ADTRAN INC, 10-K filed on 2/26/2021
Annual Report
v3.20.4
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2020
Feb. 24, 2021
Jun. 30, 2020
Cover [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2020    
Document Fiscal Year Focus 2020    
Document Fiscal Period Focus FY    
Trading Symbol ADTN    
Entity Registrant Name ADTRAN, Inc.    
Entity Central Index Key 0000926282    
Current Fiscal Year End Date --12-31    
Entity Well-known Seasoned Issuer Yes    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Filer Category Accelerated Filer    
Entity Shell Company false    
Entity Emerging Growth Company false    
Entity Small Business false    
ICFR Auditor Attestation Flag true    
Entity Common Stock, Shares Outstanding   48,337,561  
Entity Public Float     $ 520,493,715
Entity Interactive Data Current Yes    
Entity File Number 000-24612    
Entity Tax Identification Number 63-0918200    
Entity Address, Address Line One 901 Explorer Boulevard    
Entity Address, City or Town Huntsville    
Entity Address, State or Province AL    
Entity Address, Postal Zip Code 35806-2807    
City Area Code 256    
Local Phone Number 963-8000    
Entity Incorporation, State or Country Code DE    
Document Annual Report true    
Document Transition Report false    
Title of 12(b) Security Common Stock, Par Value $0.01    
Security Exchange Name NASDAQ    
Documents Incorporated by Reference

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 12, 2021 are incorporated herein by reference in Part III.

   
v3.20.4
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2020
Dec. 31, 2019
Current Assets    
Cash and cash equivalents $ 60,161 $ 73,773
Restricted cash 18  
Short-term investments (includes $1,731 and $5,201 of available-for-sale securities as of December 31, 2020 and 2019, respectively, reported at fair value) 3,131 33,243
Accounts receivable, less allowance for doubtful accounts of $38 as of December 31, 2020 and 2019 98,827 90,531
Other receivables 21,531 16,566
Inventory, net 125,457 98,305
Prepaid expenses and other current assets 8,293 7,892
Total Current Assets 317,418 320,310
Property, plant and equipment, net 62,399 68,086
Deferred tax assets, net 9,869 7,561
Goodwill 6,968 6,968
Intangibles, net 23,470 27,821
Other non-current assets 25,425 19,883
Long-term investments (includes $43,385 and $32,459 of available-for-sale securities as of December 31, 2020 and 2019, respectively, reported at fair value) 80,130 94,489
Total Assets 525,679 545,118
Current Liabilities    
Accounts payable 49,929 44,870
Bonds payable   24,600
Unearned revenue 14,092 11,963
Accrued expenses and other liabilities 13,609 13,876
Accrued wages and benefits 15,262 13,890
Income tax payable, net 1,301 3,512
Total Current Liabilities 94,193 112,711
Non-current unearned revenue 6,888 6,012
Pension liability 18,664 15,886
Deferred compensation liability 25,866 21,698
Other non-current liabilities 7,124 8,385
Total Liabilities 152,735 164,692
Commitments and contingencies (see Note 17)
Stockholders' Equity    
Common stock, par value $0.01 per share; 200,000 shares authorized; 79,652 shares issued and 48,241 shares outstanding as of December 31, 2020 and 79,652 shares issued and 48,020 shares outstanding as of December 31, 2019 797 797
Additional paid-in capital 281,466 274,632
Accumulated other comprehensive loss (11,639) (16,417)
Retained earnings 781,813 806,702
Less treasury stock at cost: 31,280 and 31,638 shares as of December 31, 2020 and 2019, respectively (679,493) (685,288)
Total Stockholders' Equity 372,944 380,426
Total Liabilities and Stockholders' Equity $ 525,679 $ 545,118
v3.20.4
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 2020
Dec. 31, 2019
Statement Of Financial Position [Abstract]    
Short term investments, available-for-sale securities at fair value $ 1,731 $ 5,201
Allowance for doubtful accounts 38 38
Long Term Investments, available-for-sale securities Fair Value $ 43,385 $ 32,459
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 48,241,000 48,020,000
Treasury stock, shares 31,280,000 31,638,000
v3.20.4
Consolidated Statements of Income (Loss) - USD ($)
shares in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Sales      
Total Sales $ 506,510,000 $ 530,061,000 $ 529,277,000
Cost of Sales      
Total Cost of Sales 288,959,000 310,894,000 325,712,000
Gross Profit 217,551,000 219,167,000 203,565,000
Selling, general and administrative expenses 113,972,000 130,288,000 124,440,000
Research and development expenses 113,287,000 126,200,000 124,547,000
Asset impairments 65,000 3,872,000 0
Gain on contingency   (1,230,000)  
Operating Loss (9,773,000) (39,963,000) (45,422,000)
Interest and dividend income 1,936,000 2,765,000 4,026,000
Interest expense (5,000) (511,000) (533,000)
Net investment gain (loss) 4,850,000 11,434,000 (4,050,000)
Other income (expense), net (3,254,000) 1,498,000 1,286,000
Gain on bargain purchase of a business     11,322,000
Loss Before Income Taxes (6,246,000) (24,777,000) (33,371,000)
Income tax (expense) benefit 8,624,000 (28,205,000) 14,029,000
Net Income (Loss) $ 2,378,000 $ (52,982,000) $ (19,342,000)
Weighted average shares outstanding – basic 47,996 47,836 47,880
Weighted average shares outstanding – diluted 48,288 47,836 47,880
Earnings (loss) per common share – basic $ 0.05 $ (1.11) $ (0.40)
Earnings (loss) per common share – diluted $ 0.05 $ (1.11) $ (0.40)
Network Solutions [Member]      
Sales      
Total Sales $ 438,015,000 $ 455,226,000 $ 458,232,000
Cost of Sales      
Total Cost of Sales 244,226,000 263,677,000 278,929,000
Gross Profit 193,789,000 191,549,000 179,303,000
Services & Support [Member]      
Sales      
Total Sales 68,495,000 74,835,000 71,045,000
Cost of Sales      
Total Cost of Sales 44,733,000 47,217,000 46,783,000
Gross Profit $ 23,762,000 $ 27,618,000 $ 24,262,000
v3.20.4
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Statement Of Income And Comprehensive Income [Abstract]      
Net Income (Loss) $ 2,378 $ (52,982) $ (19,342)
Other Comprehensive Income (Loss), net of tax      
Net unrealized gains (losses) on available-for-sale securities 316 279 (3,130)
Defined benefit plan adjustments (395) (1,185) (3,755)
Foreign currency translation 4,857 (1,480) (4,236)
Other Comprehensive Income (Loss), net of tax 4,778 (2,386) (11,121)
Comprehensive Income (Loss), net of tax $ 7,156 $ (55,368) $ (30,463)
v3.20.4
Consolidated Statements of Changes in Stockholders' Equity - USD ($)
shares in Thousands, $ in Thousands
Total
Cumulative Effect, Period of Adoption, Adjustment [Member]
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings [Member]
Retained Earnings [Member]
Cumulative Effect, Period of Adoption, Adjustment [Member]
Treasury Stock [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Cumulative Effect, Period of Adoption, Adjustment [Member]
Beginning Balance at Dec. 31, 2017 $ 497,911   $ 797 $ 260,515 $ 922,178   $ (682,284) $ (3,295)  
Beginning Balance (ASU 2016-01 [Member]) at Dec. 31, 2017   $ 3,220       $ 3,220      
Beginning Balance (ASU 2014-09 [Member]) at Dec. 31, 2017   278       278      
Beginning Balance, Shares at Dec. 31, 2017     79,652            
Net income (loss) (19,342)       (19,342)        
Other comprehensive income (loss), net of tax (11,121)             (11,121)  
Dividend payments ($0.09 per share) (17,267)       (17,267)        
Dividends accrued on unvested restricted stock units (7)       (7)        
Stock options exercised 1,483       (603)   2,086    
PSUs, RSUs and restricted stock vested (499)       (4,482)   3,983    
Purchase of treasury stock (15,532)           (15,532)    
Stock-based compensation expense 7,155     7,155          
Ending Balance at Dec. 31, 2018 446,279   $ 797 267,670 883,975   (691,747) (14,416)  
Ending Balance (ASU 2016-02 [Member]) at Dec. 31, 2018   $ 4       4      
Ending Balance (ASU 2018-02 [Member]) at Dec. 31, 2018           $ (385)     $ 385
Ending Balance, Shares at Dec. 31, 2018     79,652            
Net income (loss) (52,982)       (52,982)        
Other comprehensive income (loss), net of tax (2,386)             (2,386)  
Dividend payments ($0.09 per share) (17,212)       (17,212)        
Dividends accrued on unvested restricted stock units (10)       (10)        
Stock options exercised 526       (208)   734    
PSUs, RSUs and restricted stock vested (571)       (6,480)   5,909    
Purchase of treasury stock (184)           (184)    
Stock-based compensation expense 6,962     6,962          
Ending Balance at Dec. 31, 2019 380,426   $ 797 274,632 806,702   (685,288) (16,417)  
Ending Balance (ASU 2018-02 [Member]) at Dec. 31, 2019 $ 385                
Ending Balance, Shares at Dec. 31, 2019 79,652   79,652            
Net income (loss) $ 2,378       2,378        
Other comprehensive income (loss), net of tax 4,778             4,778  
Dividend payments ($0.09 per share) (17,334)       (17,334)        
Dividends accrued on unvested restricted stock units (180)       (180)        
Deferred compensation adjustments, net of tax (2,806)           (2,806)    
PSUs, RSUs and restricted stock vested (1,152)       (9,753)   8,601    
Stock-based compensation expense 6,834     6,834          
Ending Balance at Dec. 31, 2020 372,944   $ 797 $ 281,466 $ 781,813   $ (679,493) $ (11,639)  
Ending Balance (ASU 2018-02 [Member]) at Dec. 31, 2020 $ 385                
Ending Balance, Shares at Dec. 31, 2020 79,652   79,652            
v3.20.4
Consolidated Statements of Changes in Stockholders' Equity (Parenthetical) - $ / shares
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Statement Of Stockholders Equity [Abstract]      
Dividend payments $ 0.09 $ 0.09 $ 0.09
v3.20.4
Consolidated Statements of Cash Flows - USD ($)
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Cash flows from operating activities:      
Net Income (Loss) $ 2,378,000 $ (52,982,000) $ (19,342,000)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:      
Depreciation and amortization 16,627,000 17,771,000 15,891,000
Asset impairments 65,000 3,872,000 0
(Gain) loss on investments (5,802,000) (11,434,000) 4,050,000
Stock-based compensation expense 6,834,000 6,962,000 7,155,000
Deferred income taxes (1,356,000) 30,070,000 (17,257,000)
Gain on contingency payment   (1,230,000)  
Gain on life insurance proceeds   (1,000,000)  
Gain on bargain purchase of a business     (11,322,000)
Other 216,000 (33,000) 17,000
Change in operating assets and liabilities:      
Accounts receivable, net (7,269,000) 8,282,000 49,200,000
Other receivables (4,732,000) 20,046,000 (8,522,000)
Inventory, net (25,582,000) 1,252,000 24,192,000
Prepaid expenses and other assets (5,239,000) 2,749,000 10,727,000
Accounts payable, net 4,543,000 (13,494,000) (3,799,000)
Accrued expenses and other liabilities 5,093,000 (4,598,000) (3,226,000)
Income taxes payable (2,294,000) (8,705,000) 7,690,000
Net cash provided by (used in) operating activities (16,518,000) (2,472,000) 55,454,000
Cash flows from investing activities:      
Purchases of property, plant and equipment (6,413,000) (9,494,000) (8,110,000)
Proceeds from disposals of property, plant and equipment 2,000    
Proceeds from sales and maturities of available-for-sale investments 105,100,000 47,268,000 153,649,000
Purchases of available-for-sale investments (56,767,000) (48,578,000) (123,209,000)
Acquisition of note receivable (523,000)    
Life insurance proceeds received   1,000,000  
Acquisition of business   13,000 (22,045,000)
Net cash provided by (used in) investing activities 41,399,000 (9,791,000) 285,000
Cash flows from financing activities:      
Dividend payments (17,334,000) (17,212,000) (17,267,000)
Repayment of bonds payable (24,600,000)    
Tax withholdings related to stock-based compensation settlements (1,043,000)    
Proceeds from stock option exercises   526,000 1,483,000
Purchases of treasury stock   (184,000) (15,532,000)
Payments on long-term debt   (1,000,000) (1,100,000)
Net cash used in financing activities (42,977,000) (17,870,000) (32,416,000)
Net increase (decrease) in cash and cash equivalents (18,096,000) (30,133,000) 23,323,000
Effect of exchange rate changes 4,502,000 (1,598,000) (4,252,000)
Cash, cash equivalents and restricted cash, beginning of year 73,773,000 105,504,000 86,433,000
Cash, cash equivalents and restricted cash, end of year 60,179,000 73,773,000 105,504,000
Supplemental disclosure of cash flow information      
Cash paid during the year for interest 24,000 512,000 534,000
Cash paid during the year for income taxes 7,609,000 9,357,000 4,104,000
Supplemental disclosure of non-cash investing activities      
Purchases of property, plant and equipment included in accounts payable $ 108,000 $ 90,000 62,000
Contingent payment     $ 1,230,000
v3.20.4
Nature of Business
12 Months Ended
Dec. 31, 2020
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Nature of Business

Note 1 – Nature of Business

ADTRAN, Inc. (“ADTRAN” or the “Company”) is a leading global provider of networking and communications platforms and services focused on the broadband access market. Our vision is to enable a fully connected world where the power to communicate is available to everyone, everywhere. Our unique approach, unmatched industry expertise and innovative solutions enable us to address almost any customer need. Our products and services are utilized by a diverse global customer base of network operators that range from those having regional or national reach and operating as telephone or cable television network operators to alternative network providers such as municipalities or utilities, as well as, managed service providers who serve small- and medium-sized businesses and distributed enterprises.

Principles of Consolidation

The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and include the financial position, results of operations, comprehensive income (loss), changes in equity and cash flows of ADTRAN and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP 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 expenses during the reporting period. Our more significant estimates include excess and obsolete inventory reserves, warranty reserves, customer rebates, determination and accrual of the deferred revenue components of multiple element sales agreements, estimated costs to complete obligations associated with deferred revenues and network installations, estimated income tax provision and income tax contingencies, fair value of stock-based compensation, assessment of goodwill and other intangibles for impairment, estimated lives of intangible assets, estimated pension liability, fair value of investments, evaluation of other-than-temporary declines in the value of investments and our allowance for current expected credit losses. Actual amounts could differ significantly from these estimates.

We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts of the novel coronavirus (“COVID-19”) as of December 31, 2020 and through the date of this report. The accounting matters assessed included, but were not limited to, the allowance for doubtful accounts, current estimated credit losses, stock-based compensation, excess and obsolete inventory reserves, carrying value of goodwill, intangibles and other long-lived assets, financial assets, valuation allowances for tax assets and revenue recognition. While there was not a material impact to our consolidated financial statements as of and for the year ended December 31, 2020 resulting from these assessments, future conditions related to the magnitude and duration of the COVID-19 pandemic, as well as other factors, could result in material impacts to our consolidated financial statements in future reporting periods.

Correction of Immaterial Misstatement

During the three months ended June 30, 2019, the Company determined that there was an immaterial misstatement of its excess and obsolete inventory reserves in its previously issued annual and interim financial statements. The Company corrected this misstatement by recognizing a $0.8 million out-of-period adjustment during the three months ended June 30, 2019, which increased its excess and obsolete inventory reserve and cost of goods sold for the period. For the six and twelve months ended June 30, 2019 and December 31, 2019, respectively, the out-of-period adjustment was a cumulative $0.2 million reduction in its excess and obsolete inventory reserve and cost of goods sold. Management determined that the correction of this misstatement was not material to any of its previously issued financial statements on both a quantitative and qualitative basis.

During the first quarter of 2020, it was determined that certain investments held in the Company’s stock for a deferred compensation plan accounted for as a Rabbi trust were incorrectly classified as long-term investments with the fair value of such investments incorrectly marked to market at each period end rather than classified as treasury stock held at historical cost. This plan has been in existence since 2011. The Company corrected this misstatement as an out-of-period adjustment in the three months ended March 31, 2020 and the twelve months ended December 31, 2020, by remeasuring the investment assets to their historical cost basis through the recording of a net investment gain of $1.5 million in the Consolidated Statement of Income (Loss) and then correcting the classification by decreasing the long-term investment balance at its remeasured cost basis of $2.8 million to treasury stock in the Consolidated 2020 Balance Sheet. Management has determined that this misstatement was not material to any of its previously issued financial statements and that correction of the misstatement was not material to the 2020 annual financial results on either a quantitative or qualitative basis.

 

Summary of Significant Accounting Policies

 

Cash and Cash Equivalents

Cash and cash equivalents represent demand deposits, money market funds and short-term investments classified as available-for-sale with original maturities of three months or less. We maintain depository investments with certain financial institutions. As of December 31, 2020, $56.3 million of our cash and cash equivalents, primarily certain domestic money market funds and foreign depository accounts, were in excess of government provided insured depository limits. Although these depository investments may exceed government insured depository limits, we have evaluated the credit worthiness of these applicable financial institutions and determined the risk of material financial loss due to the exposure of such credit risk to be minimal.

Restricted Cash

Restricted cash consists of certain collateral which secures the Company’s performance obligation under a contract with a certain customer.  

Financial Instruments

The carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to the immediate or short-term maturity of these financial instruments. The carrying amount reported for bonds payable was $24.6 million, which was its fair value as of December 31, 2019.

Investments with contractual maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. Despite the long-term nature of their stated contractual maturities, we routinely buy and sell these securities and we believe we have the ability to quickly sell them to the remarketing agent, tender agent or issuer at par value plus accrued interest in the event we decide to liquidate our investment in a particular variable rate demand note. All income generated from these investments is recorded as interest income. We have not recorded any losses relating to variable rate demand notes.

Long-term investments is comprised of deferred compensation plan assets, corporate bonds, municipal fixed-rate bonds, asset-backed bonds, mortgage/agency-backed bonds, U.S. and foreign government bonds, marketable equity securities and other equity investments. Marketable equity securities are reported at fair value as determined by the most recently traded price of the securities at the balance sheet date, although the securities may not be readily marketable due to the size of the available market. Any changes in fair value are recognized in net investment gain (loss). Realized gains and losses on sales of debt securities are computed under the specific identification method and are included in other income (expense). See Note 6 for additional information.

Accounts Receivable

We record accounts receivable at net realizable value. Prior to establishing payment terms for a new customer, we evaluate the credit risk of the customer. Credit limits and payment terms established for new customers are re-evaluated periodically based on customer collection experience and other financial factors. As of December 31, 2020, single customers comprising more than 10% of our total accounts receivable balance included three customers, which accounted for 41.5% of our total accounts receivable. As of December 31, 2019, single customers comprising more than 10% of our total accounts receivable balance included four customers, which accounted for 53.2% of our total accounts receivable.

On January 1, 2020, we adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

Accounting Policy Under Topic 326

We regularly review the need for an allowance for credit losses related to our outstanding accounts receivable balances using the historical loss-rate method as well as assessing asset-specific risks. The assessment of asset-specific risks included the evaluation of relevant available information, from internal and external sources, relating to current conditions that may affect a customer’s ability to pay, such as the customer’s current financial condition or credit rating by geographic location, as provided by a third party and/or by customer, if needed, and overall macro-economic conditions in which the customer operates. Based on this assessment, an allowance for credit loss would be recorded if the Company determined that, based on our historical write-offs, which have been immaterial, and such asset specific risks, there was risk in collectability of the full amount of any accounts receivable.

Accounting Policy Prior to Adoption of Topic 326

Prior to adoption of Topic 326 on January 1, 2020, we regularly reviewed the need to maintain an allowance for doubtful accounts and considered factors such as the age of accounts receivable balances, the current economic conditions that may affect a customer’s ability to pay, significant one-time events impacting these customers and our historical experience. If the financial condition of a customer deteriorated, resulting in an impairment of their ability to make payments, we may have been required to record an allowance for doubtful accounts.

Inventory

Inventory is carried at the lower of cost and estimated net realizable value, with cost being determined using the first-in, first-out method. Standard costs for material, labor and manufacturing overhead are used to value inventory and are updated at least quarterly. We establish reserves for estimated excess and obsolete inventory equal to the difference between the cost of the inventory and the estimated net realizable value of the inventory based on estimated reserve percentages, which consider historical usage, known trends, inventory age and market conditions. When we dispose of excess and obsolete inventories, the related disposals are charged against the inventory reserve. See Note 7 for additional information.

Property, Plant and Equipment

Property, plant and equipment, which is stated at cost, is depreciated using the straight-line method over the estimated useful lives of the assets. We depreciate building and land improvements from five to 39 years, office machinery and equipment from three to seven years, engineering machinery and equipment from three to seven years, and computer software from three to five years. Expenditures for repairs and maintenance are charged to expense as incurred. Major improvements that materially prolong the lives of the assets are capitalized. Gains and losses on the disposal of property, plant and equipment are recorded in operating income (loss). See Note 8 for additional information.

Intangible Assets

Purchased intangible assets with finite lives are carried at cost less accumulated amortization. Amortization is recorded over the estimated useful lives of the respective assets, which is two to 14 years. See Note 11 for additional information.

Impairment of Long-Lived Assets and Intangibles

Long-lived assets used in operations and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the undiscounted cash flows estimated to be generated by the asset are less than the asset’s carrying value. An impairment loss would be recognized in the amount by which the recorded value of the asset exceeds the fair value of the asset, measured by the quoted market price of an asset or an estimate based on the best information available in the circumstances. During the years ended December 31, 2020 and December 31, 2019, we recognized an impairment loss of less than $0.1 million and $3.9 million, respectively, related to the abandonment of certain information technology implementation projects for which we had previously capitalized expenses. There were no impairment losses for long-lived assets during the year ended December 31, 2018, or for intangible assets recognized during the years ended December 31, 2020, 2019 or 2018.

Goodwill

Goodwill represents the excess purchase price over the fair value of net assets acquired. 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 by-pass a qualitative assessment 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 and, in turn, performed a step-1 analysis of goodwill. No impairment charges related to goodwill were recognized during the years ended December 31, 2020, 2019 and 2018.

Liability for Warranty

Our products generally include warranties of 90 days to five years for product defects. We accrue for warranty returns at the time of product shipment based on our historical return rate and 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. 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. The liability for warranty obligations totaled $7.1 million and $8.4 million as of December 31, 2020 and 2019, respectively. These liabilities are included in accrued expenses and other liabilities in the accompanying Consolidated Balance Sheets.

A summary of warranty expense and write-off activity for the years ended December 31, 2020, 2019 and 2018 is as follows:

 

 

 

Year Ended December 31,

 

(In thousands)

 

2020

 

 

2019

 

 

2018

 

Balance at beginning of period

 

$

8,394

 

 

$

8,623

 

 

$

9,724

 

Plus: Amounts charged to cost and expenses

 

 

1,538

 

 

 

4,569

 

 

 

7,392

 

Less: Deductions

 

 

(2,786

)

 

 

(4,798

)

 

 

(8,493

)

Balance at end of period

 

$

7,146

 

 

$

8,394

 

 

$

8,623

 

 

Pension Benefit Plan Obligations

We maintain a defined benefit pension plan covering employees in certain foreign countries. Pension benefit plan obligations are based on various assumptions used by our actuaries in calculating these amounts. These assumptions include discount rates, compensation rate increases, expected return on plan assets, retirement rates and mortality rates. Actual results that differ from the assumptions and changes in assumptions could affect future expenses and obligations. Our net pension liability totaled $18.7 million and $15.9 million as of December 31, 2020 and 2019, respectively.

Stock-Based Compensation

We have two stock incentive plans from which stock options, performance stock units (“PSUs”), restricted stock units (“RSUs”) and restricted stock are available for grant to employees and directors. Costs related to these awards are recognized over their vesting periods. All employee and director stock options granted under our stock option plans have an exercise price equal to the fair market value of the award, as defined in the plan, of the underlying common stock on the grant date. All of our outstanding stock option awards are classified as equity awards and therefore are measured at fair value on their grant date.

Stock-based compensation expense recognized for the years ended December 31, 2020, 2019 and 2018 was approximately $6.8 million, $7.0 million and $7.2 million, respectively. As of December 31, 2020, total unrecognized compensation cost related to non-vested stock options, PSUs, RSUs and restricted stock was approximately $16.7 million, which is expected to be recognized over an average remaining recognition period of 2.9 years. See Note 5 for additional information.

Research and Development Costs

Research and development costs include compensation for engineers and support personnel, contracted services, depreciation and material costs associated with new product development, enhancement of current products and product cost reductions. We continually evaluate new product opportunities and engage in intensive research and product development efforts. Research and development costs totaled $113.3 million, $126.2 million and $124.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Other Comprehensive Income (Loss)

The following table presents changes in accumulated other comprehensive income (loss), net of tax, by components of accumulated other comprehensive income (loss) for the years ended December 31, 2020 2019 and 2018:

 

(In thousands)

 

Unrealized

Gains (Losses)

on Available-

for-Sale

Securities

 

 

Defined

Benefit Plan

Adjustments

 

 

Foreign

Currency

Adjustments

 

 

ASU 2018-02 Adoption (2)

 

 

Total

 

Balance as of December 31, 2017

 

$

2,567

 

 

$

(4,286

)

 

$

(1,576

)

 

$

 

 

$

(3,295

)

Other comprehensive loss before

   reclassifications

 

 

685

 

 

 

(3,890

)

 

 

(4,236

)

 

 

 

 

 

(7,441

)

Amounts reclassified to retained earnings (1)

 

 

(3,220

)

 

 

 

 

 

 

 

 

 

 

 

(3,220

)

Amounts reclassified from accumulated other

   comprehensive loss

 

 

(595

)

 

 

135

 

 

 

 

 

 

 

 

 

(460

)

Balance as of December 31, 2018

 

 

(563

)

 

 

(8,041

)

 

 

(5,812

)

 

 

 

 

 

(14,416

)

Other comprehensive loss before

   reclassifications

 

 

573

 

 

 

(1,717

)

 

 

(1,480

)

 

 

 

 

 

(2,624

)

Amounts reclassified to retained earnings (1)

 

 

 

 

 

 

 

 

 

 

 

385

 

 

 

385

 

Amounts reclassified from accumulated other

   comprehensive loss

 

 

(294

)

 

 

532

 

 

 

 

 

 

 

 

 

238

 

Balance as of December 31, 2019

 

 

(284

)

 

 

(9,226

)

 

 

(7,292

)

 

 

385

 

 

 

(16,417

)

Other comprehensive loss before

   reclassifications

 

 

749

 

 

 

(1,231

)

 

 

4,857

 

 

 

 

 

 

4,375

 

Amounts reclassified from accumulated other

   comprehensive loss

 

 

(433

)

 

 

836

 

 

 

 

 

 

 

 

 

403

 

Balance as of December 31, 2020

 

$

32

 

 

$

(9,621

)

 

$

(2,435

)

 

$

385

 

 

$

(11,639

)

 

 

(1)

With the adoption of ASU 2016-01, the unrealized gains on our equity investments were reclassified to retained earnings.  

 

(2)

With the adoption of ASU 2018-02 on January 1, 2019, stranded tax effects related to the Tax Cuts and Jobs Act of 2017 were reclassified to retained earnings. See Note 14 for additional information.

The following tables present the details of reclassifications out of accumulated other comprehensive income (loss) for the years ended December 31, 2020, 2019 and 2018:

 

(In thousands)

 

For the year ended December 31,

 

 

 

Details about Accumulated Other Comprehensive

Income Components

 

2020

 

 

2019

 

 

2018

 

 

Affected Line Item in the

Statement Where Net Income

Is Presented

Unrealized gains on available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized gain on sales of securities

 

$

585

 

 

$

397

 

 

$

804

 

 

Net investment gain (loss)

Defined benefit plan adjustments – actuarial losses

 

 

(1,212

)

 

 

(771

)

 

 

(196

)

 

(1)

Total reclassifications for the period, before tax

 

 

(627

)

 

 

(374

)

 

 

608

 

 

 

Tax benefit

 

 

224

 

 

 

136

 

 

 

(148

)

 

 

Total reclassifications for the period, net of tax

 

$

(403

)

 

$

(238

)

 

$

460

 

 

 

 

 

(1)

Included in the computation of net periodic pension cost. See Note 15 for additional information.

 

 

The following tables present the tax effects related to the change in each component of other comprehensive income (loss) for the years ended December 31, 2020, 2019 and 2018:

 

 

 

2020

 

(In thousands)

 

Before-Tax

Amount

 

 

Tax

(Expense)

Benefit

 

 

Net-of-Tax

Amount

 

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

 

$

1,012

 

 

$

(263

)

 

$

749

 

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

 

 

(585

)

 

 

152

 

 

 

(433

)

Defined benefit plan adjustments

 

 

(1,784

)

 

 

553

 

 

 

(1,231

)

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

 

 

1,212

 

 

 

(376

)

 

 

836

 

Foreign currency translation adjustment

 

 

4,857

 

 

 

 

 

 

4,857

 

Total Other Comprehensive Income (Loss)

 

$

4,712

 

 

$

66

 

 

$

4,778

 

 

 

 

2019

 

(In thousands)

 

Before-Tax

Amount

 

 

Tax

(Expense)

Benefit

 

 

Net-of-Tax

Amount

 

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

 

$

774

 

 

$

(201

)

 

$

573

 

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

 

 

(397

)

 

 

103

 

 

 

(294

)

Defined benefit plan adjustments

 

 

(2,488

)

 

 

771

 

 

 

(1,717

)

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

 

 

771

 

 

 

(239

)

 

 

532

 

Foreign currency translation adjustment

 

 

(1,480

)

 

 

 

 

 

(1,480

)

Total Other Comprehensive Income (Loss)

 

$

(2,820

)

 

$

434

 

 

$

(2,386

)

 

 

 

2018

 

(In thousands)

 

Before-Tax

Amount

 

 

Tax

(Expense)

Benefit

 

 

Net-of-Tax

Amount

 

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

 

$

926

 

 

$

(241

)

 

$

685

 

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

 

 

(804

)

 

 

209

 

 

 

(595

)

Reclassification adjustment for amounts reclassed to retained earnings related to the adoption of ASU 2016-01

 

 

(4,351

)

 

 

1,131

 

 

 

(3,220

)

Defined benefit plan adjustments

 

 

(5,638

)

 

 

1,748

 

 

 

(3,890

)

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

 

 

196

 

 

 

(61

)

 

 

135

 

Foreign currency translation adjustment

 

 

(4,236

)

 

 

 

 

 

(4,236

)

Total Other Comprehensive Income (Loss)

 

$

(13,907

)

 

$

2,786

 

 

$

(11,121

)

 

Income Taxes

The provision for income taxes has been determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from the difference between financial and tax bases of our assets and liabilities and are adjusted for changes in tax rates and tax laws when such changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

We establish reserves to remove some or all of the tax benefit of any of our tax positions at the time we determine that the positions become uncertain. We adjust these reserves, including any impact on the related interest and penalties, as facts and circumstances change.     

Foreign Currency

Transactions with customers that are denominated in foreign currencies are recorded using the appropriate exchange rates from throughout the year. Assets and liabilities denominated in foreign currencies are remeasured at the balance sheet dates using the closing rates of exchange between those foreign currencies and the functional currency with any transaction gains or losses reported in other income (expense). Our primary exposures to foreign currency exchange rate movements are with our German subsidiary, whose functional currency is the Euro, our Australian subsidiary, whose functional currency is the Australian dollar and our British subsidiary, whose functional currency is the Great British pound. Adjustments resulting from translating financial statements of international subsidiaries are recorded as a component of accumulated other comprehensive income (loss).

Revenue

 

On January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition.  

 

Accounting Policy under Topic 606

Revenue is measured based on the consideration expected to be received in exchange for transferring goods or providing services to a customer and as performance obligations under the terms of the contract are satisfied. Generally, this occurs with the transfer of control of a product to the customer. Review of contracts with customers, for both direct customers and distributors, are performed and assessment made regarding principal versus agent considerations to determine primary responsibility for delivery of performance obligation, presumed inventory risk, and discretion in establishing pricing, when applicable. For transactions where there are multiple performance obligations, individual products and services are accounted for separately if they are distinct (if a product or service is separately identifiable from other items and if a customer can benefit from it on its own or with other resources that are readily available to the customer). The consideration, including any discounts, is allocated between separate products and services based on their stand-alone selling prices. Stand-alone selling prices are determined based on the prices at which the separate products and services are sold and are allocated based on each item’s relative value to the total value of the products and services in the arrangement. For items that are not sold separately, we estimate stand-alone selling prices primarily using the “expected cost plus a margin” approach. Payment terms are generally 30 days in the U.S. and typically longer in many geographic markets outside the U.S. Shipping fees are recorded as revenue and the related cost is included in cost of sales. Sales, value-added and other taxes collected concurrently with revenue-producing activities are excluded from revenue. Costs of obtaining a contract, if material, are capitalized and amortized over the period that the related revenue is recognized if greater than one year. We have elected to account for shipping fees as a cost of fulfilling the related contract. We have also elected to apply the practical expedient related to the incremental costs of obtaining contracts and recognize those costs as an expense when incurred if the amortization period of the assets is one year or less. These costs are included in selling, general and administrative expenses. Capitalized costs with an amortization period greater than one year were immaterial.

Revenue is generated by two reportable segments: Network Solutions and Services & Support.

Network Solutions Segment - Includes hardware products and software defined next-generation virtualized solutions used in service provider or business networks, as well as prior generation products. The majority of the revenue from this segment is from hardware revenue.

Hardware and Software Revenue

Revenue from hardware sales is recognized when control is transferred to the customer, which is generally when the products are shipped. Shipping terms are generally FOB shipping point. Revenue from software license sales are recognized at delivery and transfer of control to the customer. Revenue is recorded net of estimated discounts and rebates using historical trends. Customers are typically invoiced when control is transferred and revenue is recognized. Our products generally include assurance-based warranties of 90 days to five years for product defects, which are accrued at the time products are delivered.

          

 

Services & Support Segment - A complete portfolio of maintenance, network implementation and solutions integration and managed services, which include hosted cloud services and subscription services to complement our Network Solutions segment.

Maintenance Revenue

Our maintenance service periods range from one month to five years. Customers are typically invoiced and pay for maintenance services at the beginning of the maintenance period. We recognize revenue for maintenance services on a straight-line basis over the maintenance period as our customers benefit evenly throughout the contract term and deferred revenues, when applicable, are recorded in current and non-current unearned revenue.

Network Implementation Revenue

We recognize revenue for network implementation, which primarily consists of engineering, execution and enablement services at a point in time when each performance obligation is complete. If we have recognized revenue but have not billed the customer, the right to consideration is recognized as a contract asset that is included in other receivables on the Consolidated Balance Sheet. The contract asset is transferred to accounts receivable when the completed performance obligation is invoiced to the customer.

See Notes 4 and 16 for additional information on reportable segments.

Unearned Revenue

Unearned revenue primarily represents customer billings on maintenance service programs and unearned revenues related to multiple element contracts where we still have contractual obligations to our customers. We currently offer maintenance contracts ranging from one month to five years. Revenue attributable to maintenance contracts is recognized on a straight-line basis over the related contract term. In addition, we provide software maintenance and a variety of hardware maintenance services to customers under contracts with terms up to ten years. When we defer revenue related to multiple performance obligations where we still have contractual obligations, we also defer the related costs. Current deferred costs are included in prepaid expenses and other current assets on the accompanying Consolidated Balance Sheets and totaled $1.1 million and $1.6 million as of December 31, 2020 and 2019, respectively. Non-current deferred costs are included in other non-current assets on the accompanying Consolidated Balance Sheets and totaled less than $0.1 million and $0.1 million as of December 31, 2020 and 2019, respectively.

Earnings (Loss) per Share

Earnings (loss) per common share and earnings (loss) per common share assuming dilution, are based on the weighted average number of common shares and, when dilutive, common equivalent shares outstanding during the year. See Note 19 for additional information.

Business Combinations

The Company records assets acquired, liabilities assumed, contractual contingencies, when applicable, and intangible assets recognized as part of business combinations based on their fair values on the date of acquisition. The excess of the purchase price over the estimated fair values of the net tangible and intangible assets and liabilities assumed or acquired is recorded as goodwill. If the estimated fair values of net tangible and intangible assets acquired and liabilities assumed exceed the purchase price, a bargain purchase gain is recorded. The Company’s estimates of fair value are based on historical experience, industry knowledge, certain information obtained from the management of the acquired company and, in some cases, valuations performed by independent third-party firms. The results of operations of acquired companies are included in the accompanying Consolidated Statements of Income (Loss) since their dates of acquisition. Costs incurred to complete the business combination, such as legal, accounting or other professional fees are charged to selling, general and administrative expenses as incurred.

Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans, which makes changes to and clarifies the disclosure requirements related to defined benefit pension and other postretirement plans. ASU 2018-14 requires additional disclosures related to the reasons for significant gains and losses affecting the benefit obligation and an explanation of any other significant changes in the benefit obligation or plan assets that are not otherwise apparent in other disclosures required by ASC 715. ASU 2018-14 also clarifies the guidance in ASC 715 to require disclosure of the projected benefit obligation (“PBO”) and fair value of plan assets for pension plans with PBOs in excess of plan assets and the accumulated benefit obligation (“ABO”) and fair value of plan assets for pension plans with ABOs in excess of plan assets. ASU 2018-14 was effective for public business entities for fiscal years ending after December 15, 2020. The adoption of this standard did not have a material effect on the disclosures in the consolidation financial statements. See Note 15 for additional information.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which changes the fair value measurement disclosure requirements of ASC 820, Fair Value Measurement. The amendments in this ASU are the result of a broader disclosure project, Concepts Statement No. 8 — Conceptual Framework for Financial Reporting — Chapter 8 — Notes to Financial Statements, which the FASB finalized on August 28, 2018. The FASB used the guidance in the Concepts Statement to improve the effectiveness of ASC 820’s disclosure requirements. ASU 2018-13 provides users of financial statements with information about assets and liabilities measured at fair value in the statement of financial position or disclosed in the notes to the financial statements. More specifically, ASU 2018-13 requires disclosures about the valuation techniques and inputs that are used to arrive at measures of fair value, including judgments and assumptions that are made in determining fair value. In addition, ASU 2018-13 requires disclosures regarding the uncertainty in the fair value measurements as of the reporting date and how changes in fair value measurements affect performance and cash flows. The Company adopted ASU 2018-13 on January 1, 2020, and the adoption of this standard did not have a material effect on our consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.  ASU 2018-15 clarifies certain aspects of ASU 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. Specifically, ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementations costs incurred to develop or obtain internal use software. The Company adopted ASU 2018-15 on January 1, 2020, retrospectively. The adoption of this standard resulted in a reclassification of $5.6 million from property, plant and equipment to other non-current assets for certain previously capitalized costs related to information technology implementation projects that had not yet been placed in service on the Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019. There was no impact to previously reported net cash provided by (used in) operations on the statement of cash flows and no impact to the statements of income (loss) as no portion of the capitalized asset was depreciated in prior periods.

 

The following table illustrates the impact of adoption of ASU 2018-15 on the Consolidated Balance Sheet as of December 31, 2019:

 

 

 

As of December 31, 2019

 

(In thousands)

 

Pre-Adoption

 

 

Effect of Adoption

 

 

As Presented Now

 

Consolidated Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

 

  Property, plant and equipment, net

 

$

73,708

 

 

$

(5,622

)

 

$

68,086

 

  Other non-current assets

 

$

14,261

 

 

$

5,622

 

 

$

19,883

 

 

There was no impact upon adoption of ASU 2018-15 on the Consolidated Statement of Income (Loss) for the year ended December 31, 2019 and the Consolidated Statement of Cash Flows for the year ended December 31, 2019 as outlined in the following tables:

 

 

 

For the year ended December 31, 2019

 

(In thousands)

 

Pre-Adoption

 

 

Effect of Adoption

 

 

As Presented Now

 

Consolidated Statement of Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

  Net income (loss)

 

$

(52,982

)

 

$

 

 

$

(52,982

)

Consolidated Statement of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

  Net cash provided by (used in) operating activities

 

$

(2,472

)

 

$

 

 

$

(2,472

)

 

 

The following table presents the capitalized implementation costs incurred with hosting arrangements, included in other non-current assets on the Consolidated Balance Sheet, as of December 31, 2020:

 

(In thousands)

 

December 31, 2020

 

Implementation costs - hosting arrangements

 

$

13,515

 

Less: accumulated amortization

 

 

 

Implementation costs - hosting arrangements, net

 

$

13,515

 

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing various exceptions, such as the exception to the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items. The amendments in this update also simplify the accounting for income taxes related to income-based franchise taxes and require that an entity reflect enacted tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The Company early adopted ASU 2019-12 on April 1, 2020, which was applied on a prospective basis as if the Company adopted the standard on January 1, 2020. The Company early adopted the standard to take advantage of the simplification of rules for income taxes on intra-period tax allocations. Specifically, the adoption of this standard resulted in the recognition of approximately $0.1 million of tax benefit in other comprehensive income (loss), that otherwise would have been recognized in continuing operations had the intra-period tax allocation been completed. There were no other impacts from this standard on the Consolidated Balance Sheets, Consolidated Statements of Income (Loss) or Consolidated Statements of Cash Flows.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires the measurement and recognition of expected credit losses for financial instruments held at amortized cost. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326 Financial Instruments – Credit Losses, which clarifies that receivables arising from operating leases are not within the scope of the credit losses standard, but rather should be accounted for in accordance with the standard for leases. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments–Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which clarifies the accounting for transfers between classifications of debt securities and clarifies that entities should include expected recoveries on financial assets in the calculation of the current expected credit loss allowance. In addition, renewal options that are not unconditionally cancelable should be considered in the determination of expected credit losses. In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief, which amends ASU 2016-13 to allow companies, upon adoption, to elect the fair value option on financial instruments that were previously recorded at amortized cost if they meet certain criteria. In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, which makes various narrow-scope amendments to the new credit losses standard, such as providing disclosure relief for accrued interest receivables. In March 2020, the FASB issued ASU 2020-03, Codification Improvements to financial instruments, which clarifies various issues related to the new credit losses standard, such as the contractual term used to measure expected credit losses for leases and when to record an allowance for credit losses for financial assets that fall under the scope of ASC 860-20, Transfers and Servicing – Sales of Financial Assets. All of these ASUs were codified as part of Accounting Standards Codifications (“ASC”) Topic 326 and were effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted this standard on January 1, 2020, using a modified-retrospective approach and, therefore, elected to carry forward legacy disclosures for comparative periods and did not adjust the comparative period financial information. Additionally, the Company made an accounting policy election, at the class of financing receivable, not to measure the allowance for credit losses for accrued interest receivables, as the Company writes off the uncollectable accrued interest receivable by reversing any previously recorded interest income in a timely manner (as soon as these amounts are determined to be uncollectable). The adoption of this standard did not have a material effect on our consolidated financial statements. See Note 18 for additional information.

 

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the measurement of goodwill by eliminating step 2 of the goodwill impairment test. Under ASU 2017-04, entities are required to compare the fair value of a reporting unit to its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASU 2017-04 was effective for annual or interim impairment tests performed in fiscal years beginning after December 15, 2019.

The Company adopted ASU 2017-04 on January 1, 2020, and the amendments were applied prospectively. The adoption of this standard did not have a material effect on our consolidated financial statements.

v3.20.4
Cash, Cash Equivalents and Restricted Cash
12 Months Ended
Dec. 31, 2020
Cash And Cash Equivalents [Abstract]  
Cash, Cash Equivalents and Restricted Cash

Note 2 – Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheet that sum to the total of the same such amounts shown in the Consolidated Statement of Cash Flows:

 

(In thousands)

 

December 31, 2020

 

Cash and cash equivalents

 

$

60,161

 

Restricted cash

 

 

18

 

Cash, cash equivalents and restricted cash

 

$

60,179

 

The Company did not have any restricted cash as of December 31, 2019 and 2018. See Note 17 for additional information regarding restricted cash.

v3.20.4
Business Combinations
12 Months Ended
Dec. 31, 2020
Business Combinations [Abstract]  
Business Combinations

Note 3 – Business Combinations

In November 2018, we acquired SmartRG, Inc., for cash consideration. This transaction was accounted for as a business combination. We recorded goodwill of $3.5 million as a result of this acquisition, which represents the excess of the purchase price over the fair value of net assets acquired and liabilities assumed. The financial results of this acquisition are included in the consolidated financial statements since the date of acquisition. The revenues are included in the Subscriber Solutions & Experience category within the Network Solutions and Services & Support reportable segments.  

Contingent liabilities with a fair value totaling $1.2 million were recognized at the acquisition date. The required milestones were not achieved and therefore, a gain of $1.2 million was recognized upon the reversal of these liabilities during the second quarter of 2019.

An escrow in the amount of $2.8 million was set up at the acquisition date to fund post-closing working capital settlements and to satisfy indemnity obligations to the Company arising from any inaccuracy or breach of representations, warranties, covenants, agreements or obligations of the sellers. The escrow was subject to arbitration. In December 2019, $1.3 million of the $2.8 million was released from the escrow account pursuant to the agreement and the remaining balance was released in December 2020.

 

In March 2018, we acquired Sumitomo Electric Lightwave Corp.’s (SEL) North American EPON business and entered into a technology license and OEM supply agreement with Sumitomo Electric Industries, Ltd. (SEI). We recorded a bargain purchase gain of $11.3 million during the first quarter of 2018, net of income taxes, which was subject to customary working capital adjustments between the parties. This transaction was accounted for as a business combination. The financial results of this acquisition are included in the consolidated financial statements since the date of acquisition. The revenues are included in the Access & Aggregation and Subscriber Solutions & Experience categories within the Network Solutions and Services & Support reportable segments.

 

The Consolidated Statement of Income for the year ended December 31, 2018 includes the following revenue and net loss attributable to SmartRG and Sumitomo since the date of acquisition:

 

(In thousands)

 

March 19, 2018 to

December 31,

2018

 

Revenue

 

$

9,186

 

Net loss

 

$

(1,297

)

 

The following unaudited supplemental pro forma information presents the financial results as if the acquisition of SmartRG and Sumitomo had occurred on January 1, 2017. This unaudited supplemental pro forma information does not purport to be indicative of what would have occurred had the acquisition been completed on January 1, 2018, nor is it indicative of any future results. There were no material, non-recurring adjustments to this unaudited pro forma information.

 

(In thousands)

 

2018

 

Pro forma revenue

 

$

559,050

 

Pro forma net loss

 

$

(33,862

)

 

For the years ended December 31, 2020, 2019 and 2018, we incurred acquisition and integration related expenses and amortization of acquired intangibles of $3.8 million, $5.0 million and $2.9 million, respectively, related to the SmartRG and Sumitomo acquisitions.

v3.20.4
Revenue
12 Months Ended
Dec. 31, 2020
Revenue From Contract With Customer [Abstract]  
Revenue

Note 4 - Revenue

The following is a description of the principal activities from which revenue is generated by reportable segment:

Network Solutions - Includes hardware products and software-defined next-generation virtualized solutions used in service provider or business networks, as well as prior generation products.

Services & Support - Includes maintenance, network implementation, solutions integration and managed services, which include hosted cloud services and subscription services.    

Revenue by Category

 

In addition to reportable segments, revenue is also reported for the following three categories – Access & Aggregation, Subscriber Solutions & Experience and Traditional & Other Products.  

 

The following table disaggregates revenue by reportable segment and revenue category for the year ended December 31, 2020:

 

(In thousands)

 

Network Solutions

 

 

Services & Support

 

 

Total

 

Access & Aggregation

 

$

262,578

 

 

$

50,560

 

 

$

313,138

 

Subscriber Solutions & Experience

 

 

161,824

 

 

 

9,263

 

 

 

171,087

 

Traditional & Other Products

 

 

13,613

 

 

 

8,672

 

 

 

22,285

 

Total

 

$

438,015

 

 

$

68,495

 

 

$

506,510

 

 

The following table disaggregates revenue by reportable segment and revenue category for the year ended December 31, 2019:

 

(In thousands)

 

Network Solutions

 

 

Services & Support

 

 

Total

 

Access & Aggregation

 

$

289,980

 

 

$

58,894

 

 

$

348,874

 

Subscriber Solutions & Experience

 

 

144,651

 

 

 

8,269

 

 

 

152,920

 

Traditional & Other Products

 

 

20,595

 

 

 

7,672

 

 

 

28,267

 

Total

 

$

455,226

 

 

$

74,835

 

 

$

530,061

 

 

The following table disaggregates revenue by reportable segment and revenue category for the year ended December 31, 2018:

 

(In thousands)

 

Network Solutions

 

 

Services & Support

 

 

Total

 

Access & Aggregation

 

$

301,801

 

 

$

57,069

 

 

$

358,870

 

Subscriber Solutions & Experience

 

 

129,067

 

 

 

5,393

 

 

 

134,460

 

Traditional & Other Products

 

 

27,364