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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements of ADTRAN®, Inc. and its subsidiaries (ADTRAN) have been prepared pursuant to the rules and regulations for reporting on Quarterly Reports on Form 10-Q. Accordingly, certain information and notes required by generally accepted accounting principles for complete financial statements are not included herein. The December 31, 2014 Consolidated Balance Sheet is derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States.
In the opinion of management, all adjustments necessary to fairly state these interim statements have been recorded and are of a normal and recurring nature. The results of operations for an interim period are not necessarily indicative of the results for the full year. The interim statements should be read in conjunction with the financial statements and notes thereto included in ADTRAN’s Annual Report on Form 10-K for the year ended December 31, 2014, filed on February 24, 2015 with the SEC.
Changes in Classifications
We reclassified $2.3 million from other receivables to accounts receivable at December 31, 2014 to conform to the current period presentation.
Out of Period Adjustment
In connection with the preparation of our Condensed Consolidated Financial Statements, we recorded corrections of certain out of period, immaterial misstatements that occurred in prior periods, the most significant of which resulted in an increase in Other Expense of $1.3 million in the first quarter of 2015. The aggregate impact of the corrections was a $0.8 million reduction to pre-tax income for the nine months ended September 30, 2015 and is not expected to be material to the current year annual results.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Our more significant estimates include the obsolete and excess inventory reserves, warranty reserves, customer rebates, determination of the deferred revenue components of multiple element sales agreements, estimated costs to complete obligations associated with deferred revenues, estimated income tax provision and income tax contingencies, the fair value of stock-based compensation, impairment of goodwill, valuation and estimated lives of intangible assets, estimated pension liability, fair value of investments, and the evaluation of other-than-temporary declines in the value of investments. Actual amounts could differ significantly from these estimates.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. In August 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09 to fiscal years beginning after December 31, 2017, and interim periods within those fiscal years. ASU 2014-09 allows for either full retrospective or modified retrospective adoption. We are currently evaluating the transition method that will be elected and the impact that the adoption of ASU 2014-09 will have on our financial position, results of operations and cash flows.
In April 2015, the FASB issued Accounting Standards Update No. 2015-05, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (ASU 2015-05), which provides guidance on accounting for fees paid by a customer in a cloud computing arrangement. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early adoption is permitted. The amendments may be applied either prospectively to all arrangements entered into or materially modified after the effective date or retrospectively. We do not believe the adoption of ASU 2015-05 will have a material impact on our financial position, results of operations and cash flows.
In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (ASU 2015-11). Currently, Topic 330, Inventory, requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. ASU 2015-11 does not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. ASU 2015-11 requires an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU 2015-11 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We do not believe the adoption of ASU 2015-05 will have a material impact on our financial position, results of operations and cash flows.
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2. INCOME TAXES
Our effective tax rate increased from 31.5% in the nine months ended September 30, 2014 to 36.9% in the nine months ended September 30, 2015. The increase in the effective tax rate between the two periods is primarily attributable to the release of a valuation allowance attributable to a foreign subsidiary in 2014, partially offset by settlements with tax authorities and expiration of statutes in 2015.
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3. PENSION BENEFIT PLAN
We maintain a defined benefit pension plan covering employees in certain foreign countries.
The following table summarizes the components of net periodic pension cost for the three and nine months ended September 30, 2015 and 2014:
Three Months Ended September 30, |
Nine Months Ended September 30, |
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(In thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Service cost |
$ | 328 | $ | 299 | $ | 992 | $ | 910 | ||||||||
Interest cost |
153 | 209 | 464 | 640 | ||||||||||||
Expected return on plan assets |
(252 | ) | (272 | ) | (763 | ) | (831 | ) | ||||||||
Amortization of actuarial losses |
102 | — | 307 | — | ||||||||||||
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Net periodic pension cost |
$ | 331 | $ | 236 | $ | 1,000 | $ | 719 | ||||||||
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4. STOCK-BASED COMPENSATION
The following table summarizes the stock-based compensation expense related to stock options, restricted stock units (RSUs) and restricted stock for the three and nine months ended September 30, 2015 and 2014, which was recognized as follows:
Three Months Ended September 30, |
Nine Months Ended September 30, |
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(In thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Stock-based compensation expense included in cost of sales |
$ | 59 | $ | 124 | $ | 202 | $ | 359 | ||||||||
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Selling, general and administrative expense |
812 | 1,048 | 2,226 | 3,089 | ||||||||||||
Research and development expense |
803 | 975 | 2,360 | 2,848 | ||||||||||||
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Stock-based compensation expense included in operating expenses |
1,615 | 2,023 | 4,586 | 5,937 | ||||||||||||
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Total stock-based compensation expense |
1,674 | 2,147 | 4,788 | 6,296 | ||||||||||||
Tax benefit for expense associated with non-qualified options |
(218 | ) | (298 | ) | (620 | ) | (878 | ) | ||||||||
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Total stock-based compensation expense, net of tax |
$ | 1,456 | $ | 1,849 | $ | 4,168 | $ | 5,418 | ||||||||
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The fair value of our stock options is estimated using the Black-Scholes model. The determination of the fair value of stock options on the date of grant using the Black-Scholes model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables that may have a significant impact on the fair value estimate.
There were no options granted during the three months ended September 30, 2014. The weighted-average assumptions and value of options granted during the three and nine months ended September 30, 2015 and the nine months ended September 30, 2014 are as follows:
Three months ended | Nine Months Ended | |||||||||||
September 30, 2015 |
September 30, 2015 |
September 30, 2014 |
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Expected volatility |
34.80 | % | 36.24 | % | 39.57 | % | ||||||
Risk-free interest rate |
1.84 | % | 1.70 | % | 1.86 | % | ||||||
Expected dividend yield |
2.13 | % | 1.94 | % | 1.38 | % | ||||||
Expected life (in years) |
6.24 | 6.32 | 6.25 | |||||||||
Weighted-average estimated value |
$ | 4.89 | $ | 5.89 | $ | 9.28 |
The fair value of our RSUs is calculated using a Monte Carlo Simulation valuation method. No RSUs were granted or vested during the three and nine months ended September 30, 2015 and 2014. Twelve thousand RSUs were forfeited during the nine months ended September 30, 2015.
The fair value of restricted stock is equal to the closing price of our stock on the date of grant. No restricted stock was granted or forfeited during the three and nine months ended September 30, 2015 and 2014. Two thousand shares of restricted stock vested during the nine months ended September 30, 2015.
Stock-based compensation expense recognized in our Consolidated Statements of Income for the three and nine months ended September 30, 2015 and 2014 is based on options, RSUs and restricted stock ultimately expected to vest, and has been reduced for estimated forfeitures. Estimated forfeitures for stock options are based upon historical experience and approximate 3.3% annually. We estimated a 0% forfeiture rate for our RSUs and restricted stock due to the limited number of recipients and historical experience for these awards.
As of September 30, 2015, total compensation expense related to non-vested stock options, RSUs and restricted stock not yet recognized was approximately $10.6 million, which is expected to be recognized over an average remaining recognition period of 2.4 years.
The following table is a summary of our stock options outstanding as of December 31, 2014 and September 30, 2015 and the changes that occurred during the nine months ended September 30, 2015:
(In thousands, except per share amounts) | Number of Options |
Weighted Avg. Exercise Price |
Weighted Avg. Remaining Contractual Life In Years |
Aggregate Intrinsic Value |
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Options outstanding, December 31, 2014 |
6,981 | $ | 23.62 | 6.45 | $ | 10,625 | ||||||||||
Options granted |
5 | $ | 18.98 | |||||||||||||
Options forfeited |
(294 | ) | $ | 20.92 | ||||||||||||
Options expired |
(406 | ) | $ | 26.23 | ||||||||||||
Options exercised |
(57 | ) | $ | 16.02 | ||||||||||||
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Options outstanding, September 30, 2015 |
6,229 | $ | 23.64 | 5.69 | $ | — | ||||||||||
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Options vested and expected to vest, September 30, 2015 |
6,154 | $ | 23.69 | 5.66 | $ | — | ||||||||||
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Options exercisable, September 30, 2015 |
4,149 | $ | 25.43 | 4.33 | $ | — | ||||||||||
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The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value (the difference between the closing price of our stock on the last trading day of the quarter and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2015. The aggregate intrinsic value will change based on the fair market value of our stock.
The total pre-tax intrinsic value of options exercised during the three and nine months ended September 30, 2015 was $4 thousand and $0.1 million, respectively.
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5. INVESTMENTS
At September 30, 2015, we held the following securities and investments, recorded at either fair value or cost.
(In thousands) | Amortized Cost |
Gross Unrealized | Carrying Value |
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Gains | Losses | |||||||||||||||
Deferred compensation plan assets |
$ | 14,226 | $ | 1,536 | $ | (221 | ) | $ | 15,541 | |||||||
Corporate bonds |
87,555 | 38 | (790 | ) | 86,803 | |||||||||||
Municipal fixed-rate bonds |
51,971 | 129 | (20 | ) | 52,080 | |||||||||||
Asset-backed bonds |
5,490 | — | (3 | ) | 5,487 | |||||||||||
Mortgage/Agency-backed bonds |
8,422 | 21 | (15 | ) | 8,428 | |||||||||||
Government bonds |
14,217 | 74 | (2 | ) | 14,289 | |||||||||||
Marketable equity securities |
29,508 | 5,462 | (2,375 | ) | 32,595 | |||||||||||
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Available-for-sale securities held at fair value |
$ | 211,389 | $ | 7,260 | $ | (3,426 | ) | $ | 215,223 | |||||||
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Restricted investment held at cost |
30,000 | |||||||||||||||
Other investments held at cost |
1,371 | |||||||||||||||
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Total carrying value of available-for-sale investments |
$ | 246,594 | ||||||||||||||
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At December 31, 2014, we held the following securities and investments, recorded at either fair value or cost.
(In thousands) | Amortized Cost |
Gross Unrealized | Carrying Value |
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Gains | Losses | |||||||||||||||
Deferred compensation plan assets |
$ | 13,897 | $ | 2,409 | $ | (12 | ) | $ | 16,294 | |||||||
Corporate bonds |
111,261 | 186 | (186 | ) | 111,261 | |||||||||||
Municipal fixed-rate bonds |
127,341 | 480 | (34 | ) | 127,787 | |||||||||||
Municipal variable rate demand notes |
2,465 | — | — | 2,465 | ||||||||||||
Marketable equity securities |
26,399 | 12,395 | (539 | ) | 38,255 | |||||||||||
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Available-for-sale securities held at fair value |
$ | 281,363 | $ | 15,470 | $ | (771 | ) | $ | 296,062 | |||||||
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Restricted investment held at cost |
30,000 | |||||||||||||||
Other investments held at cost |
1,506 | |||||||||||||||
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Total carrying value of available-for-sale investments |
$ | 327,568 | ||||||||||||||
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As of September 30, 2015, our corporate bonds, municipal fixed-rate bonds, asset-backed bonds, mortgage/agency-backed bonds, and government bonds had the following contractual maturities:
(In thousands) | Corporate bonds |
Municipal fixed-rate bonds |
Asset- backed bonds |
Mortgage / Agency- backed bonds |
Government bonds |
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Less than one year |
$ | 23,732 | $ | 16,034 | $ | — | $ | 775 | $ | — | ||||||||||
One to two years |
35,429 | 27,312 | — | — | 4,198 | |||||||||||||||
Two to three years |
27,642 | 7,310 | 1,065 | 1,000 | 1,878 | |||||||||||||||
Three to five years |
— | 1,424 | 4,422 | — | 8,213 | |||||||||||||||
Five to ten years |
— | — | — | 684 | — | |||||||||||||||
More than ten years |
— | — | — | 5,969 | — | |||||||||||||||
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Total |
$ | 86,803 | $ | 52,080 | $ | 5,487 | $ | 8,428 | $ | 14,289 | ||||||||||
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Actual maturities may differ from contractual maturities because some borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
Our investment policy provides limitations for issuer concentration, which limits, at the time of purchase, the concentration in any one issuer to 5% of the market value of our total investment portfolio.
At September 30, 2015, we held a $30.0 million restricted certificate of deposit, which is carried at cost. This investment serves as a collateral deposit against the principal amount outstanding under loans made to ADTRAN pursuant to an Alabama State Industrial Development Authority revenue bond (the Bond). At September 30, 2015, the estimated fair value of the Bond using a level 2 valuation technique was approximately $30.1 million, based on a debt security with a comparable interest rate and maturity and a Standard and Poor’s credit rating of AAA. For more information on the Bond, see “Debt” under “Liquidity and Capital Resources” in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Item 2 of Part I of this report.
We review our investment portfolio for potential “other-than-temporary” declines in value on an individual investment basis. We assess, on a quarterly basis, significant declines in value which may be considered other-than-temporary and, if necessary, recognize and record the appropriate charge to write-down the carrying value of such investments. In making this assessment, we take into consideration qualitative and quantitative information, including but not limited to the following: the magnitude and duration of historical declines in market prices, credit rating activity, assessments of liquidity, public filings, and statements made by the issuer. We generally begin our identification of potential other-than-temporary impairments by reviewing any security with a fair value that has declined from its original or adjusted cost basis by 25% or more for six or more consecutive months. We then evaluate the individual security based on the previously identified factors to determine the amount of the write-down, if any. For the three and nine months ended September 30, 2015 and 2014, other-than-temporary impairment charges were not significant.
Realized gains and losses on sales of securities are computed under the specific identification method. The following table presents gross realized gains and losses related to our investments.
Three Months Ended September 30, |
Nine Months Ended September 30, |
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(In thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Gross realized gains |
$ | 2,251 | $ | 2,728 | $ | 8,856 | $ | 7,363 | ||||||||
Gross realized losses |
$ | (191 | ) | $ | (41 | ) | $ | (426 | ) | $ | (144 | ) |
As of September 30, 2015 and 2014, gross unrealized losses related to individual securities in a continuous loss position for 12 months or longer were not significant.
We have categorized our cash equivalents held in money market funds and our investments held at fair value into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique for the cash equivalents and investments as follows: Level 1 - Values based on unadjusted quoted prices for identical assets or liabilities in an active market; Level 2 - Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly; Level 3 - Values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs include information supplied by investees.
Fair Value Measurements at September 30, 2015 Using | ||||||||||||||||
(In thousands) | Fair Value | Quoted Prices in Active Market for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
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Cash equivalents |
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Money market funds |
$ | 6,171 | $ | 6,171 | $ | — | $ | — | ||||||||
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Available-for-sale securities |
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Deferred compensation plan assets |
15,541 | 15,541 | — | — | ||||||||||||
Available-for-sale debt securities |
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Corporate bonds |
86,803 | — | 86,803 | — | ||||||||||||
Municipal fixed-rate bonds |
52,080 | — | 52,080 | — | ||||||||||||
Asset-backed bonds |
5,487 | — | 5,487 | — | ||||||||||||
Mortgage/Agency-backed bonds |
8,428 | — | 8,428 | — | ||||||||||||
Government bonds |
14,289 | 13,289 | 1,000 | — | ||||||||||||
Available-for-sale marketable equity securities |
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Marketable equity securities – technology industry |
5,701 | 5,701 | — | — | ||||||||||||
Marketable equity securities – other |
26,894 | 26,894 | — | — | ||||||||||||
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Available-for-sale securities |
215,223 | 61,425 | 153,798 | — | ||||||||||||
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Total |
$ | 221,394 | $ | 67,596 | $ | 153,798 | $ | — | ||||||||
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Fair Value Measurements at December 31, 2014 Using | ||||||||||||||||
(In thousands) | Fair Value | Quoted Prices in Active Market for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
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Cash equivalents |
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Money market funds |
$ | 1,163 | $ | 1,163 | $ | — | $ | — | ||||||||
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Available-for-sale securities |
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Deferred compensation plan assets |
16,294 | 16,294 | — | — | ||||||||||||
Available-for-sale debt securities |
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Corporate bonds |
111,261 | — | 111,261 | — | ||||||||||||
Municipal fixed-rate bonds |
127,787 | — | 127,787 | — | ||||||||||||
Municipal variable rate demand notes |
2,465 | — | 2,465 | — | ||||||||||||
Available-for-sale marketable equity securities |
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Marketable equity securities – technology industry |
9,661 | 9,661 | — | — | ||||||||||||
Marketable equity securities – other |
28,594 | 28,594 | — | — | ||||||||||||
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Available-for-sale securities |
296,062 | 54,549 | 241,513 | — | ||||||||||||
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Total |
$ | 297,225 | $ | 55,712 | $ | 241,513 | $ | — | ||||||||
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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.
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6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We have certain customers and suppliers who are invoiced or pay in a non-functional currency. Changes in the monetary exchange rates may adversely affect our results of operations and financial condition. When appropriate, we enter into various derivative transactions to enhance our ability to manage the volatility relating to these typical business exposures. We do not hold or issue derivative instruments for trading or other speculative purposes. Our derivative instruments are recorded in the Consolidated Balance Sheets at their fair values. Our derivative instruments do not qualify for hedge accounting, and accordingly, all changes in the fair value of the instruments are recognized as other income (expense) in the Consolidated Statements of Income. The maximum contractual period for our derivatives is currently less than twelve months. Our derivative instruments are not subject to master netting arrangements and are not offset in the Consolidated Balance Sheets.
As of September 30, 2015, we had forward contracts outstanding with notional amounts totaling €7.1 million ($8.0 million), which mature in the fourth quarter of 2015.
The fair values of our derivative instruments recorded in the Consolidated Balance Sheet as of September 30, 2015 and December 31, 2014 were as follows:
(In thousands) | Balance Sheet Location |
September 30, 2015 |
December 31, 2014 |
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Derivatives Not Designated as Hedging Instruments (Level 2): |
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Foreign exchange contracts – asset derivatives |
Other receivables | $ | — | $ | 249 | |||||||
Foreign exchange contracts – liability derivatives |
Accounts payable | $ | (306 | ) | $ | (10 | ) |
The change in the fair values of our derivative instruments recorded in the Consolidated Statements of Income during the three and nine months ended September 30, 2015 and 2014 were as follows:
Income Statement Location |
Three Months Ended September 30, |
Nine Months Ended September 30, |
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(In thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||||||
Derivatives Not Designated as Hedging Instruments: |
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Foreign exchange contracts |
Other income (expense) | $ | 30 | $ | (191 | ) | $ | 208 | $ | (739 | ) |
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7. INVENTORY
At September 30, 2015 and December 31, 2014, inventory consisted of the following:
(In thousands) | September 30, 2015 |
December 31, 2014 |
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Raw materials |
$ | 38,071 | $ | 34,831 | ||||
Work in process |
2,865 | 3,750 | ||||||
Finished goods |
59,769 | 48,129 | ||||||
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Total |
$ | 100,705 | $ | 86,710 | ||||
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We establish reserves for estimated excess, obsolete, or unmarketable inventory equal to the difference between the cost of the inventory and the estimated fair value of the inventory based upon assumptions about future demand and market conditions. At September 30, 2015 and December 31, 2014, raw materials reserves totaled $16.3 million and $16.9 million, respectively, and finished goods inventory reserves totaled $8.3 million and $7.8 million, respectively.
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8. GOODWILL AND INTANGIBLE ASSETS
Goodwill, all of which relates to our acquisition of Bluesocket, Inc. and is included in our Enterprise Networks division, was $3.5 million at September 30, 2015 and December 31, 2014. We evaluate the carrying value of goodwill during the fourth quarter of each year and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. We have elected to first assess the qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit to which the goodwill is assigned is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step impairment test. If we determine that it is more likely than not that its fair value is less than its carrying amount, then the two-step impairment test will be performed. There have been no impairment losses recorded since acquisition.
Intangible assets are included in other assets in the accompanying Consolidated Balance Sheets and include intangibles acquired in conjunction with our acquisitions of Objectworld Communications Corporation on September 15, 2009, Bluesocket, Inc. on August 4, 2011, and the NSN BBA business on May 4, 2012.
The following table presents our intangible assets as of September 30, 2015 and December 31, 2014:
September 30, 2015 | December 31, 2014 | |||||||||||||||||||||||
(In thousands) | Gross Value |
Accumulated Amortization |
Net Value | Gross Value |
Accumulated Amortization |
Net Value | ||||||||||||||||||
Customer relationships |
$ | 5,953 | $ | (2,514 | ) | $ | 3,439 | $ | 6,310 | $ | (2,136 | ) | $ | 4,174 | ||||||||||
Developed technology |
5,794 | (4,185 | ) | 1,609 | 6,005 | (3,577 | ) | 2,428 | ||||||||||||||||
Intellectual property |
2,340 | (1,771 | ) | 569 | 2,340 | (1,520 | ) | 820 | ||||||||||||||||
Trade names |
270 | (250 | ) | 20 | 270 | (205 | ) | 65 | ||||||||||||||||
Other |
11 | (11 | ) | — | 12 | (11 | ) | 1 | ||||||||||||||||
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|
|||||||||||||
Total |
$ | 14,368 | $ | (8,731 | ) | $ | 5,637 | $ | 14,937 | $ | (7,449 | ) | $ | 7,488 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense, all of which relates to business acquisitions, was $0.5 million and $0.6 million for the three months ended September 30, 2015 and 2014, respectively, and $1.5 million and $1.7 million for the nine months ended September 30, 2015 and 2014, respectively.
As of September 30, 2015, the estimated future amortization expense of our intangible assets is as follows:
(In thousands) | Amount | |||
Remainder of 2015 |
$ | 456 | ||
2016 |
1,682 | |||
2017 |
1,166 | |||
2018 |
704 | |||
2019 |
310 | |||
Thereafter |
1,319 | |||
|
|
|||
Total |
$ | 5,637 | ||
|
|
|
9. STOCKHOLDERS’ EQUITY
A summary of the changes in stockholders’ equity for the nine months ended September 30, 2015 is as follows:
(In thousands) | Stockholders’ Equity |
|||
Balance, December 31, 2014 |
$ | 549,013 | ||
Net income |
12,928 | |||
Dividend payments |
(13,989 | ) | ||
Dividends accrued for unvested restricted stock units |
5 | |||
Net unrealized losses on available-for-sale securities (net of tax) |
(6,577 | ) | ||
Defined benefit plan adjustments |
211 | |||
Foreign currency translation adjustment |
(3,797 | ) | ||
Proceeds from stock option exercises |
907 | |||
Purchase of treasury stock |
(65,808 | ) | ||
Income tax benefit from exercise of stock options |
(40 | ) | ||
Stock-based compensation expense |
4,788 | |||
|
|
|||
Balance, September 30, 2015 |
$ | 477,641 | ||
|
|
Stock Repurchase Program
Since 1997, our Board of Directors has approved multiple share repurchase programs that have authorized open market repurchase transactions of up to 50.0 million shares of our common stock. During the nine months ended September 30, 2015, we repurchased 3.9 million shares of our common stock at an average price of $16.69 per share. As of September 30, 2015, we have the authority to purchase an additional 5.8 million shares of our common stock under the current plans approved by the Board of Directors.
Stock Option Exercises
We issued 0.1 million shares of treasury stock during the nine months ended September 30, 2015 to accommodate employee stock option exercises. The stock options had exercise prices ranging from $15.29 to $22.53. We received proceeds totaling $0.9 million from the exercise of these stock options during the nine months ended September 30, 2015.
Dividend Payments
During the nine months ended September 30, 2015, we paid cash dividends as follows (in thousands except per share amounts):
Record Date |
Payment Date | Per Share Amount | Total Dividend Paid | |||||||
February 5, 2015 |
February 19, 2015 | $ | 0.09 | $ | 4,811 | |||||
May 7, 2015 |
May 21, 2015 | $ | 0.09 | $ | 4,698 | |||||
July 30, 2015 |
August 13, 2015 | $ | 0.09 | $ | 4,480 |
Other Comprehensive Income
Other comprehensive income consists of unrealized gains (losses) on available-for-sale securities, reclassification adjustments for amounts included in net income related to impairments of available-for-sale securities, realized gains (losses) on available-for-sale securities, and amortization of actuarial gains (losses) related to our defined benefit plan, defined benefit plan adjustments, and foreign currency translation adjustments.
The following tables present changes in accumulated other comprehensive income, net of tax, by component for the three months ended September 30, 2015 and 2014:
Three Months Ended September 30, 2015 | ||||||||||||||||
(In thousands) | Unrealized Gains (Losses) on Available- for-Sale Securities |
Defined Benefit Plan Adjustments |
Foreign Currency Adjustments |
Total | ||||||||||||
Beginning balance |
$ | 6,678 | $ | (5,617 | ) | $ | (5,728 | ) | $ | (4,667 | ) | |||||
Other comprehensive income (loss) before reclassifications |
(3,034 | ) | — | (1,351 | ) | (4,385 | ) | |||||||||
Amounts reclassified from accumulated other comprehensive income |
(1,257 | ) | 71 | — | (1,186 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net current period other comprehensive income (loss) |
(4,291 | ) | 71 | (1,351 | ) | (5,571 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
$ | 2,387 | $ | (5,546 | ) | $ | (7,079 | ) | $ | (10,238 | ) | |||||
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2014 | ||||||||||||||||
(In thousands) | Unrealized Gains (Losses) on Available- for-Sale Securities |
Defined Benefit Plan Adjustments |
Foreign Currency Adjustments |
Total | ||||||||||||
Beginning balance |
$ | 11,035 | $ | (891 | ) | $ | 1,293 | $ | 11,437 | |||||||
Other comprehensive income (loss) before reclassifications |
(1,602 | ) | — | (2,568 | ) | (4,170 | ) | |||||||||
Amounts reclassified from accumulated other comprehensive income |
(1,546 | ) | — | — | (1,546 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net current period other comprehensive income (loss) |
(3,148 | ) | — | (2,568 | ) | (5,716 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
$ | 7,887 | $ | (891 | ) | $ | (1,275 | ) | $ | 5,721 | ||||||
|
|
|
|
|
|
|
|
The following tables present changes in accumulated other comprehensive income, net of tax, by component for the nine months ended September 30, 2015 and 2014:
Nine Months Ended September 30, 2015 | ||||||||||||||||
(In thousands) | Unrealized Gains (Losses) on Available- for-Sale Securities |
Defined Benefit Plan Adjustments |
Foreign Currency Adjustments |
Total | ||||||||||||
Beginning balance |
$ | 8,964 | $ | (5,757 | ) | $ | (3,282 | ) | $ | (75 | ) | |||||
Other comprehensive income (loss) before reclassifications |
(1,497 | ) | — | (3,797 | ) | (5,294 | ) | |||||||||
Amounts reclassified from accumulated other comprehensive income |
(5,080 | ) | 211 | — | (4,869 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net current period other comprehensive income (loss) |
(6,577 | ) | 211 | (3,797 | ) | (10,163 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
$ | 2,387 | $ | (5,546 | ) | $ | (7,079 | ) | $ | (10,238 | ) | |||||
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2014 | ||||||||||||||||
(In thousands) | Unrealized Gains (Losses) on Available- for-Sale Securities |
Defined Benefit Plan Adjustments |
Foreign Currency Adjustments |
Total | ||||||||||||
Beginning balance |
$ | 10,737 | $ | (891 | ) | $ | 907 | $ | 10,753 | |||||||
Other comprehensive income (loss) before reclassifications |
1,316 | — | (2,182 | ) | (866 | ) | ||||||||||
Amounts reclassified from accumulated other comprehensive income |
(4,166 | ) | — | — | (4,166 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net current period other comprehensive income (loss) |
(2,850 | ) | — | (2,182 | ) | (5,032 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
$ | 7,887 | $ | (891 | ) | $ | (1,275 | ) | $ | 5,721 | ||||||
|
|
|
|
|
|
|
|
The following tables present the details of reclassifications out of accumulated other comprehensive income for the three months ended September 30, 2015 and 2014:
(In thousands) | Three Months Ended September 30, 2015 | |||||
Details about Accumulated Other Comprehensive Income Components |
Amount Reclassified from Accumulated Other Comprehensive Income |
Affected Line Item in the Statement Where Net Income Is Presented |
||||
Unrealized gains (losses) on available-for-sale securities: |
||||||
Net realized gain on sales of securities |
$ | 2,098 | Net realized investment gain | |||
Impairment expense |
(37 | ) | Net realized investment gain | |||
Defined benefit plan adjustments – actuarial losses |
(103 | ) | (1) | |||
|
|
|||||
Total reclassifications for the period, before tax |
1,958 | |||||
Tax (expense) benefit |
(772 | ) | ||||
|
|
|||||
Total reclassifications for the period, net of tax |
$ | 1,186 | ||||
|
|
(1) | Included in the computation of net periodic pension cost. See Note 3 of Notes to Consolidated Financial Statements. |
(In thousands) | Three Months Ended September 30, 2014 | |||||
Details about Accumulated Other Comprehensive Income Components |
Amount Reclassified from Accumulated Other Comprehensive Income |
Affected Line Item in the Statement Where Net Income Is Presented |
||||
Unrealized gains (losses) on available-for-sale securities: |
||||||
Net realized gain on sales of securities |
$ | 2,565 | Net realized investment gain | |||
Impairment expense |
(30 | ) | Net realized investment gain | |||
|
|
|||||
Total reclassifications for the period, before tax |
2,535 | |||||
Tax (expense) benefit |
(989 | ) | ||||
|
|
|||||
Total reclassifications for the period, net of tax |
$ | 1,546 | ||||
|
|
The following tables present the details of reclassifications out of accumulated other comprehensive income for the nine months ended September 30, 2015 and 2014:
(In thousands) | Nine Months Ended September 30, 2015 | |||||
Details about Accumulated Other Comprehensive Income Components |
Amount Reclassified from Accumulated Other Comprehensive Income |
Affected Line Item in the Statement Where Net Income Is Presented |
||||
Unrealized gains (losses) on available-for-sale securities: |
||||||
Net realized gain on sales of securities |
$ | 8,438 | Net realized investment gain | |||
Impairment expense |
(110 | ) | Net realized investment gain | |||
Defined benefit plan adjustments – actuarial losses |
(306 | ) | (1) | |||
|
|
|||||
Total reclassifications for the period, before tax |
8,022 | |||||
Tax (expense) benefit |
(3,153 | ) | ||||
|
|
|||||
Total reclassifications for the period, net of tax |
$ | 4,869 | ||||
|
|
(1) | Included in the computation of net periodic pension cost. See Note 3 of Notes to Consolidated Financial Statements. |
(In thousands) | Nine Months Ended September 30, 2014 | |||||
Details about Accumulated Other Comprehensive Income Components |
Amount Reclassified from Accumulated Other Comprehensive Income |
Affected Line Item in the Statement Where Net Income Is Presented |
||||
Unrealized gains (losses) on available-for-sale securities: |
||||||
Net realized gain on sales of securities |
$ | 6,895 | Net realized investment gain | |||
Impairment expense |
(64 | ) | Net realized investment gain | |||
|
|
|||||
Total reclassifications for the period, before tax |
6,831 | |||||
Tax (expense) benefit |
(2,665 | ) | ||||
|
|
|||||
Total reclassifications for the period, net of tax |
$ | 4,166 | ||||
|
|
The following table presents the tax effects related to the change in each component of other comprehensive income for the three months ended September 30, 2015 and 2014:
Three Months Ended September 30, 2015 |
Three Months Ended September 30, 2014 |
|||||||||||||||||||||||
(In thousands) | Before-Tax Amount |
Tax (Expense) Benefit |
Net-of-Tax Amount |
Before-Tax Amount |
Tax (Expense) Benefit |
Net-of-Tax Amount |
||||||||||||||||||
Unrealized gains (losses) on available-for-sale securities |
$ | (4,974 | ) | $ | 1,940 | $ | (3,034 | ) | $ | (2,626 | ) | $ | 1,024 | $ | (1,602 | ) | ||||||||
Reclassification adjustment for amounts included in net income |
(1,958 | ) | 772 | (1,186 | ) | (2,535 | ) | 989 | (1,546 | ) | ||||||||||||||
Foreign currency translation adjustment |
(1,351 | ) | — | (1,351 | ) | (2,568 | ) | — | (2,568 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Other Comprehensive Income (Loss) |
$ | (8,283 | ) | $ | 2,712 | $ | (5,571 | ) | $ | (7,729 | ) | $ | 2,013 | $ | (5,716 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the tax effects related to the change in each component of other comprehensive income for the nine months ended September 30, 2015 and 2014:
Nine Months Ended September 30, 2015 |
Nine Months Ended September 30, 2014 |
|||||||||||||||||||||||
(In thousands) | Before-Tax Amount |
Tax (Expense) Benefit |
Net-of-Tax Amount |
Before-Tax Amount |
Tax (Expense) Benefit |
Net-of-Tax Amount |
||||||||||||||||||
Unrealized gains (losses) on available-for-sale securities |
$ | (2,454 | ) | $ | 957 | $ | (1,497 | ) | $ | 2,157 | $ | (841 | ) | $ | 1,316 | |||||||||
Reclassification adjustment for amounts included in net income |
(8,022 | ) | 3,153 | (4,869 | ) | (6,831 | ) | 2,665 | (4,166 | ) | ||||||||||||||
Foreign currency translation adjustment |
(3,797 | ) | — | (3,797 | ) | (2,182 | ) | — | (2,182 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Other Comprehensive Income (Loss) |
$ | (14,273 | ) | $ | 4,110 | $ | (10,163 | ) | $ | (6,856 | ) | $ | 1,824 | $ | (5,032 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
11. SEGMENT INFORMATION
We operate in two reportable segments: (1) the Carrier Networks Division and (2) the Enterprise Networks Division. We evaluate the performance of our segments based on gross profit; therefore, selling, general and administrative expenses, research and development expenses, interest and dividend income, interest expense, net realized investment gain/loss, other income/expense and provision for taxes are reported on an entity-wide basis only. There are no inter-segment revenues.
The following tables present information about the reported sales and gross profit of our reportable segments for the three and nine months ended September 30, 2015 and 2014. Asset information by reportable segment is not reported, since we do not produce such information internally.
Three Months Ended | ||||||||||||||||
September 30, 2015 | September 30, 2014 | |||||||||||||||
(In thousands) | Sales | Gross Profit | Sales | Gross Profit | ||||||||||||
Carrier Networks |
$ | 131,273 | $ | 55,796 | $ | 132,972 | $ | 61,687 | ||||||||
Enterprise Networks |
26,805 | 14,853 | 29,920 | 16,570 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 158,078 | $ | 70,649 | $ | 162,892 | $ | 78,257 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Nine Months Ended | ||||||||||||||||
September 30, 2015 | September 30, 2014 | |||||||||||||||
(In thousands) | Sales | Gross Profit | Sales | Gross Profit | ||||||||||||
Carrier Networks |
$ | 382,684 | $ | 160,354 | $ | 394,589 | $ | 191,093 | ||||||||
Enterprise Networks |
78,367 | 44,104 | 91,436 | 51,751 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 461,051 | $ | 204,458 | $ | 486,025 | $ | 242,844 | ||||||||
|
|
|
|
|
|
|
|
Sales by Product
Our three major product categories are Carrier Systems, Business Networking and Loop Access.
Carrier Systems products are used by communications service providers to provide data, voice, and video services to consumers and enterprises. This category includes the following product areas and related services:
• | Broadband Access |
• | Total Access® 5000 Series of Multi-Service Access Node (MSAN) |
• | hiX 5600 Series of MSANs |
• | Total Access 1100/1200 Series of Fiber to the Node (FTTN) products |
• | hiX 1100 Series of Fiber to the Node (FTTN) products |
• | VDSL2 Vectoring based Digital Subscriber Line Access Multiplexer (DSLAM) products |
• | ADTRAN 500 Series of FTTdp G.fast Distribution Point Units (DPU) |
• | Optical |
• | Optical Networking Edge (ONE) |
• | NetVanta 8000 Series of Fiber Ethernet Access Devices (EAD) |
• | NetVanta 8400 Series of 10Gig Multi-service Edge Switches |
• | OPTI-6100 and Total Access 3000 optical Multi-Service Provisioning Platforms (MSPP) |
• | Pluggable Optical Products, including SFP, XFP, and SFP+ |
• | Time Division Multiplexed (TDM) systems |
Business Networking products provide access to communication services and facilitate the delivery of cloud connectivity and enterprise communications to the small and mid-sized enterprise (SME) market. This category includes the following product areas and related services:
• | Internetworking products |
• | Total Access IP Business Gateways |
• | Optical Network Terminals (ONTs) |
• | Bluesocket® virtual Wireless LAN (vWLAN®) |
• | NetVanta® |
• | Access Routers |
• | Enterprise Session Border Controllers (eSBC) |
• | Managed Ethernet Switches |
• | IP Business Gateways |
• | Unified Communications (UC) solutions |
• | Carrier Ethernet Network Terminating Equipment (NTE) |
• | Carrier Ethernet Routers and Gateways |
• | Network Management Solutions |
Loop Access products are used by carrier and enterprise customers for access to copper-based communications networks. This category includes the following product areas and related services:
• | High bit-rate Digital Subscriber Line (HDSL) products |
• | Digital Data Service (DDS) |
• | Integrated Services Digital Network (ISDN) products |
• | T1/E1/T3 Channel Service Units/Data Service Units (CSUs/DSUs) |
• | TRACER fixed-wireless products |
The table below presents sales information by product category for the three and nine months ended September 30, 2015 and 2014:
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
(In thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Carrier Systems |
$ | 111,044 | $ | 113,950 | $ | 330,522 | $ | 342,327 | ||||||||
Business Networking |
39,127 | 39,746 | 108,718 | 119,634 | ||||||||||||
Loop Access |
7,907 | 9,196 | 21,811 | 24,064 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 158,078 | $ | 162,892 | $ | 461,051 | $ | 486,025 | ||||||||
|
|
|
|
|
|
|
|
In addition, we identify subcategories of product revenues, which we divide into core products and legacy products. Our core products consist of Broadband Access and Optical products (included in Carrier Systems), and Internetworking products (included in Business Networking). Our legacy products include HDSL products (included in Loop Access) and other products not included in the aforementioned core products.
The table below presents subcategory revenues for the three and nine months ended September 30, 2015 and 2014:
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
(In thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Core Products |
||||||||||||||||
Broadband Access (included in Carrier Systems) |
$ | 94,116 | $ | 96,084 | $ | 279,656 | $ | 285,920 | ||||||||
Optical (included in Carrier Systems) |
13,733 | 13,686 | 42,669 | 42,308 | ||||||||||||
Internetworking (included in Business Networking) |
38,123 | 38,630 | 105,440 | 116,562 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Subtotal |
145,972 | 148,400 | 427,765 | 444,790 | ||||||||||||
Legacy Products |
||||||||||||||||
HDSL (does not include T1) (included in Loop Access) |
7,397 | 8,400 | 20,499 | 22,075 | ||||||||||||
Other products (excluding HDSL) |
4,709 | 6,092 | 12,787 | 19,160 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Subtotal |
12,106 | 14,492 | 33,286 | 41,235 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 158,078 | $ | 162,892 | $ | 461,051 | $ | 486,025 |
|
12. LIABILITY FOR WARRANTY RETURNS
Our products generally include warranties of 90 days to ten years for product defects. We accrue for warranty returns at the time revenue is recognized based on our estimate of the cost to repair or replace the defective products. We engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers. Our products continue to become more complex in both size and functionality as many of our product offerings migrate from line card applications to total systems. The increasing complexity of our products will cause warranty incidences, when they arise, to be more costly. Our estimates regarding future warranty obligations may change due to product failure rates, material usage, and other rework costs incurred in correcting a product failure. In addition, from time to time, specific warranty accruals may be recorded if unforeseen problems arise. Should our actual experience relative to these factors be worse than our estimates, we will be required to record additional warranty expense. Alternatively, if we provide for more reserves than we require, we will reverse a portion of such provisions in future periods. The liability for warranty obligations totaled $8.7 million and $8.4 million at September 30, 2015 and December 31, 2014, respectively. These liabilities are included in accrued expenses in the accompanying Consolidated Balance Sheets.
A summary of warranty expense and write-off activity for the nine months ended September 30, 2015 and 2014 is as follows:
Nine Months Ended September 30, |
||||||||
(In thousands) | 2015 | 2014 | ||||||
Balance at beginning of period |
$ | 8,415 | $ | 8,977 | ||||
Plus: Amounts charged to cost and expenses |
1,905 | 2,770 | ||||||
Less: Deductions |
(1,604 | ) | (3,099 | ) | ||||
|
|
|
|
|||||
Balance at end of period |
$ | 8,716 | $ | 8,648 | ||||
|
|
|
|
|
13. RELATED PARTY TRANSACTIONS
During 2014, we employed the law firm of our director emeritus for legal services. All bills for services rendered by this firm were reviewed and approved by our Chief Financial Officer. We believe that the fees for such services were comparable to those charged by other firms for services rendered to us. The services of our director emeritus ended with his death on September 7, 2014. For the three and nine months ended September 30, 2014, we incurred fees of $10 thousand and $70 thousand, respectively, for these legal services.
|
14. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, we may be subject to various legal proceedings and claims, including employment disputes, patent claims, disputes over contract agreements and other commercial disputes. In some cases, claimants seek damages or other relief, such as royalty payments related to patents, which, if granted, could require significant expenditures. Although the outcome of any claim or litigation can never be certain, it is our opinion that the outcome of all contingencies of which we are currently aware will not materially affect our business, operations, financial condition or cash flows.
We have committed to invest up to an aggregate of $7.9 million in two private equity funds, and we have contributed $8.4 million as of September 30, 2015, of which $7.7 million has been applied to these commitments.
|
15. SUBSEQUENT EVENTS
On October 13, 2015, we announced that our Board of Directors declared a quarterly cash dividend of $0.09 per common share to be paid to stockholders of record at the close of business on October 29, 2015. The payment date will be November 12, 2015. The quarterly dividend payment will be approximately $4.5 million. In July 2003, our Board of Directors elected to begin declaring quarterly dividends on our common stock considering the tax treatment of dividends and adequate levels of Company liquidity.
|
Basis of Presentation
The accompanying unaudited consolidated financial statements of ADTRAN®, Inc. and its subsidiaries (ADTRAN) have been prepared pursuant to the rules and regulations for reporting on Quarterly Reports on Form 10-Q. Accordingly, certain information and notes required by generally accepted accounting principles for complete financial statements are not included herein. The December 31, 2014 Consolidated Balance Sheet is derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States.
In the opinion of management, all adjustments necessary to fairly state these interim statements have been recorded and are of a normal and recurring nature. The results of operations for an interim period are not necessarily indicative of the results for the full year. The interim statements should be read in conjunction with the financial statements and notes thereto included in ADTRAN’s Annual Report on Form 10-K for the year ended December 31, 2014, filed on February 24, 2015 with the SEC.
Changes in Classifications
We reclassified $2.3 million from other receivables to accounts receivable at December 31, 2014 to conform to the current period presentation.
Out of Period Adjustment
In connection with the preparation of our Condensed Consolidated Financial Statements, we recorded corrections of certain out of period, immaterial misstatements that occurred in prior periods, the most significant of which resulted in an increase in Other Expense of $1.3 million in the first quarter of 2015. The aggregate impact of the corrections was a $0.8 million reduction to pre-tax income for the nine months ended September 30, 2015 and is not expected to be material to the current year annual results.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Our more significant estimates include the obsolete and excess inventory reserves, warranty reserves, customer rebates, determination of the deferred revenue components of multiple element sales agreements, estimated costs to complete obligations associated with deferred revenues, estimated income tax provision and income tax contingencies, the fair value of stock-based compensation, impairment of goodwill, valuation and estimated lives of intangible assets, estimated pension liability, fair value of investments, and the evaluation of other-than-temporary declines in the value of investments. Actual amounts could differ significantly from these estimates.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. In August 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09 to fiscal years beginning after December 31, 2017, and interim periods within those fiscal years. ASU 2014-09 allows for either full retrospective or modified retrospective adoption. We are currently evaluating the transition method that will be elected and the impact that the adoption of ASU 2014-09 will have on our financial position, results of operations and cash flows.
In April 2015, the FASB issued Accounting Standards Update No. 2015-05, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (ASU 2015-05), which provides guidance on accounting for fees paid by a customer in a cloud computing arrangement. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early adoption is permitted. The amendments may be applied either prospectively to all arrangements entered into or materially modified after the effective date or retrospectively. We do not believe the adoption of ASU 2015-05 will have a material impact on our financial position, results of operations and cash flows.
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The following table summarizes the components of net periodic pension cost for the three and nine months ended September 30, 2015 and 2014:
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
(In thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Service cost |
$ | 328 | $ | 299 | $ | 992 | $ | 910 | ||||||||
Interest cost |
153 | 209 | 464 | 640 | ||||||||||||
Expected return on plan assets |
(252 | ) | (272 | ) | (763 | ) | (831 | ) | ||||||||
Amortization of actuarial losses |
102 | — | 307 | — | ||||||||||||
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Net periodic pension cost |
$ | 331 | $ | 236 | $ | 1,000 | $ | 719 | ||||||||
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The following table summarizes the stock-based compensation expense related to stock options, restricted stock units (RSUs) and restricted stock for the three and nine months ended September 30, 2015 and 2014, which was recognized as follows:
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
(In thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Stock-based compensation expense included in cost of sales |
$ | 59 | $ | 124 | $ | 202 | $ | 359 | ||||||||
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Selling, general and administrative expense |
812 | 1,048 | 2,226 | 3,089 | ||||||||||||
Research and development expense |
803 | 975 | 2,360 | 2,848 | ||||||||||||
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Stock-based compensation expense included in operating expenses |
1,615 | 2,023 | 4,586 | 5,937 | ||||||||||||
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Total stock-based compensation expense |
1,674 | 2,147 | 4,788 | 6,296 | ||||||||||||
Tax benefit for expense associated with non-qualified options |
(218 | ) | (298 | ) | (620 | ) | (878 | ) | ||||||||
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Total stock-based compensation expense, net of tax |
$ | 1,456 | $ | 1,849 | $ | 4,168 | $ | 5,418 | ||||||||
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Three months ended | Nine Months Ended | |||||||||||
September 30, 2015 |
September 30, 2015 |
September 30, 2014 |
||||||||||
Expected volatility |
34.80 | % | 36.24 | % | 39.57 | % | ||||||
Risk-free interest rate |
1.84 | % | 1.70 | % | 1.86 | % | ||||||
Expected dividend yield |
2.13 | % | 1.94 | % | 1.38 | % | ||||||
Expected life (in years) |
6.24 | 6.32 | 6.25 | |||||||||
Weighted-average estimated value |
$ | 4.89 | $ | 5.89 | $ | 9.28 |
The following table is a summary of our stock options outstanding as of December 31, 2014 and September 30, 2015 and the changes that occurred during the nine months ended September 30, 2015:
(In thousands, except per share amounts) | Number of Options |
Weighted Avg. Exercise Price |
Weighted Avg. Remaining Contractual Life In Years |
Aggregate Intrinsic Value |
||||||||||||
Options outstanding, December 31, 2014 |
6,981 | $ | 23.62 | 6.45 | $ | 10,625 | ||||||||||
Options granted |
5 | $ | 18.98 | |||||||||||||
Options forfeited |
(294 | ) | $ | 20.92 | ||||||||||||
Options expired |
(406 | ) | $ | 26.23 | ||||||||||||
Options exercised |
(57 | ) | $ | 16.02 | ||||||||||||
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Options outstanding, September 30, 2015 |
6,229 | $ | 23.64 | 5.69 | $ | — | ||||||||||
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Options vested and expected to vest, September 30, 2015 |
6,154 | $ | 23.69 | 5.66 | $ | — | ||||||||||
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Options exercisable, September 30, 2015 |
4,149 | $ | 25.43 | 4.33 | $ | — | ||||||||||
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At September 30, 2015, we held the following securities and investments, recorded at either fair value or cost.
(In thousands) | Amortized Cost |
Gross Unrealized | Carrying Value |
|||||||||||||
Gains | Losses | |||||||||||||||
Deferred compensation plan assets |
$ | 14,226 | $ | 1,536 | $ | (221 | ) | $ | 15,541 | |||||||
Corporate bonds |
87,555 | 38 | (790 | ) | 86,803 | |||||||||||
Municipal fixed-rate bonds |
51,971 | 129 | (20 | ) | 52,080 | |||||||||||
Asset-backed bonds |
5,490 | — | (3 | ) | 5,487 | |||||||||||
Mortgage/Agency-backed bonds |
8,422 | 21 | (15 | ) | 8,428 | |||||||||||
Government bonds |
14,217 | 74 | (2 | ) | 14,289 | |||||||||||
Marketable equity securities |
29,508 | 5,462 | (2,375 | ) | 32,595 | |||||||||||
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Available-for-sale securities held at fair value |
$ | 211,389 | $ | 7,260 | $ | (3,426 | ) | $ | 215,223 | |||||||
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Restricted investment held at cost |
30,000 | |||||||||||||||
Other investments held at cost |
1,371 | |||||||||||||||
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Total carrying value of available-for-sale investments |
$ | 246,594 | ||||||||||||||
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At December 31, 2014, we held the following securities and investments, recorded at either fair value or cost.
(In thousands) | Amortized Cost |
Gross Unrealized | Carrying Value |
|||||||||||||
Gains | Losses | |||||||||||||||
Deferred compensation plan assets |
$ | 13,897 | $ | 2,409 | $ | (12 | ) | $ | 16,294 | |||||||
Corporate bonds |
111,261 | 186 | (186 | ) | 111,261 | |||||||||||
Municipal fixed-rate bonds |
127,341 | 480 | (34 | ) | 127,787 | |||||||||||
Municipal variable rate demand notes |
2,465 | — | — | 2,465 | ||||||||||||
Marketable equity securities |
26,399 | 12,395 | (539 | ) | 38,255 | |||||||||||
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Available-for-sale securities held at fair value |
$ | 281,363 | $ | 15,470 | $ | (771 | ) | $ | 296,062 | |||||||
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Restricted investment held at cost |
30,000 | |||||||||||||||
Other investments held at cost |
1,506 | |||||||||||||||
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Total carrying value of available-for-sale investments |
$ | 327,568 | ||||||||||||||
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As of September 30, 2015, our corporate bonds, municipal fixed-rate bonds, asset-backed bonds, mortgage/agency-backed bonds, and government bonds had the following contractual maturities:
(In thousands) | Corporate bonds |
Municipal fixed-rate bonds |
Asset- backed bonds |
Mortgage / Agency- backed bonds |
Government bonds |
|||||||||||||||
Less than one year |
$ | 23,732 | $ | 16,034 | $ | — | $ | 775 | $ | — | ||||||||||
One to two years |
35,429 | 27,312 | — | — | 4,198 | |||||||||||||||
Two to three years |
27,642 | 7,310 | 1,065 | 1,000 | 1,878 | |||||||||||||||
Three to five years |
— | 1,424 | 4,422 | — | 8,213 | |||||||||||||||
Five to ten years |
— | — | — | 684 | — | |||||||||||||||
More than ten years |
— | — | — | 5,969 | — | |||||||||||||||
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Total |
$ | 86,803 | $ | 52,080 | $ | 5,487 | $ | 8,428 | $ | 14,289 | ||||||||||
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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(In thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Gross realized gains |
$ | 2,251 | $ | 2,728 | $ | 8,856 | $ | 7,363 | ||||||||
Gross realized losses |
$ | (191 | ) | $ | (41 | ) | $ | (426 | ) | $ | (144 | ) |
We have categorized our cash equivalents held in money market funds and our investments held at fair value into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique for the cash equivalents and investments as follows: Level 1 - Values based on unadjusted quoted prices for identical assets or liabilities in an active market; Level 2 - Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly; Level 3 - Values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs include information supplied by investees.
Fair Value Measurements at September 30, 2015 Using | ||||||||||||||||
(In thousands) | Fair Value | Quoted Prices in Active Market for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
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Cash equivalents |
||||||||||||||||
Money market funds |
$ | 6,171 | $ | 6,171 | $ | — | $ | — | ||||||||
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Available-for-sale securities |
||||||||||||||||
Deferred compensation plan assets |
15,541 | 15,541 | — | — | ||||||||||||
Available-for-sale debt securities |
||||||||||||||||
Corporate bonds |
86,803 | — | 86,803 | — | ||||||||||||
Municipal fixed-rate bonds |
52,080 | — | 52,080 | — | ||||||||||||
Asset-backed bonds |
5,487 | — | 5,487 | — | ||||||||||||
Mortgage/Agency-backed bonds |
8,428 | — | 8,428 | — | ||||||||||||
Government bonds |
14,289 | 13,289 | 1,000 | — | ||||||||||||
Available-for-sale marketable equity securities |
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Marketable equity securities – technology industry |
5,701 | 5,701 | — | — | ||||||||||||
Marketable equity securities – other |
26,894 | 26,894 | — | — | ||||||||||||
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Available-for-sale securities |
215,223 | 61,425 | 153,798 | — | ||||||||||||
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Total |
$ | 221,394 | $ | 67,596 | $ | 153,798 | $ | — | ||||||||
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Fair Value Measurements at December 31, 2014 Using | ||||||||||||||||
(In thousands) | Fair Value | Quoted Prices in Active Market for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
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Cash equivalents |
||||||||||||||||
Money market funds |
$ | 1,163 | $ | 1,163 | $ | — | $ | — | ||||||||
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Available-for-sale securities |
||||||||||||||||
Deferred compensation plan assets |
16,294 | 16,294 | — | — | ||||||||||||
Available-for-sale debt securities |
||||||||||||||||
Corporate bonds |
111,261 | — | 111,261 | — | ||||||||||||
Municipal fixed-rate bonds |
127,787 | — | 127,787 | — | ||||||||||||
Municipal variable rate demand notes |
2,465 | — | 2,465 | — | ||||||||||||
Available-for-sale marketable equity securities |
||||||||||||||||
Marketable equity securities – technology industry |
9,661 | 9,661 | — | — | ||||||||||||
Marketable equity securities – other |
28,594 | 28,594 | — | — | ||||||||||||
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Available-for-sale securities |
296,062 | 54,549 | 241,513 | — | ||||||||||||
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Total |
$ | 297,225 | $ | 55,712 | $ | 241,513 | $ | — | ||||||||
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The fair values of our derivative instruments recorded in the Consolidated Balance Sheet as of September 30, 2015 and December 31, 2014 were as follows:
(In thousands) | Balance Sheet Location |
September 30, 2015 |
December 31, 2014 |
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Derivatives Not Designated as Hedging Instruments (Level 2): |
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Foreign exchange contracts – asset derivatives |
Other receivables | $ | — | $ | 249 | |||||||
Foreign exchange contracts – liability derivatives |
Accounts payable | $ | (306 | ) | $ | (10 | ) |
The change in the fair values of our derivative instruments recorded in the Consolidated Statements of Income during the three and nine months ended September 30, 2015 and 2014 were as follows:
Income Statement Location |
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||||
(In thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||||||
Derivatives Not Designated as Hedging Instruments: |
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Foreign exchange contracts |
Other income (expense) | $ | 30 | $ | (191 | ) | $ | 208 | $ | (739 | ) |
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At September 30, 2015 and December 31, 2014, inventory consisted of the following:
(In thousands) | September 30, 2015 |
December 31, 2014 |
||||||
Raw materials |
$ | 38,071 | $ | 34,831 | ||||
Work in process |
2,865 | 3,750 | ||||||
Finished goods |
59,769 | 48,129 | ||||||
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Total |
$ | 100,705 | $ | 86,710 | ||||
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The following table presents our intangible assets as of September 30, 2015 and December 31, 2014:
September 30, 2015 | December 31, 2014 | |||||||||||||||||||||||
(In thousands) | Gross Value |
Accumulated Amortization |
Net Value | Gross Value |
Accumulated Amortization |
Net Value | ||||||||||||||||||
Customer relationships |
$ | 5,953 | $ | (2,514 | ) | $ | 3,439 | $ | 6,310 | $ | (2,136 | ) | $ | 4,174 | ||||||||||
Developed technology |
5,794 | (4,185 | ) | 1,609 | 6,005 | (3,577 | ) | 2,428 | ||||||||||||||||
Intellectual property |
2,340 | (1,771 | ) | 569 | 2,340 | (1,520 | ) | 820 | ||||||||||||||||
Trade names |
270 | (250 | ) | 20 | 270 | (205 | ) | 65 | ||||||||||||||||
Other |
11 | (11 | ) | — | 12 | (11 | ) | 1 | ||||||||||||||||
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Total |
$ | 14,368 | $ | (8,731 | ) | $ | 5,637 | $ | 14,937 | $ | (7,449 | ) | $ | 7,488 | ||||||||||
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As of September 30, 2015, the estimated future amortization expense of our intangible assets is as follows:
(In thousands) | Amount | |||
Remainder of 2015 |
$ | 456 | ||
2016 |
1,682 | |||
2017 |
1,166 | |||
2018 |
704 | |||
2019 |
310 | |||
Thereafter |
1,319 | |||
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Total |
$ | 5,637 | ||
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A summary of the changes in stockholders’ equity for the nine months ended September 30, 2015 is as follows:
(In thousands) | Stockholders’ Equity |
|||
Balance, December 31, 2014 |
$ | 549,013 | ||
Net income |
12,928 | |||
Dividend payments |
(13,989 | ) | ||
Dividends accrued for unvested restricted stock units |
5 | |||
Net unrealized losses on available-for-sale securities (net of tax) |
(6,577 | ) | ||
Defined benefit plan adjustments |
211 | |||
Foreign currency translation adjustment |
(3,797 | ) | ||
Proceeds from stock option exercises |
907 | |||
Purchase of treasury stock |
(65,808 | ) | ||
Income tax benefit from exercise of stock options |
(40 | ) | ||
Stock-based compensation expense |
4,788 | |||
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Balance, September 30, 2015 |
$ | 477,641 | ||
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During the nine months ended September 30, 2015, we paid cash dividends as follows (in thousands except per share amounts):
Record Date |
Payment Date | Per Share Amount | Total Dividend Paid | |||||||
February 5, 2015 |
February 19, 2015 | $ | 0.09 | $ | 4,811 | |||||
May 7, 2015 |
May 21, 2015 | $ | 0.09 | $ | 4,698 | |||||
July 30, 2015 |
August 13, 2015 | $ | 0.09 | $ | 4,480 |
The following tables present changes in accumulated other comprehensive income, net of tax, by component for the three months ended September 30, 2015 and 2014:
Three Months Ended September 30, 2015 | ||||||||||||||||
(In thousands) | Unrealized Gains (Losses) on Available- for-Sale Securities |
Defined Benefit Plan Adjustments |
Foreign Currency Adjustments |
Total | ||||||||||||
Beginning balance |
$ | 6,678 | $ | (5,617 | ) | $ | (5,728 | ) | $ | (4,667 | ) | |||||
Other comprehensive income (loss) before reclassifications |
(3,034 | ) | — | (1,351 | ) | (4,385 | ) | |||||||||
Amounts reclassified from accumulated other comprehensive income |
(1,257 | ) | 71 | — | (1,186 | ) | ||||||||||
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Net current period other comprehensive income (loss) |
(4,291 | ) | 71 | (1,351 | ) | (5,571 | ) | |||||||||
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|
|
|||||||||
Ending balance |
$ | 2,387 | $ | (5,546 | ) | $ | (7,079 | ) | $ | (10,238 | ) | |||||
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Three Months Ended September 30, 2014 | ||||||||||||||||
(In thousands) | Unrealized Gains (Losses) on Available- for-Sale Securities |
Defined Benefit Plan Adjustments |
Foreign Currency Adjustments |
Total | ||||||||||||
Beginning balance |
$ | 11,035 | $ | (891 | ) | $ | 1,293 | $ | 11,437 | |||||||
Other comprehensive income (loss) before reclassifications |
(1,602 | ) | — | (2,568 | ) | (4,170 | ) | |||||||||
Amounts reclassified from accumulated other comprehensive income |
(1,546 | ) | — | — | (1,546 | ) | ||||||||||
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Net current period other comprehensive income (loss) |
(3,148 | ) | — | (2,568 | ) | (5,716 | ) | |||||||||
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|
|
|||||||||
Ending balance |
$ | 7,887 | $ | (891 | ) | $ | (1,275 | ) | $ | 5,721 | ||||||
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The following tables present changes in accumulated other comprehensive income, net of tax, by component for the nine months ended September 30, 2015 and 2014:
Nine Months Ended September 30, 2015 | ||||||||||||||||
(In thousands) | Unrealized Gains (Losses) on Available- for-Sale Securities |
Defined Benefit Plan Adjustments |
Foreign Currency Adjustments |
Total | ||||||||||||
Beginning balance |
$ | 8,964 | $ | (5,757 | ) | $ | (3,282 | ) | $ | (75 | ) | |||||
Other comprehensive income (loss) before reclassifications |
(1,497 | ) | — | (3,797 | ) | (5,294 | ) | |||||||||
Amounts reclassified from accumulated other comprehensive income |
(5,080 | ) | 211 | — | (4,869 | ) | ||||||||||
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|
|
|
|
|
|
|||||||||
Net current period other comprehensive income (loss) |
(6,577 | ) | 211 | (3,797 | ) | (10,163 | ) | |||||||||
|
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|
|
|
|
|
|
|||||||||
Ending balance |
$ | 2,387 | $ | (5,546 | ) | $ | (7,079 | ) | $ | (10,238 | ) | |||||
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|
|
Nine Months Ended September 30, 2014 | ||||||||||||||||
(In thousands) | Unrealized Gains (Losses) on Available- for-Sale Securities |
Defined Benefit Plan Adjustments |
Foreign Currency Adjustments |
Total | ||||||||||||
Beginning balance |
$ | 10,737 | $ | (891 | ) | $ | 907 | $ | 10,753 | |||||||
Other comprehensive income (loss) before reclassifications |
1,316 | — | (2,182 | ) | (866 | ) | ||||||||||
Amounts reclassified from accumulated other comprehensive income |
(4,166 | ) | — | — | (4,166 | ) | ||||||||||
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|
|
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|
|
|||||||||
Net current period other comprehensive income (loss) |
(2,850 | ) | — | (2,182 | ) | (5,032 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
$ | 7,887 | $ | (891 | ) | $ | (1,275 | ) | $ | 5,721 | ||||||
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The following tables present the details of reclassifications out of accumulated other comprehensive income for the three months ended September 30, 2015 and 2014:
(In thousands) | Three Months Ended September 30, 2015 | |||||
Details about Accumulated Other Comprehensive Income Components |
Amount Reclassified from Accumulated Other Comprehensive Income |
Affected Line Item in the Statement Where Net Income Is Presented |
||||
Unrealized gains (losses) on available-for-sale securities: |
||||||
Net realized gain on sales of securities |
$ | 2,098 | Net realized investment gain | |||
Impairment expense |
(37 | ) | Net realized investment gain | |||
Defined benefit plan adjustments – actuarial losses |
(103 | ) | (1) | |||
|
|
|||||
Total reclassifications for the period, before tax |
1,958 | |||||
Tax (expense) benefit |
(772 | ) | ||||
|
|
|||||
Total reclassifications for the period, net of tax |
$ | 1,186 | ||||
|
|
(1) | Included in the computation of net periodic pension cost. See Note 3 of Notes to Consolidated Financial Statements. |
(In thousands) | Three Months Ended September 30, 2014 | |||||
Details about Accumulated Other Comprehensive Income Components |
Amount Reclassified from Accumulated Other Comprehensive Income |
Affected Line Item in the Statement Where Net Income Is Presented |
||||
Unrealized gains (losses) on available-for-sale securities: |
||||||
Net realized gain on sales of securities |
$ | 2,565 | Net realized investment gain | |||
Impairment expense |
(30 | ) | Net realized investment gain | |||
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Total reclassifications for the period, before tax |
2,535 | |||||
Tax (expense) benefit |
(989 | ) | ||||
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Total reclassifications for the period, net of tax |
$ | 1,546 | ||||
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The following tables present the details of reclassifications out of accumulated other comprehensive income for the nine months ended September 30, 2015 and 2014:
(In thousands) | Nine Months Ended September 30, 2015 | |||||
Details about Accumulated Other Comprehensive Income Components |
Amount Reclassified from Accumulated Other Comprehensive Income |
Affected Line Item in the Statement Where Net Income Is Presented |
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Unrealized gains (losses) on available-for-sale securities: |
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Net realized gain on sales of securities |
$ | 8,438 | Net realized investment gain | |||
Impairment expense |
(110 | ) | Net realized investment gain | |||
Defined benefit plan adjustments – actuarial losses |
(306 | ) | (1) | |||
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Total reclassifications for the period, before tax |
8,022 | |||||
Tax (expense) benefit |
(3,153 | ) | ||||
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Total reclassifications for the period, net of tax |
$ | 4,869 | ||||
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(1) | Included in the computation of net periodic pension cost. See Note 3 of Notes to Consolidated Financial Statements. |
(In thousands) | Nine Months Ended September 30, 2014 | |||||
Details about Accumulated Other Comprehensive Income Components |
Amount Reclassified from Accumulated Other Comprehensive Income |
Affected Line Item in the Statement Where Net Income Is Presented |
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Unrealized gains (losses) on available-for-sale securities: |
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Net realized gain on sales of securities |
$ | 6,895 | Net realized investment gain | |||
Impairment expense |
(64 | ) | Net realized investment gain | |||
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Total reclassifications for the period, before tax |
6,831 | |||||
Tax (expense) benefit |
(2,665 | ) | ||||
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Total reclassifications for the period, net of tax |
$ | 4,166 | ||||
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The following table presents the tax effects related to the change in each component of other comprehensive income for the three months ended September 30, 2015 and 2014:
Three Months Ended September 30, 2015 |
Three Months Ended September 30, 2014 |
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(In thousands) | Before-Tax Amount |
Tax (Expense) Benefit |
Net-of-Tax Amount |
Before-Tax Amount |
Tax (Expense) Benefit |
Net-of-Tax Amount |
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Unrealized gains (losses) on available-for-sale securities |
$ | (4,974 | ) | $ | 1,940 | $ | (3,034 | ) | $ | (2,626 | ) | $ | 1,024 | $ | (1,602 | ) | ||||||||
Reclassification adjustment for amounts included in net income |
(1,958 | ) | 772 | (1,186 | ) | (2,535 | ) | 989 | (1,546 | ) | ||||||||||||||
Foreign currency translation adjustment |
(1,351 | ) | — | (1,351 | ) | (2,568 | ) | — | (2,568 | ) | ||||||||||||||
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Total Other Comprehensive Income (Loss) |
$ | (8,283 | ) | $ | 2,712 | $ | (5,571 | ) | $ | (7,729 | ) | $ | 2,013 | $ | (5,716 | ) | ||||||||
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The following table presents the tax effects related to the change in each component of other comprehensive income for the nine months ended September 30, 2015 and 2014:
Nine Months Ended September 30, 2015 |
Nine Months Ended September 30, 2014 |
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(In thousands) | Before-Tax Amount |
Tax (Expense) Benefit |
Net-of-Tax Amount |
Before-Tax Amount |
Tax (Expense) Benefit |
Net-of-Tax Amount |
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Unrealized gains (losses) on available-for-sale securities |
$ | (2,454 | ) | $ | 957 | $ | (1,497 | ) | $ | 2,157 | $ | (841 | ) | $ | 1,316 | |||||||||
Reclassification adjustment for amounts included in net income |
(8,022 | ) | 3,153 | (4,869 | ) | (6,831 | ) | 2,665 | (4,166 | ) | ||||||||||||||
Foreign currency translation adjustment |
(3,797 | ) | — | (3,797 | ) | (2,182 | ) | — | (2,182 | ) | ||||||||||||||
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Total Other Comprehensive Income (Loss) |
$ | (14,273 | ) | $ | 4,110 | $ | (10,163 | ) | $ | (6,856 | ) | $ | 1,824 | $ | (5,032 | ) | ||||||||
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The following tables present information about the reported sales and gross profit of our reportable segments for the three and nine months ended September 30, 2015 and 2014. Asset information by reportable segment is not reported, since we do not produce such information internally.
Three Months Ended | ||||||||||||||||
September 30, 2015 | September 30, 2014 | |||||||||||||||
(In thousands) | Sales | Gross Profit | Sales | Gross Profit | ||||||||||||
Carrier Networks |
$ | 131,273 | $ | 55,796 | $ | 132,972 | $ | 61,687 | ||||||||
Enterprise Networks |
26,805 | 14,853 | 29,920 | 16,570 | ||||||||||||
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Total |
$ | 158,078 | $ | 70,649 | $ | 162,892 | $ | 78,257 | ||||||||
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Nine Months Ended | ||||||||||||||||
September 30, 2015 | September 30, 2014 | |||||||||||||||
(In thousands) | Sales | Gross Profit | Sales | Gross Profit | ||||||||||||
Carrier Networks |
$ | 382,684 | $ | 160,354 | $ | 394,589 | $ | 191,093 | ||||||||
Enterprise Networks |
78,367 | 44,104 | 91,436 | 51,751 | ||||||||||||
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Total |
$ | 461,051 | $ | 204,458 | $ | 486,025 | $ | 242,844 | ||||||||
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The table below presents sales information by product category for the three and nine months ended September 30, 2015 and 2014:
Three Months Ended September 30, |
Nine Months Ended September 30, |
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(In thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Carrier Systems |
$ | 111,044 | $ | 113,950 | $ | 330,522 | $ | 342,327 | ||||||||
Business Networking |
39,127 | 39,746 | 108,718 | 119,634 | ||||||||||||
Loop Access |
7,907 | 9,196 | 21,811 | 24,064 | ||||||||||||
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Total |
$ | 158,078 | $ | 162,892 | $ | 461,051 | $ | 486,025 | ||||||||
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The table below presents subcategory revenues for the three and nine months ended September 30, 2015 and 2014:
Three Months Ended September 30, |
Nine Months Ended September 30, |
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(In thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Core Products |
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Broadband Access (included in Carrier Systems) |
$ | 94,116 | $ | 96,084 | $ | 279,656 | $ | 285,920 | ||||||||
Optical (included in Carrier Systems) |
13,733 | 13,686 | 42,669 | 42,308 | ||||||||||||
Internetworking (included in Business Networking) |
38,123 | 38,630 | 105,440 | 116,562 | ||||||||||||
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Subtotal |
145,972 | 148,400 | 427,765 | 444,790 | ||||||||||||
Legacy Products |
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HDSL (does not include T1) (included in Loop Access) |
7,397 | 8,400 | 20,499 | 22,075 | ||||||||||||
Other products (excluding HDSL) |
4,709 | 6,092 | 12,787 | 19,160 | ||||||||||||
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Subtotal |
12,106 | 14,492 | 33,286 | 41,235 | ||||||||||||
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Total |
$ | 158,078 | $ | 162,892 | $ | 461,051 | $ | 486,025 | ||||||||
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A summary of warranty expense and write-off activity for the nine months ended September 30, 2015 and 2014 is as follows:
Nine Months Ended September 30, |
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(In thousands) | 2015 | 2014 | ||||||
Balance at beginning of period |
$ | 8,415 | $ | 8,977 | ||||
Plus: Amounts charged to cost and expenses |
1,905 | 2,770 | ||||||
Less: Deductions |
(1,604 | ) | (3,099 | ) | ||||
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Balance at end of period |
$ | 8,716 | $ | 8,648 | ||||
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