ADTRAN INC, 10-Q filed on 5/9/2012
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2012
Apr. 23, 2012
Document and Entity Information [Abstract]
 
 
Entity Registrant Name
ADTRAN INC 
 
Entity Central Index Key
0000926282 
 
Document Type
10-Q 
 
Document Period End Date
Mar. 31, 2012 
 
Amendment Flag
false 
 
Document Fiscal Year Focus
2012 
 
Document Fiscal Period Focus
Q1 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
63,715,605 
Consolidated Balance Sheets (Unaudited) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Current Assets
 
 
Cash and cash equivalents
$ 36,539 
$ 42,979 
Short-term investments
161,535 
159,347 
Accounts receivable, less allowance for doubtful accounts of $42 and $8 at March 31, 2012 and December 31, 2011, respectively
74,796 
76,130 
Other receivables
8,037 
9,743 
Inventory
95,805 
87,800 
Prepaid expenses
3,861 
3,119 
Deferred tax assets, net
12,548 
12,125 
Total Current Assets
393,121 
391,243 
Property, plant and equipment, net
76,502 
75,295 
Deferred tax assets, net
5,633 
8,345 
Goodwill
3,492 
3,492 
Other assets
6,831 
7,131 
Long-term investments
367,474 
332,008 
Total Assets
853,053 
817,514 
Current Liabilities
 
 
Accounts payable
31,235 
29,404 
Unearned revenue
11,376 
9,965 
Accrued expenses
6,479 
5,876 
Accrued wages and benefits
12,158 
13,518 
Income tax payable, net
10,186 
3,169 
Total Current Liabilities
71,434 
61,932 
Other non-current liabilities
21,588 
16,951 
Bonds payable
46,500 
46,500 
Total Liabilities
139,522 
125,383 
Commitments and contingencies (see Note 13)
   
   
Stockholders' Equity
 
 
Common stock, par value $0.01 per share; 200,000 shares authorized; 79,652 shares issued and 63,898 shares outstanding at March 31, 2012 and 79,652 shares issued and 63,703 shares outstanding at December 31, 2011
797 
797 
Additional paid-in capital
217,273 
213,560 
Accumulated other comprehensive income
20,012 
13,102 
Retained earnings
846,386 
840,206 
Less treasury stock at cost: 15,754 and 15,949 shares at March 31, 2012 and December 31, 2011, respectively
(370,937)
(375,534)
Total Stockholders' Equity
713,531 
692,131 
Total Liabilities and Stockholders' Equity
$ 853,053 
$ 817,514 
Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Consolidated Balance Sheets [Abstract]
 
 
Allowance for doubtful accounts
$ 42 
$ 8 
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
200,000 
200,000 
Common stock, shares issued
79,652 
79,652 
Common stock, shares outstanding
63,898 
63,703 
Treasury stock, shares
15,754 
15,949 
Consolidated Statements of Income (Unaudited) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Consolidated Statements of Income [Abstract]
 
 
Sales
$ 134,735 
$ 165,522 
Cost of sales
60,648 
66,727 
Gross Profit
74,087 
98,795 
Selling, general and administrative expenses
33,111 
29,552 
Research and development expenses
24,795 
23,637 
Operating Income
16,181 
45,606 
Interest and dividend income
1,861 
1,789 
Interest expense
(588)
(602)
Net realized investment gain
2,467 
2,767 
Other income (expense), net
141 
(125)
Income before provision for income taxes
20,062 
49,435 
Provision for income taxes
(7,102)
(15,177)
Net Income
$ 12,960 
$ 34,258 
Weighted average shares outstanding - basic
63,809 
64,189 
Weighted average shares outstanding - diluted
64,849 
65,957 
Earnings per common share - basic
$ 0.20 
$ 0.53 
Earnings per common share - diluted
$ 0.20 
$ 0.52 
Dividend per share
$ 0.09 
$ 0.09 
Consolidated Statements of Comprehensive Income (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Consolidated Statements of Comprehensive Income [Abstract]
 
 
Net Income
$ 12,960 
$ 34,258 
Other Comprehensive Income (Loss), net of tax:
 
 
Net change in unrealized gains (losses) on marketable securities
6,755 
(2,651)
Reclassification adjustments for amounts included in net income
(159)
Foreign currency translation
153 
87 
Other Comprehensive Income (Loss), net of tax
6,910 
(2,723)
Comprehensive Income
$ 19,870 
$ 31,535 
Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Cash flows from operating activities:
 
 
Net income
$ 12,960 
$ 34,258 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
3,095 
2,724 
Amortization of net premium on available-for-sale investments
2,171 
1,299 
Net realized gain on long-term investments
(2,467)
(2,767)
Net (gain) loss on disposal of property, plant and equipment
(214)
12 
Stock-based compensation expense
2,221 
2,089 
Deferred income taxes
(2,030)
877 
Tax benefit from stock option exercises
1,492 
9,942 
Excess tax benefits from stock-based compensation arrangements
(1,153)
(8,847)
Changes in operating assets and liabilities:
 
 
Accounts receivable, net
1,334 
(13,562)
Other receivables
1,706 
(8,725)
Income tax receivable, net
 
2,741 
Inventory
(8,005)
(4,760)
Prepaid expenses and other assets
(710)
(216)
Accounts payable
1,831 
10,117 
Accrued expenses and other liabilities
5,287 
9,606 
Income tax payable, net
7,017 
1,699 
Net cash provided by operating activities
24,535 
36,487 
Cash flows from investing activities:
 
 
Purchases of property, plant and equipment
(4,086)
(3,045)
Proceeds from disposals of property, plant and equipment
266 
 
Proceeds from sales and maturities of available-for-sale investments
69,364 
161,687 
Purchases of available-for-sale investments
(95,646)
(224,459)
Net cash used in investing activities
(30,102)
(65,817)
Cash flows from financing activities:
 
 
Proceeds from stock option exercises
3,560 
31,815 
Dividend payments
(5,739)
(5,775)
Excess tax benefits from stock-based compensation arrangements
1,153 
8,847 
Net cash provided by (used in) financing activities
(1,026)
34,887 
Net increase (decrease) in cash and cash equivalents
(6,593)
5,557 
Effect of exchange rate changes
153 
87 
Cash and cash equivalents, beginning of period
42,979 
31,677 
Cash and cash equivalents, end of period
$ 36,539 
$ 37,321 
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, 2011 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 for a fair presentation of these interim statements have been included 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, 2011, filed on February 29, 2012 with the SEC.

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 allowance for doubtful accounts, obsolete and excess inventory reserves, warranty reserves, customer rebates, allowance for sales returns, determination of the deferred revenue components of multiple element sales agreements, estimated income tax contingencies, the fair value of stock-based compensation, impairment of goodwill, and the evaluation of other-than-temporary declines in the value of investments. Actual amounts could differ significantly from these estimates.

Recent Accounting Pronouncements

During the first quarter of 2012, we adopted the following accounting standards, which had no material effect on our consolidated results of operations or financial condition:

In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income (ASU 2011-05). ASU 2011-05 requires companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. While ASU 2011-05 changes the presentation of comprehensive income, it does not change the components that are recognized in net income or comprehensive income under current accounting guidance. This update is effective for fiscal years, and interim periods within those years, ending after December 15, 2011, with early adoption permitted. We adopted this amendment during the three months ended March 31, 2012, and we have provided the disclosures required for the three months ended March 31, 2012 and 2011.

 

In December 2011, the FASB issued Accounting Standards Update No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (ASU 2011-12). ASU 2011-12 defers the effective date for certain presentation requirements that relate to reclassification adjustments and the effect of those reclassification adjustments on the financial statements. This update is effective for fiscal years, and interim periods within those years, ending after December 15, 2011, with early adoption permitted. We adopted this amendment during the three months ended March 31, 2012. The adoption of this amendment had no effect on our consolidated results of operations and financial condition for the three months ended March 31, 2012.
 
 
In May 2011, the FASB issued Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IRFSs (ASU 2011-04). ASU 2011-04 is intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRS. The amendments are of two types: (i) those that clarify the Board's intent about the application of existing fair value measurement and disclosure requirements and (ii) those that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. This update is effective for annual periods beginning after December 15, 2011. We adopted this amendment during the three months ended March 31, 2012. The adoption of this amendment had no effect on our consolidated results of operations and financial condition for the three months ended March 31, 2012.
Business Combinations
BUSINESS COMBINATIONS

2. BUSINESS COMBINATIONS

On August 4, 2011, we acquired all of the outstanding stock of Bluesocket, Inc., a provider of wireless network solutions with virtual control, for $23.7 million in cash. The acquisition provides us with IEEE802.11N enterprise class wireless LAN expertise, technology, and products to address the growing transition within small-medium enterprises and large enterprises to wireless networks and mobile devices. We have included the financial results of Bluesocket in our consolidated financial statements since the date of acquisition. Pro forma results of operations prior to the closing date for the acquisition have not been presented because the effect of the acquisition was not material to our financial results. The allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date is as follows:

 

         
(In Thousands)       
   

Cash

   $ 1,027   

Accounts receivable

     298   

Inventory

     792   

Prepaid expenses

     357   

Property, plant and equipment

     173   

Deferred tax assets, net

     12,962   

Accounts payable

     (441

Unearned revenue

     (600

Accrued expenses

     (332
    

 

 

 

Net assets acquired

     14,236   
   

Customer relationships

     1,530   

Developed technology

     3,230   

Intellectual property

     930   

Trade names

     270   

Goodwill

     3,492   
    

 

 

 

Total purchase price

   $ 23,688   
    

 

 

 

During the fourth quarter of 2011, the purchase price and purchase price allocation were adjusted for our final valuations. The adjustments resulted in a decrease to the goodwill recognized in the transaction.

The net deferred tax assets acquired are primarily related to net operating losses and previously capitalized and unamortized research and development expense for tax deduction purposes.

The fair value of the customer relationships, developed technology and intellectual property acquired was calculated using an income approach (excess earnings method) and is being amortized using the straight-line method. The customer relationships and intellectual property are being amortized over an estimated useful life of 7 years and the developed technology is being amortized over an average estimated useful life of 4.5 years.

The fair value of the trade names acquired was calculated using an income approach (relief from royalty method) and is being amortized using the straight-line method over the estimate useful life of 4.5 years.

The goodwill of $3.5 million generated from this acquisition is primarily related to expected synergies and was assigned to our Enterprise Networks division. The goodwill will not be deductible for U.S. federal income tax purposes. 

For the three months ended March 31, 2012, we incurred acquisition related adjustments and amortization of acquired intangibles of $0.5 million related to this acquisition.

Income Taxes
INCOME TAXES

3. INCOME TAXES

Our effective tax rate increased from 30.7% in the three months ended March 31, 2011 to 35.4% in the three months ended March 31, 2012. The tax provision rate in the first quarter of 2012 did not include the benefit of the research tax credit, which expired on December 31, 2011. The exclusion of this benefit in the first quarter of 2012 resulted in a 2.2 percentage point increase in our effective tax rate. Also, decreased benefits from a lower volume of stock option exercises in the first quarter of 2012 resulted in a 3.1 percentage point increase in our effective tax rate.

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 months ended March 31, 2012 and 2011, which was recognized as follows:

 

                 
     Three Months Ended  
     March 31,  
(In thousands)    2012     2011  

Stock-based compensation expense included in cost of sales

   $ 101      $ 91   
    

 

 

   

 

 

 

Selling, general and administrative expense

     1,051        1,007   

Research and development expense

     1,069        991   
    

 

 

   

 

 

 

Stock-based compensation expense included in operating expenses

     2,120        1,998   
    

 

 

   

 

 

 

Total stock-based compensation expense

     2,221        2,089   

Tax benefit for expense associated with non-qualified options

     (301     (440
    

 

 

   

 

 

 

Total stock-based compensation expense, net of tax

   $ 1,920      $ 1,649   
    

 

 

   

 

 

 

The fair value of our stock options was 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 stock options granted during the three months ended March 31, 2012 or 2011.

The fair value of our RSUs is calculated using a Monte Carlo Simulation valuation method. There were no RSU grants during the three months ended March 31, 2012 or 2011.

The fair value of restricted stock is equal to the closing price of our stock on the date of grant. There were no restricted stock grants during the three months ended March 31, 2012 or 2011.

Stock-based compensation expense recognized in our Consolidated Statements of Income for the three months ended March 31, 2012 and 2011 is based on stock options, RSUs and restricted stock ultimately expected to vest, and has been reduced for estimated forfeitures. Estimated forfeitures for stock options were based upon historical experience and approximate 1.6% 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 March 31, 2012, total compensation expense related to non-vested stock options, RSUs and restricted stock not yet recognized was approximately $19.6 million, which is expected to be recognized over an average remaining recognition period of 2.7 years.

 

The following table is a summary of our stock options outstanding as of December 31, 2011 and March 31, 2012 and the changes that occurred during the three months ended March 31, 2012:

 

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, 2011

     5,400      $  25.66         6.78       $  27,270   

Options granted

     —        $ —           

Options cancelled/forfeited

     (16   $ 27.59         

Options exercised

     (180   $ 19.71         
  

 

 

   

 

 

    

 

 

    

 

 

 

Options outstanding, March 31, 2012

     5,204      $ 25.86         6.59       $ 30,189   
  

 

 

   

 

 

    

 

 

    

 

 

 

Options exercisable, March 31, 2012

     2,878      $ 23.72         4.98       $ 22,332   
  

 

 

   

 

 

    

 

 

    

 

 

 

 

The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value (the difference between ADTRAN's closing stock price on the last trading day of 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 March 31, 2012. The aggregate intrinsic value will change based on the fair market value of ADTRAN's stock.

The total pre-tax intrinsic value of options exercised during the three months ended March 31, 2012 was $3.0 million.

The following table is a summary of our RSUs and restricted stock outstanding as of December 31, 2011 and March 31, 2012 and the changes that occurred during the three months ended March 31, 2012:

 

                 
(In thousands, except per share amounts)    Number
of
shares
     Weighted
Average
Grant Date
Fair Value
 

Unvested RSUs and restricted stock outstanding, December 31, 2011

     90       $ 34.21   

RSUs and restricted stock granted

     —           —     

RSUs and restricted stock vested

     —           —     

RSUs and restricted stock cancelled/forfeited

     —           —     
    

 

 

    

 

 

 

Unvested RSUs and restricted stock, March 31, 2012

     90       $ 34.21   
    

 

 

    

 

 

 

 

Investments
INVESTMENTS

5. INVESTMENTS

At March 31, 2012, 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

   $ 10,627       $ 663       $ (74   $ 11,216   

Corporate bonds

     183,193         748         (549     183,392   

Municipal fixed-rate bonds

     192,853         588         (147     193,294   

Municipal variable rate demand notes

     47,920         —           —          47,920   

Fixed income bond fund

     527         219         —          746   

Marketable equity securities

     15,786         26,505         (215     42,076   
    

 

 

    

 

 

    

 

 

   

 

 

 

Available-for-sale securities held at fair value

   $ 450,906       $ 28,723       $ (985   $ 478,644   
    

 

 

    

 

 

    

 

 

         

Restricted investment held at cost

                               48,250   

Other investments held at cost

                               2,115   
                              

 

 

 

Total carrying value of available-for-sale investments

                             $ 529,009   
                              

 

 

 

At December 31, 2011, 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

   $ 7,994       $ 119       $ (401   $ 7,712   

Corporate bonds

     159,077         181         (2,505     156,753   

Municipal fixed-rate bonds

     174,300         579         (53     174,826   

Municipal variable rate demand notes

     69,660         —           —          69,660   

Fixed income bond fund

     527         194         —          721   

Marketable equity securities

     12,771         19,098         (559     31,310   
    

 

 

    

 

 

    

 

 

   

 

 

 

Available-for-sale securities held at fair value

   $ 424,329       $ 20,171       $ (3,518   $ 440,982   
    

 

 

    

 

 

    

 

 

         

Restricted investment held at cost

                               48,250   

Other investments held at cost

                               2,123   
                              

 

 

 

Total carrying value of available-for-sale investments

                             $ 491,355   
                              

 

 

 

As of March 31, 2012, our corporate bonds and municipal fixed-rate bonds had the following contractual maturities:

 

                 

(In thousands)

   Corporate
bonds
    

Municipal
fixed-rate

bonds

 

Less than one year

   $ 24,172       $ 89,443   

One to two years

     112,900         50,570   

Two to three years

     44,163         16,576   

Three to four years

     2,157         36,705   
    

 

 

    

 

 

 

Total

   $ 183,392       $ 193,294   
    

 

 

    

 

 

 

Our investment policy provides limitations for issuer concentration, which limits, at the time of purchase, the concentration in any one issuer to 5% of the market value of our total investment portfolio.

 

We review our investment portfolio for potential "other-than-temporary" declines in value on an individual investment basis. We assess, on a quarterly basis, significant declines in value which may be considered other-than-temporary and, if necessary, recognize and record the appropriate charge to write-down the carrying value of such investments. In making this assessment, we take into consideration qualitative and quantitative information, including but not limited to the following: the magnitude and duration of historical declines in market prices, credit rating activity, assessments of liquidity, public filings, and statements made by the issuer. We generally begin our identification of potential other-than-temporary impairments by reviewing any security with a fair value that has declined from its original or adjusted cost basis by 25% or more for six or more consecutive months. We then evaluate the individual security based on the previously identified factors to determine the amount of the write-down, if any. As a result of our review, we recorded an other-than-temporary impairment charge of $33 thousand during the three months ended March 31, 2012 related to seven marketable equity securities. For the three months ended March 31, 2011, we recorded an other-than-temporary impairment charge of $4 thousand related to one marketable equity security.

 

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 March 31,

      
(In thousands)    2012     2011  

Gross realized gains

   $ 2,669      $ 2,864   

Gross realized losses

   $ (202   $ (97

As of March 31, 2012 and 2011, gross unrealized losses related to individual securities that had been in a continuous loss position for 12 months or longer were not significant.

In accordance with the Fair Value Measurements and Disclosures Topic of the FASB ASC, 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 March 31, 2012 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

   $ 10,988       $ 10,988       $ —         $ —     
    

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

                                   

Deferred compensation plan assets

     11,216         11,216         —           —     

Available-for-sale debt securities

                                   

Corporate bonds

     183,392         —           183,392         —     

Municipal fixed-rate bonds

     193,294         —           193,294         —     

Municipal variable rate demand notes

     47,920         —           47,920         —     

Fixed income bond fund

     746         746         —           —     

Available-for-sale marketable equity securities

                                   

Equity securities – technology industry

     25,773         25,773         —           —     

Equity securities – other

     16,302         16,302         —           —     
    

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

     478,643         54,037         424,606         —     
    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 489,631       $ 65,025       $ 424,606       $ —     
    

 

 

    

 

 

    

 

 

    

 

 

 

 

                                 
     Fair Value Measurements at December 31, 2011 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

   $ 13,696       $ 13,696       $ —         $ —     
    

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

                                   

Deferred compensation plan assets

     7,712         7,712         —           —     

Available-for-sale debt securities

                                   

Corporate bonds

     156,753         —           156,753         —     

Municipal fixed-rate bonds

     174,826         —           174,826         —     

Municipal variable rate demand notes

     69,660         —           69,660         —     

Fixed income bond fund

     721         721         —           —     

Available-for-sale marketable equity securities

                                   

Equity securities – technology industry

     18,743         18,743         —           —     

Equity securities – other

     12,567         12,567         —           —     
    

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

     440,982         39,743         401,239         —     
    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 454,678       $ 53,439       $ 401,239       $ —     
    

 

 

    

 

 

    

 

 

    

 

 

 

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.

Inventory
INVENTORY

6. INVENTORY

At March 31, 2012 and December 31, 2011, inventory consisted of the following:

 

                 
     March 31,      December 31,  
(In thousands)    2012      2011  

Raw materials

   $ 44,758       $ 44,588   

Work in process

     5,081         3,954   

Finished goods

     45,966         39,258   
    

 

 

    

 

 

 

Total

   $ 95,805       $ 87,800   
    

 

 

    

 

 

 

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 March 31, 2012 and December 31, 2011, raw materials reserves totaled $8.2 million and $7.9 million, respectively, and finished goods inventory reserves totaled $1.5 million.

 

Goodwill and Intangible Assets
Goodwill and Intangible Assets

7. GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying value of goodwill, all of which is included in our Enterprise Networks division, for the three months ended March 31, 2012 are as follows:

 

         
(In thousands)       

Balance, December 31, 2011

   $
3,492
  

Acquisitions

     —     

Impairment losses

     —     
    

 

 

 

Balance, March 31, 2012

   $ 3,492   
    

 

 

 

Balance as of March 31, 2012

        

Goodwill

   $ 3,492   

Accumulated impairment losses

     —     
    

 

 

 

Total goodwill

   $ 3,492   
    

 

 

 

We evaluate the carrying value of goodwill during the fourth quarter of each year and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. When evaluating whether goodwill is impaired, we first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. If we determine that the two-step quantitative test is necessary , then we compare the fair value of the reporting unit to which the goodwill is assigned to the reporting unit's carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, then the amount of the impairment loss is measured. There were no impairment losses during the three months ended March 31, 2012.

The following table presents our intangible assets as of March 31, 2012 and December 31, 2011. Intangible assets are included in other assets in the accompanying Consolidated Balance Sheets and include intangibles acquired in conjunction with our acquisition of Objectworld Communications Corporation on September 15, 2009 and Bluesocket, Inc. on August 4, 2011.

 

                                                 
(In thousands)    March 31, 2012      December 31, 2011  
     Gross
Value
     Accumulated
Amortization
    Net
Value
     Gross
Value
     Accumulated
Amortization
    Net
Value
 

Customer relationships

   $ 1,623       $ (239   $ 1,384       $ 1,623       $ (194   $ 1,429   

Developed technology

     3,230         (439     2,791         3,230         (303     2,927   

Intellectual property

     2,340         (600     1,740         2,340         (525     1,815   

Trade names

     270         (40     230         270         (28     242   
    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 7,463       $ (1,318   $ 6,145       $ 7,463       $ (1,050   $ 6,413   
    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Amortization expense was $0.3 million and $0.1 million for the three months ended March 31, 2012 and 2011, respectively.

As of March 31, 2012, the estimated future amortization expense of our intangible assets is as follows:

 

         
(In thousands)    Amount  

Remainder of 2012

   $ 953   

2013

     1,271   

2014

     1,120   

2015

     1,018   

2016

     781   

Thereafter

     1,002   
    

 

 

 

Total

   $ 6,145   
    

 

 

 
Stockholder's Equity
STOCKHOLDERS' EQUITY

8. STOCKHOLDERS' EQUITY

A summary of the changes in stockholders' equity for the three months ended March 31, 2012 is as follows:

 

         
(In thousands)    Stockholders'
Equity
 

Balance, December 31, 2011

   $ 692,131   

Net income

     12,960   

Dividend payments

     (5,739

Dividends accrued for unvested restricted stock units

     (4

Net change in unrealized gains and losses on marketable securities (net of deferred taxes)

     6,755   

Reclassification adjustment for amounts included in net income (net of deferred taxes)

     2   

Foreign currency translation adjustment

     153   

Proceeds from stock option exercises

     3,560   

Tax benefits from stock option exercises

     1,492   

Stock-based compensation expense

     2,221   
    

 

 

 

Balance, March 31, 2012

   $ 713,531   
    

 

 

 

Stock Repurchase Program

Since 1997, our Board of Directors has approved multiple share repurchase programs that have authorized open market repurchase transactions of up to 35 million shares of our common stock. During the three months ended March 31, 2012, we did not repurchase any shares of our common stock. We have the authority to purchase an additional 5.9 million shares of our common stock under plans approved by the Board of Directors on April 14, 2008 and October 11, 2011.

Stock Option Exercises

We issued 0.2 million shares of treasury stock during the three months ended March 31, 2012 to accommodate employee stock option exercises. The stock options had exercise prices ranging from $8.70 to $33.70. We received proceeds totaling $3.6 million from the exercise of these stock options during the three months ended March 31, 2012.

Dividend Payments

During the three months ended March 31, 2012, we paid cash dividends as follows (in thousands except per share amount):

 

                         

Record Date

   Payment Date      Per Share Amount      Total Dividend Paid  

February 2, 2012

     February 16, 2012       $ 0.09       $ 5,739   

Other Comprehensive Income

Other comprehensive income consists of the net change in unrealized gains and losses on marketable securities, reclassification adjustments for amounts included in net income related to realized gains on previously impaired marketable securities and foreign currency translation adjustments.

The components of other comprehensive income for the three months ended March 31, 2012 are as follows:

 

                         
     Three Months Ended March 31, 2012  
(In thousands)    Before-Tax
Amount
     Tax
(Expense)
Benefit
    Net-of-Tax
Amount
 

Net change in unrealized gains (losses) related to marketable securities

   $ 11,073       $ (4,318   $ 6,755   

Reclassification adjustment for amounts included in net income

     3         (1     2   

Foreign currency translation adjustment

     153         —          153   
    

 

 

    

 

 

   

 

 

 

Total Other Comprehensive Income (Loss)

   $ 11,229       $ (4,319   $ 6,910   
    

 

 

    

 

 

   

 

 

 

 

The components of other comprehensive income for the three months ended March 31, 2011 are as follows:

 

                         
     Three Months Ended March 31, 2011  
(In thousands)    Before-Tax
Amount
    Tax
(Expense)
Benefit
     Net-of-Tax
Amount
 

Net change in unrealized gains (losses) related to marketable securities

   $ (3,324   $ 673       $ (2,651

Reclassification adjustment for amounts included in net income

     (202     43         (159

Foreign currency translation adjustment

     87        —           87   
    

 

 

   

 

 

    

 

 

 

Total Other Comprehensive Income (Loss)

   $ (3,439   $ 716       $ (2,723
    

 

 

   

 

 

    

 

 

 
Earnings Per Share
EARNINGS PER SHARE

9. EARNINGS PER SHARE

A summary of the calculation of basic and diluted earnings per share for the three months ended March 31, 2012 and 2011 is as follows:

 

     Three Months Ended  
     March 31,  
(In thousands, except per share amounts)    2012      2011  

Numerator

     

Net income

   $ 12,960       $ 34,258   
  

 

 

    

 

 

 

Denominator

     

Weighted average number of shares – basic

     63,809         64,189   

Effect of dilutive securities

     

Stock options

     1,008         1,711   

Restricted stock and restricted stock units

     32         57   
  

 

 

    

 

 

 

Weighted average number of shares – diluted

     64,849         65,957   
  

 

 

    

 

 

 

Net income per share – basic

   $ 0.20       $ 0.53   

Net income per share – diluted

   $ 0.20       $ 0.52   

Anti-dilutive options to purchase common stock outstanding were excluded from the above calculations. Anti-dilutive options totaled 1.9 million and 0.9 million for the three months ended March 31, 2012 and 2011, respectively.

Segment Information
SEGMENT INFORMATION

10. 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 expense, research and development expenses, interest income and dividend income, interest expense, net realized investment gain/loss, other income/expense and provision for taxes are reported on an entity-wide basis only. There are no inter-segment revenues.

The following table presents information about the reported sales and gross profit of our reportable segments for the three months ended March 31, 2012 and 2011. Asset information by reportable segment is not reported, since we do not produce such information internally.

 

     Three Months Ended  
     March 31, 2012      March 31, 2011  
(In thousands)    Sales      Gross Profit      Sales      Gross Profit  

Carrier Networks

   $ 96,654       $ 52,883       $ 132,360       $ 79,498   

Enterprise Networks

     38,081         21,204         33,162         19,297   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 134,735       $ 74,087       $ 165,522       $ 98,795   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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. The Carrier Systems category includes our broadband access products comprised of Total Access® 5000 multi-service access and aggregation platform products, Total Access 1100/1200 Series Fiber-To-The-Node (FTTN) products, Ultra Broadband Ethernet (UBE) and Digital Subscriber Line Access Multiplexer (DSLAM) products. Our broadband access products are used by service providers to deliver high-speed Internet access, Voice over Internet Protocol (VoIP), IP Television (IPTV), and/or Ethernet services from the central office or remote terminal locations to customer premises. The Carrier Systems category also includes our optical products. These products consist of optical multiplexers and transceivers including those used in our Optical Networking Edge (ONE) products, NetVanta 8000 series products, and our family of OPTI products. Optical products are used to deliver higher bandwidth services, aggregate large numbers of low bandwidth services, or transport wavelength services across a fiber optic infrastructure. Total Access 1500 products, 303 concentrator products, M13 multiplexer products, and a number of mobile backhaul products are also included in the Carrier Systems product category.

Business Networking products provide access to telecommunication services, facilitating the delivery of converged services and Unified Communications to the small and mid-sized enterprises (SME) market. The Business Networking category includes Internetworking products and Integrated Access Devices (IADs). Internetworking products consist of our Total Access IP Business Gateways, Optical Network Terminals (ONTs), Virtual Wireless LAN products and NetVanta product lines. NetVanta products include multi-service routers, managed Ethernet switches, IP Private Branch Exchange (PBX) products, IP phone products, Unified Communications solutions, Unified Threat Management (UTM) solutions, and Carrier Ethernet Network Terminating Equipment (NTE). IAD products consist of our Total Access 600 Series and the Total Access 850.

Loop Access products are used by carrier and enterprise customers for access to copper-based telecommunications networks. The Loop Access category includes products such as: Digital Data Service (DDS) and Integrated Services Digital Network (Total Reach) products, High bit-rate Digital Subscriber Line (HDSL) products including Total Access 3000 HDSL and Time Division Multiplexed-Symmetrical HDSL (TDM-SHDSL) products, T1/E1/T3, Channel Service Units/Data Service Units, and TRACER fixed wireless products.

The table below presents sales information by product category for the three months ended March 31, 2012 and 2011.

 

     Three Months Ended  
     March 31,  
(In thousands)    2012      2011  

Carrier Systems

   $ 71,258       $ 86,750   

Business Networking

     43,142         36,363   

Loop Access

     20,335         42,409   
  

 

 

    

 

 

 

Total

   $ 134,735       $ 165,522   
  

 

 

    

 

 

 

In addition, we identify subcategories of product revenues, which we divide into our 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) and our legacy products include HDSL products (included in Loop Access) and other products not included in the aforementioned core products.

 

Subcategory revenues included in the above are as follows:

 

     Three Months Ended  
     March 31,  
(In thousands)    2012      2011  

Core Products

     

Broadband Access (included in Carrier Systems)

   $ 49,482       $ 51,782   

Optical (included in Carrier Systems)

     14,255         20,916   

Internetworking (NetVanta & Multi-service Access

Gateways) (included in Business Networking)

     40,974         32,883   
  

 

 

    

 

 

 

Subtotal

     104,711         105,581   

Legacy Products

     

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

     18,959         40,945   

Other products (excluding HDSL)

     11,065         18,996   
  

 

 

    

 

 

 

Subtotal

     30,024         59,941   
  

 

 

    

 

 

 

Total

   $ 134,735       $ 165,522   
  

 

 

    

 

 

 

Sales by Geographic Region

The table below presents sales information by geographic area for the three months ended March 31, 2012 and 2011. International sales correlate to shipments with a non-U.S. destination.

 

     Three Months Ended  
(In thousands)    March 31,
2012
     March 31,
2011
 

United States

   $ 116,443       $ 153,113   

International

     18,292         12,409   
  

 

 

    

 

 

 

Total

   $ 134,735       $ 165,522   
  

 

 

    

 

 

 
Liability for Warranty Returns
LIABILITY FOR WARRANTY RETURNS

11. 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 systems products. The increasing complexity of our products will cause warranty incidences, when they arise, to be more costly. Our estimates regarding future warranty obligations may change due to product failure rates, material usage, and other rework costs incurred in correcting a product failure. In addition, from time to time, specific warranty accruals may be recorded if unforeseen problems arise. Should our actual experience relative to these factors be worse than our estimates, we will be required to record additional warranty expense. Alternatively, if we provide for more reserves than we require, we will reverse a portion of such provisions in future periods. The liability for warranty obligations totaled $4.7 million at March 31, 2012 and $4.1 million at December 31, 2011. These liabilities are included in accrued expenses in the accompanying Consolidated Balance Sheets.

 

A summary of warranty expense and write-off activity for the three months ended March 31, 2012 and 2011 is as follows:

 

                 
Three Months Ended March 31,    2012     2011  
(In thousands)             

Balance at beginning of period

   $ 4,118      $ 3,304   

Plus: Amounts charged to cost and expenses

     1,181        835   

Less: Deductions

     (568     (620
    

 

 

   

 

 

 

Balance at end of period

   $ 4,731      $ 3,519   
    

 

 

   

 

 

 
Related Party Transactions
RELATED PARTY TRANSACTIONS

12. RELATED PARTY TRANSACTIONS

We employ the law firm of our director emeritus for legal services. All bills for services rendered by this firm are reviewed and approved by our Chief Financial Officer. We believe that the fees for such services are comparable to those charged by other firms for services rendered to us. For the three months ended March 31, 2012 and 2011, we incurred fees of $10 thousand per month for these legal services.

Commitments and Contingencies
COMMITMENTS AND CONTINGENCIES

13. COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, we may be subject to various legal proceedings and claims, including employment disputes, patent claims, disputes over contract agreements and other commercial disputes. In some cases, claimants seek damages or other relief, such as royalty payments related to patents, which, if granted, could require significant expenditures. Although the outcome of any claim or litigation can never be certain, it is our opinion that the outcome of all contingencies of which we are currently aware will not materially affect our business, operations, financial condition or cash flows.

We 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 March 31, 2012, of which $7.7 million has been applied to these commitments.

Subsequent Events
SUBSEQUENT EVENTS

14. SUBSEQUENT EVENTS

On April 10, 2012, 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 April 26, 2012. The payment date will be May 10, 2012. The quarterly dividend payment will be approximately $5.7 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.

On May 4, 2012, we closed on the acquisition of Nokia Siemens Networks Broadband Access Business. This acquisition provides us with an established customer base in key markets and complementary products. The net consideration exchanged between Nokia Siemens Networks and Adtran was not material. The final net consideration is subject to post-closing adjustments. This acquisition will be accounted for as a business combination. Due to the timing of the closing, we have not completed the purchase accounting associated with this acquisition as of the date of this report.

During the second quarter of 2012 and as of May 9, 2012, we repurchased 0.3 million shares of our common stock through open market purchases at an average cost of $29.63 per share. We have the authority to purchase an additional 5.5 million shares of our common stock under plans approved by the Board of Directors on April 14, 2008 and October 11, 2011.

Summary of Significant Accounting Policies (Policies)

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 allowance for doubtful accounts, obsolete and excess inventory reserves, warranty reserves, customer rebates, allowance for sales returns, determination of the deferred revenue components of multiple element sales agreements, estimated income tax contingencies, the fair value of stock-based compensation, impairment of goodwill, and the evaluation of other-than-temporary declines in the value of investments. Actual amounts could differ significantly from these estimates.

In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income (ASU 2011-05). ASU 2011-05 requires companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. While ASU 2011-05 changes the presentation of comprehensive income, it does not change the components that are recognized in net income or comprehensive income under current accounting guidance. This update is effective for fiscal years, and interim periods within those years, ending after December 15, 2011, with early adoption permitted. We adopted this amendment during the three months ended March 31, 2012, and we have provided the disclosures required for the three months ended March 31, 2012 and 2011.

In December 2011, the FASB issued Accounting Standards Update No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (ASU 2011-12). ASU 2011-12 defers the effective date for certain presentation requirements that relate to reclassification adjustments and the effect of those reclassification adjustments on the financial statements. This update is effective for fiscal years, and interim periods within those years, ending after December 15, 2011, with early adoption permitted. We adopted this amendment during the three months ended March 31, 2012. The adoption of this amendment had no effect on our consolidated results of operations and financial condition for the three months ended March 31, 2012.

In May 2011, the FASB issued Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IRFSs (ASU 2011-04). ASU 2011-04 is intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRS. The amendments are of two types: (i) those that clarify the Board's intent about the application of existing fair value measurement and disclosure requirements and (ii) those that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. This update is effective for annual periods beginning after December 15, 2011. We adopted this amendment during the three months ended March 31, 2012. The adoption of this amendment had no effect on our consolidated results of operations and financial condition for the three months ended March 31, 2012.

Business Combinations (Tables)
Allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date
         
(In Thousands)       
   

Cash

   $ 1,027   

Accounts receivable

     298   

Inventory

     792   

Prepaid expenses

     357   

Property, plant and equipment

     173   

Deferred tax assets, net

     12,962   

Accounts payable

     (441

Unearned revenue

     (600

Accrued expenses

     (332
    

 

 

 

Net assets acquired

     14,236   
   

Customer relationships

     1,530   

Developed technology

     3,230   

Intellectual property

     930   

Trade names

     270   

Goodwill

     3,492   
    

 

 

 

Total purchase price

   $ 23,688   
    

 

 

 
Stock Based Compensation (Tables)
                 
     Three Months Ended  
     March 31,  
(In thousands)    2012     2011  

Stock-based compensation expense included in cost of sales

   $ 101      $ 91   
    

 

 

   

 

 

 

Selling, general and administrative expense

     1,051        1,007   

Research and development expense

     1,069        991   
    

 

 

   

 

 

 

Stock-based compensation expense included in operating expenses

     2,120        1,998   
    

 

 

   

 

 

 

Total stock-based compensation expense

     2,221        2,089   

Tax benefit for expense associated with non-qualified options

     (301     (440
    

 

 

   

 

 

 

Total stock-based compensation expense, net of tax

   $ 1,920      $ 1,649   
    

 

 

   

 

 

 
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, 2011

     5,400      $  25.66         6.78       $  27,270   

Options granted

     —        $ —           

Options cancelled/forfeited

     (16   $ 27.59         

Options exercised

     (180   $ 19.71         
  

 

 

   

 

 

    

 

 

    

 

 

 

Options outstanding, March 31, 2012

     5,204      $ 25.86         6.59       $ 30,189   
  

 

 

   

 

 

    

 

 

    

 

 

 

Options exercisable, March 31, 2012

     2,878      $ 23.72         4.98       $ 22,332   
  

 

 

   

 

 

    

 

 

    

 

 

 
                 
(In thousands, except per share amounts)    Number
of
shares
     Weighted
Average
Grant Date
Fair Value
 

Unvested RSUs and restricted stock outstanding, December 31, 2011

     90       $ 34.21   

RSUs and restricted stock granted

     —           —     

RSUs and restricted stock vested

     —           —     

RSUs and restricted stock cancelled/forfeited

     —           —     
    

 

 

    

 

 

 

Unvested RSUs and restricted stock, March 31, 2012

     90       $ 34.21   
    

 

 

    

 

 

 
Investments (Tables)

At March 31, 2012, 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

   $ 10,627       $ 663       $ (74   $ 11,216   

Corporate bonds

     183,193         748         (549     183,392   

Municipal fixed-rate bonds

     192,853         588         (147     193,294   

Municipal variable rate demand notes

     47,920         —           —          47,920   

Fixed income bond fund

     527         219         —          746   

Marketable equity securities

     15,786         26,505         (215     42,076   
  

 

 

    

 

 

    

 

 

   

 

 

 

Available-for-sale securities held at fair value

   $ 450,906       $ 28,723       $ (985   $ 478,644   
  

 

 

    

 

 

    

 

 

   

Restricted investment held at cost

             48,250   

Other investments held at cost

             2,115   
          

 

 

 

Total carrying value of available-for-sale investments

           $ 529,009   
          

 

 

 

At December 31, 2011, 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

   $ 7,994       $ 119       $ (401   $ 7,712   

Corporate bonds

     159,077         181         (2,505     156,753   

Municipal fixed-rate bonds

     174,300         579         (53     174,826   

Municipal variable rate demand notes

     69,660         —           —          69,660   

Fixed income bond fund

     527         194         —          721   

Marketable equity securities

     12,771         19,098         (559     31,310   
  

 

 

    

 

 

    

 

 

   

 

 

 

Available-for-sale securities held at fair value

   $ 424,329       $ 20,171       $ (3,518   $ 440,982   
  

 

 

    

 

 

    

 

 

   

Restricted investment held at cost

             48,250   

Other investments held at cost

             2,123   
          

 

 

 

Total carrying value of available-for-sale investments

           $ 491,355   
          

 

 

 
                 

(In thousands)

   Corporate
bonds
    

Municipal
fixed-rate

bonds

 

Less than one year

   $ 24,172       $ 89,443   

One to two years

     112,900         50,570   

Two to three years

     44,163         16,576   

Three to four years

     2,157         36,705   
    

 

 

    

 

 

 

Total

   $ 183,392       $ 193,294   
    

 

 

    

 

 

 
                 

Three Months Ended March 31,

      
(In thousands)    2012     2011  

Gross realized gains

   $ 2,669      $ 2,864   

Gross realized losses

   $ (202   $ (97
   Fair Value Measurements at March 31, 2012 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

   $ 10,988       $ 10,988       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

           

Deferred compensation plan assets

     11,216         11,216         —           —     

Available-for-sale debt securities

           

Corporate bonds

     183,392         —           183,392         —     

Municipal fixed-rate bonds

     193,294         —           193,294         —     

Municipal variable rate demand notes

     47,920         —           47,920         —     

Fixed income bond fund

     746         746         —           —     

Available-for-sale marketable equity securities

           

Equity securities – technology industry

     25,773         25,773         —           —     

Equity securities – other

     16,302         16,302         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

     478,643         54,037         424,606         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 489,631       $ 65,025       $ 424,606       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measurements at December 31, 2011 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

   $ 13,696       $ 13,696       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

           

Deferred compensation plan assets

     7,712         7,712         —           —     

Available-for-sale debt securities

           

Corporate bonds

     156,753         —           156,753         —     

Municipal fixed-rate bonds

     174,826         —           174,826         —     

Municipal variable rate demand notes

     69,660         —           69,660         —     

Fixed income bond fund

     721         721         —           —     

Available-for-sale marketable equity securities

           

Equity securities – technology industry

     18,743         18,743         —           —     

Equity securities – other

     12,567         12,567         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

     440,982         39,743         401,239         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 454,678       $ 53,439       $ 401,239       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 
Inventory (Tables)
Inventory
                 
     March 31,      December 31,  
(In thousands)    2012      2011  

Raw materials

   $ 44,758       $ 44,588   

Work in process

     5,081         3,954   

Finished goods

     45,966         39,258   
    

 

 

    

 

 

 

Total

   $ 95,805       $ 87,800   
    

 

 

    

 

 

 
Goodwill and Intangible Assets (Tables)
         
(In thousands)       

Balance, December 31, 2011

   $
3,492
  

Acquisitions

     —     

Impairment losses

     —     
    

 

 

 

Balance, March 31, 2012

   $ 3,492   
    

 

 

 

Balance as of March 31, 2012

        

Goodwill

   $ 3,492   

Accumulated impairment losses

     —     
    

 

 

 

Total goodwill

   $ 3,492   
    

 

 

 
                                                 
(In thousands)    March 31, 2012      December 31, 2011  
     Gross
Value
     Accumulated
Amortization
    Net
Value
     Gross
Value
     Accumulated
Amortization
    Net
Value
 

Customer relationships

   $ 1,623       $ (239   $ 1,384       $ 1,623       $ (194   $ 1,429   

Developed technology

     3,230         (439     2,791         3,230         (303     2,927   

Intellectual property

     2,340         (600     1,740         2,340         (525     1,815   

Trade names

     270         (40     230         270         (28     242   
    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 7,463       $ (1,318   $ 6,145       $ 7,463       $ (1,050   $ 6,413   
    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
         
(In thousands)    Amount  

Remainder of 2012

   $ 953   

2013

     1,271   

2014

     1,120   

2015

     1,018   

2016

     781   

Thereafter

     1,002   
    

 

 

 

Total

   $ 6,145   
    

 

 

 
Stockholders' Equity (Tables)
         
(In thousands)    Stockholders'
Equity
 

Balance, December 31, 2011

   $ 692,131   

Net income

     12,960   

Dividend payments

     (5,739

Dividends accrued for unvested restricted stock units

     (4

Net change in unrealized gains and losses on marketable securities (net of deferred taxes)

     6,755   

Reclassification adjustment for amounts included in net income (net of deferred taxes)

     2   

Foreign currency translation adjustment

     153   

Proceeds from stock option exercises

     3,560   

Tax benefits from stock option exercises

     1,492   

Stock-based compensation expense

     2,221   
    

 

 

 

Balance, March 31, 2012

   $ 713,531   
    

 

 

 
                         

Record Date

   Payment Date      Per Share Amount      Total Dividend Paid  

February 2, 2012

     February 16, 2012       $ 0.09       $ 5,739   

     Three Months Ended March 31, 2012  
(In thousands)    Before-Tax
Amount
     Tax
(Expense)
Benefit
    Net-of-Tax
Amount
 

Net change in unrealized gains (losses) related to marketable securities

   $ 11,073       $ (4,318   $ 6,755   

Reclassification adjustment for amounts included in net income

     3         (1     2   

Foreign currency translation adjustment

     153         —          153   
  

 

 

    

 

 

   

 

 

 

Total Other Comprehensive Income (Loss)

   $ 11,229       $ (4,319   $ 6,910   
  

 

 

    

 

 

   

 

 

 

The components of other comprehensive income for the three months ended March 31, 2011 are as follows:

 

     Three Months Ended March 31, 2011  
(In thousands)    Before-Tax
Amount
    Tax
(Expense)
Benefit
     Net-of-Tax
Amount
 

Net change in unrealized gains (losses) related to marketable securities

   $ (3,324   $ 673       $ (2,651

Reclassification adjustment for amounts included in net income

     (202     43         (159

Foreign currency translation adjustment

     87        —           87   
  

 

 

   

 

 

    

 

 

 

Total Other Comprehensive Income (Loss)

   $ (3,439   $ 716       $ (2,723
  

 

 

   

 

 

    

 

 

 

 

Earnings Per Share (Tables)
Earnings per share
     Three Months Ended  
     March 31,  
(In thousands, except per share amounts)    2012      2011  

Numerator

     

Net income

   $ 12,960       $ 34,258   
  

 

 

    

 

 

 

Denominator

     

Weighted average number of shares – basic

     63,809         64,189   

Effect of dilutive securities

     

Stock options

     1,008         1,711   

Restricted stock and restricted stock units

     32         57   
  

 

 

    

 

 

 

Weighted average number of shares – diluted

     64,849         65,957   
  

 

 

    

 

 

 

Net income per share – basic

   $ 0.20       $ 0.53   

Net income per share – diluted

   $ 0.20       $ 0.52   
Segment Information (Tables)
     Three Months Ended  
     March 31, 2012      March 31, 2011  
(In thousands)    Sales      Gross Profit      Sales      Gross Profit  

Carrier Networks

   $ 96,654       $ 52,883       $ 132,360       $ 79,498   

Enterprise Networks

     38,081         21,204         33,162         19,297   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 134,735       $ 74,087       $ 165,522       $ 98,795   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Three Months Ended  
     March 31,  
(In thousands)    2012      2011  

Carrier Systems

   $ 71,258       $ 86,750   

Business Networking

     43,142         36,363   

Loop Access

     20,335         42,409   
  

 

 

    

 

 

 

Total

   $ 134,735       $ 165,522   
  

 

 

    

 

 

 
     Three Months Ended  
     March 31,  
(In thousands)    2012      2011  

Core Products

     

Broadband Access (included in Carrier Systems)

   $ 49,482       $ 51,782   

Optical (included in Carrier Systems)

     14,255         20,916   

Internetworking (NetVanta & Multi-service Access

Gateways) (included in Business Networking)

     40,974         32,883   
  

 

 

    

 

 

 

Subtotal

     104,711         105,581   

Legacy Products

     

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

     18,959         40,945   

Other products (excluding HDSL)

     11,065         18,996   
  

 

 

    

 

 

 

Subtotal

     30,024         59,941   
  

 

 

    

 

 

 

Total

   $ 134,735       $ 165,522   
  

 

 

    

 

 

 
     Three Months Ended  
(In thousands)    March 31,
2012
     March 31,
2011
 

United States

   $ 116,443       $ 153,113   

International

     18,292         12,409   
  

 

 

    

 

 

 

Total

   $ 134,735       $ 165,522   
  

 

 

    

 

 

 
Liability for Warranty Returns (Tables)
Summary of warranty expense and write-off activity
                 
Three Months Ended March 31,    2012     2011  
(In thousands)             

Balance at beginning of period

   $ 4,118      $ 3,304   

Plus: Amounts charged to cost and expenses

     1,181        835   

Less: Deductions

     (568     (620
    

 

 

   

 

 

 

Balance at end of period

   $ 4,731      $ 3,519   
    

 

 

   

 

 

 
Business Combinations (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2012
Allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date
 
Goodwill
$ 3,500 
Bluesocket [Member]
 
Allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date
 
Cash
1,027 
Accounts receivable
298 
Inventory
792 
Prepaid expenses
357 
Property, plant and equipment
173 
Deferred tax assets, net
12,962 
Accounts payable
(441)
Unearned revenue
(600)
Accrued expenses
(332)
Net assets acquired
14,236 
Goodwill
3,492 
Total purchase price
23,688 
Bluesocket [Member] |
Customer relationships [Member]
 
Allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date
 
Intangible assets
1,530 
Bluesocket [Member] |
Developed technology [Member]
 
Allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date
 
Intangible assets
3,230 
Bluesocket [Member] |
Intellectual property [Member]
 
Allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date
 
Intangible assets
930 
Bluesocket [Member] |
Trade names [Member]
 
Allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date
 
Intangible assets
$ 270 
Business Combinations (Details Textual) (USD $)
3 Months Ended
Mar. 31, 2012
Mar. 31, 2012
Customer relationships [Member]
Y
Mar. 31, 2012
Intellectual property [Member]
Y
Mar. 31, 2012
Developed technology [Member]
Y
Mar. 31, 2012
Trade names [Member]
Y
Mar. 31, 2012
Bluesocket [Member]
Aug. 4, 2011
Bluesocket [Member]
Business Acquisition [Line Items]
 
 
 
 
 
 
 
Acquisition cost
 
 
 
 
 
 
$ 23,700,000 
Average estimated useful life
 
4.5 
4.5 
 
 
Business Combinations (Textual) [Abstract]
 
 
 
 
 
 
 
Acquisition related expenses and amortization of acquired intangibles
500,000 
 
 
 
 
 
 
Goodwill
$ 3,500,000 
 
 
 
 
$ 3,492,000 
 
Income Taxes (Details)
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Income Taxes (Textual) [Abstract]
 
 
Effective tax rate
35.40% 
30.70% 
Decrease in effective tax rate due to research tax credit
2.20% 
 
Decrease in effective income tax rate due to stock option exercises
3.10% 
 
Stock Based Compensation (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Stock-based compensation expense related to stock options, restricted stock units (RSUs) and restricted stock
 
 
Total stock-based compensation expense
$ 2,221 
$ 2,089 
Tax benefit for expense associated with non-qualified options
(301)
(440)
Total stock-based compensation expense, net of tax
1,920 
1,649 
Cost of sales [Member]
 
 
Stock-based compensation expense related to stock options, restricted stock units (RSUs) and restricted stock
 
 
Total stock-based compensation expense
101 
91 
Selling, general and administrative expense [Member]
 
 
Stock-based compensation expense related to stock options, restricted stock units (RSUs) and restricted stock
 
 
Total stock-based compensation expense
1,051 
1,007 
Research and development expense [Member]
 
 
Stock-based compensation expense related to stock options, restricted stock units (RSUs) and restricted stock
 
 
Total stock-based compensation expense
1,069 
991 
Operating expenses [Member]
 
 
Stock-based compensation expense related to stock options, restricted stock units (RSUs) and restricted stock
 
 
Total stock-based compensation expense
$ 2,120 
$ 1,998 
Stock Based Compensation (Details 1) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Y
Summary of stock options outstanding
 
Number of Options, Outstanding, Beginning Balance
5,400 
Weighted Average Exercise Price, Outstanding, Beginning Balance
$ 25.66 
Weighted Avg. Remaining Contractual Life in Years, Outstanding, Beginning Balance
6.78 
Aggregate Intrinsic Value, Outstanding, Beginning Balance
$ 27,270 
Number of Options, granted
   
Weighted Average Exercise Price, granted
$ 0.00 
Number of Options, cancelled/forfeited
(16)
Weighted Average Exercise Price, cancelled/forfeited
$ 27.59 
Number of Options, exercised
(180)
Weighted Average Exercise Price, exercised
$ 19.71 
Number of Options, Outstanding, Ending Balance
5,204 
Weighted Average Exercise Price, Outstanding, Ending Balance
$ 25.86 
Weighted Avg. Remaining Contractual Life in Years, Outstanding, Ending Balance
6.59 
Aggregate Intrinsic Value, Outstanding, Ending Balance
30,189 
Number of Options, Options exercisable
2,878 
Weighted Average Exercise Price, Options exercisable
$ 23.72 
Weighted Avg. Remaining Contractual Life in Years, Options exercisable
4.98 
Aggregate Intrinsic Value, Options exercisable
$ 22,332 
Stock Based Compensation (Details 2) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Summary of RSUs and restricted stock outstanding
 
Number of unvested RSUs and restricted stock outstanding, beginning balance
90 
Weighted Average Grant Date Fair Value, RSUs and restricted stock outstanding, Beginning balance
$ 34.21 
Number of RSUs and restricted stock granted
Weighted Average Grant Date Fair Value, RSUs and restricted stock granted
$ 0.00 
Number of RSUs and restricted stock vested
Weighted Average Grant Date Fair Value, RSUs and restricted stock vested
$ 0.00 
Number of RSUs and restricted stock cancelled/forfeited
Weighted Average Grant Date Fair Value, RSUs and restricted stock cancelled/forfeited
$ 0.00 
Number of unvested RSUs and restricted stock outstanding, ending balance
90 
Weighted Average Grant Date Fair Value, unvested RSUs and restricted stock outstanding, Ending balance
$ 34.21 
Stock Based Compensation (Details Textual) (USD $)
In Millions, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Y
Mar. 31, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
Weighted average grant date fair value, options, RSUs and restricted stock granted
$ 0.00 
 
Number of options, RSUs and restricted stock granted
 
Stock Based Compensation (Textual) [Abstract]
 
 
Number of options granted
Estimated forfeitures for stock options
1.60% 
 
Forfeitures rate for restricted stock units
0.00% 
 
Unamortized compensation cost
$ 19.6 
 
Recognition period of non-vested compensation cost
2.7 
 
Total pre-tax intrinsic value of options exercised
$ 3.0 
 
Restricted Stock Units (RSUs) [Member]
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
Number of options, RSUs and restricted stock granted
Restricted Stock [Member]
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
Number of options, RSUs and restricted stock granted
Investments (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Securities and investments recorded at either fair value or cost
 
 
Available-for-sale securities, Amortized Cost
$ 450,906 
$ 424,329 
Available-for-sale securities, Gross Unrealized Gains
28,723 
20,171 
Available-for-sale securities, Gross Unrealized Losses
(985)
(3,518)
Available-for-sale securities, Fair Value/Carrying value
478,644 
440,982 
Restricted investment held at cost
48,250 
48,250 
Other investments held at cost
2,115 
2,123 
Total carrying value of available-for-sale investments
529,009 
491,355 
Deferred compensation plan assets [Member]
 
 
Securities and investments recorded at either fair value or cost
 
 
Available-for-sale securities, Amortized Cost
10,627 
7,994 
Available-for-sale securities, Gross Unrealized Gains
663 
119 
Available-for-sale securities, Gross Unrealized Losses
(74)
(401)
Available-for-sale securities, Fair Value/Carrying value
11,216 
7,712 
Corporate bonds [Member]
 
 
Securities and investments recorded at either fair value or cost
 
 
Available-for-sale securities, Amortized Cost
183,193 
159,077 
Available-for-sale securities, Gross Unrealized Gains
748 
181 
Available-for-sale securities, Gross Unrealized Losses
(549)
(2,505)
Available-for-sale securities, Fair Value/Carrying value
183,392 
156,753 
Municipal fixed-rate bonds [Member]
 
 
Securities and investments recorded at either fair value or cost
 
 
Available-for-sale securities, Amortized Cost
192,853 
174,300 
Available-for-sale securities, Gross Unrealized Gains
588 
579 
Available-for-sale securities, Gross Unrealized Losses
(147)
(53)
Available-for-sale securities, Fair Value/Carrying value
193,294 
174,826 
Municipal variable rate demand notes [Member]
 
 
Securities and investments recorded at either fair value or cost
 
 
Available-for-sale securities, Amortized Cost
47,920 
69,660 
Available-for-sale securities, Gross Unrealized Gains
   
   
Available-for-sale securities, Gross Unrealized Losses
   
   
Available-for-sale securities, Fair Value/Carrying value
47,920 
69,660 
Fixed income bond fund [Member]
 
 
Securities and investments recorded at either fair value or cost
 
 
Available-for-sale securities, Amortized Cost
527 
527 
Available-for-sale securities, Gross Unrealized Gains
219 
194 
Available-for-sale securities, Gross Unrealized Losses
   
   
Available-for-sale securities, Fair Value/Carrying value
746 
721 
Marketable equity securities [Member]
 
 
Securities and investments recorded at either fair value or cost
 
 
Available-for-sale securities, Amortized Cost
15,786 
12,771 
Available-for-sale securities, Gross Unrealized Gains
26,505 
19,098 
Available-for-sale securities, Gross Unrealized Losses
(215)
(559)
Available-for-sale securities, Fair Value/Carrying value
$ 42,076 
$ 31,310 
Investments (Details 1) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Contractual maturities of corporate and municipal fixed-rate bonds
 
 
Total
$ 478,644 
$ 440,982 
Corporate bonds [Member]
 
 
Contractual maturities of corporate and municipal fixed-rate bonds
 
 
Less than one year
24,172 
 
One to two years
112,900 
 
Two to three years
44,163 
 
Three to four years
2,157 
 
Total
183,392 
156,753 
Municipal fixed-rate bonds [Member]
 
 
Contractual maturities of corporate and municipal fixed-rate bonds
 
 
Less than one year
89,443 
 
One to two years
50,570 
 
Two to three years
16,576 
 
Three to four years
36,705 
 
Total
$ 193,294 
$ 174,826 
Investments (Details 2) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Realized gains and losses on sales of securities
 
 
Gross realized gains
$ 2,669 
$ 2,864 
Gross realized losses
$ (202)
$ (97)
Investments (Details 3) (Fair Value, Measurements, Recurring [Member], USD $)
In Thousands, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Fair value measurement of cash equivalents held in money market funds and our investments
 
 
Available-for-sale securities
$ 478,643 
$ 440,982 
Total
489,631 
454,678 
Money market funds [Member]
 
 
Fair value measurement of cash equivalents held in money market funds and our investments
 
 
Money market funds
10,988 
13,696 
Deferred compensation plan assets [Member]
 
 
Fair value measurement of cash equivalents held in money market funds and our investments
 
 
Available-for-sale securities
11,216 
7,712 
Corporate bonds [Member]
 
 
Fair value measurement of cash equivalents held in money market funds and our investments
 
 
Available-for-sale securities
183,392 
156,753 
Municipal fixed-rate bonds [Member]
 
 
Fair value measurement of cash equivalents held in money market funds and our investments
 
 
Available-for-sale securities
193,294 
174,826 
Municipal variable rate demand notes [Member]
 
 
Fair value measurement of cash equivalents held in money market funds and our investments
 
 
Available-for-sale securities
47,920 
69,660 
Fixed income bond fund [Member]
 
 
Fair value measurement of cash equivalents held in money market funds and our investments
 
 
Available-for-sale securities
746 
721