<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period from ______ to ______
Commission File Number 0-24612
ADTRAN, INC.
(Exact name of Registrant as specified in its charter)
Delaware 63-0918200
(State of Incorporation) (I.R.S. Employer
Identification No.)
901 Explorer Boulevard, Huntsville, Alabama 35806-2807
(Address of principal executive offices, including zip code)
(256) 963-8000
(Registrant's telephone number, including area code)
---------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock as of the latest practicable date:
Class Outstanding at October 31, 1999
---------------------------- -------------------------------
Common Stock, $.01 Par Value 39,475,864 shares
Page 1 of 17
<PAGE>
ADTRAN, INC.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 1999
Table of Contents
-----------------
Item Page
Number PART I. FINANCIAL INFORMATION Number
- ------ ------
1 Financial Statements (unaudited):
Condensed Balance Sheets as of September 30, 1999 and
December 31, 1998 (audited) 3
Condensed Statements of Income for the three months
and nine months ended September 30, 1999 and 1998 4
Condensed Statements of Cash Flows for the nine
months ended September 30, 1999 and 1998 5
Notes to Condensed Financial Statements 6
2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION
6 Exhibits and Reports on Form 8-K 15
SIGNATURE 16
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADTRAN, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................................. $ 45,144,130 $ 10,009,320
Short-term investments................................................. 15,157,431 40,795,068
Accounts receivable, less allowance for
doubtful accounts of $812,378 and $958,805
in 1999 and 1998 respectively....................................... 63,920,727 46,588,319
Other receivables...................................................... 2,167,338 697,074
Inventory.............................................................. 61,860,145 65,700,576
Prepaid expenses....................................................... 1,199,148 1,354,366
Deferred income taxes.................................................. 2,416,686 2,416,685
------------ ------------
Total current assets......................................... 191,865,605 167,561,408
Property, plant and equipment, less accumulated
depreciation of $37,771,372 and $29,902,941
in 1999 and 1998, respectively......................................... 99,345,256 78,894,317
Other assets................................................................ 220,000 220,000
Long-term investments....................................................... 55,575,079 55,035,000
------------ ------------
$347,005,940 $301,710,725
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................... $ 14,055,758 $ 10,980,097
Accrued salaries....................................................... 4,128,074 1,828,462
Accrued income taxes................................................... 5,961,603 1,060,795
Accrued taxes other than income taxes.................................. 718,758 252,548
Warranty liability..................................................... 1,519,945 1,519,945
Compensated absences................................................... 1,578,961 1,384,802
------------ ------------
Total current liabilities........................................ 27,963,099 17,026,649
Long term liabilities:
Bonds payable.......................................................... 50,000,000 50,000,000
Deferred income taxes.................................................. 3,295,140 3,295,140
------------ ------------
Total liabilities................................................. 81,258,239 70,321,789
------------ ------------
Stockholders' equity:
Common stock, par value $.01 per share
200,000,000 shares authorized: 39,469,794 and
39,423,479 shares issued in 1999 and 1998, respectively............. 394,698 394,235
Additional paid-in capital............................................. 91,342,728 90,640,451
Retained earnings...................................................... 197,547,220 163,570,297
Less treasury stock at cost: 1,120,136 and 1,100,081
shares in 1999 and 1998, respectively............................... (23,536,945) (23,216,047)
------------ ------------
Total stockholders' equity............................................. 265,747,701 231,388,936
------------ ------------
$347,005,940 $301,710,725
============ ============
</TABLE>
See notes to condensed financial statements
3
<PAGE>
ADTRAN, INC.
CONDENSED STATEMENTS OF INCOME
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Sales.................................................... $97,067,399 $77,043,635 $262,736,919 $213,526,321
Cost of sales............................................ 46,604,689 34,734,064 129,485,356 96,364,654
----------- ----------- ------------ ------------
Gross profit................................... 50,462,710 42,309,571 133,251,563 117,161,667
Selling, general and administrative expenses............. 18,353,928 16,022,809 52,357,951 44,300,674
Research and development expenses........................ 10,885,778 9,909,567 30,914,252 27,759,729
----------- ----------- ------------ ------------
Income from operations......................... 21,223,004 16,377,195 49,979,360 45,101,264
Interest expense......................................... (582,667) (582,667) (1,729,000) (1,693,428)
Other income, net........................................ 913,630 1,426,290 3,118,245 4,287,323
----------- ----------- ------------ ------------
Income before income taxes............................... 21,553,967 17,220,818 51,368,605 47,695,159
Provision for income taxes............................... (7,403,779) (5,779,562) (17,391,682) (16,216,354)
----------- ----------- ------------ ------------
Net income..................................... $14,150,188 $11,441,256 $ 33,976,923 $ 31,478,805
=========== =========== ============ ============
Weighted average shares outstanding assuming
dilution (1)............................................. 39,069,099 39,138,763 38,696,373 39,276,989
=========== =========== ============ ============
Earnings per common share assuming dilution (1).......... $ .36 $ .29 $ .88 $ .80
=========== =========== ============ ============
Earnings per common share - basic....................... $ .37 $ .29 $ .89 $ .81
=========== =========== ============ ============
</TABLE>
(1) Assumes exercise of dilutive stock options calculated under the treasury
stock method.
See notes to condensed financial statements
4
<PAGE>
ADTRAN, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Unaudited
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................. $33,976,923 $31,478,805
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation............................................ 7,894,391 6,459,220
Provisions for losses on accounts receivable............... 20,532 (98,110)
Provisions for losses on inventory......................... 2,762,383 3,168,633
(Gain) loss on sale of property, plant and equipment.... (5,000)
(Gain) loss on short-term investments................... 277,227 32,810
Change in operating assets:
Accounts receivable................................ (17,352,940) (7,255,628)
Inventory.......................................... 1,078,048 (24,455,323)
Other receivables.................................. (1,472,804) (423,658)
Prepaid expenses................................... 155,218 (480,170)
Change in operating liabilities:
Accounts payable................................... 3,075,661 7,384,198
Accrued salaries................................... 2,299,612 384,075
Accrued income taxes............................... 4,900,808 (1,617,731)
Accrued taxes other than income taxes.............. 466,210 3,157
Compensated absences............................... 194,159 340,763
Warranty payable................................... 75,000
----------- -----------
Net cash provided by operating activities.................. 38,270,428 14,996,041
----------- -----------
Cash flows from investing activities:
Expenditures for property, plant and equipment............. (28,342,791) (14,526,334)
Proceeds from the disposition of property, plant and
equipment............................................... 5,000 10,000
Redemption (Purchase) of short-term investments............ 25,360,410 (18,952,583)
Purchase of long-term investments.......................... (540,079) (5,035,000)
----------- -----------
Net cash used in investing activities...................... (3,517,460) (38,503,917)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock..................... 702,740 38,925
Purchase of treasury stock................................. (320,898) (8,762,625)
----------- -----------
Net cash provided by(used in) financing activities......... 381,842 (8,723,700)
----------- -----------
Net increase (decrease) in cash and cash equivalents....... 35,134,810 (32,231,576)
Cash and cash equivalents, beginning of period.................. 10,009,320 45,340,961
----------- -----------
Cash and cash equivalents, end of period........................ $45,144,130 $13,109,385
=========== ===========
</TABLE>
See notes to condensed financial statements
5
<PAGE>
ADTRAN, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The interim condensed balance sheet of ADTRAN, Inc. (the "Company") at December
31, 1998 has been derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
The accompanying unaudited condensed financial statements of the Company have
been prepared pursuant to the rules and regulations for reporting on Form 10-Q.
Accordingly, certain information and notes required by generally accepted
accounting principles for complete financial statements are not included herein.
In the opinion of management, all adjustments necessary for a fair presentation
of these interim statements have been included and are of a normal and recurring
nature. Operating results for the nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected to occur for the year
ending December 31, 1999. The interim statements should be read in conjunction
with the financial statements and notes thereto included in the Company's latest
Annual Report on Form 10-K.
Certain amounts in the 1998 condensed financial statements and notes there to
have been reclassified to conform with the 1999 presentation.
2. INVENTORY
At September 30, 1999 and December 31, 1998, inventory consisted of the
following:
September 30, December 31,
1999 1998
------------- ------------
Raw materials $33,939,328 $39,787,631
Work in progress 15,174,726 7,935,771
Finished goods 12,746,091 17,977,174
----------- -----------
$61,860,145 $65,700,576
=========== ===========
3. RECENT ACCOUNTING DEVELOPMENTS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires all derivatives to be
measured at fair value and recognized as either assets or liabilities on the
balance sheet. Changes in such fair value are required to be recognized
immediately in net income to the extent the derivatives are not effective as
hedges. SFAS No. 133 is effective for Adtran, Inc. beginning January 1, 2001.
The Company does not currently hold any derivative financial instruments.
6
<PAGE>
4. EARNINGS PER SHARE
A summary of the calculation of basic and diluted earnings per share for the
three months and six months ended September 30, 1999 and 1998 is as follows:
<TABLE>
For the Three Months Ended September 30, 1999
---------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $14,150,188 38,332,793 $0.37
Effect of Dilutive Securities
Stock Options 736,306
Diluted EPS
Income available to common stockholders
+ assumed conversions $14,150,188 39,069,099 $0.36
</TABLE>
<TABLE>
For the Nine Months Ended September 30, 1999
--------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $33,976,923 38,324,349 $.89
Effect of Dilutive Securities
Stock Options 372,024
Diluted EPS
Income available to common stockholders
+ assumed conversions $33,976,923 38,696,373 $.88
</TABLE>
7
<PAGE>
Earnings Per Share (continued)
<TABLE>
For the Three Months Ended September 30, 1998
---------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $11,441,256 38,985,629 $0.29
Effect of Dilutive Securities
Stock Options 153,134
Diluted EPS
Income available to common stockholders
+ assumed conversions $11,441,256 39,138,763 $0.29
For the Nine Months Ended September 30, 1998
--------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $31,478,805 39,100,156 $0.81
Effect of Dilutive Securities
Stock Options 176,833
Diluted EPS
Income available to common stockholders
+ assumed conversions $31,478,805 39,276,989 $0.80
</TABLE>
5. Segment Information
The Company operates two reportable segments - (1) the Carrier Network Division
(formerly Telco) and (2) the Enterprise Network Division (formerly Customer
Premise Equipment "CPE"). The Company evaluates the performance of its segments
based on gross profit; therefore, selling, general and administrative expenses,
8
<PAGE>
as well as research and development expenses, interest income/expense, and the
provision for taxes are reported on an entity wide basis only. There are no
intersegment revenues.
The table below presents information about the reported sales and gross profit
of the Company for the three months and nine months ended September 30, 1999 and
1998. Asset information by reportable segment is not reported since the Company
does not produce such information internally.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1999 September 30, 1999
<S> <C> <C> <C> <C>
Sales Gross Profit Sales Gross Profit
----------------------- ----------------------- ------------------------- -------------------
Carrier Network $61,359,332 $28,859,624 $165,635,435 $76,206,569
Enterprise Network 35,708,067 21,603,086 97,101,484 57,044,994
----------------------- ----------------------- ------------------------- ------------------
Total $97,067,399 $50,462,710 $262,736,919 $133,251,563
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998
Sales Gross Profit Sales Gross Profit
----------------------- ----------------------- ------------------------- -------------------
Carrier Network $44,733,699 $23,227,954 $125,110,868 $65,095,022
Enterprise Network 32,309,936 19,081,617 88,415,453 52,066,645
----------------------- ----------------------- ------------------------- -------------------
Total $77,043,635 $42,309,571 $213,526,321 $117,161,667
</TABLE>
The following table presents sales information by geographic area for the three
months and nine months ended September 30, 1999 and 1998.
<TABLE>
Sales Three Months Ended Nine Months Ended
September 30, 1999 September 30, 1998 September 30, 1999 September 30, 1998
----------------------- ----------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
United States $94,701,128 $74,931,625 $255,789,104 $205,655,363
Foreign 2,366,271 2,112,010 6,947,815 7,870,958
----------------------- ----------------------- ----------------------- -----------------------
Total $97,067,399 $77,043,635 $262,736,919 $213,526,321
</TABLE>
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
Overview
ADTRAN, Inc. (the "Company") designs, develops, manufactures, markets and
services a broad range of high speed digital transmission products utilized by
telephone companies ("Telcos") and corporate end-users to implement advanced
digital data services over existing telephone networks. The Company currently
sells its products to Telcos, including all Regional Bell Operating Companies
(what is now referred to by the Company as the Carrier Network Division), and to
private end-users in the Enterprise Network Division (formerly known as the
Customer Premises Equipment or CPE market).
The Company's sales have increased each year due primarily to increases in the
number of units sold to both new and existing customers. These annual sales
increases reflect the Company's strategy of increasing unit volume and market
share through the introduction of succeeding generations of products having
lower selling prices and increased functionality as compared to the prior
generation of a product and to the products of competitors. An important part of
the Company's strategy is to engineer the reduction of the product cost of each
succeeding product generation and then to lower the product's price based on the
cost savings achieved. As a part of this strategy, the Company seeks in most
instances to be a low-cost, high-quality provider of products in its markets.
The Company attributes a large measure of its success to its ability to
initially design products with a view to their subsequent re-design, allowing
efficient enhancements of the product in each succeeding product generation.
This strategy enables the Company to sell succeeding generations of products to
existing customers while increasing its market share by selling these enhanced
products to new customers.
The Company intends to retain all earnings for use in the development of its
business and does not anticipate paying any cash dividends in the foreseeable
future.
When used in this Form 10-Q, the words "believe," "anticipate," "think,"
"intend," "will be," and similar expressions identify forward-looking
statements. Such statements are subject to certain risks and uncertainties which
could cause actual results to differ materially from those projected. Readers
are cautioned not to place undue reliance on these forward-looking statements
which speak only as of the date hereof. Readers are also urged to carefully
review and consider the various disclosures made by the Company which attempt to
advise interested parties of the factors which affect the Company's business,
including the disclosures made in other periodic reports on Forms 10-K, 10-Q and
8-K filed with the Securities and Exchange Commission.
10
<PAGE>
Results of Operations - Three Months and NINE months Ended September 30,
1999 Compared to Three Months and NINE months Ended September 30, 1998
SALES
The Company's sales increased 26.0% from $77,043,635 in the three months ended
September 30, 1998 to $97,067,399 in the three months ended September 30, 1999.
Sales increased 23.0% from $213,526,321 in the nine months ended September 30,
1998 to $262,736,919 in the nine months ended September 30, 1999. The increased
sales resulted from an increase in sales volume to existing customers and from
increased market penetration. The financial effect of the increase in overall
unit volume was offset somewhat by lower unit selling prices for many of the
Company's products. Carrier Network sales increased from $44,733,699 in the
three months ended September 30, 1998 to $61,359,332 in the three months ended
September 30, 1999 and increased from $125,110,868 in the nine months ended
September 30, 1998 to $165,635,435 in the nine months ended September 30, 1999.
The increase in Carrier Network sales for the 1999 period resulted primarily
from increased sales of High bit-rate Digital Subscriber Line ("HDSL") products.
Carrier Network sales as a percentage of total sales increased from 58.1% in the
three months ended September 30, 1998 to 63.2% in the three months ended
September 30, 1999 and increased from 58.6% in the nine months ended September
30, 1998 to 63.0% in the nine months ended September 30, 1999. Enterprise
Network sales increased slightly from $32,309,936 in the three months ended
September 30, 1998 to $35,708,067 in the three months ended September 30, 1999,
as a result of increased sales of "T-1" products, (a digital transmission link
with a capacity of 1.544 Megabits per second used predominantly in North
America). Sales of Enterprise Network products increased 9.8% from $88,415,453
in the nine months ended September 30,1998 to $97,101,484 in the nine months
ended September 30, 1999. As a percentage of total sales, Enterprise Network
sales decreased from 41.9% in the three months ended September 30, 1998 to 35.8%
in the three months ended September 30, 1999 and decreased from 41.4% in the
nine months ended September 30, 1998 to 37.0% in the nine months ended September
30, 1999.
COST OF SALES
Cost of sales increased 34.2% from $34,734,064 in the three months ended
September 30, 1998 to $46,604,689 in the three months ended September 30, 1999
and increased 34.4% from $96,364,654 in the nine months ended September 30, 1998
to $129,485,356 in the nine months ended September 30, 1999. As a percentage of
sales, cost of sales increased from 45.1% in the three months ended September
30, 1998 to 48.0% in the three months ended September 30, 1999 and increased
from 45.1% in the nine months ended September 30, 1998 to 49.3% in the nine
months ended September 30, 1999. An important part of the Company's strategy is
to reduce the product cost of each succeeding product generation and then to
lower the product's price based on the cost savings achieved. This strategy
sometimes results in variations in the Company's gross profit margin due to
timing differences between the recognition of cost reductions and the lowering
of product selling prices. In view of the rapid pace of new product
introductions by the Company, this strategy may result in variations in gross
profit margins that, for any particular financial period, can be difficult to
predict.
11
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 14.5% from $16,022,809 in
the three months ended September 30, 1998 to $18,353,928 in the three months
ended September 30, 1999 and increased 18.2% from $44,300,674 in the nine months
ended September 30, 1998 to $52,357,951 in the nine months ended September 30,
1999. The increase was due to additional sales and support expenditures
necessary as a result of the Company's increased sales. Selling, general and
administrative expenses as a percentage of sales decreased from 20.8% in the
three months ended September 30, 1998 to 18.9% in the three months ended
September 30, 1999 and decreased slightly from 20.8% in the nine months ended
September 30, 1998 to 19.9% in the nine months ended September 30, 1999. Sales
and support organization expansion, which resulted in increased costs during the
quarter, will continue because they are necessary to position the Company to
accumulate market share and maintain growth over the longer term.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased 9.9% from $9,909,567 in the three
months ended September 30, 1998 to $10,885,778 in the three months ended
September 30, 1999 and increased 11.4% from $27,759,729 in the nine months ended
September 30, 1998 to $30,914,252 in the nine months ended September 30, 1999.
The increase was due to increased investment in product development and product
cost reduction through engineering. As a percentage of sales, research and
development expenses decreased from 12.9% in the three months ended September
30, 1998 to 11.2% in the three months ended September 30, 1999 and decreased
from 13.0% in the nine months ended September 30, 1998 to 11.8% in the nine
months ended September 30, 1999. The Company will continue to invest in these
product development activities because they are necessary to position the
Company to accumulate market share and maintain growth over the longer term.
INTEREST EXPENSE
Interest expense was $582,667 for both the three months ended September 30, 1998
and the three months ended September 30, 1999, but increased 2.1% from
$1,693,428 in the nine months ended September 30, 1998 to $1,729,000 in the nine
months ended September 30, 1999.
NET INCOME
As a result of the above factors, net income increased 23.7% from $11,441,256 in
the three months ended September 30, 1998 to $14,150,188 in the three months
ended September 30, 1999 and increased 7.9% from $31,478,805 in the nine months
ended September 30, 1998 to $33,976,923 in the nine months ended September 30,
1999. As a percentage of sales, net income decreased slightly from 14.9% in the
three months ended September 30, 1998 to 14.6% in the three months ended
September 30, 1999 and decreased from 14.7% in the nine months ended September
30, 1998 to 12.9% in the nine months ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company is continuing a project to expand its facilities in Huntsville in
several phases over the next two years at a cost of approximately $150,000,000,
of which $59,032,332 had been incurred as of September 30, 1999. The debt
associated with $50,000,000 of this project was approved for participation in an
incentive program offered by the Alabama State Industrial Development Authority
(the "Authority"). Pursuant to the incentive program, the Authority issued
$50,000,000 of its taxable revenue bonds (the "Amended and Restated Bond"), and
loaned the proceeds from the sale of the Amended and Restated Bond to the
Company. The Company will
12
<PAGE>
make payments to the Authority in amounts necessary to pay the principal of and
interest on the Amended and Restated Bond, which matures on January 1, 2020.
The Company's working capital position increased 8.9% from $150,534,759 as of
December 31, 1998 to $163,902,506 as of September 30, 1999 due to cash generated
from operations. The Company has used, and expects to continue to use, the cash
generated from operations for working capital and other general corporate
purposes, including (i) product development activities to enhance its existing
products and develop new products and (ii) expansion of sales and marketing
activities. Inventory decreased 5.8% from December 31, 1998 to September 30,
1999.
On March 31, 1997, the Board of Directors authorized the Company to re-purchase
up to 1,000,000 shares of the Company's outstanding common stock. In October
1998, the Board approved the re-purchase of an additional 2,000,000 shares. As
of September 30, 1999, the Company had re-purchased 1,120,136 shares of its
common stock at a total cost of $23,536,945.
Capital expenditures totaling $23,095,854 for the year ended December 31, 1998
and $28,342,791 in the first nine months of 1999 were used to expand the
Company's headquarters and to purchase equipment.
At September 30, 1999, the Company's cash on hand of $45,144,130, short-term
investments of $15,157,431 and $10,000,000 available under a bank line of credit
placed the Company's potential cash availability at $70,301,561, of which a
portion is being used to expand the Company's facilities under the incentive
program described above. The Company's $10,000,000 bank line of credit bears
interest at the rate of 87.5 basis points over the 30 day London inter-bank
offered rate and expires in May 2000.
The Company intends to finance its operations in the future with cash flow from
operations, amounts available under the bank line of credit, remaining borrowed
taxable revenue bond proceeds, and possible additional public financing. These
available sources of funds are expected to be adequate to meet the Company's
operating and capital needs for the foreseeable future.
YEAR 2000 READINESS DISCLOSURE
The Company conducted a year 2000 program to assess and mitigate the impact of
the year 2000 issue. The Company believes that all critical information
technology and non-information technology hardware and software systems are year
2000 compliant, including, but not limited to, business systems, network
infrastructure, manufacturing equipment, engineering tools, customer products
and plant facilities.
The Company has completed the inventory and assessment phases of its year 2000
program. The Company's operations are not dependent upon older legacy source
code or mainframe computers as is often the case with systems with significant
year 2000 issues. Therefore, there is little or no date-related code remediation
or conversion necessary to maintain normal business activities. The primary
remaining effort in the year 2000 program is to review and validate the
conclusions reached by the Company's year 2000 assessment. The Company does not
believe that costs associated with completing the year 2000 compliance program
will result in a material expense to the Company.
In July of 1998, the Company completed the implementation of new business
software and hardware that the Company believes is year 2000 compliant. The
Company upgraded some secondary systems that were identified to contain minor
year 2000 issues. Likewise, testing and year 2000 simulations were performed on
all Company systems to verify date processing capabilities. As of September 30,
1999, all critical systems had been tested and are believed to be year 2000
compliant.
13
<PAGE>
The Company has also contacted and assessed its suppliers and subcontractors
regarding the year 2000 issue and concluded that those suppliers and
subcontractors, which have a material relationship with the Company, are not
expected to cause significant business interruptions to occur as a result of the
year 2000 issue. The Company's assessment of suppliers has identified those most
critical to the Company's operations and a contingency plan has been drafted to
handle issues in the future. The Company's primary external subcontractors are
conducting their own independent internal year 2000 programs and are being
assisted by the Company with their year 2000 preparations where appropriate.
The Company believes that its products are year 2000 compliant. Company
engineers have confirmed product design specifications and have verified product
date processing functionality. Customers are provided individual responses to
product inquiries and the Company has posted detailed year 2000 information on
its web site. The Company does not believe that it will have any material
exposure to contingencies related to the year 2000 issue for products it has
sold.
Based on information presently available, the Company does not anticipate any
material impact on its financial condition or results of operations from the
effect of the year 2000 issue on its internal systems or on those systems of its
major suppliers and customers. However, there can be no guarantee that the
systems of other companies on which the Company relies will be timely converted,
or that a failure to convert by another company would not have a material
adverse impact on the Company. Furthermore, despite the Company's assessments,
there can be no guarantee that there will not be a year 2000 problem arising
from the Company's own system that may have a material adverse impact on the
Company.
As of September 30, 1999 the Company had spent approximately $170,000 for year
2000 compliance. The Company anticipates spending an additional $15,000 during
1999. The Company does not separately track these internal costs incurred for
the year 2000 issue. However, this cost consisted primarily of the related
payroll costs of its information systems group.
14
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are being filed with this report.
Financial Data Schedule
(b) Reports on Form 8-K. None
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADTRAN, INC.
(Registrant)
Date: November 13, 1999 /s/ John R. Cooper
------------------
John R. Cooper
Vice President - Finance and
Chief Financial Officer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND
THE CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 45,144,130
<SECURITIES> 15,157,431
<RECEIVABLES> 64,733,105
<ALLOWANCES> 812,378
<INVENTORY> 61,860,145
<CURRENT-ASSETS> 191,865,605
<PP&E> 137,116,628
<DEPRECIATION> 37,771,372
<TOTAL-ASSETS> 347,005,940
<CURRENT-LIABILITIES> 27,963,099
<BONDS> 50,000,000
0
0
<COMMON> 394,698
<OTHER-SE> 265,353,003
<TOTAL-LIABILITY-AND-EQUITY> 347,005,940
<SALES> 97,067,399
<TOTAL-REVENUES> 97,067,399
<CGS> 46,604,689
<TOTAL-COSTS> 46,604,689
<OTHER-EXPENSES> 29,239,706
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 582,667
<INCOME-PRETAX> 21,553,967
<INCOME-TAX> 7,403,779
<INCOME-CONTINUING> 14,150,188
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,150,188
<EPS-BASIC> .37
<EPS-DILUTED> .36
</TABLE>
