<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 June 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 July 31, 1999
- ------------------------------ ----------------------------
Common Stock, $.01 Par Value 39,425,854.00
Page 1 of 17
<PAGE>
ADTRAN, INC.
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 1999
Table of Contents
-----------------
<TABLE>
<CAPTION>
Item Page
Number PART I. FINANCIAL INFORMATION Number
- ------ ------
<S> <C> <C>
1 Financial Statements (unaudited): 3
Condensed Balance Sheets as of June 30, 1999 and
December 31, 1998 (audited) 3
Condensed Statements of Income for the three months
and six months ended June 30, 1999 and 1998 4
Condensed Statements of Cash Flows for the six
months ended June 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
4 Submission of Matters to a Vote of Security Holders 15
6 Exhibits and Reports on Form 8-K 16
SIGNATURE 17
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADTRAN, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 37,599,951 $ 10,009,320
Short-term investments..................................... 24,132,108 40,795,068
Accounts receivable, less allowance for
doubtful accounts of $838,050 and $958,805
in 1999 and 1998 respectively........................... 61,247,914 46,588,319
Other receivables.......................................... 1,476,173 697,074
Inventory.................................................. 55,448,469 65,700,576
Prepaid expenses........................................... 1,517,850 1,354,366
Deferred income taxes...................................... 2,416,685 2,416,685
------------ ------------
Total current assets............................. 183,839,150 167,561,408
Property, plant and equipment, less accumulated
depreciation of $35,124,070 and $29,902,941
in 1999 and 1998, respectively............................. 93,193,507 78,894,317
Other assets.................................................... 220,000 220,000
Long-term investments........................................... 55,734,945 55,035,000
------------ ------------
$332,987,602 $301,710,725
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 17,928,560 $ 10,980,097
Accrued salaries........................................... 4,502,326 1,828,462
Accrued income taxes....................................... 2,710,999 1,060,795
Accrued taxes other than income taxes...................... 477,605 252,548
Warranty liability......................................... 1,519,945 1,519,945
Compensated absences....................................... 1,594,900 1,384,802
------------ ------------
Total current liabilities............................ 28,734,335 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..................................... 82,029,475 70,321,789
------------ ------------
Stockholders' equity:
Common stock, par value $.01 per share
200,000,000 shares authorized: 39,440,929 and
39,423,479 shares issued in 1999 and 1998, respectively 394,409 394,235
Additional paid-in capital................................. 90,701,484 90,640,451
Retained earnings.......................................... 183,397,031 163,570,297
Treasury stock at cost: 1,120,081 and 1,100,081 shares
in 1999 and 1998, respectively.......................... (23,534,797) (23,216,047)
------------ ------------
Total stockholders' equity................................. 250,958,127 231,388,936
------------ ------------
$332,987,602 $301,710,725
============ ============
</TABLE>
See notes to condensed financial statements
3
<PAGE>
ADTRAN, INC.
CONDENSED STATEMENTS OF INCOME
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Sales................................................ $88,506,872 $71,155,452 $165,669,520 $136,482,686
Cost of sales........................................ 45,151,016 32,205,894 82,635,552 61,614,431
----------- ----------- ------------ ------------
Gross profit............................... 43,355,856 38,949,558 83,033,968 74,868,255
Selling, general and administrative expenses......... 17,463,138 15,064,329 34,218,521 28,321,919
Research and development expenses.................... 10,362,428 9,443,911 20,059,091 17,822,267
----------- ----------- ------------ ------------
Income from operations..................... 15,530,290 14,441,318 28,756,356 28,724,069
Interest expense..................................... (576,333) (576,333) (1,146,333) (1,110,761)
Other income, net.................................... 1,160,678 1,506,073 2,204,616 2,861,033
----------- ----------- ------------ ------------
Income before income taxes........................... 16,114,635 15,371,058 29,814,639 30,474,341
Provision for income taxes........................... (5,398,403) (5,226,160) (9,987,904) (10,436,792)
----------- ----------- ------------ ------------
Net income................................. $10,716,232 $10,144,898 $ 19,826,735 $ 20,037,549
=========== =========== ============ ============
Weighted average shares outstanding assuming
dilution (1)........................................ 38,552,383 39,431,601 38,482,792 39,500,980
=========== =========== ============ ============
Earnings per common share assuming dilution (1)...... $ .28 $ .26 $ .51 $ .51
=========== =========== ============ ============
Earnings per common share - basic................... $ .28 $ .26 $ .52 $ .51
=========== =========== ============ ============
</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>
Six Months Ended
June 30,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income................................................... $ 19,826,735 $ 20,037,549
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.............................................. 5,246,222 4,054,508
(Gain) loss on sale of property, plant and equipment...... (5,000) 0
(Gain) loss on short-term investments..................... 37,050 0
Change in operating assets:
Accounts receivable.................................. (14,659,595) 3,950,059
Inventory............................................ 10,252,107 (2,453,638)
Other receivables.................................... (780,768) (770,618)
Prepaid expenses..................................... (163,484) (800,921)
Change in operating liabilities:
Accounts payable..................................... 6,948,463 2,782,944
Accrued salaries..................................... 2,673,864 952,186
Accrued income taxes................................. 1,650,204 (2,284,981)
Accrued taxes other than income taxes................ 225,057 79,404
Compensated absences................................. 210,098 266,638
------------ ------------
Net cash provided by operating activities.................... 31,460,953 25,813,130
------------ ------------
Cash flows from investing activities:
Expenditures for property, plant and equipment............... (19,543,744) (8,285,971)
Proceeds from the disposition of property, plant and
equipment................................................. 5,000 10,000
Redemption (purchase) of short-term investments.............. 16,625,910 (25,590,483)
Purchase of long-term investments............................ (699,945) (5,035,000)
------------ ------------
Net cash used in investing activities........................ (3,612,779) (38,901,454)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock....................... 61,207 38,925
Purchase of treasury stock................................... (318,750) (6,752,125)
------------ ------------
Net cash used in financing activities........................ (257,543) (6,713,200)
------------ ------------
Net increase (decrease) in cash and cash equivalents......... 27,590,631 (19,801,524)
Cash and cash equivalents, beginning of period.................... 10,009,320 45,340,961
------------ ------------
Cash and cash equivalents, end of period.......................... $ 37,599,951 $ 25,539,437
============ ============
</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 six months ended June 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.
2. INVENTORY
At June 30, 1999 and December 31, 1998, inventory consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Raw materials $36,477,821 $39,787,631
Work in progress 3,583,551 7,935,771
Finished goods 15,387,097 17,977,174
----------- -----------
$55,448,469 $65,700,576
=========== ===========
</TABLE>
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 June 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended June 30, 1999
----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $10,716,232 38,314,483 $0.28
Effect of Dilutive Securities
Stock Options 0 237,900
Diluted EPS
Income available to common stockholders
+ assumed conversions $10,716,232 38,552,383 $0.28
<CAPTION>
For the Six Months Ended June 30, 1999
--------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $19,826,735 38,320,374 $.52
Effect of Dilutive Securities
Stock Options 0 162,418
Diluted EPS
Income available to common stockholders
+ assumed conversions $19,826,735 38,482,792 $.51
</TABLE>
7
<PAGE>
Earnings Per Share (continued)
<TABLE>
<CAPTION>
For the Three Months Ended June 30, 1998
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $10,144,898 39,284,750 $0.26
Effect of Dilutive Securities
Stock Options 146,852
Diluted EPS
Income available to common stockholders
+ assumed conversions $10,144,898 39,431,601 $0.26
<CAPTION>
For the Six Months Ended June 30, 1998
--------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $20,037,549 39,306,033 $0.51
Effect of Dilutive Securities
Stock Options 194,947
Diluted EPS
Income available to common stockholders
+ assumed conversions $20,037,549 39,500,980 $0.51
</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,
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.
8
<PAGE>
The table below presents information about the reported sales and gross profit
of the Company for the three months and six months ended june 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 Six Months Ended
June 30, 1999 June 30, 1999
Sales Gross Profit Sales Gross Profit
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Carrier Network $56,624,433 $27,704,392 $104,276,102 $52,228,366
Enterprise Network 31,882,439 15,651,464 61,393,418 30,805,602
----------------------------------------------------------------------------------------------
Total $88,506,872 $43,355,856 $165,669,520 $83,033,968
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1998
Sales Gross Profit Sales Gross Profit
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Carrier Network $39,681,156 $21,733,853 $ 80,377,170 $44,097,402
Enterprise Network 31,474,296 17,251,705 56,105,516 30,770,853
----------------------------------------------------------------------------------------------
Total $71,155,452 $38,949,558 $136,482,686 $74,868,255
</TABLE>
The following table presents sales information by geographic area for the three
months and six months ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
Sales Three Months Ended Six Months Ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States $85,364,394 $69,280,207 $161,087,975 $130,723,738
Foreign 2,692,478 1,875,245 4,581,545 5,758,948
------------------------------------------------------------------------------------------------
Total $88,506,872 $71,155,452 $165,669,520 $136,482,686
</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's success to date is attributable in large measure to its
ability to initially design its 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 SIX MONTHS ENDED JUNE 30, 1999 COMPARED
TO THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998
SALES
The Company's sales increased 24.4% from $71,155,452 in the three months ended
June 30, 1998 to $88,506,872 in the three months ended June 30, 1999. Sales
increased 21.4% from $136,482,686 in the six months ended June 30, 1998 to
$165,669,520 in the six months ended June 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 $39,681,156 in the
three months ended June 30, 1998 to $56,624,433 in the three months ended June
30, 1999 and increased from $80,377,170 in the six months ended June 30, 1998
to $104,276,102 in the six months ended June 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 and Digital Data
Services ("DDS") products. Carrier Network sales as a percentage of total
sales increased from 55.8% in the three months ended June 30, 1998 to 64.0% in
the three months ended June 30, 1999 and increased from 58.9% in the six months
ended June 30, 1998 to 62.9% in the six months ended June 30, 1999. Enterprise
Network sales increased slightly from $31,474,296 in the three months ended June
30, 1998 to $31,882,439 in the three months ended June 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 9.4% from $56,105,516 in the six months
ended June 30,1998 to $61,393,418 in the six months ended June 30, 1999. As a
percentage of sales, Enterprise Network sales decreased from 44.0% in the three
months ended June 30, 1998 to 36.0% in the three months ended June 30, 1999 and
decreased from 41.1% in the six months ended June 30, 1998 to 37.1% in the six
months ended June 30, 1999.
COST OF SALES
Cost of sales increased 40.2% from $32,205,894 in the three months ended June
30, 1998 to $45,151,016 in the three months ended June 30, 1999 and increased
34.1% from $61,614,431 in the six months ended June 30, 1998 to $82,635,552 in
the six months ended June 30, 1999. As a percentage of sales, cost of sales
increased from 45.3% in the three months ended June 30, 1998 to 51.0% in the
three months ended June 30, 1999 and increased from 45.1% in the six months
ended June 30, 1998 to 49.9% in the six months ended June 30, 1999. Carrier
Network cost of sales as a percentage of Carrier Network sales increased from
45.23% in the three months ended June 30, 1998 to 51.07% in the three months
ended June 30, 1999. Enterprise Network cost of sales as a percentage of
Enterprise Network sales, increased from 45.19% in the three months ended June
30, 1998 to 50.91% in the three months ended June 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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 16.0% from $15,064,329 in
the three months ended June 30, 1998 to $17,463,138 in the three months ended
June 30, 1999 and increased 20.8% from $28,321,919 in the six months ended June
30, 1998 to $34,218,521 in the six months ended June 30, 1999. The increase
was due to additional sales and support expenditures necessary as a result of
the Company's expanded sales base. Selling, general and administrative expenses
as a percentage of sales decreased from 21.2% in the three months ended June
30, 1998 to 19.7% in the three months ended June 30, 1999 and remained
essentially the same at 20.8% in the six months ended June 30, 1998 and 20.7% in
the six months ended June 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.
11
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased 9.7% from $9,443,911 in the three
months ended June 30, 1998 to $10,362,428 in the three months ended June 30,
1999 and increased 12.6% from $17,822,267 in the six months ended June 30, 1998
to $20,059,091 in the six months ended June 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 13.3% in the three months ended June 30, 1998 to 11.7% in the
three months ended June 30, 1999 and decreased from 13.1% in the six months
ended June 30, 1998 to 12.1% in the six months ended June 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 $576,333 for both the three months ended June 30, 1998 and
the three months ended June 30, 1999, but increased 3.2% from $1,110,761 in the
six months ended June 30, 1998 to $1,146,333 in the six months ended June 30,
1999.
NET INCOME
As a result of the above factors, net income increased slightly from $10,144,898
in the three months ended June 30, 1998 to $10,716,232 in the three months ended
June 30, 1999 and decreased from $20,037,549 in the six months ended June 30,
1998 to $19,826,735 in the six months ended June 30, 1999. As a percentage of
sales, net income decreased from 14.3% in the three months ended June 30, 1998
to 12.1% in the three months ended June 30, 1999 and decreased from 14.7% in the
six months ended June 30, 1998 to 12.0% in the six months ended June 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 $58,269,314 had been incurred as of June 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 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 slightly from $150,534,759 as
of December 31, 1998 to $155,104,816 as of June 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 18.5% from December 31, 1998 to June 30, 1999.
This decrease was attributable to the increased shipments of existing stock,
planned for and built up in 1998.
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
12
<PAGE>
additional 2,000,000 shares. As of June 30, 1999, the Company had re-purchased
1,120,081 shares of its common stock at a total cost of $23,534,797.
Capital expenditures totaling $23,095,854 for the year ended December 31, 1998
and $19,543,744 in the first six months of 1999 were used to expand the
Company's headquarters and to purchase equipment.
At June 30, 1999, the Company's cash on hand of $37,599,951, short-term
investments of $24,132,108 and $10,000,000 available under a bank line of credit
placed the Company's potential cash availability at $71,732,059, 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.
Accounts receivable for the Company increased from $46,588,319 as of December
31, 1998 to $61,247,914 as of June 30, 1999. The increase was due primarily to
extended payment terms to major customers.
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 financings. 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.
with the year 2000 issue will result in a material expense to the Company.
In July of 1998, the Company completed the implementation of new business
software and hardware which the Company believes is year 2000 compliant. The
Company upgraded some secondary systems which were identified with minor year
2000 issues. Likewise, testing and year 2000 simulations were performed on all
Company systems to verify date processing capabilities. As of June 30, 1999, all
critical systems had been tested and are believed to be year 2000 compliant.
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.
13
<PAGE>
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 June 30, 1999 the Company had spent approximately $155,000 for year 2000
compliance. The Company anticipates spending an additional $30,000 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 4. Submission of Matters to a Vote of Security Holders
The 1999 Annual Meeting of Stockholders of the Company was held on April 20,
1999. Proxies with regard to the matters to be voted upon at the Annual Meeting
were solicited under Regulation 14A of the Securities Exchange Act of 1934, as
amended. Set forth below is a brief description of each matter voted upon at
the Annual Meeting and the results of the voting on each such matter.
(a) Election of each director named below to serve until the next Annual
Meeting of Stockholders. There was no solicitation in opposition to any
of the nominees listed in the proxy statement, and all of the nominees
were elected.
<TABLE>
<CAPTION>
Nominees Votes
- -------- --------------------------------
For Withheld
<S> <C> <C>
Mark C. Smith 36,910,608 46,960
Lonnie S. McMillian 36,889,733 67,835
Howard A. Thrailkill 36,910,608 46,960
William J. Marks 36,910,608 46,960
Roy J. Nichols 36,889,933 67,635
James L. North 36,502,108 455,460
</TABLE>
(b) Ratification of the appointment of PricewaterhouseCoopers LLP,
(formerly Coopers & Lybrand L.L.P.) as independent accountants of the
Company for 1999.
<TABLE>
<CAPTION>
Votes
- ---------------------------------------------------------------------------------------------------------------
For Against Abstain
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
36,854,358 101,110 2,100
</TABLE>
(c) Approval of an amendment to the 1995 Directors' Stock Option Plan
increasing the aggregate number of shares of Common Stock authorized
for issuance under the plan from 70,000 to 200,000.
<TABLE>
<CAPTION>
Votes
- ---------------------------------------------------------------------------------------------------------------
For Against Abstain
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
35,826,366 353,329 4,417
</TABLE>
(d) Approval of an amendment to the 1995 Directors' Stock Option Plan which
(a) increases the initial stock option grant to an incoming director
from 5,000 to 10,000 shares of Common Stock and (b) increases the
subsequent annual grants to a director from 2,000 to 5,000 shares of
Common Stock.
<TABLE>
<CAPTION>
Votes
- ---------------------------------------------------------------------------------------------------------------
For Against Abstain
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
36,713,938 238,989 4,641
</TABLE>
15
<PAGE>
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
16
<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: August 14, 1999 /s/ John R. Cooper
------------------
John R. Cooper
Vice President - Finance and
Chief Financial Officer
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRADTED FROM THE
CONDENSED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND THE
CONDENSED BALANCE SHEET AS OF JUNE 30, 19999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000926282
<NAME> ADTRAN, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 37,599,951
<SECURITIES> 24,132,108
<RECEIVABLES> 62,085,964
<ALLOWANCES> 838,050
<INVENTORY> 55,448,469
<CURRENT-ASSETS> 183,839,150
<PP&E> 128,317,577
<DEPRECIATION> 35,124,070
<TOTAL-ASSETS> 332,987,602
<CURRENT-LIABILITIES> 28,734,335
<BONDS> 50,000,000
0
0
<COMMON> 394,409
<OTHER-SE> 250,563,718
<TOTAL-LIABILITY-AND-EQUITY> 332,987,602
<SALES> 88,506,872
<TOTAL-REVENUES> 88,506,872
<CGS> 45,151,016
<TOTAL-COSTS> 45,151,106
<OTHER-EXPENSES> 27,825,566
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 576,333
<INCOME-PRETAX> 16,114,635
<INCOME-TAX> 5,398,403
<INCOME-CONTINUING> 10,716,232
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,716,232
<EPS-BASIC> .28
<EPS-DILUTED> .28
</TABLE>
