three and nine months ended September 30, 2015 and 2014. Asset information by reportable segment is not reported, since we do not produce such information internally.

 

     Three Months Ended  
     September 30, 2015      September 30, 2014  
(In thousands)    Sales      Gross Profit      Sales      Gross Profit  

Carrier Networks

   $ 131,273       $ 55,796       $ 132,972       $ 61,687   

Enterprise Networks

     26,805         14,853         29,920         16,570   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 158,078       $ 70,649       $ 162,892       $ 78,257   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Nine Months Ended  
     September 30, 2015      September 30, 2014  
(In thousands)    Sales      Gross Profit      Sales      Gross Profit  

Carrier Networks

   $ 382,684       $ 160,354       $ 394,589       $ 191,093   

Enterprise Networks

     78,367         44,104         91,436         51,751   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 461,051       $ 204,458       $ 486,025       $ 242,844   
  

 

 

    

 

 

    

 

 

    

 

 

The table below presents sales information by product category for the three and nine months ended September 30, 2015 and 2014:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
(In thousands)    2015      2014      2015      2014  

Carrier Systems

   $ 111,044       $ 113,950       $ 330,522       $ 342,327   

Business Networking

     39,127         39,746         108,718         119,634   

Loop Access

     7,907         9,196         21,811         24,064   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 158,078       $ 162,892       $ 461,051       $ 486,025   
  

 

 

    

 

 

    

 

 

    

 

 

The table below presents subcategory revenues for the three and nine months ended September 30, 2015 and 2014:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
(In thousands)    2015      2014      2015      2014  

Core Products

           

Broadband Access (included in Carrier Systems)

   $ 94,116       $ 96,084       $ 279,656       $ 285,920   

Optical (included in Carrier Systems)

     13,733         13,686         42,669         42,308   

Internetworking (included in Business Networking)

     38,123         38,630         105,440         116,562   
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     145,972         148,400         427,765         444,790   

Legacy Products

           

HDSL (does not include T1) (included in Loop Access)

     7,397         8,400         20,499         22,075   

Other products (excluding HDSL)

     4,709         6,092         12,787         19,160   
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     12,106         14,492         33,286         41,235   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 158,078       $ 162,892       $ 461,051       $ 486,025   
  

 

 

    

 

 

    

 

 

    

 

 

 
Liability for Warranty Returns (Tables)
Summary of Warranty Expense and Write-Off Activity

A summary of warranty expense and write-off activity for the nine months ended September 30, 2015 and 2014 is as follows:

 

     Nine Months Ended
September 30,
 
(In thousands)    2015      2014  

Balance at beginning of period

   $ 8,415       $ 8,977   

Plus: Amounts charged to cost and expenses

     1,905         2,770   

Less: Deductions

     (1,604      (3,099
  

 

 

    

 

 

 

Balance at end of period

   $ 8,716       $ 8,648   
  

 

 

    

 

 

Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended 12 Months Ended
Mar. 31, 2015
Sep. 30, 2015
Dec. 31, 2014
Other Receivables [Member]
Dec. 31, 2014
Accounts Receivable [Member]
Summary of Significant Accounting Policy [Line Items]
 
 
 
 
Prior period reclassification adjustment
 
 
$ (2.3)
$ 2.3 
Reduction of pre-tax income
 
0.8 
 
 
Increase in other expenses
$ 1.3 
 
 
 
Income Taxes - Additional Information (Detail)
9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Income Tax Disclosure [Abstract]
 
 
Effective tax rate
36.90% 
31.50% 
Pension Benefit Plan - Summarization of Components of Net Periodic Pension Cost (Detail) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Defined Benefit Plan, Net Periodic Benefit Cost [Abstract]
 
 
 
 
Service cost
$ 328 
$ 299 
$ 992 
$ 910 
Interest cost
153 
209 
464 
640 
Expected return on plan assets
(252)
(272)
(763)
(831)
Amortization of actuarial losses
102 
 
307 
 
Net periodic pension cost
$ 331 
$ 236 
$ 1,000 
$ 719 
Stock-Based Compensation - Additional Information (Detail) (USD $)
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
Number of options, granted
 
5,000 
 
Estimated forfeitures for stock options
 
 
3.30% 
 
Compensation expense related to non-vested stock options, RSUs and restricted stock not yet recognized
$ 10,600,000 
 
$ 10,600,000 
 
Recognition period of non-vested compensation cost
 
 
2 years 4 months 24 days 
 
Total pre-tax intrinsic value of options exercised
$ 4,000 
 
$ 100,000 
 
Restricted Stock Units (RSUs) [Member]
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
Number of RSUs and restricted stock grants in period
Number of RSUs and restricted stock forfeitures in period
 
 
12,000 
 
Number of RSUs and restricted stock vesting in period
Restricted Stock [Member]
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
Number of RSUs and restricted stock grants in period
Number of RSUs and restricted stock forfeitures in period
Number of RSUs and restricted stock vesting in period
2,000 
 
 
 
RSUs and Restricted Stock [Member]
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
Forfeiture rate for RSUs and restricted stock
 
 
0.00% 
 
Stock-Based Compensation - Summary of Weighted-Average Assumptions and Value of Options Granted (Detail) (Stock Options [Member], USD $)
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2015
Sep. 30, 2014
Stock Options [Member]
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
Expected volatility
34.80% 
36.24% 
39.57% 
Risk-free interest rate
1.84% 
1.70% 
1.86% 
Expected dividend yield
2.13% 
1.94% 
1.38% 
Expected life (in years)
6 years 2 months 27 days 
6 years 3 months 26 days 
6 years 3 months 
Weighted-average estimated value
$ 4.89 
$ 5.89 
$ 9.28 
Stock-Based Compensation - Summary of Stock Options Outstanding (Detail) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2014
Sep. 30, 2015
Dec. 31, 2014
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
 
 
 
Aggregate Intrinsic Value, Options outstanding, Beginning Balance
 
 
$ 10,625 
Number of Options, outstanding, Beginning Balance
 
6,981,000 
 
Number of options, granted
5,000 
 
Number of Options, forfeited
 
(294,000)
 
Number of Options, expired
 
(406,000)
 
Number of Options, exercised
 
(57,000)
 
Number of Options, outstanding, Ending Balance
 
6,229,000 
6,981,000 
Number of Options, vested and expected to vest, Ending Balance
 
6,154,000 
 
Number of Options, Options exercisable
 
4,149,000 
 
Weighted Average Exercise Price, outstanding, Beginning Balance
 
$ 23.62 
 
Weighted Average Exercise Price, granted
 
$ 18.98 
 
Weighted Average Exercise Price, forfeited
 
$ 20.92 
 
Weighted Average Exercise Price, expired
 
$ 26.23 
 
Weighted Average Exercise Price, exercised
 
$ 16.02 
 
Weighted Average Exercise Price, outstanding, Ending Balance
 
$ 23.64 
$ 23.62 
Weighted Average Exercise Price, vested and expected to vest, Ending Balance
 
$ 23.69 
 
Weighted Average Exercise Price, Options exercisable
 
$ 25.43 
 
Weighted Average Remaining Contractual Life In Years, Options outstanding
 
5 years 8 months 9 days 
6 years 5 months 12 days 
Weighted Average Remaining Contractual Life In Years, Options vested and expected to vest
 
5 years 7 months 28 days 
 
Weighted Average Remaining Contractual Life In Years, Options exercisable
 
4 years 3 months 29 days 
 
Aggregate Intrinsic Value, Options vested and expected to vest
 
 
Aggregate Intrinsic Value, Options exercisable
 
$ 0 
 
Investments - Securities and Investments, Recorded at Either Fair Value or Cost (Detail) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2015
Dec. 31, 2014
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized Cost
$ 211,389 
$ 281,363 
Gross Unrealized Gains
7,260 
15,470 
Gross Unrealized Losses
(3,426)
(771)
Available-for-sale-securities, Carrying Value
215,223 
296,062 
Restricted investment held at cost
30,000 
30,000 
Other investments held at cost
1,371 
1,506 
Total carrying value of available-for-sale investments
246,594 
327,568 
Deferred Compensation Plan Assets [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized Cost
14,226 
13,897 
Gross Unrealized Gains
1,536 
2,409 
Gross Unrealized Losses
(221)
(12)
Available-for-sale-securities, Carrying Value
15,541 
16,294 
Corporate Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized Cost
87,555 
111,261 
Gross Unrealized Gains
38 
186 
Gross Unrealized Losses
(790)
(186)
Available-for-sale-securities, Carrying Value
86,803 
111,261 
Municipal Fixed-Rate Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized Cost
51,971 
127,341 
Gross Unrealized Gains
129 
480 
Gross Unrealized Losses
(20)
(34)
Available-for-sale-securities, Carrying Value
52,080 
127,787 
Asset-Backed Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized Cost
5,490 
 
Gross Unrealized Losses
(3)
 
Available-for-sale-securities, Carrying Value
5,487 
 
Mortgage/Agency-Backed Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized Cost
8,422 
 
Gross Unrealized Gains
21 
 
Gross Unrealized Losses
(15)
 
Available-for-sale-securities, Carrying Value
8,428 
 
Government Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized Cost
14,217 
 
Gross Unrealized Gains
74 
 
Gross Unrealized Losses
(2)
 
Available-for-sale-securities, Carrying Value
14,289 
 
Municipal Variable Rate Demand Notes [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized Cost
 
2,465 
Available-for-sale-securities, Carrying Value
 
2,465 
Marketable Equity Securities [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized Cost
29,508 
26,399 
Gross Unrealized Gains
5,462 
12,395 
Gross Unrealized Losses
(2,375)
(539)
Available-for-sale-securities, Carrying Value
$ 32,595 
$ 38,255 
Investments - Contractual Maturities of Corporate Bonds, Municipal Fixed-Rate Bonds, Asset-Backed Bonds, Mortgage/Agency-Backed Bonds, and Government Bonds (Detail) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2015
Dec. 31, 2014
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale-securities, Fair Value/Carrying Value
$ 215,223 
$ 296,062 
Corporate Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Less than one year
23,732 
 
One to two years
35,429 
 
Two to three years
27,642 
 
Available-for-sale-securities, Fair Value/Carrying Value
86,803 
111,261 
Municipal Fixed-Rate Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Less than one year
16,034