ADTRAN INC, 10-Q filed on 5/4/2016
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2016
Apr. 22, 2016
Document And Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Mar. 31, 2016 
 
Document Fiscal Year Focus
2016 
 
Document Fiscal Period Focus
Q1 
 
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
 
48,971,260 
Consolidated Balance Sheets (Unaudited) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2016
Dec. 31, 2015
Current Assets
 
 
Cash and cash equivalents
$ 91,609 
$ 84,550 
Short-term investments
29,303 
34,396 
Accounts receivable, less allowance for doubtful accounts of $19 at March 31, 2016 and December 31, 2015
67,492 
71,917 
Other receivables
9,199 
19,321 
Inventory, net
92,107 
91,533 
Prepaid expenses and other current assets
13,096 
10,145 
Deferred tax assets, net
17,967 
18,924 
Total Current Assets
320,773 
330,786 
Property, plant and equipment, net
73,511 
73,233 
Deferred tax assets, net
18,878 
18,091 
Goodwill
3,492 
3,492 
Other assets
9,157 
9,276 
Long-term investments
195,683 
198,026 
Total Assets
621,494 
632,904 
Current Liabilities
 
 
Accounts payable
42,635 
48,668 
Unearned revenue
18,683 
16,615 
Accrued expenses
13,513 
12,108 
Accrued wages and benefits
11,064 
12,857 
Income tax payable, net
2,739 
2,395 
Total Current Liabilities
88,634 
92,643 
Non-current unearned revenue
7,288 
7,965 
Other non-current liabilities
25,283 
24,236 
Bonds payable
27,900 
27,900 
Total Liabilities
149,105 
152,744 
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 48,993 shares outstanding at March 31, 2016 and 79,652 shares issued and 49,558 shares outstanding at December 31, 2015
797 
797 
Additional paid-in capital
248,305 
246,879 
Accumulated other comprehensive loss
(7,951)
(8,969)
Retained earnings
906,820 
906,772 
Less treasury stock at cost: 30,659 and 30,094 shares at March 31, 2016 and December 31, 2015, respectively
(675,582)
(665,319)
Total Stockholders' Equity
472,389 
480,160 
Total Liabilities and Stockholders' Equity
$ 621,494 
$ 632,904 
Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Mar. 31, 2016
Dec. 31, 2015
Statement of Financial Position [Abstract]
 
 
Allowance for doubtful accounts
$ 19 
$ 19 
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
48,993,000 
49,558,000 
Treasury stock, shares
30,659,000 
30,094,000 
Consolidated Statements of Income (Unaudited) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Sales
 
 
Products
$ 123,883 
$ 129,505 
Services
18,321 
13,330 
Total Sales
142,204 
142,835 
Cost of sales
 
 
Products
64,073 
71,560 
Services
12,337 
5,712 
Total Cost of Sales
76,410 
77,272 
Gross Profit
65,794 
65,563 
Selling, general and administrative expenses
30,785 
31,064 
Research and development expenses
29,488 
32,536 
Operating Income
5,521 
1,963 
Interest and dividend income
855 
933 
Interest expense
(145)
(148)
Net realized investment gain
1,728 
3,115 
Other income (expense), net
119 
(353)
Income before provision for income taxes
8,078 
5,510 
Provision for income taxes
(3,064)
(2,193)
Net Income
$ 5,014 
$ 3,317 
Weighted average shares outstanding - basic
49,220 
53,399 
Weighted average shares outstanding - diluted
49,389 
53,634 
Earnings per common share - basic
$ 0.10 
$ 0.06 
Earnings per common share - diluted
$ 0.10 
$ 0.06 
Dividend per share
$ 0.09 
$ 0.09 
Consolidated Statements of Comprehensive Income (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Statement of Comprehensive Income [Abstract]
 
 
Net income
$ 5,014 
$ 3,317 
Other Comprehensive Income (Loss), net of tax:
 
 
Net unrealized losses on available-for-sale securities
(255)
(503)
Defined benefit plan adjustments
45 
68 
Foreign currency translation
1,228 
(3,318)
Other Comprehensive Income (Loss), net of tax
1,018 
(3,753)
Comprehensive Income (Loss), net of tax
$ 6,032 
$ (436)
Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Cash flows from operating activities:
 
 
Net income
$ 5,014 
$ 3,317 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
3,347 
3,728 
Amortization of net premium on available-for-sale investments
220 
910 
Net realized gain on long-term investments
(1,728)
(3,115)
Net loss on disposal of property, plant and equipment
Stock-based compensation expense
1,558 
1,639 
Deferred income taxes
435 
(692)
Tax benefit from stock option exercises
 
Excess tax benefits from stock-based compensation arrangements
 
(9)
Changes in operating assets and liabilities:
 
 
Accounts receivable, net
4,752 
(4,571)
Other receivables
10,200 
511 
Inventory
163 
(7,784)
Prepaid expenses and other assets
(3,083)
(213)
Accounts payable
(6,520)
20,084 
Accrued expenses and other liabilities
902 
(282)
Income tax payable, net
413 
(524)
Net cash provided by operating activities
15,676 
13,015 
Cash flows from investing activities:
 
 
Purchases of property, plant and equipment
(3,166)
(2,442)
Proceeds from sales and maturities of available-for-sale investments
60,586 
58,075 
Purchases of available-for-sale investments
(52,053)
(44,584)
Net cash provided by investing activities
5,367 
11,049 
Cash flows from financing activities:
 
 
Proceeds from stock option exercises
247 
280 
Purchases of treasury stock
(11,003)
(3,035)
Dividend payments
(4,453)
(4,811)
Excess tax benefits from stock-based compensation arrangements
 
Net cash used in financing activities
(15,209)
(7,557)
Net increase in cash and cash equivalents
5,834 
16,507 
Effect of exchange rate changes
1,225 
(2,937)
Cash and cash equivalents, beginning of period
84,550 
73,439 
Cash and cash equivalents, end of period
91,609 
87,009 
Supplemental disclosure of non-cash investing activities:
 
 
Purchases of property, plant and equipment included in accounts payable
$ 485 
$ 784 
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, 2015 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, 2015, filed on February 24, 2016 with the SEC.

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 three months ended March 31, 2015 and was not material to the prior year quarterly or 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 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.

In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Balance Sheet Classification of Deferred Taxes (ASU 2015-17). ASU 2015-17 amends the existing guidance on income taxes to require the classification of all deferred tax assets and liabilities as non-current on the balance sheet. ASU 2015-17 is effective for fiscal years beginning after December 15, 2016, including interim periods within those years. Early adoption is permitted. The guidance may be applied either prospectively, for all deferred tax assets and liabilities, or retrospectively to all periods presented. We have not selected a transition method or determined whether to early adopt ASU 2015-17 in 2016. Other than the revised balance sheet presentation of current deferred tax assets and liabilities, we do not believe the adoption of ASU 2015-17 will have a material impact on our financial position, results of operations and cash flows.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires an entity to recognize lease assets and lease liabilities on the balance sheet and to disclose key information about the entity’s leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. A modified retrospective approach is required. We are currently evaluating the impact that the adoption of ASU 2016-02 will have on our financial position, results of operations and cash flows.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 simplifies several aspects of accounting for share-based compensation arrangements, including income tax effects, the classification of tax-related cash flows on the statement of cash flows, and accounting for forfeitures. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those years. Early adoption is permitted. We are currently evaluating the impact that the adoption of ASU 2016-09 will have on our financial position, results of operations and cash flows.

During the first quarter of 2016, we adopted the following accounting standards, which had no material effect on our financial position, results of operations or 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. The amendments may be applied either prospectively to all arrangements entered into or materially modified after the effective date or retrospectively. We adopted ASU 2015-05 during the first quarter of 2016 and will apply the new standard prospectively. The adoption of ASU 2015-05 did not 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 decreased from 39.8% in the three months ended March 31, 2015 to 37.9% in the three months ended March 31, 2016. The decrease in the effective tax rate between the two periods is primarily attributable to the research and development tax credit being made permanent.

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 months ended March 31, 2016 and 2015:

 

     Three Months Ended
March 31,
 
(In thousands)    2016      2015  

Service cost

   $ 297       $ 340   

Interest cost

     176         159   

Expected return on plan assets

     (259      (261

Amortization of actuarial losses

     43         105   
  

 

 

    

 

 

 

Net periodic pension cost

   $ 257       $ 343   
  

 

 

    

 

 

 
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, 2016 and 2015, which was recognized as follows:

 

     Three Months Ended
March 31,
 
(In thousands)    2016      2015  

Stock-based compensation expense included in cost of sales

   $ 99       $ 90   

Selling, general and administrative expense

     769         691   

Research and development expense

     690         858   
  

 

 

    

 

 

 

Stock-based compensation expense included in operating expenses

     1,459         1,549   
  

 

 

    

 

 

 

Total stock-based compensation expense

     1,558         1,639   

Tax benefit for expense associated with non-qualified options

     (212      (180
  

 

 

    

 

 

 

Total stock-based compensation expense, net of tax

   $ 1,346       $ 1,459   
  

 

 

    

 

 

 

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 March 31, 2016. The weighted-average assumptions and value of options granted during the three months ended March 31, 2015 were as follows:

 

     Three Months  
     Ended  
     March 31,  
     2015  

Expected volatility

     38.75

Risk-free interest rate

     1.46

Expected dividend yield

     1.60

Expected life (in years)

     6.47   

Weighted-average estimated value

   $ 7.63   

The fair value of our RSUs is calculated using a Monte Carlo Simulation valuation method. No RSUs were granted or vested during the three months ended March 31, 2016 and 2015. Twelve thousand RSUs were forfeited during the three months ended March 31, 2015.

The fair value of restricted stock is equal to the closing price of our stock on the date of grant. No restricted stock vested or was forfeited during the three months ended March 31, 2016 and 2015. Two thousand shares of restricted stock were granted during the three months ended March 31, 2016.

Stock-based compensation expense recognized in our Consolidated Statements of Income for the three months ended March 31, 2016 and 2015 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 3.7% annually. We estimated a 0% forfeiture rate for our RSUs and restricted stock due to the limited number of recipients and historical experience for these awards.

As of March 31, 2016, total compensation expense related to non-vested stock options, RSUs and restricted stock not yet recognized was approximately $13.2 million, which is expected to be recognized over an average remaining recognition period of 2.53 years.

The following table is a summary of our stock options outstanding as of December 31, 2015 and March 31, 2016 and the changes that occurred during the three months ended March 31, 2016:

 

(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, 2015

     7,108       $ 21.97         6.42       $ 3,284   

Options granted

     —         $ —           

Options exercised

     (15    $ 16.65         

Options forfeited

     (23    $ 17.84         

Options expired

     (26    $ 24.40         
  

 

 

    

 

 

    

 

 

    

 

 

 

Options outstanding, March 31, 2016

     7,044       $ 22.00         6.18       $ 11,580   
  

 

 

    

 

 

    

 

 

    

 

 

 

Options vested and expected to vest, March 31, 2016

     6,910       $ 22.10         6.12       $ 11,095   
  

 

 

    

 

 

    

 

 

    

 

 

 

Options exercisable, March 31, 2016

     4,466       $ 24.33         4.69       $ 4,191   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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 March 31, 2016. 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 months ended March 31, 2016 was $36 thousand.

Investments
Investments

5. INVESTMENTS

At March 31, 2016, 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

   $ 11,440       $ 1,634       $ (70    $ 13,004   

Corporate bonds

     61,154         89         (386      60,857   

Municipal fixed-rate bonds

     15,659         54         (1      15,712   

Asset-backed bonds

     20,540         28         (8      20,560   

Mortgage/Agency-backed bonds

     14,959         19         (82      14,896   

Government bonds

     33,205         216         (2      33,419   

Variable Rate Demand Notes

     2,235         —           —           2,235   

Marketable equity securities

     31,798         2,886         (1,647      33,037   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities held at fair value

   $ 190,990       $ 4,926       $ (2,196    $ 193,720   
  

 

 

    

 

 

    

 

 

    

Restricted investment held at cost

              30,000   

Other investments held at cost

              1,266   
           

 

 

 

Total carrying value of available-for-sale investments

            $ 224,986   
           

 

 

 

At December 31, 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

   $ 11,325       $ 1,575       $ (66    $ 12,834   

Corporate bonds

     58,328         20         (734      57,614   

Municipal fixed-rate bonds

     26,414         28         (18      26,424   

Asset-backed bonds

     19,281         2         (44      19,239   

Mortgage/Agency-backed bonds

     15,463         1         (91      15,373   

Government bonds

     35,646         —           (248      35,398   

Marketable equity securities

     31,643         4,301         (1,693      34,251   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities held at fair value

   $ 198,100       $ 5,927       $ (2,894    $ 201,133   
  

 

 

    

 

 

    

 

 

    

Restricted investment held at cost

              30,000   

Other investments held at cost

              1,289   
           

 

 

 

Total carrying value of available-for-sale investments

            $ 232,422   
           

 

 

 

 

As of March 31, 2016, 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

   $ 17,668       $ 7,147       $ —         $ 1,000       $ 1,253   

One to two years

     29,883         5,566         190         1,300         4,751   

Two to three years

     12,490         1,373         8,158         1,774         17,992   

Three to five years

     816         226         9,496         —           9,423   

Five to ten years

     —           —           2,540         1,180         —     

More than ten years

     —           1,400         176         9,642         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 60,857       $ 15,712       $ 20,560       $ 14,896       $ 33,419   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 March 31, 2016, 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 March 31, 2016, the estimated fair value of the Bond using a level 2 valuation technique was approximately $29.1 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 months ended March 31, 2016 and 2015, 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  
     March 31,  
(In thousands)    2016      2015  

Gross realized gains

   $ 2,364       $ 3,145   

Gross realized losses

   $ (636    $ (30

As of March 31, 2016 and 2015, 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 March 31, 2016 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

   $ 2,110       $ 2,110       $ —         $ —     

Commercial Paper

     26,442         —           26,442         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash equivalents

     28,552         2,110         26,442         —     

Available-for-sale securities

           

Deferred compensation plan assets

     13,004         13,004         —           —     

Available-for-sale debt securities

           

Corporate bonds

     60,857         —           60,857         —     

Municipal fixed-rate bonds

     15,712         —           15,712         —     

Asset-backed bonds

     20,560         —           20,560         —     

Mortgage/Agency-backed bonds

     14,896         —           14,896         —     

Government bonds

     33,419         33,419         —           —     

Variable Rate Demand Notes

     2,235         —           2,235         —     

Available-for-sale marketable equity securities

           

Marketable equity securities – technology industry

     4,709         4,709         —           —     

Marketable equity securities – other

     28,328         28,328         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

     193,720         79,460         114,260         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 222,272       $ 81,570       $ 140,702       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measurements at December 31, 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

   $ 1,271       $ 1,271       $ —         $ —     

Commercial Paper

     11,696         —           11,696         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash equivalents

     12,967         1,271         11,696         —     

Available-for-sale securities

           

Deferred compensation plan assets

     12,834         12,834         —           —     

Available-for-sale debt securities

           

Corporate bonds

     57,614         —           57,614         —     

Municipal fixed-rate bonds

     26,424         —           26,424         —     

Asset-backed bonds

     19,239         —           19,239         —     

Mortgage/Agency-backed bonds

     15,373         —           15,373         —     

Government bonds

     35,398         35,398         —           —     

Available-for-sale marketable equity securities

           

Marketable equity securities – technology industry

     5,384         5,384         —           —     

Marketable equity securities – other

     28,867         28,867         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

     201,133         82,483         118,650         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 214,100       $ 83,754       $ 130,346       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

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 March 31, 2016, we had forward contracts outstanding with notional amounts totaling €1.8 million ($2.0 million), which mature in the second quarter of 2016.

 

The fair values of our derivative instruments recorded in the Consolidated Balance Sheet as of March 31, 2016 and December 31, 2015 were as follows:

 

(In thousands)    Balance Sheet
Location
   March 31,
2016
     December 31,
2015
 

Derivatives Not Designated as Hedging Instruments (Level 2):

        

Foreign exchange contracts – liability derivatives

   Accounts payable    $ (48    $ —     

The change in the fair values of our derivative instruments recorded in the Consolidated Statements of Income during the three months ended March 31, 2016 and 2015 were as follows:

 

          Three Months Ended  
     Income Statement
Location
   March 31,  
(In thousands)       2016      2015  

Derivatives Not Designated as Hedging Instruments:

        

Foreign exchange contracts

   Other income (expense)    $ (47    $ 1,476   
Inventory
Inventory

7. INVENTORY

At March 31, 2016 and December 31, 2015, inventory consisted of the following:

 

     March 31,      December 31,  
(In thousands)    2016      2015  

Raw materials

   $ 35,879       $ 34,223   

Work in process

     2,829         2,893   

Finished goods

     53,399         54,417   
  

 

 

    

 

 

 

Total

   $ 92,107       $ 91,533   
  

 

 

    

 

 

 

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, 2016 and December 31, 2015, raw materials reserves totaled $18.5 million and $17.5 million, respectively, and finished goods inventory reserves totaled $9.0 million and $9.2 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., was $3.5 million at March 31, 2016 and December 31, 2015, and was previously recorded in our Enterprise Networks reportable segment. As a result of our new reporting structure, which is discussed further in Note 11, we reallocated goodwill from our Enterprise Networks reportable segment to our two, new reportable segments – Network Solutions and Services & Support. As a result, goodwill of $3.1 million and $0.4 million was reallocated to our Network Solutions and Services & Support reportable segments, respectively.

We evaluate the carrying value of goodwill during the fourth quarter of each year and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. We have elected to first assess the qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit to which the goodwill is assigned is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step impairment test. If we determine that it is more likely than not that its fair value is less than its carrying amount, then the two-step impairment test will be performed. Based on the results of our qualitative assessment in 2015, we concluded that it was not necessary to perform the two-step impairment test. There have been no impairment losses recognized since the acquisition in 2011.

Intangible assets are included in other assets in the accompanying Consolidated Balance Sheets and include 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 March 31, 2016 and December 31, 2015:

 

(In thousands)    March 31, 2016      December 31, 2015  
     Gross
Value
     Accumulated
Amortization
    Net Value      Gross
Value
     Accumulated
Amortization
    Net Value  

Customer relationships

   $ 6,031       $ (2,856   $ 3,175       $ 5,828       $ (2,627   $ 3,201   

Developed technology

     5,840         (4,618     1,222         5,720         (4,329     1,391   

Intellectual property

     2,340         (1,937     403         2,340         (1,854     486   

Trade names

     270         (270     —           270         (265     5   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 14,481       $ (9,681   $ 4,800       $ 14,158       $ (9,075   $ 5,083   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Amortization expense, all of which relates to business acquisitions, was $0.4 million and $0.5 million for the three months ended March 31, 2016 and 2015, respectively.

As of March 31, 2016, the estimated future amortization expense of our intangible assets is as follows:

 

(In thousands)    Amount  

Remainder of 2016

   $ 1,257   

2017

     1,175   

2018

     710   

2019

     316   

2020

     292   

Thereafter

     1,050   
  

 

 

 

Total

   $ 4,800   
  

 

 

 
Stockholders' Equity
Stockholders' Equity

9. STOCKHOLDERS’ EQUITY

A summary of the changes in stockholders’ equity for the three months ended March 31, 2016 is as follows:

 

(In thousands)    Stockholders’
Equity
 

Balance, December 31, 2015

   $ 480,160   

Net income

     5,014   

Dividend payments

     (4,453

Dividends accrued for unvested restricted stock units

     (20

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

     (255

Defined benefit plan adjustments

     45   

Foreign currency translation adjustment

     1,228   

Proceeds from stock option exercises

     247   

Purchase of treasury stock

     (11,003

Income tax effect of stock compensation arrangements

     (132

Stock-based compensation expense

     1,558   
  

 

 

 

Balance, March 31, 2016

   $ 472,389   
  

 

 

 

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, which will be implemented through open market or private purchases from time to time as conditions warrant. During the three months ended March 31, 2016, we repurchased 0.6 million shares of our common stock at an average price of $18.38 per share. As of March 31, 2016, we have the authority to purchase an additional 5.2 million shares of our common stock under the current plans approved by the Board of Directors.

 

Stock Option Exercises

We issued 15 thousand shares of treasury stock during the three months ended March 31, 2016 to accommodate employee stock option exercises. The stock options had exercise prices ranging from $15.29 to $18.97. We received proceeds totaling $0.2 million from the exercise of these stock options during the three months ended March 31, 2016.

Dividend Payments

During the three months ended March 31, 2016, we paid cash dividends as follows (in thousands except per share amounts):

 

Record Date

   Payment Date    Per Share Amount      Total Dividend Paid  

February 4, 2016

   February 18, 2016    $ 0.09       $ 4,453   

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 March 31, 2016 and 2015:

 

     Three Months Ended March 31, 2016  
(In thousands)    Unrealized
Gains
(Losses)  on
Available-
for-Sale
Securities
     Defined
Benefit Plan
Adjustments
     Foreign
Currency
Adjustments
     Total  

Beginning balance

   $ 1,932       $ (3,895    $ (7,006    $ (8,969

Other comprehensive income (loss) before reclassifications

     759         —           1,228         1,987   

Amounts reclassified from accumulated other comprehensive income

     (1,013      44         —           (969
  

 

 

    

 

 

    

 

 

    

 

 

 

Net current period other comprehensive income (loss)

     (254      44         1,228         1,018   
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 1,678       $ (3,851    $ (5,778    $ (7,951
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Three Months Ended March 31, 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

     1,360         —           (3,318      (1,958

Amounts reclassified from accumulated other comprehensive income

     (1,863      68         —           (1,795
  

 

 

    

 

 

    

 

 

    

 

 

 

Net current period other comprehensive income (loss)

     (503      68         (3,318      (3,753
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 8,461       $ (5,689    $ (6,600    $ (3,828
  

 

 

    

 

 

    

 

 

    

 

 

 

 

The following tables present the details of reclassifications out of accumulated other comprehensive income for the three months ended March 31, 2016 and 2015:

 

(In thousands)    Three Months Ended March 31, 2016

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

   $ 1,761       Net realized investment gain

Impairment expense

     (100    Net realized investment gain

Defined benefit plan adjustments – actuarial losses

     (64    (1)
  

 

 

    

Total reclassifications for the period, before tax

      1,597      

Tax (expense) benefit

     (628   
  

 

 

    

Total reclassifications for the period, net of tax

   $    969      
  

 

 

    

 

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

 

(In thousands)    Three Months Ended March 31, 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

   $ 3,076       Net realized investment gain

Impairment expense

     (22    Net realized investment gain

Defined benefit plan adjustments – actuarial losses

     (98    (1)
  

 

 

    

Total reclassifications for the period, before tax

     2,956      

Tax (expense) benefit

     (1,161   
  

 

 

    

Total reclassifications for the period, net of tax

   $ 1,795      
  

 

 

    

 

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

 

The following table presents the tax effects related to the change in each component of other comprehensive income for the three months ended March 31, 2016 and 2015:

 

     Three Months Ended
March 31, 2016
    Three Months Ended
March 31, 2015
 
(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

   $ 1,244      $ (485   $ 759      $ 2,230      $ (870   $ 1,360   

Reclassification adjustment for amounts related to available-for-sale investments included in net income

     (1,661     648        (1,013     (3,054     1,191        (1,863

Reclassification adjustment for amounts related to defined benefit plan adjustments included in net income

     64        (20     44        98        (30     68   

Foreign currency translation adjustment

     1,228        —          1,228        (3,318     —          (3,318
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Other Comprehensive Income (Loss)

   $ 875      $ 143      $ 1,018      $ (4,044   $ 291      $ (3,753
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
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 months ended March 31, 2016 and 2015 is as follows:

 

     Three Months Ended  
     March 31,  
(In thousands, except per share amounts)    2016      2015  

Numerator

     

Net income

   $ 5,014       $ 3,317   
  

 

 

    

 

 

 

Denominator

     

Weighted average number of shares – basic

     49,220         53,399   

Effect of dilutive securities

     

Stock options

     120         220   

Restricted stock and restricted stock units

     49         15   
  

 

 

    

 

 

 

Weighted average number of shares – diluted

     49,389         53,634   
  

 

 

    

 

 

 

Net income per share – basic

   $ 0.10       $ 0.06   

Net income per share – diluted

   $ 0.10       $ 0.06   

Anti-dilutive options to purchase common stock outstanding were excluded from the above calculations. Anti-dilutive options totaled 5.9 million and 5.6 million for the three months ended March 31, 2016 and 2015, respectively.

Segment Information
Segment Information

11. SEGMENT INFORMATION

In 2015, we began a realignment of our organizational structure to better match our market opportunities, technological development initiatives, and improve efficiencies. During the first quarter of 2016, our chief operating decision maker requested changes in the information that he regularly reviews for purposes of allocating resources and assessing performance. As a result, beginning with the quarter ended March 31, 2016, we began reporting our financial performance based on two, new reportable segments – Network Solutions and Services & Support. Network Solutions includes hardware products and next-generation virtualized solutions used in service provider or business networks, as well as prior-generation products. Services & Support includes our suite of ProCloud® managed services, network installation, engineering and maintenance services, and fee-based technical support and equipment repair/replacement plans.

We evaluate the performance of our new 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 a company-wide, functional basis only. Historical financial information by reportable segment and category, as discussed below, has been recast to conform to our new reporting structure. 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, 2016 and 2015. We do not produce asset information by reportable segment; therefore, it is not reported.

 

     Three Months Ended  
     March 31, 2016      March 31, 2015  
(In thousands)    Sales      Gross Profit      Sales      Gross Profit  

Network Solutions

   $ 123,883       $ 59,810       $ 129,505       $ 57,945   

Services & Support

     18,321         5,984         13,330         7,618   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 142,204       $ 65,794       $ 142,835       $ 65,563   
  

 

 

    

 

 

    

 

 

    

 

 

 

Sales by Category

In addition to our new reporting segments, we will also report revenue for the following three categories – Access & Aggregation, Customer Devices, and Traditional & Other Products.

Access & Aggregation generally includes software and hardware based products and services that communication service providers (CSPs) use to aggregate and/or originate network access technologies. The portfolio of ADTRAN solutions within this category includes a wide array of modular or fixed physical form factors designed to deliver the best technology and economic fit for our customers based on the target subscriber density and environmental conditions.

The Access & Aggregation category includes product and service families such as:

 

    Total Access® 5000 Series Fiber to the Premises (FTTP) and Fiber to the Node (FTTN) Multi-Service Access Nodes (MSAN)

 

    hiX 5600 Series fiber aggregation and Fiber to the Node (FTTN) Multi-Service Access Nodes (MSAN)

 

    Fiber to the Distribution Point (FTTdp) Optical Network Units (ONU)

 

    Optical Line Terminals (OLT)

 

    Optical Networking Edge (ONE) aggregation

 

    Distribution Point Units (DPUs)

 

    IP Digital Subscriber Line Access Multiplexers (DSLAMs)

 

    Cabinet and Outside-Plant (OSP) enclosures and services

 

    Network Management and Cloud based software platforms and applications

 

    Pluggable optical transceivers (i.e., SFP, SFP+, XFP, QSFP), cables and other miscellaneous materials

 

    Other products and services that are generally applicable to Access & Aggregation

 

Customer Devices generally includes the products and services that provide end users access to the CSP network. The Customer Devices portfolio includes a comprehensive array of service provider and enterprise hardware and software products and services.

The Customer Devices category includes products and services such as:

 

    Broadband customer premise solutions, including Passive Optical Network (PON) and point-to-point Ethernet Optical Network Terminals (ONTs)

 

    Residential and business gateways

 

    Wi-Fi access points and associated powering and switching infrastructure

 

    enterprise Session Border Controllers (eSBC)

 

    Branch office and access routers

 

    Carrier Ethernet services termination devices

 

    VoIP media gateways

 

    ProServices®

 

    Planning, engineering, program management, maintenance, installation and commissioning services to implement the customer devices solutions into consumer, small business and enterprise locations

 

    Other products and services that are generally applicable to customer devices

Traditional & Other Products generally includes a mix of prior generation technologies’ products and services, as well as other products and services that do not fit within the Access & Aggregation or Customer Devices categories.

The Traditional & Other Products category includes products and services such as:

 

    Time Division Multiplexed (TDM) and Asynchronous Transfer Mode (ATM) based aggregation systems and customer devices

 

    HDSL, ADSL and other mature technologies used to deliver business and residential services over the CSP access and customer networks

 

    Other products and services that do not fit within the Access & Aggregation and Customer Devices categories

The table below presents sales information by category for the three months ended March 31, 2016 and 2015:

 

     Three Months Ended  
     March 31,  
(In thousands)    2016      2015  

Access & Aggregation

   $ 93,855       $ 92,851   

Customer Devices

     32,353         31,704   

Traditional & Other Products

     15,996         18,280   
  

 

 

    

 

 

 

Total

   $ 142,204       $ 142,835   
  

 

 

    

 

 

 
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 $9.0 million and $8.7 million at March 31, 2016 and December 31, 2015, 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 three months ended March 31, 2016 and 2015 is as follows:

 

     Three Months Ended  
     March 31,  
(In thousands)    2016      2015  

Balance at beginning of period

   $ 8,739       $ 8,415   

Plus: Amounts charged to cost and expenses

     898         461   

Less: Deductions

     (595      (192
  

 

 

    

 

 

 

Balance at end of period

   $ 9,042       $ 8,684   
  

 

 

    

 

 

 
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, 2016, of which $7.7 million has been applied to these commitments.

Subsequent Events
Subsequent Events

14. SUBSEQUENT EVENTS

On April 12, 2016, 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 28, 2016. The payment date will be May 12, 2016. The quarterly dividend payment will be approximately $4.4 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.

During the second quarter and as of May 4, 2016, we have repurchased 30 thousand shares of our common stock through open market purchases at an average cost of $18.64 per share. We currently have the authority to purchase an additional 5.2 million shares of our common stock under the current plan approved by the Board of Directors.

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, 2015 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, 2015, filed on February 24, 2016 with the SEC.

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 three months ended March 31, 2015 and was not material to the prior year quarterly or 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 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.

In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Balance Sheet Classification of Deferred Taxes (ASU 2015-17). ASU 2015-17 amends the existing guidance on income taxes to require the classification of all deferred tax assets and liabilities as non-current on the balance sheet. ASU 2015-17 is effective for fiscal years beginning after December 15, 2016, including interim periods within those years. Early adoption is permitted. The guidance may be applied either prospectively, for all deferred tax assets and liabilities, or retrospectively to all periods presented. We have not selected a transition method or determined whether to early adopt ASU 2015-17 in 2016. Other than the revised balance sheet presentation of current deferred tax assets and liabilities, we do not believe the adoption of ASU 2015-17 will have a material impact on our financial position, results of operations and cash flows.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires an entity to recognize lease assets and lease liabilities on the balance sheet and to disclose key information about the entity’s leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. A modified retrospective approach is required. We are currently evaluating the impact that the adoption of ASU 2016-02 will have on our financial position, results of operations and cash flows.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 simplifies several aspects of accounting for share-based compensation arrangements, including income tax effects, the classification of tax-related cash flows on the statement of cash flows, and accounting for forfeitures. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those years. Early adoption is permitted. We are currently evaluating the impact that the adoption of ASU 2016-09 will have on our financial position, results of operations and cash flows.

During the first quarter of 2016, we adopted the following accounting standards, which had no material effect on our financial position, results of operations or 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. The amendments may be applied either prospectively to all arrangements entered into or materially modified after the effective date or retrospectively. We adopted ASU 2015-05 during the first quarter of 2016 and will apply the new standard prospectively. The adoption of ASU 2015-05 did not 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 months ended March 31, 2016 and 2015:

 

     Three Months Ended
March 31,
 
(In thousands)    2016      2015  

Service cost

   $ 297       $ 340   

Interest cost

     176         159   

Expected return on plan assets

     (259      (261

Amortization of actuarial losses

     43         105   
  

 

 

    

 

 

 

Net periodic pension cost

   $ 257       $ 343   
  

 

 

    

 

 

 
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 months ended March 31, 2016 and 2015, which was recognized as follows:

 

     Three Months Ended
March 31,
 
(In thousands)    2016      2015  

Stock-based compensation expense included in cost of sales

   $ 99       $ 90   

Selling, general and administrative expense

     769         691   

Research and development expense

     690         858   
  

 

 

    

 

 

 

Stock-based compensation expense included in operating expenses

     1,459         1,549   
  

 

 

    

 

 

 

Total stock-based compensation expense

     1,558         1,639   

Tax benefit for expense associated with non-qualified options

     (212      (180
  

 

 

    

 

 

 

Total stock-based compensation expense, net of tax

   $ 1,346       $ 1,459   
  

 

 

    

 

 

 

The weighted-average assumptions and value of options granted during the three months ended March 31, 2015 were as follows:

 

     Three Months  
     Ended  
     March 31,  
     2015  

Expected volatility

     38.75

Risk-free interest rate

     1.46

Expected dividend yield

     1.60

Expected life (in years)

     6.47   

Weighted-average estimated value

   $ 7.63   

The following table is a summary of our stock options outstanding as of December 31, 2015 and March 31, 2016 and the changes that occurred during the three months ended March 31, 2016:

 

(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, 2015

     7,108       $ 21.97         6.42       $ 3,284   

Options granted

     —         $ —           

Options exercised

     (15    $ 16.65         

Options forfeited

     (23    $ 17.84         

Options expired

     (26    $ 24.40         
  

 

 

    

 

 

    

 

 

    

 

 

 

Options outstanding, March 31, 2016

     7,044       $ 22.00         6.18       $ 11,580   
  

 

 

    

 

 

    

 

 

    

 

 

 

Options vested and expected to vest, March 31, 2016

     6,910       $ 22.10         6.12       $ 11,095   
  

 

 

    

 

 

    

 

 

    

 

 

 

Options exercisable, March 31, 2016

     4,466       $ 24.33         4.69       $ 4,191   
  

 

 

    

 

 

    

 

 

    

 

 

 
Investments (Tables)

At March 31, 2016, 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

   $ 11,440       $ 1,634       $ (70    $ 13,004   

Corporate bonds

     61,154         89         (386      60,857   

Municipal fixed-rate bonds

     15,659         54         (1      15,712   

Asset-backed bonds

     20,540         28         (8      20,560   

Mortgage/Agency-backed bonds

     14,959         19         (82      14,896   

Government bonds

     33,205         216         (2      33,419   

Variable Rate Demand Notes

     2,235         —           —           2,235   

Marketable equity securities

     31,798         2,886         (1,647      33,037   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities held at fair value

   $ 190,990       $ 4,926       $ (2,196    $ 193,720   
  

 

 

    

 

 

    

 

 

    

Restricted investment held at cost

              30,000   

Other investments held at cost

              1,266   
           

 

 

 

Total carrying value of available-for-sale investments

            $ 224,986   
           

 

 

 

At December 31, 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

   $ 11,325       $ 1,575       $ (66    $ 12,834   

Corporate bonds

     58,328         20         (734      57,614   

Municipal fixed-rate bonds

     26,414         28         (18      26,424   

Asset-backed bonds

     19,281         2         (44      19,239   

Mortgage/Agency-backed bonds

     15,463         1         (91      15,373   

Government bonds

     35,646         —           (248      35,398   

Marketable equity securities

     31,643         4,301         (1,693      34,251   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities held at fair value

   $ 198,100       $ 5,927       $ (2,894    $ 201,133   
  

 

 

    

 

 

    

 

 

    

Restricted investment held at cost

              30,000   

Other investments held at cost

              1,289   
           

 

 

 

Total carrying value of available-for-sale investments

            $ 232,422   
           

 

 

 

As of March 31, 2016, 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

   $ 17,668       $ 7,147       $ —         $ 1,000       $ 1,253   

One to two years

     29,883         5,566         190         1,300         4,751   

Two to three years

     12,490         1,373         8,158         1,774         17,992   

Three to five years

     816         226         9,496         —           9,423   

Five to ten years

     —           —           2,540         1,180         —     

More than ten years

     —           1,400         176         9,642         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 60,857       $ 15,712       $ 20,560       $ 14,896       $ 33,419   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     Three Months Ended  
     March 31,  
(In thousands)    2016      2015  

Gross realized gains

   $ 2,364       $ 3,145   

Gross realized losses

   $ (636    $ (30
 

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, 2016 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

   $ 2,110       $ 2,110       $ —         $ —     

Commercial Paper

     26,442         —           26,442         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash equivalents

     28,552         2,110         26,442         —     

Available-for-sale securities

           

Deferred compensation plan assets

     13,004         13,004         —           —     

Available-for-sale debt securities

           

Corporate bonds

     60,857         —           60,857         —     

Municipal fixed-rate bonds

     15,712         —           15,712         —     

Asset-backed bonds

     20,560         —           20,560         —     

Mortgage/Agency-backed bonds

     14,896         —           14,896         —     

Government bonds

     33,419         33,419         —           —     

Variable Rate Demand Notes

     2,235         —           2,235         —     

Available-for-sale marketable equity securities

           

Marketable equity securities – technology industry

     4,709         4,709         —           —     

Marketable equity securities – other

     28,328         28,328         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

     193,720         79,460         114,260         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 222,272       $ 81,570       $ 140,702       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measurements at December 31, 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

   $ 1,271       $ 1,271       $ —         $ —     

Commercial Paper

     11,696         —           11,696         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash equivalents

     12,967         1,271         11,696         —     

Available-for-sale securities

           

Deferred compensation plan assets

     12,834         12,834         —           —     

Available-for-sale debt securities

           

Corporate bonds

     57,614         —           57,614         —     

Municipal fixed-rate bonds

     26,424         —           26,424         —     

Asset-backed bonds

     19,239         —           19,239         —     

Mortgage/Agency-backed bonds

     15,373         —           15,373         —     

Government bonds

     35,398         35,398         —           —     

Available-for-sale marketable equity securities

           

Marketable equity securities – technology industry

     5,384         5,384         —           —     

Marketable equity securities – other

     28,867         28,867         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

     201,133         82,483         118,650         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 214,100       $ 83,754       $ 130,346       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivative Instruments and Hedging Activities (Tables)

The fair values of our derivative instruments recorded in the Consolidated Balance Sheet as of March 31, 2016 and December 31, 2015 were as follows:

 

(In thousands)    Balance Sheet
Location
   March 31,
2016
     December 31,
2015
 

Derivatives Not Designated as Hedging Instruments (Level 2):

        

Foreign exchange contracts – liability derivatives

   Accounts payable    $ (48    $ —     

The change in the fair values of our derivative instruments recorded in the Consolidated Statements of Income during the three months ended March 31, 2016 and 2015 were as follows:

 

          Three Months Ended  
     Income Statement
Location
   March 31,  
(In thousands)       2016      2015  

Derivatives Not Designated as Hedging Instruments:

        

Foreign exchange contracts

   Other income (expense)    $ (47    $ 1,476   
Inventory (Tables)
Components of Inventory

At March 31, 2016 and December 31, 2015, inventory consisted of the following:

 

     March 31,      December 31,  
(In thousands)    2016      2015  

Raw materials

   $ 35,879       $ 34,223   

Work in process

     2,829         2,893   

Finished goods

     53,399         54,417   
  

 

 

    

 

 

 

Total

   $ 92,107       $ 91,533   
  

 

 

    

 

 

 
Goodwill and Intangible Assets (Tables)

The following table presents our intangible assets as of March 31, 2016 and December 31, 2015:

 

(In thousands)    March 31, 2016      December 31, 2015  
     Gross
Value
     Accumulated
Amortization
    Net Value      Gross
Value
     Accumulated
Amortization
    Net Value  

Customer relationships

   $ 6,031       $ (2,856   $ 3,175       $ 5,828       $ (2,627   $ 3,201   

Developed technology

     5,840         (4,618     1,222         5,720         (4,329     1,391   

Intellectual property

     2,340         (1,937     403         2,340         (1,854     486   

Trade names

     270         (270     —           270         (265     5   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 14,481       $ (9,681   $ 4,800       $ 14,158       $ (9,075   $ 5,083   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

As of March 31, 2016, the estimated future amortization expense of our intangible assets is as follows:

 

(In thousands)    Amount  

Remainder of 2016

   $ 1,257   

2017

     1,175   

2018

     710   

2019

     316   

2020

     292   

Thereafter

     1,050   
  

 

 

 

Total

   $ 4,800   
  

 

 

 
Stockholders' Equity (Tables)

A summary of the changes in stockholders’ equity for the three months ended March 31, 2016 is as follows:

 

(In thousands)    Stockholders’
Equity
 

Balance, December 31, 2015

   $ 480,160   

Net income

     5,014   

Dividend payments

     (4,453

Dividends accrued for unvested restricted stock units

     (20

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

     (255

Defined benefit plan adjustments

     45   

Foreign currency translation adjustment

     1,228   

Proceeds from stock option exercises

     247   

Purchase of treasury stock

     (11,003

Income tax effect of stock compensation arrangements

     (132

Stock-based compensation expense

     1,558   
  

 

 

 

Balance, March 31, 2016

   $ 472,389   
  

 

 

 

During the three months ended March 31, 2016, we paid cash dividends as follows (in thousands except per share amounts):

 

Record Date

   Payment Date    Per Share Amount      Total Dividend Paid  

February 4, 2016

   February 18, 2016    $ 0.09       $ 4,453   

The following tables present changes in accumulated other comprehensive income, net of tax, by component for the three months ended March 31, 2016 and 2015:

 

     Three Months Ended March 31, 2016  
(In thousands)    Unrealized
Gains
(Losses)  on
Available-
for-Sale
Securities
     Defined
Benefit Plan
Adjustments
     Foreign
Currency
Adjustments
     Total  

Beginning balance

   $ 1,932       $ (3,895    $ (7,006    $ (8,969

Other comprehensive income (loss) before reclassifications

     759         —           1,228         1,987   

Amounts reclassified from accumulated other comprehensive income

     (1,013      44         —           (969
  

 

 

    

 

 

    

 

 

    

 

 

 

Net current period other comprehensive income (loss)

     (254      44         1,228         1,018   
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 1,678       $ (3,851    $ (5,778    $ (7,951
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Three Months Ended March 31, 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

     1,360         —           (3,318      (1,958

Amounts reclassified from accumulated other comprehensive income

     (1,863      68         —           (1,795
  

 

 

    

 

 

    

 

 

    

 

 

 

Net current period other comprehensive income (loss)

     (503      68         (3,318      (3,753
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 8,461       $ (5,689    $ (6,600    $ (3,828
  

 

 

    

 

 

    

 

 

    

 

 

 

The following tables present the details of reclassifications out of accumulated other comprehensive income for the three months ended March 31, 2016 and 2015:

 

(In thousands)    Three Months Ended March 31, 2016

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

   $ 1,761       Net realized investment gain

Impairment expense

     (100    Net realized investment gain

Defined benefit plan adjustments – actuarial losses

     (64    (1)
  

 

 

    

Total reclassifications for the period, before tax

      1,597      

Tax (expense) benefit

     (628   
  

 

 

    

Total reclassifications for the period, net of tax

   $    969      
  

 

 

    

 

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

 

(In thousands)    Three Months Ended March 31, 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

   $ 3,076       Net realized investment gain

Impairment expense

     (22    Net realized investment gain

Defined benefit plan adjustments – actuarial losses

     (98    (1)
  

 

 

    

Total reclassifications for the period, before tax

     2,956      

Tax (expense) benefit

     (1,161   
  

 

 

    

Total reclassifications for the period, net of tax

   $ 1,795      
  

 

 

    

 

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

The following table presents the tax effects related to the change in each component of other comprehensive income for the three months ended March 31, 2016 and 2015:

 

     Three Months Ended
March 31, 2016
    Three Months Ended
March 31, 2015
 
(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

   $ 1,244      $ (485   $ 759      $ 2,230      $ (870   $ 1,360   

Reclassification adjustment for amounts related to available-for-sale investments included in net income

     (1,661     648        (1,013     (3,054     1,191        (1,863

Reclassification adjustment for amounts related to defined benefit plan adjustments included in net income

     64        (20     44        98        (30     68   

Foreign currency translation adjustment

     1,228        —          1,228        (3,318     —          (3,318
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Other Comprehensive Income (Loss)

   $ 875      $ 143      $ 1,018      $ (4,044   $ 291      $ (3,753
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
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 months ended March 31, 2016 and 2015 is as follows:

 

     Three Months Ended  
     March 31,  
(In thousands, except per share amounts)    2016      2015  

Numerator

     

Net income

   $ 5,014       $ 3,317   
  

 

 

    

 

 

 

Denominator

     

Weighted average number of shares – basic

     49,220         53,399   

Effect of dilutive securities

     

Stock options

     120         220   

Restricted stock and restricted stock units

     49         15   
  

 

 

    

 

 

 

Weighted average number of shares – diluted

     49,389         53,634   
  

 

 

    

 

 

 

Net income per share – basic

   $ 0.10       $ 0.06   

Net income per share – diluted

   $ 0.10       $ 0.06   
Segment Information (Tables)

The following table presents information about the reported sales and gross profit of our reportable segments for the three months ended March 31, 2016 and 2015. We do not produce asset information by reportable segment; therefore, it is not reported.

 

     Three Months Ended  
     March 31, 2016      March 31, 2015  
(In thousands)    Sales      Gross Profit      Sales      Gross Profit  

Network Solutions

   $ 123,883       $ 59,810       $ 129,505       $ 57,945   

Services & Support

     18,321         5,984         13,330         7,618   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 142,204       $ 65,794       $ 142,835       $ 65,563   
  

 

 

    

 

 

    

 

 

    

 

 

 

The table below presents sales information by category for the three months ended March 31, 2016 and 2015:

 

     Three Months Ended  
     March 31,  
(In thousands)    2016      2015  

Access & Aggregation

   $ 93,855       $ 92,851   

Customer Devices

     32,353         31,704   

Traditional & Other Products

     15,996         18,280   
  

 

 

    

 

 

 

Total

   $ 142,204       $ 142,835   
  

 

 

    

 

 

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

A summary of warranty expense and write-off activity for the three months ended March 31, 2016 and 2015 is as follows:

 

     Three Months Ended  
     March 31,  
(In thousands)    2016      2015  

Balance at beginning of period

   $ 8,739       $ 8,415   

Plus: Amounts charged to cost and expenses

     898         461   

Less: Deductions

     (595      (192
  

 

 

    

 

 

 

Balance at end of period

   $ 9,042       $ 8,684   
  

 

 

    

 

 

 
Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2015
Accounting Policies [Abstract]
 
Reduction of pre-tax income
$ 0.8 
Increase in other expenses
$ 1.3 
Income Taxes - Additional Information (Detail)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Income Tax Disclosure [Abstract]
 
 
Effective tax rate
37.90% 
39.80% 
Pension Benefit Plan - Summarization of Components of Net Periodic Pension Cost (Detail) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Compensation and Retirement Disclosure [Abstract]
 
 
Service cost
$ 297 
$ 340 
Interest cost
176 
159 
Expected return on plan assets
(259)
(261)
Amortization of actuarial losses
43 
105 
Net periodic pension cost
$ 257 
$ 343 
Stock-Based Compensation - Additional Information (Detail) (USD $)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
Number of Options, granted
 
Estimated forfeitures for stock options
3.70% 
 
Total pre-tax intrinsic value of options exercised
$ 36,000 
 
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
2,000 
 
Number of RSUs and restricted stock forfeitures in period
Number of RSUs and restricted stock vesting in period
Recognition period of non-vested compensation cost
2 years 6 months 11 days 
 
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% 
 
Compensation cost related to non-vested stock options not yet recognized
$ 13,200,000 
 
Stock-Based Compensation - Summary of Weighted-Average Assumptions and Value of Options Granted (Detail) (Stock Options [Member], USD $)
3 Months Ended
Mar. 31, 2015
Stock Options [Member]
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Expected volatility
38.75% 
Risk-free interest rate
1.46% 
Expected dividend yield
1.60% 
Expected life (in years)
6 years 5 months 19 days 
Weighted-average estimated value
$ 7.63 
Stock-Based Compensation - Summary of Stock Options Outstanding (Detail) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 12 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
 
 
Aggregate Intrinsic Value, Options outstanding, Beginning Balance
 
$ 3,284 
Number of Options, outstanding, Beginning Balance
7,108 
 
Number of Options, granted
 
Number of Options, exercised
(15)
 
Number of Options, forfeited
(23)
 
Number of Options, expired
(26)
 
Number of Options, outstanding, Ending Balance
7,044 
7,108 
Number of Options, vested and expected to vest, Ending Balance
6,910 
 
Number of Options, Options exercisable
4,466 
 
Weighted Average Exercise Price, outstanding, Beginning Balance
$ 21.97 
 
Weighted Average Exercise Price, granted
$ 0 
 
Weighted Average Exercise Price, exercised
$ 16.65 
 
Weighted Average Exercise Price, forfeited
$ 17.84 
 
Weighted Average Exercise Price, expired
$ 24.40 
 
Weighted Average Exercise Price, outstanding, Ending Balance
$ 22.00 
$ 21.97 
Weighted Average Exercise Price, vested and expected to vest, Ending Balance
$ 22.10 
 
Weighted Average Exercise Price, Options exercisable
$ 24.33 
 
Weighted Average Remaining Contractual Life In Years, Options outstanding
6 years 2 months 5 days 
6 years 5 months 1 day 
Weighted Average Remaining Contractual Life In Years, Options vested and expected to vest
6 years 1 month 13 days 
 
Weighted Average Remaining Contractual Life In Years, Options exercisable
4 years 8 months 9 days 
 
Aggregate Intrinsic Value, Options outstanding, Ending Balance
11,580 
 
Aggregate Intrinsic Value, Options vested and expected to vest
11,095 
 
Aggregate Intrinsic Value, Options exercisable
$ 4,191 
 
Investments - Securities and Investments, Recorded at Either Fair Value or Cost (Detail) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2016
Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized Cost
$ 190,990 
$ 198,100 
Gross Unrealized Gains
4,926 
5,927 
Gross Unrealized Losses
(2,196)
(2,894)
Available-for-sale-securities, Carrying Value
193,720 
201,133 
Restricted investment held at cost
30,000 
30,000 
Other investments held at cost
1,266 
1,289 
Total carrying value of available-for-sale investments
224,986 
232,422 
Deferred Compensation Plan Assets [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized Cost
11,440 
11,325 
Gross Unrealized Gains
1,634 
1,575 
Gross Unrealized Losses
(70)
(66)
Available-for-sale-securities, Carrying Value
13,004 
12,834 
Corporate Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized Cost
61,154 
58,328 
Gross Unrealized Gains
89 
20 
Gross Unrealized Losses
(386)
(734)
Available-for-sale-securities, Carrying Value
60,857 
57,614 
Municipal Fixed-Rate Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized Cost
15,659 
26,414 
Gross Unrealized Gains
54 
28 
Gross Unrealized Losses
(1)
(18)
Available-for-sale-securities, Carrying Value
15,712 
26,424 
Asset-Backed Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized Cost
20,540 
19,281 
Gross Unrealized Gains
28 
Gross Unrealized Losses
(8)
(44)
Available-for-sale-securities, Carrying Value
20,560 
19,239 
Mortgage/Agency-Backed Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized Cost
14,959 
15,463 
Gross Unrealized Gains
19 
Gross Unrealized Losses
(82)
(91)
Available-for-sale-securities, Carrying Value
14,896 
15,373 
Government Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized Cost
33,205 
35,646 
Gross Unrealized Gains
216 
 
Gross Unrealized Losses
(2)
(248)
Available-for-sale-securities, Carrying Value
33,419 
35,398 
Variable Rate Demand Notes [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized Cost
2,235 
 
Available-for-sale-securities, Carrying Value
2,235 
 
Marketable Equity Securities [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized Cost
31,798 
31,643 
Gross Unrealized Gains
2,886 
4,301 
Gross Unrealized Losses
(1,647)
(1,693)
Available-for-sale-securities, Carrying Value
$ 33,037 
$ 34,251 
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
Mar. 31, 2016
Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale-securities, Fair Value/Carrying Value
$ 193,720 
$ 201,133 
Corporate Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Less than one year
17,668 
 
One to two years
29,883 
 
Two to three years
12,490 
 
Three to five years
816 
 
Available-for-sale-securities, Fair Value/Carrying Value
60,857 
57,614 
Municipal Fixed-Rate Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Less than one year
7,147 
 
One to two years
5,566 
 
Two to three years
1,373 
 
Three to five years
226 
 
More than ten years
1,400 
 
Available-for-sale-securities, Fair Value/Carrying Value
15,712 
26,424 
Asset-Backed Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
One to two years
190 
 
Two to three years
8,158 
 
Three to five years
9,496 
 
Five to ten years
2,540 
 
More than ten years
176 
 
Available-for-sale-securities, Fair Value/Carrying Value
20,560 
19,239 
Mortgage/Agency-Backed Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Less than one year
1,000 
 
One to two years
1,300 
 
Two to three years
1,774 
 
Five to ten years
1,180 
 
More than ten years
9,642 
 
Available-for-sale-securities, Fair Value/Carrying Value
14,896 
15,373 
Government Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Less than one year
1,253 
 
One to two years
4,751 
 
Two to three years
17,992 
 
Three to five years
9,423 
 
Available-for-sale-securities, Fair Value/Carrying Value
$ 33,419 
$ 35,398 
Investments - Additional Information (Detail) (USD $)
3 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Schedule of Investments [Line Items]
 
 
Restricted certificate of deposit held
$ 30,000,000 
$ 30,000,000 
Identification of potential other-than-temporary impairments
25.00% 
 
Alabama State Industrial Development Authority [Member] |
Taxable Revenue Bond [Member] |
Significant Other Observable Inputs (Level 2) [Member]
 
 
Schedule of Investments [Line Items]
 
 
Estimated fair value of bond
$ 29,100,000 
 
Investment [Member] |
Issuer Concentration [Member] |
Market Value of Total Investment Portfolio [Member]
 
 
Schedule of Investments [Line Items]
 
 
Investment concentration risk percentage
5.00% 
 
Investments - Gross Realized Gains and Losses on Sale of Securities (Detail) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Investments, Debt and Equity Securities [Abstract]
 
 
Gross realized gains
$ 2,364 
$ 3,145 
Gross realized losses
$ (636)
$ (30)
Investments - Fair Value Measurements of Cash Equivalents Held in Money Market Funds and Investments (Detail) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2016
Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale securities
$ 193,720 
$ 201,133 
Deferred Compensation Plan Assets [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale securities
13,004 
12,834 
Corporate Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale securities
60,857 
57,614 
Municipal Fixed-Rate Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale securities
15,712 
26,424 
Asset-Backed Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale securities
20,560 
19,239 
Mortgage/Agency-Backed Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale securities
14,896 
15,373 
Government Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale securities
33,419 
35,398 
Variable Rate Demand Notes [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale securities
2,235 
 
Fair Value, Measurements [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Cash equivalents
28,552 
12,967 
Available-for-sale securities
193,720 
201,133 
Total
222,272 
214,100 
Fair Value, Measurements [Member] |
Quoted Prices in Active Market for Identical Assets (Level 1) [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Cash equivalents
2,110 
1,271 
Available-for-sale securities
79,460 
82,483 
Total
81,570 
83,754 
Fair Value, Measurements [Member] |
Significant Other Observable Inputs (Level 2) [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Cash equivalents
26,442 
11,696 
Available-for-sale securities
114,260 
118,650 
Total
140,702 
130,346 
Fair Value, Measurements [Member] |
Money Market Funds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Cash equivalents
2,110 
1,271 
Fair Value, Measurements [Member] |
Money Market Funds [Member] |
Quoted Prices in Active Market for Identical Assets (Level 1) [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Cash equivalents
2,110 
1,271 
Fair Value, Measurements [Member] |
Commercial Paper [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Cash equivalents
26,442 
11,696 
Fair Value, Measurements [Member] |
Commercial Paper [Member] |
Significant Other Observable Inputs (Level 2) [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Cash equivalents
26,442 
11,696 
Fair Value, Measurements [Member] |
Deferred Compensation Plan Assets [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale securities
13,004 
12,834 
Fair Value, Measurements [Member] |
Deferred Compensation Plan Assets [Member] |
Quoted Prices in Active Market for Identical Assets (Level 1) [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale securities
13,004 
12,834 
Fair Value, Measurements [Member] |
Corporate Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale securities
60,857 
57,614 
Fair Value, Measurements [Member] |
Corporate Bonds [Member] |
Significant Other Observable Inputs (Level 2) [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale securities
60,857 
57,614 
Fair Value, Measurements [Member] |
Municipal Fixed-Rate Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale securities
15,712 
26,424 
Fair Value, Measurements [Member] |
Municipal Fixed-Rate Bonds [Member] |
Significant Other Observable Inputs (Level 2) [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale securities
15,712 
26,424 
Fair Value, Measurements [Member] |
Asset-Backed Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale securities
20,560 
19,239 
Fair Value, Measurements [Member] |
Asset-Backed Bonds [Member] |
Significant Other Observable Inputs (Level 2) [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale securities
20,560 
19,239 
Fair Value, Measurements [Member] |
Mortgage/Agency-Backed Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale securities
14,896 
15,373 
Fair Value, Measurements [Member] |
Mortgage/Agency-Backed Bonds [Member] |
Significant Other Observable Inputs (Level 2) [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale securities
14,896 
15,373 
Fair Value, Measurements [Member] |
Government Bonds [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale securities
33,419 
35,398 
Fair Value, Measurements [Member] |
Government Bonds [Member] |
Quoted Prices in Active Market for Identical Assets (Level 1) [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale securities
33,419 
35,398 
Fair Value, Measurements [Member] |
Marketable Equity Securities - Technology Industry [Member]
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Available-for-sale securities
4,709 
5,384