UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2017~~2021

☐	~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

☐ 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: 000-24612

ADTRAN, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware	63-0918200
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
901 Explorer Boulevard Huntsville, Alabama	35806-2807
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: ~~(256)~~ (256) 963-8000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, Par Value $0.01 per share

ADTN

The NASDAQ Global Select Market

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 12 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☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~October 23, 2017,~~November 1, 2021, the registrant had ~~48,149,591~~48,679,989 shares of common stock, $0.01 par value per share, outstanding.

ADTRAN, Inc.

Quarterly Report on Form 10-Q

For the Three and Nine Months Ended September 30, ~~2017~~2021

Table of Contents


Item Number		Page Number
	Cautionary Note Regarding Forward-Looking Statements	3
	Glossary of Selected Terms	5
	PART I. FINANCIAL INFORMATION

1	Financial Statements:
	Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 – (Unaudited)	6
	Condensed Consolidated Statements of Income (Loss) for the three and nine months ended September 30, 2021 and 2020 – (Unaudited)	7
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2021 and 2020 – (Unaudited)	8
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020 (Unaudited)	9
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 – (Unaudited)	11
	Notes to Condensed Consolidated Financial Statements – (Unaudited)	12
2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
3	Quantitative and Qualitative Disclosures About Market Risk	43
4	Controls and Procedures	44

	PART II. OTHER INFORMATION
1	Legal Proceedings	45
1A	Risk Factors	45
2	Unregistered Sales of Equity Securities and Use of Proceeds	52
5	Other Information	53
6	Exhibits
	SIGNATURE	54

Item
Number

Page
Number

PART I. FINANCIAL INFORMATION

1

Financial Statements:

Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016 – (Unaudited)

3

Consolidated Statements of Income for the three and nine months ended September 30, 2017 and 2016 – (Unaudited)

4

Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016 – (Unaudited)

5

Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 – (Unaudited)

6

Notes to Consolidated Financial Statements – (Unaudited)

7
2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26
3

Quantitative and Qualitative Disclosures About Market Risk

35
4

Controls and Procedures

36

PART II. OTHER INFORMATION

1A

Risk Factors

37
2

Unregistered Sales of Equity Securities and Use of Proceeds

37
6

Exhibits

38

SIGNATURE

39

~~FORWARD LOOKING~~CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of ~~ADTRAN.~~ADTRAN, Inc. (“ADTRAN”, the “Company”, “we”, “our” or “us”). ADTRAN and its representatives may from time to time make written or oral forward-looking statements, including statements contained in this report, our other filings with the Securities and Exchange Commission ~~(SEC)~~(the “SEC”) and other communications with our stockholders. Any statement that does not directly relate to a historical or current fact is a forward-looking statement. Generally, the words, ~~“believe,” “expect,” “intend,” “estimate,” “anticipate,” “will,” “may,”~~“believe”, “expect”, “intend”, “estimate”, “anticipate”, “will”, “may”, “could” and similar expressions identify forward-looking statements. We caution you that any forward-looking statements made by us or on our behalf are subject to uncertainties and other factors that could affect the accuracy of such statements. The following are some of the risks that could affect our financial performance or could cause ~~such~~actual results to differ materially from those expressed or implied in our forward-looking statements:

•

Our revenues for a particular period can be difficult to predict and a shortfall in revenue may harm our operating results.

•

The lengthy sales and approval process required by service providers for new products could result in fluctuations in our revenue.

•

We depend heavily on sales to certain customers; the loss of any of these customers would significantly reduce our revenues and net income.

•

Our exposure to the credit risks of our customers and distributors may make it difficult to collect accounts receivable and could adversely affect our operating results, financial condition and cash flows.

•

We expect gross margins to vary over time, and our levels of product and services gross margins may not be sustainable.

•

Our dependence on a limited number of suppliers for certain raw materials and key components, combined with supply shortages, have prevented and may continue to prevent us from delivering our products on a timely basis, which has had and may continue to have and may continue to have a material adverse effect on our operating results and could have a material adverse effect on our customer relations and our financial condition.

•

General economic conditions may reduce our revenues and harm our operating results, financial condition and cash flows.

•

The ongoing coronavirus disease 2019 ("COVID-19") pandemic has impacted and may continue to impact our business, results of operations and financial condition, particularly our supply chain and workforce.

•

We compete in markets that have become increasingly competitive, which may result in reduced gross profit margins and market share.

•

Our estimates regarding future warranty obligations may change due to product failure rates, installation and shipment volumes, field service repair obligations and other rework costs incurred in correcting product failures. If our estimates change, the liability for warranty obligations may be increased or decreased, impacting future cost of goods sold.

•

Managing our inventory is complex and may include write-downs of excess or obsolete inventory.

•

The continuing growth of our international operations could expose us to additional risks, increase our costs and adversely affect our operating results, financial condition and cash flow.

•

If we are unable to integrate acquisitions successfully, it could adversely affect our operating results, financial condition and cash flow.

•

Our success depends on our ability to optimize the selling prices of succeeding generations of our products in order to gain market share.

•

If we fail to manage our exposure to worldwide financial and securities markets successfully, our operating results and financial statements could be materially impacted.

•

We are currently in the process of implementing a new enterprise resource planning software (“ERP”) solution. If we do not effectively implement this project, or any future associated updates, our operations could be significantly disrupted.

•

Breaches of our information systems and cyber-attacks could compromise our intellectual property and cause significant damage to our business and reputation.

•

A material weakness in our internal control over financial reporting could result in a loss of investor confidence in the reliability of our financial statements, which in turn could negatively affect the price of our common stock.

•

We must continue to update and improve our products and develop new products to compete and to keep pace with improvements in communications technology.

•

Our failure or the failure of our contract manufacturers to comply with applicable environmental regulations could adversely impact our results of operations.

•

If our products do not interoperate with our customers’ networks, installations may be delayed or canceled, which could harm our business.

•

We engage in research and development activities to develop new, innovative solutions and to improve the application of developed technologies, and as a consequence we may miss certain market opportunities enjoyed by larger companies with substantially greater research and development efforts and which may focus on more leading-edge development.

•

Our strategy of outsourcing a portion of our manufacturing requirements to subcontractors located in various international regions may result in us not meeting our cost, quality or performance standards.

•

Our failure to maintain rights to intellectual property used in our business could adversely affect the development, functionality and commercial value of our products.

•

Software under license from third parties for use in certain of our products may not continue to be ~~wrong.~~ available to us on commercially reasonable terms.

•

Our use of open-source software could impose limitations on our ability to commercialize our products.

•

We may incur liabilities or become subject to litigation that may have a material effect on our business.

•

If we are unable to successfully develop and maintain relationships with system integrators, service providers and enterprise value-added resellers, our revenue may be negatively affected.

•

Our operating results may fluctuate in future periods, which may adversely affect our stock price.

•

The price of our common stock has been volatile and may continue to fluctuate significantly.

•

We are subject to complex and evolving U.S. and foreign laws, regulations and standards governing the conduct of our business. Violations of these laws and regulations may harm our business, subject us to penalties and to other adverse consequences.

•

Changes in trade policy in the U.S. and other countries, specifically the U.K. and China, including the imposition of additional tariffs and the resulting consequences, may adversely impact our gross profits, gross margins, results of operations and financial condition.

•

New or revised tax regulations, changes in our effective tax rate, recognition of a valuation allowance or assessments arising from tax audits may have an adverse impact on our results.

•

The consummation of the proposed business combination transaction with ADVA Optical Networking SE is subject to a number of conditions, and our related business combination agreement may be terminated by each of ADTRAN and ADVA under certain circumstances. If the business combination is not completed, the price of our common stock may be adversely affected.

•

Acorn HoldCo which will be the holding company of ADTRAN and ADVA following the completion of the business combination, may enter into a domination and/or profit and loss transfer agreement with ADVA after the closing of the Business Combination that could be disadvantageous to Acorn HoldCo.

•

The announcement and pendency of the business combination, during which ADTRAN and ADVA are subject to certain operating restrictions, could have an adverse effect on Acorn HoldCo’s, ADTRAN’s and ADVA’s businesses and cash flows, financial condition and results of operations.

•

Negative publicity related to the business combination may adversely affect ADTRAN, ADVA or Acorn HoldCo.

•

Certain of our directors and executive officers and certain of the designees to the pre-closing Acorn HoldCo board of directors may have interests in the business combination that may be different from, or in addition to, those of ADTRAN stockholders generally.

•

We will incur significant transaction fees and costs in connection with the business combination.

•

Risks relating to our and ADVA’s businesses after the completion of the business Combination may have a significant adverse impact on Acorn HoldCo’s business and financial performance.

•

Acorn HoldCo may fail to realize the anticipated strategic and financial benefits sought from the business combination.

•

Following the completion of the business combination, ADVA will be majority owned by Acorn HoldCo. While Acorn HoldCo may enter into a domination agreement with ADVA, the effectiveness of such agreement may be delayed as a result of litigation or otherwise or may not occur, which may have an adverse effect on the ability to realize synergies and cost reductions and the market value of Acorn HoldCo shares.

•

A combined ADTRAN and ADVA may experience a loss of customers or may fail to win new customers in certain countries.

•

We and ADVA may be unable to retain and motivate our respective personnel successfully while the business combination is pending or following the completion of the business combination.

The foregoing list of risks is not exclusive. For a more detailed description of the risk factors ~~that could materially affect~~associated with our business, financial condition or operating results is included under “Factors that Could Affect Our Future Results” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Item 2 ofsee Part I, ~~of this report. They have also been discussed in~~ Item 1A of ~~Part I in~~ our ~~most recent~~ Annual Report on Form 10-K for the year ended December 31, ~~2016~~2020, filed with the SEC on February ~~24, 2017 with~~26, 2021 (the “2020 Form 10-K”), as well as the ~~SEC. Though we have attempted to list comprehensively these important~~risk factors weset forth in Part II, Item 1A of this Quarterly Report on Form 10-Q. We caution investors that other factors may prove to be important in the future in affecting our operating results. New factors emerge from time to time, and it is not possible for us to predict all of these factors, nor can we assess the impact each factor, or a combination of factors, may have on our business.

You are further cautioned not to place undue reliance on these forward-looking statements because they speak only of our views as of the date that the statements were made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

GLOSSARY OF SELECTED TERMS

Below are certain acronyms, concepts and defined terms commonly used in our industry and in this Quarterly Report on Form 10-Q, along with their meanings:


Acronym/Concept/
Defined Term	Meaning
carrier	Entity that provides voice, data or video services to consumers and businesses
CPE	Customer-Premises Equipment
CSP	Communication Service Provider
DSO	Days Sales Outstanding
ERP	Enterprise Resource Planning Software
EU	European Union
FCC	Federal Communications Commission
LAN	Local Area Network
RDOF	Rural Digital Opportunity Fund
SEC	Securities and Exchange Commission
Service Provider	Entity that provides voice, data or video services to consumers and businesses
System Integrator	Person or company that specializes in bringing together component subsystems into a whole and ensuring that those subsystems function together
UK	United Kingdom
WAN	Wide Area Network

PART I. ~~FINANCI~~ALFINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ADTRAN, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share amounts)


	September 30,			December 31,			September 30,			December 31,
	2017			2016			2021			2020
ASSETS
Current Assets
Cash and cash equivalents	$	128,253		$	79,895		$	75,503		$	60,161
Short-term investments		31,385			43,188
Accounts receivable, less allowance for doubtful accounts of $— at September 30, 2017 and December 31, 2016		101,613			92,346
Restricted cash								102			18
Short-term investments (includes $1,210 and $1,731 of available-for-sale securities as of September 30, 2021 and December 31, 2020, respectively, reported at fair value)								2,610			3,131
Accounts receivable, less allowance for expected credit losses of $0 as of September 30, 2021 and $38 as of December 31, 2020								124,146			98,827
Other receivables		18,541			15,137			9,867			21,531
Income tax receivable, net		—			760
Inventory, net		116,230			105,117			127,241			125,457
Prepaid expenses and other current assets		23,127			16,459			10,061			8,293
Total Current Assets		419,149			352,902			349,530			317,418
Property, plant and equipment, net		85,665			84,469			56,556			62,399
Deferred tax assets, net		37,130			38,036			8,957			9,869
Goodwill		3,492			3,492			6,968			6,968
Intangibles, net								20,291			23,470
Other assets		13,135			12,234			31,675			25,425
Long-term investments		136,987			176,102
Long-term investments (includes $44,305 and $43,385 of available-for-sale securities as of September 30, 2021 and December 31, 2020, respectively, reported at fair value)								83,935			80,130
Total Assets	$	695,558		$	667,235		$	557,912		$	525,679
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	73,127		$	77,342		$	79,074		$	49,929
Unearned revenue		13,651			16,326			16,394			14,092
Accrued expenses		15,099			12,434
Accrued expenses and other liabilities								15,392			13,609
Accrued wages and benefits		15,345			20,433			17,270			15,262
Income tax payable, net		7,696			—			5,914			1,301
Total Current Liabilities		124,918			126,535			134,044			94,193
Non-current unearned revenue		4,918			6,333			7,426			6,888
Pension liability								16,988			18,664
Deferred compensation liability								28,336			25,866
Other non-current liabilities		34,756			28,050			7,365			7,124
Bonds payable		26,800			26,800
Total Liabilities		191,392			187,718			194,159			152,735
Commitments and contingencies (see Note 14)
Commitments and contingencies (see Note 18)
Stockholders’ Equity
Common stock, par value $0.01 per share; 200,000 shares authorized; 79,652 shares issued and 48,003 shares outstanding at September 30, 2017 and 79,652 shares issued and 48,472 shares outstanding at December 31, 2016		797			797
Common stock, par value $0.01 per share; 200,000 shares authorized; 79,652 shares issued and 48,680 shares outstanding as of September 30, 2021 and 79,652 shares issued and 48,241 shares outstanding as of December 31, 2020								797			797
Additional paid-in capital		258,655			252,957			286,923			281,466
Accumulated other comprehensive loss		(4,256	)		(12,188	)		(14,466	)		(11,639	)
Retained earnings		941,845			921,942			760,398			781,813
Less treasury stock at cost: 31,649 and 31,180 shares at September 30, 2017 and December 31, 2016, respectively		(692,875	)		(683,991	)
Treasury stock at cost: 30,973 and 31,280 shares at September 30, 2021 and December 31, 2020, respectively								(669,899	)		(679,493	)
Total Stockholders’ Equity		504,166			479,517			363,753			372,944
Total Liabilities and Stockholders’ Equity	$	695,558		$	667,235		$	557,912		$	525,679

See accompanying notes to condensed consolidated financial ~~statements~~statements.

ADTRAN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited)

(In thousands, except per share amounts)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Sales

Products

$
145,467

$
136,277

$
444,607

$
398,709

Services

39,645

32,613

95,457

75,086

Total Sales

185,112

168,890

540,064

473,795

Cost of sales

Products

73,528

70,988

229,845

202,905

Services

25,086

22,094

65,374

50,333

Total Cost of Sales

98,614

93,082

295,219

253,238

Gross Profit

86,498

75,808

244,845

220,557

Selling, general and administrative expenses

34,652

33,716

104,102

97,367

Research and development expenses

33,528

31,962

98,945

92,727

Operating Income

18,318

10,130

41,798

30,463

Interest and dividend income

952

910

2,857

2,692

Interest expense

(139
)

(143
)

(417
)

(430
)
Net realized investment gain

1,009

1,316

2,869

4,154

Other expense, net

(933
)

(246
)

(1,686
)

(378
)
Gain on bargain purchase of a business

—

3,550

—

3,550

Income before provision for income taxes

19,207

15,517

45,421

40,051

Provision for income taxes

(3,309
)

(3,102
)

(10,471
)

(12,394
)
Net Income

$
15,898

$
12,415

$
34,950

$
27,657

Weighted average shares outstanding – basic

47,870

48,470

48,110

48,839

Weighted average shares outstanding – diluted

48,531

48,678

48,618

49,036

Earnings per common share – basic

$
0.33

$
0.26

$
0.73

$
0.57

Earnings per common share – diluted

$
0.33

$
0.26

$
0.72

$
0.56

Dividend per share

$
0.09

$
0.09

$
0.27

$
0.27


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020
Revenue
Network Solutions	$	120,767		$	115,229		$	360,025		$	323,924
Services & Support		17,314			17,914			48,821			52,457
Total Revenue		138,081			133,143			408,846			376,381
Cost of Revenue
Network Solutions		81,029			62,795			216,044			178,492
Services & Support		9,379			11,386			28,860			33,855
Total Cost of Revenue		90,408			74,181			244,904			212,347
Gross Profit		47,673			58,962			163,942			164,034
Selling, general and administrative expenses		30,972			27,205			89,273			84,624
Research and development expenses		26,759			27,223			82,131			85,794
Asset impairments		—			—			—			65
Operating Income (Loss)		(10,058	)		4,534			(7,462	)		(6,449	)
Interest and dividend income		344			344			887			1,031
Interest expense		(6	)		—			(18	)		(1	)
Net investment gain (loss)		(63	)		2,844			2,942			1,819
Other income (expense), net		648			(1,679	)		2,673			(2,307	)
Income (Loss) Before Income Taxes		(9,135	)		6,043			(978	)		(5,907	)
Income tax (expense) benefit		(1,292	)		(562	)		(3,467	)		2,171
Net Income (Loss)	$	(10,427	)	$	5,481		$	(4,445	)	$	(3,736	)

Weighted average shares outstanding – basic		48,609			47,957			48,470			47,957
Weighted average shares outstanding – diluted		48,609			48,424			48,470			47,957

Earnings (loss) per common share – basic	$	(0.21	)	$	0.11		$	(0.09	)	$	(0.08	)
Earnings (loss) per common share – diluted	$	(0.21	)	$	0.11		$	(0.09	)	$	(0.08	)

See accompanying notes to condensed consolidated financial ~~statements~~statements.

ADTRAN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Net Income

$
15,898

$
12,415

$
34,950

$
27,657

Other Comprehensive Income, net of tax

Net unrealized gains (losses) on available-for-sale securities

804

258

2,512

(162
)
Net unrealized gains (losses) on cash flow hedges

142

—

(196
)

—

Defined benefit plan adjustments

73

36

214

103

Foreign currency translation

1,541

575

5,402

1,202

Other Comprehensive Income, net of tax

2,560

869

7,932

1,143

Comprehensive Income, net of tax

$
18,458

$
13,284

$
42,882

$
28,800


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020
Net Income (Loss)	$	(10,427	)	$	5,481		$	(4,445	)	$	(3,736	)
Other Comprehensive Income (Loss), net of tax
Net unrealized gain (loss) on available-for-sale securities		(61	)		(45	)		(348	)		445
Defined benefit plan adjustments		124			244			435			576
Foreign currency translation		(1,389	)		2,469			(2,914	)		2,718
Other Comprehensive Income (Loss), net of tax		(1,326	)		2,668			(2,827	)		3,739
Comprehensive Income (Loss), net of tax	$	(11,753	)	$	8,149		$	(7,272	)	$	3

See accompanying notes to condensed consolidated financial ~~statements~~statements.

ADTRAN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

~~(In thousands)~~

Nine Months Ended

September 30,

2017

2016

Cash flows from operating activities:

Net income

$
34,950

$
27,657

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

12,034

10,260

Amortization of net premium on available-for-sale investments

352

489

Net realized gain on long-term investments

(2,869
)

(4,154
)
Net (gain) loss on disposal of property, plant and equipment

(10
)

21

Gain on bargain purchase of a business

—

(3,550
)
Stock-based compensation expense

5,573

4,601

Deferred income taxes

—

(463
)
Changes in operating assets and liabilities:

Accounts receivable, net

(6,975
)

(29,370
)
Other receivables

(2,924
)

7,475

Inventory

(9,483
)

(683
)
Prepaid expenses and other assets

(9,647
)

(5,180
)
Accounts payable

(4,727
)

16,363

Accrued expenses and other liabilities

(2,820
)

7,307

Income tax payable/receivable, net

8,571

(2,941
)
Net cash provided by operating activities

22,025

27,832

Cash flows from investing activities:

Purchases of property, plant and equipment

(12,304
)

(12,684
)
Proceeds from disposals of property, plant and equipment

16

—

Proceeds from sales and maturities of available-for-sale investments

137,272

141,103

Purchases of available-for-sale investments

(79,713
)

(139,181
)
Acquisition of business

—

(943
)
Net cash provided by (used in) investing activities

45,271

(11,705
)

Cash flows from financing activities:

Proceeds from stock option exercises

6,606

1,076

Purchases of treasury stock

(17,348
)

(22,917
)
Dividend payments

(13,031
)

(13,230
)
Net cash used in financing activities

(23,773
)

(35,071
)

Net increase (decrease) in cash and cash equivalents

43,523

(18,944
)
Effect of exchange rate changes

4,835

686

Cash and cash equivalents, beginning of period

79,895

84,550

Cash and cash equivalents, end of period

$
128,253

$
66,292

Supplemental disclosure of non-cash investing activities:

Purchases of property, plant and equipment included in accounts payable

$
272

$
1,174

~~See notes to consolidated financial statements~~

~~ADTRAN, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

(In thousands, except per share amounts)


	Common Shares		Common Stock		Additional Paid-In Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total Stockholders' Equity
Balance as of December 31, 2020		79,652	$	797	$	281,466	$	781,813		$	(679,493	)	$	(11,639	)	$	372,944
Net income		—		—		—		896			—			—			896
Other comprehensive loss, net of tax		—		—		—		—			—			(1,956	)		(1,956	)
Dividend payments ($0.09 per share)		—		—		—		(4,361	)		—			—			(4,361	)
Dividends accrued on unvested RSUs		—		—		—		(68	)		—			—			(68	)
Deferred compensation adjustments, net of tax		—		—		—		—			(50	)		—			(50	)
PSUs, RSUs and restricted stock vested		—		—		—		(1,683	)		1,602			—			(81	)
Stock options exercised		—		—		—		(476	)		1,720			—			1,244
Stock-based compensation expense		—		—		1,807		—			—			—			1,807
Balance as of March 31, 2021		79,652	$	797	$	283,273	$	776,121		$	(676,221	)	$	(13,595	)	$	370,375
Net income		—		—		—		5,086			—			—			5,086
Other comprehensive income, net of tax		—		—		—		—			—			455			455
Dividend payments ($0.09 per share)		—		—		—		(4,374	)		—			—			(4,374	)
Dividends accrued on unvested RSUs		—		—		—		(128	)		—			—			(128	)
Deferred compensation adjustments, net of tax		—		—		—		—			(12	)		—			(12	)
PSUs, RSUs and restricted stock vested		—		—		—		(32	)		29			—			(3	)
Stock options exercised		—		—		—		(619	)		2,927			—			2,308
Stock-based compensation expense		—		—		1,808		—			—			—			1,808
Balance as of June 30, 2021		79,652	$	797	$	285,081	$	776,054		$	(673,277	)	$	(13,140	)	$	375,515
Net loss		—	��	—		—		(10,427	)		—			—			(10,427	)
Other comprehensive loss, net of tax		—		—		—		—			—			(1,326	)		(1,326	)
Dividend payments ($0.09 per share)		—		—		—		(4,389	)		—			—			(4,389	)
Dividends accrued on unvested RSUs		—		—		—		2			—			—			2
Deferred compensation adjustments, net of tax		—		—		—		—			(12	)		—			(12	)
PSUs, RSUs and restricted stock vested		—		—		—		(185	)		174			—			(11	)
Stock options exercised		—		—		—		(657	)		3,216			—			2,559
Stock-based compensation expense		—		—		1,842		—			—			—			1,842
Balance as of September 30, 2021		79,652	$	797	$	286,923	$	760,398		$	(669,899	)	$	(14,466	)	$	363,753

See accompanying notes to condensed consolidated financial statements.

ADTRAN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except per share amounts)


	Common Shares		Common Stock		Additional Paid-In Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total Stockholders' Equity
Balance as of December 31, 2019		79,652	$	797	$	274,632	$	806,702		$	(685,288	)	$	(16,417	)	$	380,426
Net loss		—		—		—		(9,969	)		—			—			(9,969	)
Other comprehensive loss, net of tax		—		—		—		—			—			(1,392	)		(1,392	)
Dividend payments ($0.09 per share)		—		—		—		(4,328	)		—			—			(4,328	)
Dividends accrued on unvested RSUs		—		—		—		(32	)		—			—			(32	)
Deferred compensation adjustments, net of tax		—		—		—		—			(2,758	)		—			(2,758	)
PSUs, RSUs and restricted stock vested		—		—		—		(1,524	)		1,501			—			(23	)
Stock-based compensation expense		—		—		1,791		—			—			—			1,791
Balance as of March 31, 2020		79,652	$	797	$	276,423	$	790,849		$	(686,545	)	$	(17,809	)	$	363,715
Net income		—		—		—		752			—			—			752
Other comprehensive income, net of tax		—		—		—		—			—			2,463			2,463
Dividend payments ($0.09 per share)		—		—		—		(4,337	)		—			—			(4,337	)
Dividends accrued on unvested RSUs		—		—		—		(28	)		—			—			(28	)
Deferred compensation adjustments, net of tax		—		—		—		—			(24	)		—			(24	)
PSUs, RSUs and restricted stock vested		—		—		—		(16	)		14			—			(2	)
Stock-based compensation expense		—		—		1,655		—			—			—			1,655
Balance as of June 30, 2020		79,652	$	797	$	278,078	$	787,220		$	(686,555	)	$	(15,346	)	$	364,194
Net income		—		—		—		5,481			—			—			5,481
Other comprehensive income, net of tax		—		—		—		—			—			2,668			2,668
Dividend payments ($0.09 per share)		—		—		—		(4,328	)		—			—			(4,328	)
Dividends accrued on unvested RSUs		—		—		—		(12	)		—			—			(12	)
Deferred compensation adjustments, net of tax		—		—		—		—			(12	)		—			(12	)
PSUs, RSUs and restricted stock vested		—		—		—		(67	)		59			—			(8	)
Stock-based compensation expense		—		—		1,610		—			—			—			1,610
Balance as of September 30, 2020		79,652	$	797	$	279,688	$	788,294		$	(686,508	)	$	(12,678	)	$	369,593

See accompanying notes to condensed consolidated financial statements.

ADTRAN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Nine Months Ended
	September 30,
	2021			2020
Cash flows from operating activities:
Net loss	$	(4,445	)	$	(3,736	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		12,246			12,525
Gain on investments		(3,320	)		(1,819	)
Stock-based compensation expense		5,457			5,056
Deferred income taxes		437			(1	)
Other		89			195
Asset impairments		—			65
Changes in operating assets and liabilities:
Accounts receivable, net		(26,346	)		(9,131	)
Other receivables		11,152			(6,224	)
Inventory, net		(2,669	)		(21,170	)
Prepaid expenses, other current assets and other assets		(8,514	)		(672	)
Accounts payable		29,614			14,204
Accrued expenses and other liabilities		10,392			5,618
Income taxes payable, net		4,798			(227	)
Net cash provided by (used in) operating activities		28,891			(5,317	)

Cash flows from investing activities:
Purchases of property, plant and equipment		(3,572	)		(5,082	)
Proceeds from sales and maturities of available-for-sale investments		28,305			86,145
Purchases of available-for-sale investments		(28,853	)		(42,641	)
Acquisition of note receivable		—			(523	)
Insurance proceeds received		500			—
Net cash (used in) provided by investing activities		(3,620	)		37,899

Cash flows from financing activities:
Proceeds from stock option exercises		6,111			—
Tax withholdings related to stock-based compensation settlements		(113	)		—
Dividend payments		(13,124	)		(12,993	)
Repayment of bonds payable		—			(24,600	)
Net cash used in financing activities		(7,126	)		(37,593	)

Net increase (decrease) in cash, cash equivalents and restricted cash		18,145			(5,011	)
Effect of exchange rate changes		(2,719	)		2,641
Cash, cash equivalents and restricted cash, beginning of period		60,179			73,773
Cash, cash equivalents and restricted cash, end of period	$	75,605		$	71,403

Supplemental disclosure of non-cash investing activities:
Right-of-use assets obtained in exchange for lease obligations	$	1,833		$	231
Purchases of property, plant and equipment included in accounts payable	$	100		$	442

See accompanying notes to condensed consolidated financial statements.

ADTRAN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of ADTRAN®, Inc. and its subsidiaries ~~(ADTRAN)~~(“ADTRAN”, the “Company”, “we”, “our” or “us”) have been prepared pursuant to the rules and regulations ~~for reporting on~~of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information presented in Quarterly Reports on Form 10-Q. Accordingly, certain information and notes required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for complete financial statements are not included herein. The December 31, ~~2016~~2020 Condensed Consolidated Balance Sheet is derived from audited financial statements but does not include all disclosures required by ~~accounting principles generally accepted in the United States.~~U.S. GAAP.

In the opinion of management, all adjustments necessary to fairly state these interim statements have been recorded and are of a normal and recurring nature. The results of operations for an interim period are not necessarily indicative of the results for the full year. The interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in ADTRAN’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2020, filed with the SEC on February ~~24, 2017 with the SEC.~~26, 2021.

Use of Estimates

The preparation of financial statements in conformity with ~~accounting principles generally accepted in the United States of America~~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 expense during the reporting period. ~~Our~~The more significant estimates include ~~the~~excess and obsolete ~~and excess~~ inventory reserves, warranty reserves, customer rebates, determination and accrual of ~~the~~ deferred revenue components of ~~multiple element~~multi-element sales agreements, estimated costs to complete obligations associated with deferred and accrued revenues and network installations, estimated income tax provision and income tax contingencies, ~~the~~ fair value of stock-based compensation, ~~impairment~~assessment of goodwill ~~valuation~~ and other intangibles for impairment, estimated lives of intangible assets, estimated pension liability ~~fair value of investments,~~ and ~~the evaluation of other-than-temporary declines in the~~fair value of investments. Actual amounts could differ significantly from these estimates.

~~Recent Accounting Pronouncements~~

~~In May 2014,~~We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the ~~Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~ ~~(ASU 2014-09), which supersedes~~information reasonably available to us and the unknown future impacts of the SARS-CoV-2 coronavirus/COVID-19 global pandemic (or variants of the SARS-CoV-2 coronavirus, including the Delta variant) as well as supply chain constraints as of September 30, 2021 and through the date of this report. The accounting matters assessed included, but were not limited to, the allowance for expected credit losses, stock-based compensation, carrying value of goodwill, intangibles and other long-lived assets, financial assets, valuation allowances for tax assets, revenue recognition ~~requirements in Topic 605,~~ ~~Revenue Recognition, including most industry-specific revenue recognition guidance throughout~~and costs of revenue. Future conditions related to the ~~Industry Topics~~magnitude and duration of the ~~Codification. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers~~COVID-19 pandemic, as well as other factors, including supply chain constraints, could result in an amount that reflects the consideration that is expected to be received for those goods or services. In August 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09 to fiscal years beginning after December 31, 2017, and interim periods within those fiscal years, with early adoption permitted for reporting periods beginning after December 15, 2016. Subsequently, the FASB issued ASUs in 2016 containing implementation guidance related to ASU 2014-09, including: ASU 2016-08, ~~Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations; ASU 2016-10,~~ ~~Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which is intended to clarify two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance; ASU 2016-12,~~ ~~Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which contains certain provisions and practical expedients in response to identified implementation issues; and ASU 2016-20,~~ ~~Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers,~~ which is intended to clarify the Codification or to correct unintended application of guidance. ASU 2014-09 allows for either full retrospective or modified retrospective adoption. We plan to adopt ASU 2014-09 and the related ASUs on January 1, 2018 using the modified retrospective method. We are continuing to evaluate and assess the potentialfurther impacts ~~of these ASUs through an analysis of revenue streams, contract reviews, and our control environment.~~

We are finalizing our assessment of the proper method of measuring progress toward satisfaction of each respective contract performance obligation for our network installation services revenues. At this time, we believe the output method will be used to measure network installation services progress. We believe the primary impact will be accelerated revenue recognition for certain performance obligations related to revenue arrangements that are currently deferred until customer acceptance.

~~In connection with the adoption of the new revenue standard, effective January 1, 2018, we will also adopt ASC 340-40,~~ ~~Other Assets and Deferred Costs - Contracts with Customers~~, with respect to capitalization and amortization of incremental costs of obtaining a contract. As a result, certain costs of obtaining a contract may need to be capitalized, including sales commissions, as the guidance requires the capitalization of all incremental costs incurred to obtain a contract with a customer that it would not have incurred if the contract had not been obtained, provided the costs are recoverable. We believe the primary impact will be capitalization of certain sales commissions for our extended maintenance and support contracts in excess of one year and costs associated with our capital lease arrangements that are billed monthly, and amortization of those costs over the period that the related revenue is recognized.

We do not believe there will be a significant impact to product or maintenance revenues. However, we are still assessing the impact of the allocation of revenue between deliverables with multiple performance obligations and timing of revenue recognition.

~~In February 2016, the FASB issued Accounting Standards Update No. 2016-02,~~ ~~Leases (Topic 842)~~ (ASU 2016-02). ASU 2016-02 requires an entity to recognize lease assets and lease liabilities on the balance sheet and to disclose key information about the entity's leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. A modified retrospective approach is required. We anticipate the adoption of ASU 2016-02 will have a material impact on our financial position; however, we do not believe adoption will have a material impact on our results of operations. We believe the most significant impact relates to our ~~accounting~~consolidated financial statements in future reporting periods.

Correction of an Immaterial Misstatement

During the three months ended March 31, 2020, it was determined that certain investments held in the Company’s stock for ~~operating leases~~a deferred compensation plan accounted for ~~office space and equipment.~~

~~In January 2017, the FASB issued Accounting Standards Update No. 2017-04,~~ ~~Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~ ~~(ASU 2017-04). ASU 2017-04 simplifies the measurement of goodwill by eliminating step 2 of the goodwill impairment test. Under ASU 2017-04, entities will be required to compare~~as a Rabbi trust were incorrectly classified as long-term investments with the fair value of ~~a reporting unit~~such investments incorrectly marked to ~~its carrying amount and recognize~~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 impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASU 2017-04 is effective for annual or interim impairment tests performed in fiscal years beginning after December 15, 2019, with early adoption permitted for annual or interim impairment tests performed on testing dates after January 1, 2017. The amendments should be applied prospectively. We are currently evaluating whether to early adopt ASU 2017-04, but we do not expect it will have a material impact on our financial position, results of operations or cash flows.

~~In March 2017, the FASB issued Accounting Standards Update No. 2017-07,~~ ~~Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~ ~~(ASU 2017-07). ASU 2017-07 amends ASC 715,~~ ~~Compensation — Retirement Benefits~~, to require employers that present a measure of operating income in their statements of earnings to include only the service cost component of net periodic pension cost and net periodic postretirement benefit cost in operating expenses (together with other employee compensation costs). The other components of net benefit cost, including amortization of prior service cost/credit, and settlement and curtailment effects, are to be included in non-operating expenses. ASU 2017-07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. We do not expect ASU 2017-07 will have a material impact on our financial position, results of operations or cash flows.

~~In August 2017, the FASB issued Accounting Standards Update No. 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~ (ASU 2017-12). ASU 2017-12 expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge itemsout-of-period adjustment in the three months ended March 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 unaudited Condensed 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 unaudited Condensed Consolidated Balance Sheet as of March 31, 2020. Management has determined that this misstatement was not material to any of its previously issued financial statements and ~~includes certain targeted improvements to ease~~that the ~~application~~correction of ~~current guidance related~~the misstatement was not material to the assessment of hedge effectiveness. ASU 2017-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the impact ASU 2017-12 will haveCompany’s 2020 annual financial results on ~~our financial position, results of operations and cash flows.~~either a quantitative or qualitative basis.

812

~~During 2017, we~~

Recently Adopted Accounting Pronouncements

We recently adopted the following accounting standards, which had nothe following impacts on our condensed consolidated financial statements:

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 Accounting Standards Codification (“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 became 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 ~~our~~the disclosures in the condensed consolidated financial ~~position, results of operations or cash flows:~~statements.

In ~~July 2015,~~December 2019, the FASB issued ~~Accounting Standards Update No. 2015-11,~~ ~~Inventory~~ASU 2019-12, Income Taxes (Topic ~~330)~~740): Simplifying the ~~Measurement of Inventory~~ ~~(ASU 2015-11). Currently, Topic 330,~~ ~~Inventory, requires~~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 ~~to measure inventory at the lower of cost~~reflect enacted tax laws or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. ASU 2015-11 does not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. ASU 2015-11 requires an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling pricesrates in the ~~ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.~~annual effective tax rate computation in the interim period that includes the enactment date. The Company early adopted ASU ~~2015-11 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period.~~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 ~~amendments should be applied prospectively with earlier application permitted as~~Company early adopted the standard to take advantage of the ~~beginning~~simplification of ~~an interim or annual reporting period. We adopted ASU 2015-11~~rules for income taxes on intra-period tax allocations. Specifically, the adoption of this standard resulted in the ~~first quarter~~recognition of ~~2017, and there was no material impact on our financial position, results~~approximately $0.1 million of ~~operations or cash flows.~~

~~In January 2017, we adopted ASU 2016-09,~~ ~~Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.~~ ~~As a result, beginning~~tax benefit in ~~the first quarter of 2017, we began recognizing all excess tax benefits and tax deficiencies as~~other comprehensive income tax expense or benefit as a discrete event. The treatment of forfeitures has changed as we have elected to discontinue our past practice of estimating forfeitures and now account for forfeitures as they occur. As a result, we recorded an increase in additional paid in capital of $0.1 million, a charge to beginning retained earnings of $0.1 million, and an increase in the deferred tax assets related to non-qualified stock options and RSUs of $10 thousand. In addition, cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows within operating activities. We elected to retrospectively apply the changes in presentation to the statements of cash flows and no longer classify excess tax benefits as a financing activity, which had an immaterial impact on our cash flows for the nine months ended September 30, 2016. There was no material impact on our financial position, results of operations or cash flows as a result of these changes.

~~2. BUSINESS COMBINATIONS~~

On September 13, 2016, we acquired key fiber access products, technologies and service relationships from subsidiaries of CommScope, Inc. for $0.9 million in cash. This acquisition will enhance our solutions for the cable MSO industry and will provide cable operators with the scalable solutions, services and support they require to compete in the multi-gigabit service delivery market. This transaction was accounted for as a business combination. We have included the financial results of this acquisition in our consolidated financial statements since the date of acquisition. These revenues are included in the Network Solutions reportable segment, and in the Access & Aggregation and Customer Devices categories.

We recorded a bargain purchase gain of $3.5 million during the third quarter of 2016, net of income taxes, which was subject to customary working capital adjustments between the parties. The bargain purchase gain of $3.5 million represents the excess fair value of the net assets acquired over the consideration exchanged. We have assessed the recognition and measurement of the assets acquired and liabilities assumed based on historical and forecasted data for future periods and have concluded that our valuation procedures and resulting measures were appropriate.

Working capital adjustments were recorded in the fourth quarter of 2016 and resulted in an immaterial reduction in the inventory acquired, accounts payable assumed, deferred income taxes and bargain purchase gain. If these adjustments had been recorded on the date of acquisition, the bargain purchase gain would have been reduced by $8 thousand(loss) for the three months ended March 31, 2020, 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 condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

There are currently no recent accounting pronouncements that have not yet been adopted and that would have a material effect, once adopted, on the condensed consolidated financial statements.

2. CASH, CASH EQUIVALENTS AND RESTRICTED CASH

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


	As of		As of
(In thousands)	September 30, 2021		December 31, 2020
Cash and cash equivalents	$	75,503	$	60,161
Restricted cash		102		18
Cash, cash equivalents and restricted cash	$	75,605	$	60,179

See Note 18 for additional information regarding restricted cash.

3. REVENUE

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

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.

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

Revenue by Category

In addition to our reportable segments, revenue is also reported for the following 3 categories – Access & Aggregation, Subscriber Solutions & Experience and Traditional & Other Products.

The following tables disaggregate revenue by reportable segment and revenue category:


	Three Months Ended
	September 30, 2021						September 30, 2020
(In thousands)	Network Solutions		Services & Support		Total		Network Solutions		Services & Support		Total
Access & Aggregation	$	77,104	$	12,069	$	89,173	$	71,919	$	13,504	$	85,423
Subscriber Solutions & Experience		42,093		2,819		44,912		40,843		2,282		43,125
Traditional & Other Products		1,570		2,426		3,996		2,467		2,128		4,595
Total	$	120,767	$	17,314	$	138,081	$	115,229	$	17,914	$	133,143


	Nine Months Ended
	September 30, 2021						September 30, 2020
(In thousands)	Network Solutions		Services & Support		Total		Network Solutions		Services & Support		Total
Access & Aggregation	$	215,464	$	33,747	$	249,211	$	194,695	$	39,470	$	234,165
Subscriber Solutions & Experience		139,459		7,832		147,291		118,907		6,790		125,697
Traditional & Other Products		5,102		7,242		12,344		10,322		6,197		16,519
Total	$	360,025	$	48,821	$	408,846	$	323,924	$	52,457	$	376,381

Revenue allocated to remaining performance obligations represents contract revenue that has not yet been recognized for contracts with a duration of greater than one year. As of September 30, ~~2016.~~ 2021, we did 0t have any significant performance obligations related to customer contracts that had an original expected duration of one year or more, other than maintenance services, which are satisfied over time. As a practical expedient, for certain contracts we recognize revenue equal to the amounts that we are entitled to invoice, which correspond to the value of completed performance obligations to date. The ~~final allocation~~amount related to these performance obligations was $20.7 million and $17.7 million as of September 30, 2021 and December 31, 2020, respectively. The Company expects to recognize 64% of the ~~purchase price~~$20.7 million as of September 30, 2021 over the next 12 months, with the remainder to ~~the estimated fair value of the assets acquired and liabilities assumed at the acquisition date is as follows:~~

be recognized thereafter.

(In Thousands)

Assets

  Inventory
$
3,131

  Property, plant and equipment

352

  Intangible assets

4,700

Total assets acquired

8,183

Liabilities

  Accounts payable

(1,250
)
  Warranty payable

(61
)
  Accrued wages and benefits

(122
)
  Deferred income taxes

(2,265
)
Total liabilities assumed

(3,698
)

Total net assets

4,485

  Gain on bargain purchase of a business, net of tax

(3,542
)
Total purchase price
$
943

~~The details of the acquired intangible assets are as follows:~~

In thousands
Value

Life (years)

Supply agreement
$
1,400

0.8

Customer relationships

1,200

6.0

Developed technology

800

10.0

License

500

1.3

Patent

500

7.3

Non-compete

200

2.3

Trade name

100

2.0

Total
$
4,700

The following ~~unaudited supplemental pro forma~~table provides information ~~presents~~about receivables, contract assets and unearned revenue from contracts with customers:


	As of		As of
(In thousands)	September 30, 2021		December 31, 2020
Accounts receivable, net	$	124,146	$	98,827
Contract assets(1)	$	999	$	63
Unearned revenue	$	16,394	$	14,092
Non-current unearned revenue	$	7,426	$	6,888

(1) Included in other receivables on the ~~financial results~~Condensed Consolidated Balance Sheets.

��

Of the outstanding unearned revenue balances as ~~if the acquisition had occurred on January 1, 2015. 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, 2015, nor is it indicative of any future results. Aside from revising the 2015 net income for the effect of the bargain purchase gain, thereDecember 31, 2020, $2.0 million and $9.8 million were ~~no material, non-recurring adjustments to this unaudited pro forma information.~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

(In thousands)

2016

2015

2016

2015

Pro forma revenue

$
170,498

$
159,375

$
478,184

$
463,916

Pro forma net income

$
9,495

$
6,691

$
24,761

$
15,071

Pro forma earnings per share - basic

$
0.20

$
0.13

$
0.51

$
0.29

Pro forma earnings per share - diluted

$
0.20

$
0.13

$
0.50

$
0.29

~~For~~recognized as revenue during the three and nine months ended September 30, ~~2017, we incurred acquisition and integration related expenses and amortization of acquired intangibles of $0.2 million and $1.6 million, respectively, related to this acquisition.~~2021, respectively.

1014

4. INCOME TAXES

Our effective tax rate ~~decreased~~increased from ~~34.0%, excluding~~an expense of 9.3% of pre-tax income for the ~~tax impact~~three months ended September 30, 2020, to an expense of 14.1% of pre-tax loss for the ~~bargain purchase gain, in~~three months ended September 30, 2021 and increased from a benefit of 36.8% of pre-tax loss for the nine months ended September 30, ~~2016,~~2020 to ~~23.1% in~~an expense of 354.5% of pre-tax loss for the nine months ended September 30, ~~2017.~~2021. The ~~decrease~~change in the effective tax rate between the periods is primarily attributable to additional research and development tax credits being recognized in the current quarter, an increase in stock option exercises and a greater mix of international income.

~~4. PENSION BENEFIT PLAN~~

~~We maintain a defined benefit pension plan covering employees in certain foreign countries.~~

~~The following table summarizes the components of net periodic pension cost~~ for the three months ended September 30, 2021 was driven by tax expense in our international operations and additional changes in the valuation allowance related to our domestic operations. The change in the effective tax rate for the nine months ended September 30, ~~2017~~2021 was primarily driven by a tax benefit of $7.8 million recognized during the nine months ended September 30, 2020 as a result of the passing of the Coronavirus Aid, Relief, and ~~2016:~~Economic Security Act (the “CARES Act”) on March 27, 2020, which allowed for the carryback of federal net operating losses, partially offset with tax expense in our international operations in the current quarter.

On February 12, 2021, the Alabama Business Tax Competitiveness Act (the "Act") was signed into law. As a result of the Act, we recognized an expense of $1.6 million in the first quarter of 2021 related to the revaluation of our deferred tax assets, which was offset by changes in our valuation allowance previously recorded against our domestic deferred tax assets.

During the third quarter of 2021, management pursued a claim for refund related to the revocation of the IRC Section 59(e) election that was made on our originally filed 2018 U.S. federal tax return. The Company filed a related carryback claim of net operating losses generated in 2018 to prior years as allowed under the CARES Act that was passed in the first quarter of 2020. An IRS Section 59(e) election is generally non-revocable except in cases for which IRS Commissioner’s approval is given. Approval is granted only in rare and unusual circumstances. The Company filed a private letter ruling (the "PLR") request to revoke our election. To date, a response to the PLR has not been published. As a result of these filings, and management’s position to pursue them through appeals, if necessary, we have established a receivable in the amount of $15.2 million and a deferred tax asset related to our additional research and development credit carryforward in the amount of $1.8 million that would be available if our revocation request is successful, offset with an uncertain tax liability of $17.0 million within our financials as of September 30, 2021.

The Company continually reviews the adequacy of its valuation allowance and recognizes the benefits of deferred tax assets only as the assessment indicates that it is more likely than not that the deferred tax assets will be recognized in accordance with ASC 740, Income Taxes. As of September 30, 2021, the Company had deferred tax assets totaling $59.2 million, and a valuation allowance totaling $50.2 million against those deferred tax assets. The remaining $9.0 million in deferred tax assets not offset by a valuation allowance are located in various foreign jurisdictions where the Company believes it is more likely than not we will realize these deferred tax assets. During the nine months ended September 30, 2021, the total increase in the valuation allowance against our domestic and international deferred tax assets was recorded in the amount of $4.0 million and $0.4 million, respectively. Our assessment of the realizability of our deferred tax assets includes the evaluation of historical operating results as well as the evaluation of evidence which requires significant judgement, including the evaluation of our three-year cumulative income position, future taxable income projections and tax planning strategies. Should management’s conclusion change in the future and an additional valuation allowance or a partial or full release of the valuation allowance becomes necessary, it may have a material effect on our consolidated financial statements.

Three Months Ended

Nine Months Ended

September 30,

September 30,

(In thousands)

2017

2016

2017

2016

Service cost

$
327

$
305

$
930

$
912

Interest cost

158

182

448

542

Expected return on plan assets

(329
)

(266
)

(935
)

(796
)
Amortization of actuarial losses

80

44

228

132

Net periodic pension cost

$
236

$
265

$
671

$
790

Supplemental balance sheet information related to deferred tax assets is as follows:


	As of September 30, 2021
(In thousands)	Deferred Tax Assets		Valuation Allowance			Deferred Tax Assets, net
Domestic	$	47,839	$	(47,839	)	$	—
International		11,350		(2,393	)		8,957
Total	$	59,189	$	(50,232	)	$	8,957


	As of December 31, 2020
(In thousands)	Deferred Tax Assets		Valuation Allowance			Deferred Tax Assets, net
Domestic	$	43,791	$	(43,791	)	$	—
International		11,896		(2,027	)		9,869
Total	$	55,687	$	(45,818	)	$	9,869

The change in the unrecognized income tax benefits for the nine months ended September 30, 2021 and year ended December 31, 2020, is reconciled below:


(In thousands)	For the Nine Months Ended September 30, 2021			For the Year Ended December 31, 2020
Balance at beginning of period	$	1,078		$	1,487
Increases for tax position related to:
Prior years		17,025			4
Current year		102			165
Decreases for tax positions related to:
Prior years		(27	)		—
Expiration of applicable statute of limitations		—			(578	)
Balance at end of period	$	18,178		$	1,078

As of September 30, 2021 and December 31, 2020, the liability for unrecognized tax benefit was $18.2 million and $1.1 million, respectively, of which $18.1 million and $1.0 million, respectively, would reduce the effective tax rate if we were successful in upholding all of the uncertain positions and recognized the amounts recorded. We classify interest and penalties recognized on the liability for unrecognized tax benefits as income tax expense. As of September 30, 2021 and December 31, 2020, the balances of accrued interest and penalties were $0.3 million and $0.3 million, respectively.

We do not anticipate a single tax position generating a significant increase or decrease in our liability for unrecognized tax benefits within 12 months of this reporting date, unless a resolution is reached regarding the item noted above. We file income tax returns in the U.S. for federal and various state jurisdictions and several foreign jurisdictions. We are not currently under audit by the Internal Revenue Service. Generally, we are not subject to changes in income taxes by any taxing jurisdiction for the years prior to 2017.

5. STOCK-BASED COMPENSATION

The following table summarizes ~~the~~ stock-based compensation expense related to stock options, performance stock units ~~(PSUs)~~(“PSUs”), restricted stock units ~~(RSUs)~~(“RSUs”) and restricted ~~stock for the three~~stock:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands)	2021			2020			2021			2020
Stock-based compensation expense included in cost of revenue	$	133		$	101		$	389		$	303
Selling, general and administrative expense		1,116			953			3,312			2,999
Research and development expense		593			556			1,756			1,754
Stock-based compensation expense included in operating expenses		1,709			1,509			5,068			4,753
Total stock-based compensation expense		1,842			1,610			5,457			5,056
Tax benefit for expense associated with stock options, PSUs, RSUs and restricted stock		(460	)		(384	)		(1,343	)		(1,205	)
Total stock-based compensation expense, net of tax	$	1,382		$	1,226		$	4,114		$	3,851

PSUs, RSUs and ~~nine months ended September 30, 2017 and 2016, which was recognized as follows:~~Restricted Stock

Three Months Ended

Nine Months Ended

September 30,

September 30,

(In thousands)

2017

2016

2017

2016

Stock-based compensation expense included in cost of sales

$
97

$
88

$
281

$
282

Selling, general and administrative expense

994

765

3,018

2,322

Research and development expense

743

639

2,274

1,997

Stock-based compensation expense included in operating
expenses

1,737

1,404

5,292

4,319

Total stock-based compensation expense

1,834

1,492

5,573

4,601

Tax benefit for expense associated with non-qualified
options, PSUs, RSUs and restricted stock

(402
)

(218
)

(1,215
)

(643
)
Total stock-based compensation expense, net of tax

$
1,432

$
1,274

$
4,358

$
3,958

~~Stock Options~~

The following table ~~is a summary of our~~summarizes PSUs, RSUs and restricted stock ~~options~~ outstanding as of December 31, ~~2016~~2020 and September 30, ~~2017~~2021 and the changes that occurred during the nine months ended September 30, ~~2017:~~2021:

(In thousands, except per share amounts)

Number of
Stock Options

Weighted Avg.
Exercise Price

Weighted Avg.
Remaining
Contractual
Life In Years

Aggregate
Intrinsic Value

Stock options outstanding, December 31, 2016

6,338

$
22.14

5.63

$
16,972

Stock options granted

—

$
—

Stock options exercised

(358
)

$
18.44

Stock options forfeited

(54
)

$
17.49

Stock options expired

(90
)

$
27.31

Stock options outstanding, September 30, 2017

5,836

$
22.33

4.92

$
20,669

Stock options vested and expected to vest, September 30, 2017

5,836

$
22.33

4.92

$
20,669

Stock options exercisable, September 30, 2017

4,311

$
24.02

3.99

$
10,845


	Number of Shares (in thousands)			Weighted Avg. Grant Date Fair Value (per share)
Unvested PSUs, RSUs and restricted stock outstanding, December 31, 2020		1,846		$	11.49
PSUs, RSUs and restricted stock granted		359		$	16.75
PSUs, RSUs and restricted stock vested		(21	)	$	13.00
PSUs, RSUs and restricted stock forfeited		(65	)	$	11.93
Unvested PSUs, RSUs and restricted stock outstanding, September 30, 2021		2,119		$	12.40

During each of the nine month periods ended September 30, 2021 and 2020, the Company granted 0.3 million performance-based PSUs to its executive officers and certain employees. The ~~aggregate intrinsic values in the table above represent the total pre-tax intrinsic~~grant-date fair value ~~(the difference between~~of these performance-based awards was based on the closing price of ~~our~~the Company’s stock on the last trading day of the quarter and the exercise price, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all option holders exercised their options on September 30, 2017. The aggregate intrinsic value will change based on the fair market value of our stock.

~~The total pre-tax intrinsic value of options exercised during the three and nine months ended September 30, 2017 was $1.1 million and $1.6 million, respectively.~~

As of September 30, 2017, there was $4.0 million of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over an average remaining recognition period of 1.7 years.

~~The fair value of our stock options is estimated using the Black-Scholes model. The determination of the fair value of stock options~~ on the date of ~~grant using~~grant. These awards vest over two-year and three-year periods, respectively, subject to the ~~Black-Scholes model is affected by our stock price, as well as assumptions regarding~~grantee’s continued employment, with the ability to earn shares in a range of 0% to 142.8% of the awarded number of ~~complex and subjective variables that may have a significant impact~~PSUs based on the ~~fair value estimate.~~achievement of defined performance targets. Equity-based compensation expense with respect to these awards may be adjusted over the vesting period to reflect the probability of achievement of performance targets defined in the award agreements.

There were no stock options granted during the three or nine months ended September 30, 2017. The weighted-average assumptions and value of options granted during the three and nine months ended September 30, 2016 were as follows:

Three Months Ended

Nine Months Ended

September 30,

September 30,

2016

2016

Expected volatility

34.55
%

34.66
%
Risk-free interest rate

1.20
%

1.28
%
Expected dividend yield

1.83
%

1.88
%
Expected life (in years)

6.21

6.24

Weighted-average estimated value

$
5.64

$
5.50

~~PSUs, RSUs and restricted stock~~

~~The following table is a summary of our PSUs, RSUs and restricted stock outstanding as of December 31, 2016 and the changes that occurred during the nine months ended September 30, 2017:~~

(In thousands, except per share amounts)

Number of
Shares

Weighted Avg. Grant Date Fair Value

Unvested PSUs, RSUs and restricted stock outstanding, December 31, 2016

519

$
20.51

PSUs, RSUs and restricted stock granted

526

$
22.23

PSUs, RSUs and restricted stock vested

(4
)

$
18.00

PSUs, RSUs and restricted stock forfeited

(21
)

$
20.88

Unvested PSUs, RSUs and restricted stock outstanding, September 30, 2017

1,020

$
21.40

~~The fair value of our PSUs with market conditions is calculated using a Monte Carlo Simulation valuation method.~~ The fair value of RSUs and restricted stock is equal to the closing price of our stock on the date of grant. ~~During the first quarter of 2017, the Compensation Committee of the Board of Directors approved a PSU grant of 0.5 million shares that contain performance conditions.~~ The fair value of ~~these performance-based PSU awards was equal to the closing price of our stock on the date of grant.~~PSUs with market conditions is calculated using a Monte Carlo simulation valuation method.

As of September 30, ~~2017,~~2021, total unrecognized compensation expense related to non-vested market-based PSUs, RSUs and restricted stock was approximately $11.3 million, which will be recognized over the remaining weighted-average period of 2.3 years. In addition, there was ~~$7.1~~$7.5 million of unrecognized compensation expense related to unvested ~~market-based PSUs, RSUs~~2020 and restricted stock, which is expected to be recognized over an average remaining recognition period of 2.8 years. In addition, there was $11.5 million of unrecognized compensation expense related to unvested2021 performance-based PSUs, which will be recognized over the remaining requisite service period of ~~three~~1.3 years asif achievement of the performance ~~objective~~obligation becomes probable. ~~For~~Unrecognized compensation expense will be adjusted for actual forfeitures.

As of September 30, 2021, 4.0 million shares were available for issuance under stockholder-approved equity plans.

Stock Options

The following table summarizes stock options outstanding as of December 31, 2020 and September 30, 2021 and the ~~three and~~changes that occurred during the nine months ended September 30, ~~2017, no compensation expense was recognized related to these performance-based PSU awards.~~2021:

~~6. INVESTMENTS~~

~~At September 30, 2017, we held the following securities and investments, recorded at either fair value or cost:~~

Amortized

Gross Unrealized

Carrying

(In thousands)

Cost

Gains

Losses

Value

Deferred compensation plan assets

$
15,898

$
3,230

$
(15
)

$
19,113

Corporate bonds

45,223

75

(79
)

45,219

Municipal fixed-rate bonds

4,887

4

(17
)

4,874

Asset-backed bonds

7,791

5

(11
)

7,785

Mortgage/Agency-backed bonds

7,364

7

(41
)

7,330

U.S. government bonds

21,000

3

(109
)

20,894

Foreign government bonds

725

3

—

728

Marketable equity securities

32,394

2,649

(961
)

34,082

Available-for-sale securities held at fair value

$
135,282

$
5,976

$
(1,233
)

$
140,025

Restricted investment held at cost

27,800

Other investments held at cost

547

Total carrying value of available-for-sale investments

$
168,372


	Number of Stock Options (in thousands)			Weighted Avg. Exercise Price (per share)		Weighted Avg. Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)
Stock options outstanding, December 31, 2020		2,718		$	21.17		2.9	$	—
Stock options exercised		(363	)	$	16.81				1,411
Stock options expired		(607	)	$	28.93				18
Stock options outstanding, September 30, 2021		1,748		$	19.37		2.7	$	2,060
Stock options exercisable, September 30, 2021		1,748		$	19.37		2.7	$	2,060

~~At December 31, 2016, we held the following securities and investments, recorded at either fair value or cost:~~

Amortized

Gross Unrealized

Carrying

(In thousands)

Cost

Gains

Losses

Value

Deferred compensation plan assets

$
12,367

$
2,271

$
(42
)

$
14,596

Corporate bonds

66,522

64

(174
)

66,412

Municipal fixed-rate bonds

11,799

12

(37
)

11,774

Asset-backed bonds

10,201

19

(14
)

10,206

Mortgage/Agency-backed bonds

13,080

15

(91
)

13,004

U.S. government bonds

30,022

15

(270
)

29,767

Foreign government bonds

3,729

2

(1
)

3,730

Variable rate demand notes

11,855

—

—

11,855

Marketable equity securities

30,571

311

(1,503
)

29,379

Available-for-sale securities held at fair value

$
190,146

$
2,709

$
(2,132
)

$
190,723

Restricted investment held at cost

27,800

Other investments held at cost

767

Total carrying value of available-for-sale investments

$
219,290

As of September 30, ~~2017, our corporate bonds, municipal fixed-rate bonds, asset-backed bonds, mortgage/agency-backed bonds, U.S. government bonds~~2021, there was 0 unrecognized compensation expense related to stock options as all awards vested in prior periods.

There were 0 stock options granted during the nine months ended September 30, 2021 and ~~foreign government bonds~~2020. All of the options were previously issued at exercise prices that approximated fair market value at the date of grant.

The aggregate intrinsic value of stock options represents the total pre-tax intrinsic value (the difference between ADTRAN’s closing stock price on the last trading day of the quarter and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2021. The amount of aggregate intrinsic value was $2.1 million as of September 30, 2021 and will change based on the fair market value of ADTRAN’s stock. The total pre-tax intrinsic value of options exercised during the nine months ended September 30, 2021 was $1.4 million.

6. INVESTMENTS

Debt Securities and Other Investments

The following debt securities and other investments were included on the Condensed Consolidated Balance Sheet and recorded at fair value:


	As of September 30, 2021
	Amortized		Gross Unrealized					Fair
(In thousands)	Cost		Gains		Losses			Value
Corporate bonds	$	13,381	$	39	$	(6	)	$	13,414
Municipal fixed-rate bonds		2,236		13		(1	)		2,248
Asset-backed bonds		3,497		17		(1	)		3,513
Mortgage/Agency-backed bonds		9,194		35		(17	)		9,212
U.S. government bonds		16,031		34		(13	)		16,052
Foreign government bonds		544		1		(2	)		543
Other		533		—		—			533
Available-for-sale debt securities held at fair value	$	45,416	$	139	$	(40	)	$	45,515


	As of December 31, 2020
	Amortized		Gross Unrealized					Fair
(In thousands)	Cost		Gains		Losses			Value
Corporate bonds	$	11,762	$	123	$	—		$	11,885
Municipal fixed-rate bonds		2,854		30		—			2,884
Asset-backed bonds		6,634		74		—			6,708
Mortgage/Agency-backed bonds		11,536		114		(6	)		11,644
U.S. government bonds		9,763		112		—			9,875
Foreign government bonds		1,334		4		(1	)		1,337
Commercial Paper		250		—		—			250
Other		533		—		—			533
Available-for-sale debt securities held at fair value	$	44,666	$	457	$	(7	)	$	45,116

The contractual ~~maturities:~~maturities related to debt securities and other investments were as follows:


													As of September 30, 2021
(In thousands)	Corporate bonds		Municipal fixed-rate bonds		Asset- backed bonds		Mortgage / Agency- backed bonds		U.S. government bonds		Foreign government bonds		Corporate bonds		Municipal fixed-rate bonds		Asset- backed bonds		Mortgage/ Agency- backed bonds		U.S. government bonds		Foreign government bonds		Other
Less than one year	$	20,232	$	2,250	$	—	$	—	$	8,903	$	—	$	275	$	652	$	—	$	638	$	2,593	$	—	$	533
One to two years		11,678		724	$	2,638		—		—		—		4,494		534		—		1,005		4,021		246		—
Two to three years		10,029		730		2,235		—		10,413		728		6,616		761		93		1,102		5,810		297		—
Three to five years		3,280		1,170		1,550		917		1,578		—		2,029		301		1,573		235		3,628		—		—
Five to ten years		—		—		450		1,348		—		—		—		—		785		1,322		—		—		—
More than ten years		—		—		912		5,065		—		—		—		—		1,062		4,910		—		—		—
Total	$	45,219	$	4,874	$	7,785	$	7,330	$	20,894	$	728	$	13,414	$	2,248	$	3,513	$	9,212	$	16,052	$	543	$	533

Actual maturities may differ from contractual maturities ~~because~~as some borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

~~Our~~Realized gains and losses on sales of debt securities are computed under the specific identification method. The following table presents the gross realized gains and losses related to our debt securities:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands)	2021			2020			2021			2020
Gross realized gain on debt securities	$	22		$	70		$	206		$	303
Gross realized loss on debt securities		(17	)		(6	)		(53	)		(45	)
Total gain recognized, net	$	5		$	64		$	153		$	258

Income generated from available-for-sale debt securities was recorded as interest and dividend income in the Condensed Consolidated Statements of Income (Loss). NaN allowance for credit loss was recorded for the nine months ended September 30, 2021 and 2020 related to available-for-sale debt securities. The Company’s investment policy provides limitations for issuer concentration, which limits, at the time of purchase, the concentration in any one issuer to 5%5% of the market value of our total investment portfolio.

At September 30, 2017, we held a $27.8 million restricted certificate of deposit, which is carried at cost. This investment serves as a collateral deposit against the principal amount outstanding under loans made to ADTRAN pursuant to an Alabama State Industrial Development Authority revenue bond (the Bond), which totaled $27.8 million at September 30, 2017 and December 31, 2016. At September 30, 2017 and December 31, 2016, the estimated fair value of the Bond using a level 2 valuation technique was approximately $28.0 million and $28.1 million, respectively, based on a The Company did 0t purchase any available-for-sale debt security with ~~a comparable interest rate and maturity and a Standard and Poor’s~~ credit ~~rating of AAA. We have~~deterioration during the right to set-off the balance of the Bond with the collateral deposit in order to reduce the balance of the indebtedness. The Bond matures on January 1, 2020, and bears interest at the rate of 2% per annum. In conjunction with this program, we are eligible to receive certain economic incentives from the state of Alabama that reduce the amount of payroll withholdings we are required to remit to the state for those employment positions that qualify under this program. We are required to make payments in the amounts necessary to pay the interest on the amounts currently outstanding. It is our intent to make annual principal payments in addition to the interest amounts that are due.

We review our investment portfolio for potential “other-than-temporary” declines in value on an individual investment basis. We assess, on a quarterly basis, significant declines in value which may be considered other-than-temporary and, if necessary, recognize and record the appropriate charge to write-down the carrying value of such investments. In making this assessment, we take into consideration qualitative and quantitative information, including but not limited to the following: the magnitude and duration of historical declines in market prices, credit rating activity, assessments of liquidity, public filings, and statements made by the issuer. We generally begin our identification of potential other-than-temporary impairments by reviewing any security with a fair value that has declined from its original or adjusted cost basis by 25% or more for six or more consecutive months. We then evaluate the individual security based on the previously identified factors to determine the amount of the write-down, if any. For the three and nine months ended September 30, ~~2017~~2021.

Marketable Equity Securities

Our marketable equity securities consist of publicly traded stock, interests in funds and ~~2016, other-than-temporary~~certain other investments measured at fair value or cost (where appropriate).

In March 2019, an outstanding note receivable of $4.3 million owed to the Company was repaid and reissued in the form of debt and equity. Of the outstanding $4.3 million, $3.4 million was issued as an equity investment. The Company elected to record this equity investment that does not have a readily determinable fair value using the measurement alternative. Under the measurement alternative, equity investments that do not have a readily determinable fair value can be recorded at cost less impairment, if any, adjusted for observable price changes for an identical or similar investment. During the year ended December 31, 2020, impairment charges totaling $2.6 million were ~~not significant.~~recorded related to this equity investment, which was included in net investment gain (loss) on the Condensed Consolidated Statement of Income (Loss). As a result, the carrying value of this investment was $0.8 million as of September 30, 2021 and December 31, 2020. The remaining amount, $0.9 million of the original $4.3 million note receivable, was reissued as a new note receivable, which is included in long-term investments on the Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020. NaN impairment charge was recognized related to the note receivable as it is a secured loan.

Realized ~~gains~~ and ~~losses on sales of securities are computed under the specific identification method. The following table presents gross realized~~unrealized gains and losses related to ~~our investments:~~marketable equity securities were as follows:

Three Months Ended

Nine Months Ended

September 30,

September 30,

(In thousands)

2017

2016

2017

2016

Gross realized gains

$
1,094

$
1,346

$
3,324

$
5,226

Gross realized losses

$
(85
)

$
(30
)

$
(455
)

$
(1,072
)


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(In thousands)	2021			2020		2021			2020
Realized gain (loss) on equity securities sold	$	—		$	623	$	(55	)	$	(1,485	)
Unrealized (loss) gain on equity securities held		(68	)		2,157		2,844			3,046
Total gain (loss) recognized, net	$	(68	)	$	2,780	$	2,789		$	1,561

AsIncome generated from marketable equity securities was recorded as interest and dividend income in the Condensed Consolidated Statements of ~~September 30, 2017~~Income (Loss). U.S. GAAP establishes a three-level valuation hierarchy based upon observable and ~~2016, gross unrealized losses related to individual securities in a continuous loss position~~unobservable inputs for ~~12 months or longer were not significant.~~

~~We have categorized our cash equivalents held in money market funds and our investments held at~~ fair value ~~into a three-level fair value hierarchy based on the priority~~measurement of ~~the inputs to the valuation technique for the cash equivalents and investments as follows:~~financial instruments:

• Level 1 ~~- Values~~– Observable outputs; values based on unadjusted quoted prices for identical assets or liabilities in an active market;

• Level 2 ~~- Values~~– Significant inputs that are observable; values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly;

• Level 3 ~~- Values~~– Significant unobservable inputs; values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs could include information supplied by investees.

Fair Value Measurements at September 30, 2017 Using

(In thousands)

Fair Value

Quoted Prices
in Active
Market for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

Cash equivalents

Money market funds

$
8,115

$
8,115

$
—

$
—

Commercial Paper

35,436

—

35,436

—

Cash equivalents

43,551

8,115

35,436

—

Available-for-sale securities

Deferred compensation plan assets

19,113

19,113

—

—

Available-for-sale debt securities

Corporate bonds

45,219

—

45,219

—

Municipal fixed-rate bonds

4,874

—

4,874

—

Asset-backed bonds

7,785

—

7,785

—

Mortgage/Agency-backed bonds

7,330

—

7,330

—

U.S. government bonds

20,894

20,894

—

—

Foreign government bonds

728

—

728

—

Available-for-sale marketable equity securities

Marketable equity securities – various industries

34,082

34,082

—

—

Available-for-sale securities

140,025

74,089

65,936

—

Total

$
183,576

$
82,204

$
101,372

$
—

Fair Value Measurements at December 31, 2016 Using

(In thousands)

Fair Value

Quoted Prices
in Active
Market for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

Cash equivalents

Money market funds

$
6,878

$
6,878

$
—

$
—

Commercial Paper

17,222

—

17,222

—

Cash equivalents

24,100

6,878

17,222

—

Available-for-sale securities

Deferred compensation plan assets

14,596

14,596

—

—

Available-for-sale debt securities

Corporate bonds

66,412

—

66,412

—

Municipal fixed-rate bonds

11,774

—

11,774

—

Asset-backed bonds

10,206

—

10,206

—

Mortgage/Agency-backed bonds

13,004

—

13,004

—

U.S. government bonds

29,767

29,767

—

—

Foreign government bonds

3,730

—

3,730

—

Variable Rate Demand Notes

11,855

—

11,855

—

Available-for-sale marketable equity securities

Marketable equity securities – various industries

29,379

29,379

—

—

Available-for-sale securities

190,723

73,742

116,981

—

Total

$
214,823

$
80,620

$
134,203

$
—

1519

The Company’s cash equivalents and investments held at fair value are categorized into this hierarchy as follows:


			Fair Value Measurements as of September 30, 2021 Using
(In thousands)	Fair Value		Quoted Prices in Active Market for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents
Money market funds	$	532	$	532	$	—	$	—
Commercial paper		400		—		400		—
Available-for-sale debt securities
Corporate bonds		13,414		—		13,414		—
Municipal fixed-rate bonds		2,248		—		2,248		—
Asset-backed bonds		3,513		—		3,513		—
Mortgage/Agency-backed bonds		9,212		—		9,212		—
U.S. government bonds		16,052		16,052		—		—
Foreign government securities		543		—		543		—
Other		533		—		—		533
Marketable equity securities
Marketable equity securities – various industries		12,144		12,144		—		—
Deferred compensation plan assets		25,733		25,733		—		—
Other investments		1,400		1,400		—		—
Total	$	85,724	$	55,861	$	29,330	$	533


			Fair Value Measurements as of December 31, 2020 Using
(In thousands)	Fair Value		Quoted Prices in Active Market for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents
Money market funds	$	497	$	497	$	—	$	—
U.S. government bonds		350		350		—		—
Available-for-sale debt securities
Corporate bonds		11,885		—		11,885		—
Municipal fixed-rate bonds		2,884		—		2,884		—
Asset-backed bonds		6,708		—		6,708		—
Mortgage/Agency-backed bonds		11,644		—		11,644		—
U.S. government bonds		9,875		9,875		—		—
Foreign government bonds		1,337		—		1,337		—
Commercial paper		250		—		250		—
Other		533		—		—		533
Marketable equity securities
Marketable equity securities – various industries		10,963		10,963		—		—
Deferred compensation plan assets		23,891		23,891		—		—
Other investments		1,400		1,400		—		—
Total	$	82,217	$	46,976	$	34,708	$	533

The fair value of our Level 2 securities is calculated using a weighted average market price for each security. Market prices are obtained from a variety of industry standard data providers, ~~security master files from~~ large financial institutions and other third-party sources. These multiple market prices are used as inputs into a distribution-curve-based algorithm to determine the daily market value of each security.

~~Our variable rate demand notes have a structure that implies a standard expected market price.~~ The ~~frequent interest rate resets make it reasonable to expect the price to stay at par. These securities are priced at the expected market price.~~

~~7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES~~

~~We participate in foreign exchange forward contracts in connection with the management of exposure to fluctuations in foreign exchange rates.~~

~~Cash Flow Hedges~~

Our cash flow hedging activities utilize foreign exchange forward contracts to reduce the risk that movements in exchange rates will adversely affect the net cash flows resulting from the planned purchase of products from foreign suppliers. Purchases of U.S. denominated inventory by our European subsidiary represent our primary exposure. Changes in the fair value of ~~derivatives designated as cash flow hedges are not recognized~~Level 3 securities is calculated based on unobservable inputs. Quantitative information with respect to unobservable inputs consists of third-party valuations performed in ~~current operating results, but are recorded~~accordance with ASC 820 – Fair Value Measurement. Inputs used in ~~accumulated other comprehensive income. Amounts related to cash flow hedges are reclassified from accumulated other comprehensive income when~~preparing the ~~underlying hedged item impacts earnings. This reclassification is recorded in~~third-party valuation included the ~~same line item of the consolidated statements of income as where the effects of the hedged item are recorded, which is cost of sales.~~following assumptions, among others: estimated discount rates and fair market yields.

~~Undesignated Hedges~~

We have certain customers and suppliers who are invoiced or pay in a non-functional currency. Changes in the monetary exchange rates may adversely affect our results of operations and financial condition, as outstanding non-functional balances are revalued to the functional currency through profit and loss. When appropriate, we utilize foreign exchange forward contracts to help manage the volatility relating to these valuation exposures. All changes in the fair value of our derivative instruments that do not qualify for or are not designated for hedged accounting transactions are recognized as other income (expense) in the Consolidated Statements of Income.

As of September 30, 2017, we had foreign exchange forward contracts outstanding with notional amounts totaling $7.0 million (€5.9 million), which hedge a portion of projected inventory purchases expected to be settled in the fourth quarter of 2017. We have determined that there was no hedge ineffectiveness for the quarter ended September 30, 2017 related to these contracts.

We do not hold or issue derivative instruments for trading or other speculative purposes. Our derivative instruments are recorded in the Consolidated Balance Sheets at their fair values. Our derivative instruments are not subject to master netting arrangements and are not offset in the Consolidated Balance Sheets.

~~The fair values of our derivative instruments recorded in the Consolidated Balance Sheet as of September 30, 2017 and December 31, 2016 were as follows:~~

(In thousands)

Balance Sheet Location

September 30, 2017

December 31, 2016

Derivatives Not Designated as Hedging Instruments (Level 2):

Foreign exchange contracts – derivative assets

Other receivables

$
—

$
159

Foreign exchange contracts – derivative liabilities

Accounts payable

(402
)

—

Total derivatives

$
(402
)

$
159

~~The change in the fair values of our derivative instruments recorded in the Consolidated Statements of Income during the three and nine months ended September 30, 2017 and 2016 were as follows:~~

Three Months Ended

Nine Months Ended

Income Statement

September 30,

September 30,

(In thousands)

Location

2017

2016

2017

2016

Derivatives Not Designated as Hedging Instruments:

Foreign exchange contracts

Other income (expense)

$
(334
)

$
(37
)

$
(819
)

$
153

1620

The change in our derivatives designated as hedging instruments recorded in other comprehensive income (OCI) and reclassified to income, net of tax, during the three and nine months ended September 30, 2017 and 2016 were as follows:

Amount of Gains (Losses) Recognized in

Amount of Gains (Losses) Reclassified

OCI on Derivatives

from AOCI into Income

Three Months Ended

Location of Gains

Three Months Ended

September 30,

(Losses) Reclassified

September 30,

(In thousands)

2017

2016

from AOCI into Income

2017

2016

Derivatives Designated as Hedging Instruments:

Foreign exchange contracts

$
(127
)

$
—

Cost of Sales

$
(269
)

$
—

7. INVENTORY

Amount of Gains (Losses) Recognized in

Amount of Gains (Losses) Reclassified

OCI on Derivatives

from AOCI into Income

Nine Months Ended

Location of Gains

Nine Months Ended

September 30,

(Losses) Reclassified

September 30,

(In thousands)

2017

2016

from AOCI into Income

2017

2016

Derivatives Designated as Hedging Instruments:

Foreign exchange contracts

$
(619
)

$
—

Cost of Sales

$
(423
)

$
—

~~8. INVENTORY~~

~~At September 30, 2017 and December 31, 2016, inventory~~Inventory consisted of the following:


	September 30,		December 31,		As of		As of
(In thousands)	2017		2016		September 30, 2021		December 31, 2020
Raw materials	$	44,002	$	40,461	$	66,777	$	47,026
Work in process		4,859		4,003		1,202		776
Finished goods		67,369		60,653		59,262		77,655
Total	$	116,230	$	105,117
Total inventory, net					$	127,241	$	125,457

~~We establish~~Inventory reserves are established for estimated excess and obsolete ~~or unmarketable~~ inventory equal to the difference between the cost of the inventory and the estimated ~~fair~~net realizable value of the inventory based ~~upon assumptions about future demand~~on estimated reserve percentages, which considers historical usage, known trends, inventory age and market conditions. AtAs of September 30, ~~2017~~2021 and December 31, ~~2016, raw materials~~2020, inventory reserves ~~totaled $16.8~~were $44.3 million and ~~$14.6~~$39.6 million, respectively.

8. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:


	As of			As of
(In thousands)	September 30, 2021			December 31, 2020
Land	$	4,575		$	4,575
Building and land improvements		34,995			35,142
Building		68,156			68,169
Furniture and fixtures		19,925			19,965
Computer hardware and software		71,615			70,942
Engineering and other equipment		134,689			132,920
Total property, plant and equipment		333,955			331,713
Less: accumulated depreciation		(277,399	)		(269,314	)
Total property, plant and equipment, net	$	56,556		$	62,399

Long-lived assets used in operations 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. Due to the current economic environment, particularly related to COVID-19, the Company assessed impairment triggers related to long-lived assets during the third quarters of 2021 and 2020. As a result, no impairment test of long-lived assets was performed as of September 30, 2021 and 2020, and 0 impairment losses of long-lived assets were recorded during the three or nine months ended September 30, 2021 and 2020.

Depreciation expense was $3.0 million and $3.1 million for the three months ended September 30, 2021 and 2020 respectively, and ~~finished goods inventory reserves totaled $12.9~~$9.1 million ~~and $10.6 million, respectively.~~

~~9. GOODWILL AND INTANGIBLE ASSETS~~

~~Goodwill, all of which relates to our acquisition of Bluesocket, Inc., was $3.5 million at~~for both the nine months ended September 30, ~~2017~~2021 and 2020, which is recorded in cost of revenue, selling, general and administrative expenses and research and development expenses in the Condensed Consolidated Statements of Income (Loss).

9. GOODWILL

Goodwill was $7.0 million as of September 30, 2021 and December 31, ~~2016,~~2020, of which ~~$3.1~~$6.6 million and ~~$0.4~~$0.4 million iswas allocated to our Network Solutions and Services & Support reportable segments, respectively.

~~We evaluate~~The Company evaluates the carrying value of goodwill during the fourth quarter of each year and between annual evaluations if events occur or circumstances change that ~~would~~could more likely than not reduce the fair value of the reporting unit below its carrying amount. We ~~have elected to first~~ assess ~~the~~ qualitative factors to determine whether ~~it is more likely than not that~~ the fair value of the reporting unit to which the goodwill is assigned is less than its carrying amount ~~as a basis~~and recognize an impairment charge for ~~determining whether it is necessary to perform~~ the ~~two-step impairment test. If we determine that it is more likely than not that its~~amount by which the carrying value exceeds the fair value ~~is less than its carrying amount, then~~of the ~~two-step~~reporting unit. No interim impairment test ~~will be performed. Based on the results~~ of ~~our qualitative assessment in 2016, we concluded that it~~goodwill was ~~not necessary to perform the two-step impairment test. There have been no impairment losses recognized since the acquisition in 2011.~~

Intangible assets are included in other assets in the accompanying Consolidated Balance Sheets and include intangibles acquired in conjunction with our acquisitions of Bluesocket, Inc. on August 4, 2011, the NSN BBA business on May 4, 2012, and CommScope’s active fiber access business on September 13, 2016.

~~The following table presents our intangible assets~~performed as of September 30, ~~2017~~2021 and ~~December 31, 2016:~~2020, and 0 impairment of goodwill was recorded during the three or nine months ended September 30, 2021 and 2020.

(In thousands)

September 30, 2017

December 31, 2016

Gross
Value

Accumulated Amortization

Net Value

Gross
Value

Accumulated Amortization

Net Value

Customer relationships

$
7,400

$
(4,042
)

$
3,358

$
6,899

$
(3,208
)

$
3,691

Developed technology

6,740

(5,789
)

951

6,444

(5,061
)

1,383

Intellectual property

2,340

(2,229
)

111

2,340

(2,129
)

211

Supply agreement

1,400

(1,400
)

—

1,400

(544
)

856

License

500

(403
)

97

500

(113
)

387

Patent

500

(71
)

429

500

(20
)

480

Trade names

370

(322
)

48

370

(285
)

85

Non-compete

200

(93
)

107

200

(26
)

174

Total

$
19,450

$
(14,349
)

$
5,101

$
18,653

$
(11,386
)

$
7,267

10.INTANGIBLE ASSETS

Intangible assets consisted of the following:


	As of September 30, 2021							As of December 31, 2020
(In thousands)	Gross Carrying Amount		Accumulated Amortization			Net Book Value		Gross Carrying Amount		Accumulated Amortization			Net Book Value
Customer relationships	$	20,876	$	(9,483	)	$	11,393	$	21,123	$	(8,055	)	$	13,068
Developed technology		8,200		(3,399	)		4,801		8,200		(2,546	)		5,654
Licensed technology		5,900		(2,322	)		3,578		5,900		(1,830	)		4,070
Supplier relationships		—		—			—		2,800		(2,800	)		—
Licensing agreements		560		(207	)		353		560		(152	)		408
Patents		500		(346	)		154		500		(294	)		206
Trade names		210		(198	)		12		210		(146	)		64
Total	$	36,246	$	(15,955	)	$	20,291	$	39,293	$	(15,823	)	$	23,470

The Company evaluates the carrying value of intangible assets 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. Due to the current economic environment, particularly related to COVID-19, the Company assessed impairment triggers related to intangible assets during the third quarters of 2021 and 2020. As a result, 0 impairment test of long-lived assets was performed as of September 30, 2021 and 2020, and 0 impairment losses of intangible assets were recorded during the three and nine months ended September 30, 2021 and 2020.

Amortization expense ~~all~~was $1.0 million in each of ~~which relates to business acquisitions, was $0.5 million for~~ the three months ended September 30, ~~2017~~2021 and ~~2016,~~2020, and ~~$2.4~~$3.1 million and ~~$1.4~~$3.4 million for the nine months ended September 30, ~~2017~~2021 and ~~2016, respectively.~~

As2020, respectively, and was included in cost of ~~September 30, 2017,~~revenue, selling, general and administrative expenses and research and development expenses in the ~~estimated~~Condensed Consolidated Statements of Income (Loss).

Estimated future amortization expense of ~~our~~ intangible assets iswas as follows:


	As of
(In thousands)	September 30, 2021
2021	$	984
2022		3,479
2023		3,327
2024		3,233
2025		3,027
Thereafter		6,241
Total	$	20,291

(In thousands)

Amount

Remainder of 2017

$
473

2018

1,207

2019

691

2020

654

2021

599

Thereafter

1,477

Total

$
5,101

11. LEASES

Net Investment in Sales-Type Leases

We are the lessor in sales-type lease arrangements for network equipment, which consisted of the following:


	As of		As of
(In thousands)	September 30, 2021		December 31, 2020
Current minimum lease payments receivable(1)	$	129	$	702
Non-current minimum lease payments receivable(2)		7		347
Total minimum lease payments receivable		136		1,049
Less: Current unearned revenue		98		218
Less: Non-current unearned revenue		1		50
Net investment in sales-type leases	$	37	$	781

(1)

Included in other receivables on the Condensed Consolidated Balance Sheets.

(2)

Included in other assets on the Condensed Consolidated Balance Sheets.

~~10.~~

12. REVOLVING CREDIT AGREEMENT

On November 4, 2020, the Company, as borrower, entered into a Revolving Credit and Security Agreement and related Promissory Note (together, the “Revolving Credit Agreement”) with Cadence Bank, N.A., as lender (the “Lender”). The Revolving Credit Agreement provides the Company with a new $10.0 million secured revolving credit facility. Loans under the Revolving Credit Agreement will bear interest at a rate equal to 1.50% over the screen rate as obtained by Reuter’s, Bloomberg or another commercially available source as may be designated by the Lender from time to time; provided, however, that in no event shall the applicable rate of interest under the Revolving Credit Agreement be less than 1.50% per annum. Such loans are secured by all of the cash, securities, securities entitlements and investment property in a certain bank account, as outlined in the Revolving Credit Agreement, at a maximum loan-to-value ratio of 75% determined by dividing the full commitment amount under the Revolving Credit Agreement on the date of testing, determined by the Lender each fiscal quarter, by the market value of the collateral. The Revolving Credit Agreement matures on November 4, 2021, subject to earlier termination upon the occurrence of certain events of default. The Company had 0t made any draws under the Revolving Credit Agreement as of September 30, 2021.

13. ALABAMA STATE INDUSTRIAL DEVELOPMENT AUTHORITY FINANCING AND ECONOMIC INCENTIVES

In conjunction with the 1995 expansion of our Huntsville, Alabama facility, we were approved for participation in an incentive program offered by the State of Alabama Industrial Development Authority (the “Authority”). Pursuant to the program, in January 1995, the Authority issued $20.0 million of its taxable revenue bonds (the “Taxable Revenue Bonds”) and loaned the proceeds from the sale of the Taxable Revenue Bonds to the Company. Further advances on the Taxable Revenue Bonds were made by the Authority, bringing the total amount to $50.0 million. The Taxable Revenue Bonds bore interest, payable monthly with an interest rate of 2% per annum. The Taxable Revenue Bonds aggregate principal amount of $24.6 million matured on January 1, 2020 and was repaid in full on January 2, 2020, using the funds held in a certificate of deposit by the Company.

14. STOCKHOLDERS’ EQUITY

~~A summary of the changes in stockholders’ equity for the nine months ended September 30, 2017 is as follows:~~

(In thousands)

Stockholders’ Equity

Balance, December 31, 2016

$
479,517

Net income

34,950

Dividend payments

(13,031
)
Dividends accrued for unvested restricted stock units

(43
)
Net unrealized gains on available-for-sale securities (net of tax)

2,512

Net unrealized losses on cash flow hedges (net of tax)

(196
)
Defined benefit plan adjustments (net of tax)

214

Foreign currency translation adjustment

5,402

Proceeds from stock option exercises

6,606

Purchase of treasury stock

(17,348
)
ASU 2016-09 adoption

10

Stock-based compensation expense

5,573

Balance, September 30, 2017

$
504,166

Stock Repurchase Program

Since 1997, ~~our~~the Company’s Board of Directors has approved multiple share repurchase programs that have authorized ~~open market repurchase transactions~~repurchases of ~~up to 50.0 million shares of our~~its common stock, which ~~will be~~are implemented through open market or private purchases from time to time as conditions warrant. During the nine months ended September 30, ~~2017,~~2021, we ~~repurchased 0.9 million~~did 0t repurchase any shares of our common ~~stock at an average price of $20.27 per share.~~stock. As of September 30, ~~2017,~~2021, we ~~have~~had the authority to purchase an additional ~~3.6~~2.5 million shares of our common stock under the current ~~plans approved by the Board~~authorization of ~~Directors.~~up to 5.0 million shares.

~~Stock Option Exercises~~

We issued 0.4 million shares of treasury stock during the nine months ended September 30, 2017 to accommodate employee stock option exercises. The stock options had exercise prices ranging from $15.29 to $23.64. We received proceeds totaling $6.6 million from the exercise of these stock options during the nine months ended September 30, 2017.

~~Dividend Payments~~

~~During the nine months ended September 30, 2017, we paid cash dividends as follows (in thousands except per share amounts):~~

Record Date

Payment Date

Per Share Amount

Total Dividend Paid

February 2, 2017

February 16, 2017

$
0.09

$
4,369

May 4, 2017

May 18, 2017

$
0.09

$
4,350

August 3, 2017

August 17, 2017

$
0.09

$
4,312

Accumulated Other Comprehensive Income (Loss)

Other comprehensive income consists of unrealized gains (losses) on available-for-sale securities; unrealized gains (losses) on cash flow hedges; reclassification adjustments for amounts included in net income related to impairments of available-for-sale securities, realized gains (losses) on available-for-sale securities, realized gains (losses) on cash flow hedges, and amortization of actuarial gains (losses) related to our defined benefit plan; defined benefit plan adjustments; and foreign currency translation adjustments.

The following tables present the changes in accumulated other comprehensive ~~income,~~loss, net of tax, by ~~component for the three months ended September 30, 2017 and 2016:~~component:

Three Months Ended September 30, 2017

(In thousands)

Unrealized
Gains
(Losses)
on
Available-
for-Sale
Securities

Unrealized Gains (Losses) on Cash Flow Hedges

Defined
Benefit Plan
Adjustments

Foreign
Currency
Adjustments

Total

Beginning balance

$
2,112

$
(338
)

$
(4,876
)

$
(3,714
)

$
(6,816
)
Other comprehensive income (loss) before
   reclassifications

1,420

(127
)

—

1,541

2,834

Amounts reclassified from accumulated other
   comprehensive income

(616
)

269

73

—

(274
)
Net current period other comprehensive income
   (loss)

804

142

73

1,541

2,560

Ending balance

$
2,916

$
(196
)

$
(4,803
)

$
(2,173
)

$
(4,256
)


	Three Months Ended September 30, 2021
(In thousands)	Unrealized Losses on Available- for-Sale Securities			Defined Benefit Plan Adjustments			Foreign Currency Adjustments			ASU 2018-02 Adoption		Total
As of June 30, 2021	$	(255	)	$	(9,310	)	$	(3,960	)	$	385	$	(13,140	)
Other comprehensive loss before reclassifications		(29	)		—			(1,389	)		—		(1,418	)
Amounts reclassified from accumulated other comprehensive income (loss)		(32	)		124			—			—		92
Net current period other comprehensive income (loss)		(61	)		124			(1,389	)		—		(1,326	)
As of September 30, 2021	$	(316	)	$	(9,186	)	$	(5,349	)	$	385	$	(14,466	)

Three Months Ended September 30, 2016

(In thousands)

Unrealized
Gains
(Losses)
on
Available-
for-Sale
Securities

Defined
Benefit Plan
Adjustments

Foreign
Currency
Adjustments

Total

Beginning balance

$
1,512

$
(3,828
)

$
(6,379
)

$
(8,695
)
Other comprehensive income (loss) before
reclassifications

1,028

—

575

1,603

Amounts reclassified from accumulated other
comprehensive income

(770
)

36

—

(734
)
Net current period other comprehensive income (loss)

258

36

575

869

Ending balance

$
1,770

$
(3,792
)

$
(5,804
)

$
(7,826
)

~~The following tables present the changes in accumulated other comprehensive income, net of tax, by component for the nine months ended September 30, 2017 and 2016:~~


	Three Months Ended September 30, 2020
(In thousands)	Unrealized Gains (Losses) on Available- for-Sale Securities			Defined Benefit Plan Adjustments			Foreign Currency Adjustments			ASU 2018-02 Adoption		Total
As of June 30, 2020	$	206		$	(8,894	)	$	(7,043	)	$	385	$	(15,346	)
Other comprehensive income before reclassifications		494			—			2,469			—		2,963
Amounts reclassified from accumulated other comprehensive income (loss)		(539	)		244			—			—		(295	)
Net current period other comprehensive income (loss)		(45	)		244			2,469			—		2,668
As of September 30, 2020	$	161		$	(8,650	)	$	(4,574	)	$	385	$	(12,678	)


	Nine Months Ended September 30, 2021
(In thousands)	Unrealized Gains (Losses) on Available- for-Sale Securities			Defined Benefit Plan Adjustments			Foreign Currency Adjustments			ASU 2018-02 Adoption		Total
As of December 31, 2020	$	32		$	(9,621	)	$	(2,435	)	$	385	$	(11,639	)
Other comprehensive loss before reclassifications		(358	)		—			(2,914	)		—		(3,272	)
Amounts reclassified from accumulated other comprehensive income		10			435			—			—		445
Net current period other comprehensive income (loss)		(348	)		435			(2,914	)		—		(2,827	)
As of September 30, 2021	$	(316	)	$	(9,186	)	$	(5,349	)	$	385	$	(14,466	)


	Nine Months Ended September 30, 2020
(In thousands)	Unrealized Gains (Losses) on Available- for-Sale Securities			Defined Benefit Plan Adjustments			Foreign Currency Adjustments			ASU 2018-02 Adoption		Total
As of December 31, 2019	$	(284	)	$	(9,226	)	$	(7,292	)	$	385	$	(16,417	)
Other comprehensive income before reclassifications		444			—			2,718			—		3,162
Amounts reclassified from accumulated other comprehensive income		1			576			—			—		577
Net current period other comprehensive income		445			576			2,718			—		3,739
As of September 30, 2020	$	161		$	(8,650	)	$	(4,574	)	$	385	$	(12,678	)

Nine Months Ended September 30, 2017

(In thousands)

Unrealized
Gains
(Losses)
on
Available-
for-Sale
Securities

Unrealized Gains (Losses) on Cash Flow Hedges

Defined
Benefit Plan
Adjustments

Foreign
Currency
Adjustments

Total

Beginning balance

$
404

$
—

$
(5,017
)

$
(7,575
)

$
(12,188
)
Other comprehensive income (loss) before
reclassifications

4,262

(619
)

—

5,402

9,045

Amounts reclassified from accumulated other
comprehensive income

(1,750
)

423

214

—

(1,113
)
Net current period other comprehensive income (loss)

2,512

(196
)

214

5,402

7,932

Ending balance

$
2,916

$
(196
)

$
(4,803
)

$
(2,173
)

$
(4,256
)

Nine Months Ended September 30, 2016

(In thousands)

Unrealized
Gains
(Losses)
on
Available-
for-Sale
Securities

Defined
Benefit Plan
Adjustments

Foreign
Currency
Adjustments

Total

Beginning balance

$
1,932

$
(3,895
)

$
(7,006
)

$
(8,969
)
Other comprehensive income (loss) before
reclassifications

2,267

—

1,202

3,469

Amounts reclassified from accumulated other
comprehensive income

(2,429
)

103

—

(2,326
)
Net current period other comprehensive income (loss)

(162
)

103

1,202

1,143

Ending balance

$
1,770

$
(3,792
)

$
(5,804
)

$
(7,826
)

The following tables present the details of reclassifications out of accumulated other comprehensive income ~~for~~(loss):


	Three Months Ended September 30, 2021
(In thousands)	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)			Affected Line Item in the Statement Where Net Income Is Presented
Unrealized gain (loss) on available-for-sale securities:
Net realized loss on sales of securities	$	42		Net investment gain (loss)
Defined benefit plan adjustments – actuarial gain		(180	)	(1)
Total reclassifications for the period, before tax		(138	)
Tax expense		46
Total reclassifications for the period, net of tax	$	(92	)

(1)

A part of the ~~three months ended September 30, 2017 and 2016:~~computation of net periodic pension cost, which is included in other income (expense), net in the Condensed Consolidated Statements of Income (Loss).


	Three Months Ended September 30, 2020
(In thousands)	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)			Affected Line Item in the Statement Where Net Income Is Presented
Unrealized gain (loss) on available-for-sale securities:
Net realized loss on sales of securities	$	728		Net investment gain (loss)
Defined benefit plan adjustments – actuarial gain		(354	)	(1)
Total reclassifications for the period, before tax		374
Tax benefit		(79	)
Total reclassifications for the period, net of tax	$	295

(1)

A part of the computation of net periodic pension cost, which is included in other income (expense), net in the Condensed Consolidated Statements of Income (Loss).


	Nine Months Ended September 30, 2021
(In thousands)	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)			Affected Line Item in the Statement Where Net Income Is Presented
Unrealized gain (loss) on available-for-sale securities:
Net realized gain on sales of securities	$	(13	)	Net investment gain (loss)
Defined benefit plan adjustments – actuarial gain		(630	)	(1)
Total reclassifications for the period, before tax		(643	)
Tax expense		198
Total reclassifications for the period, net of tax	$	(445	)

(1)

A part of the computation of net periodic pension cost, which is included in other income (expense), net in the Condensed Consolidated Statements of Income (Loss).


	Nine Months Ended September 30, 2020
(In thousands)	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)			Affected Line Item in the Statement Where Net Income Is Presented
Unrealized gain (loss) on available-for-sale securities:
Net realized gain on sales of securities	$	(1	)	Net investment gain (loss)
Defined benefit plan adjustments – actuarial gain		(835	)	(1)
Total reclassifications for the period, before tax		(836	)
Tax expense		259
Total reclassifications for the period, net of tax	$	(577	)

(1)

A part of the computation of net periodic pension cost, which is included in other income (expense), net in the Condensed Consolidated Statements of Income (Loss).

(In thousands)

Three Months Ended September 30, 2017
Details about Accumulated Other Comprehensive Income Components

Amount
Reclassified
from
Accumulated
Other
Comprehensive
Income

Affected Line Item in the
Statement Where Net
Income Is Presented
Unrealized gains (losses) on available-for-
   sale securities:

Net realized gain on sales of securities

$
1,066

Net realized investment gain
Impairment expense

(57
)

Net realized investment gain
Net losses on derivatives designated as hedging
   instruments

(385
)

Cost of sales
Defined benefit plan adjustments – actuarial losses

(106
)

⁽¹⁾
Total reclassifications for the period, before tax

518

Tax (expense) benefit

(244
)

Total reclassifications for the period, net
   of tax

$
274

⁽¹⁾	~~Included in the computation of net periodic pension cost. See Note 4 of Notes to Consolidated Financial Statements.~~

(In thousands)

Three Months Ended September 30, 2016
Details about Accumulated Other Comprehensive Income Components

Amount
Reclassified
from
Accumulated
Other
Comprehensive
Income

Affected Line Item in the
Statement Where Net
Income Is Presented
Unrealized gains (losses) on available-for-
   sale securities:

Net realized gain on sales of securities

$
1,268

Net realized investment gain
Impairment expense

(6
)

Net realized investment gain
Defined benefit plan adjustments – actuarial
   losses

(51
)

⁽¹⁾
Total reclassifications for the period, before
   tax

1,211

Tax (expense) benefit

(477
)

Total reclassifications for the period, net
   of tax

$
734

⁽¹⁾	~~Included in the computation of net periodic pension cost. See Note 4 of Notes to Consolidated Financial Statements.~~

2125

The following tables present ~~the details of reclassifications out of accumulated other comprehensive income for the nine months ended September 30, 2017 and 2016:~~

(In thousands)

Nine Months Ended September 30, 2017
Details about Accumulated Other Comprehensive Income Components

Amount
Reclassified
from
Accumulated
Other
Comprehensive
Income

Affected Line Item in the
Statement Where Net
Income Is Presented
Unrealized gains (losses) on available-for-
   sale securities:

Net realized gain on sales of securities

$
3,031

Net realized investment gain
Impairment expense

(162
)

Net realized investment gain
Net losses on derivatives designated as hedging
   instruments

(539
)

Cost of sales
Defined benefit plan adjustments – actuarial
   losses

(310
)

⁽¹⁾
Total reclassifications for the period, before
   tax

2,020

Tax (expense) benefit

(907
)

Total reclassifications for the period, net
   of tax

$
1,113

⁽¹⁾	~~Included in the computation of net periodic pension cost. See Note 4 of Notes to Consolidated Financial Statements.~~

(In thousands)

Nine Months Ended September 30, 2016
Details about Accumulated Other Comprehensive Income Components

Amount
Reclassified
from
Accumulated
Other
Comprehensive
Income

Affected Line Item in the
Statement Where Net
Income Is Presented
Unrealized gains (losses) on available-for-
   sale securities:

Net realized gain on sales of securities

$
4,383

Net realized investment gain
Impairment expense

(401
)

Net realized investment gain
Defined benefit plan adjustments – actuarial
   losses

(149
)

⁽¹⁾
Total reclassifications for the period, before
   tax

3,833

Tax (expense) benefit

(1,507
)

Total reclassifications for the period, net
   of tax

$
2,326

⁽¹⁾	~~Included in the computation of net periodic pension cost. See Note 4 of Notes to Consolidated Financial Statements.~~

~~The following table presents~~ the tax effects related to the change in each component of other comprehensive income ~~for~~(loss):


	Three Months Ended									Three Months Ended
	September 30, 2021									September 30, 2020
(In thousands)	Before-Tax Amount			Tax (Expense) Benefit			Net-of-Tax Amount			Before-Tax Amount			Tax (Expense) Benefit			Net-of-Tax Amount
Unrealized gain (loss) on available-for-sale securities	$	(38	)	$	9		$	(29	)	$	668		$	(174	)	$	494
Reclassification adjustment for amounts related to available-for-sale investments included in net income (loss)		(42	)		10			(32	)		(728	)		189			(539	)
Reclassification adjustment for amounts related to defined benefit plan adjustments included in net income (loss)		180			(56	)		124			354			(110	)		244
Foreign currency translation adjustment		(1,389	)		—			(1,389	)		2,469			—			2,469
Total Other Comprehensive Income (Loss)	$	(1,289	)	$	(37	)	$	(1,326	)	$	2,763		$	(95	)	$	2,668


	Nine Months Ended									Nine Months Ended
	September 30, 2021									September 30, 2020
(In thousands)	Before-Tax Amount			Tax (Expense) Benefit			Net-of-Tax Amount			Before-Tax Amount		Tax (Expense) Benefit			Net-of-Tax Amount
Unrealized gain (loss) on available-for-sale securities	$	(471	)	$	113		$	(358	)	$	600	$	(156	)	$	444
Reclassification adjustment for amounts related to available-for-sale investments included in net income (loss)		13			(3	)		10			1		—			1
Reclassification adjustment for amounts related to defined benefit plan adjustments included in net income (loss)		630			(195	)		435			835		(259	)		576
Foreign currency translation adjustment		(2,914	)		—			(2,914	)		2,718		—			2,718
Total Other Comprehensive Income (Loss)	$	(2,742	)	$	(85	)	$	(2,827	)	$	4,154	$	(415	)	$	3,739

15. EARNINGS (LOSS) PER SHARE

The calculation of basic and diluted earnings (loss) per share is as follows:


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(In thousands, except per share amounts)	2021			2020		2021			2020
Numerator
Net income (loss)	$	(10,427	)	$	5,481	$	(4,445	)	$	(3,736	)
Denominator
Weighted average number of shares – basic		48,609			47,957		48,470			47,957
Effect of dilutive securities
PSUs, RSUs and restricted stock		—			467		—			—
Weighted average number of shares – diluted		48,609			48,424		48,470			47,957
Earnings (loss) per share – basic	$	(0.21	)	$	0.11	$	(0.09	)	$	(0.08	)
Earnings (loss) per share – diluted	$	(0.21	)	$	0.11	$	(0.09	)	$	(0.08	)

For the three months ended September 30, ~~2017~~2021 and ~~2016:~~

Three Months Ended

Three Months Ended

September 30, 2017

September 30, 2016

(In thousands)

Before-Tax
Amount

Tax
(Expense)
Benefit

Net-of-Tax
Amount

Before-Tax
Amount

Tax
(Expense)
Benefit

Net-of-Tax
Amount

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

$
2,328

$
(908
)

$
1,420

$
1,685

$
(657
)

$
1,028

Unrealized gains (losses) on cash flow hedges

(184
)

57

(127
)

—

—

—

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

(1,009
)

393

(616
)

(1,262
)

492

(770
)
Reclassification adjustment for amounts related to
   cash flow hedges included in net income

385

(116
)

269

—

—

—

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

106

(33
)

73

51

(15
)

36

Foreign currency translation adjustment

1,541

—

1,541

575

—

575

Total Other Comprehensive Income (Loss)

$
3,167

$
(607
)

$
2,560

$
1,049

$
(180
)

$
869

~~The following table presents the tax effects related to the change in each component of other comprehensive income~~2020, 0.2 million and 3.4 million stock options, respectively, and for the nine months ended September 30, ~~2017~~2021 and ~~2016:~~

Nine Months Ended

Nine Months Ended

September 30, 2017

September 30, 2016

(In thousands)

Before-Tax
Amount

Tax
(Expense)
Benefit

Net-of-Tax
Amount

Before-Tax
Amount

Tax
(Expense)
Benefit

Net-of-Tax
Amount

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

$
6,987

$
(2,725
)

$
4,262

$
3,716

$
(1,449
)

$
2,267

Unrealized gains (losses) on cash flow hedges

(897
)

278

(619
)

—

—

—

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

(2,869
)

1,119

(1,750
)

(3,982
)

1,553

(2,429
)
Reclassification adjustment for amounts related to
   cash flow hedges included in net income

539

(116
)

423

—

—

—

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

310

(96
)

214

149

(46
)

103

Foreign currency translation adjustment

5,402

—

5,402

1,202

—

1,202

Total Other Comprehensive Income (Loss)

$
9,472

$
(1,540
)

$
7,932

$
1,085

$
58

$
1,143

~~11. EARNINGS PER SHARE~~

~~A summary~~2020, 0.4 million and 4.3 million stock options, respectively, were outstanding but were not included in the computation of ~~the calculation of basic and~~ diluted earnings per ~~share for the three and nine months ended September 30, 2017 and 2016 is as follows:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

(In thousands, except per share amounts)

2017

2016

2017

2016

Numerator

Net income

$
15,898

$
12,415

$
34,950

$
27,657

Denominator

Weighted average number of shares – basic

47,870

48,470

48,110

48,839

Effect of dilutive securities

Stock options

487

137

385

137

PSUs, RSUs and restricted stock

174

71

123

60

Weighted average number of shares – diluted

48,531

48,678

48,618

49,036

Net income per share – basic

$
0.33

$
0.26

$
0.73

$
0.57

Net income per share – diluted

$
0.33

$
0.26

$
0.72

$
0.56

~~Anti-dilutive~~share. These stock options ~~to purchase common stock outstanding~~ were excluded ~~from~~because their exercise prices were greater than the ~~above calculations. Anti-dilutive options totaled 3.2 million and 5.6 million for~~average market price of the common shares during the applicable period, making them anti-dilutive under the treasury stock method.

For the three months ended September 30, ~~2017~~2021 and ~~2016,~~2020, less than 1 thousand and 18 thousand shares, respectively, and ~~3.9 million and 5.7 million~~ for the nine months ended September 30, ~~2017~~2021 and ~~2016, respectively.~~2020, 4 thousand and 0.1 million shares, respectively, of unvested PSUs, RSUs and restricted stock were excluded from the calculation of diluted earnings per share due to their anti-dilutive effect.

~~12.~~16. SEGMENT INFORMATION

~~We operate in two~~The chief operating decision maker regularly reviews the Company’s financial performance based on 2 reportable segments: (1) Network Solutions and (2) Services & Support. Network Solutions includes hardware and software products and next-generation virtualized solutions used in service provider or business networks, as well as prior-generation products. Services & Support includes ~~our suite~~a portfolio of ~~ProCloud~~^® ~~managed services,~~maintenance, network installation ~~engineering~~ and ~~maintenance~~solution integration services, which include hosted cloud services and ~~fee-based technical support and equipment repair/replacement plans.~~subscription services.

~~We evaluate the~~The performance of ~~our~~these segments is evaluated based on gross profit; therefore, selling, general and administrative expenses, research and development expenses, interest and dividend income, interest expense, net ~~realized~~ investment ~~gain/loss,~~gain (loss), other ~~income/expense~~income (expense), net and ~~provision for taxes~~income tax benefit (expense) are reported on a ~~company-wide, functional~~Company-wide basis only. There ~~are~~is no inter-segment ~~revenues.~~revenue. Asset information by reportable segment is not produced and, therefore, is not reported.

The following ~~table presents~~tables present information about the ~~reported sales~~revenue and gross profit of our reportable ~~segments for the three and nine months ended September 30, 2017 and 2016. We do not produce asset information~~segments:


	Three Months Ended
	September 30, 2021				September 30, 2020
(In thousands)	Revenue		Gross Profit		Revenue		Gross Profit
Network Solutions	$	120,767	$	39,738	$	115,229	$	52,434
Services & Support		17,314		7,935		17,914		6,528
Total	$	138,081	$	47,673	$	133,143	$	58,962


	Nine Months Ended
	September 30, 2021				September 30, 2020
(In thousands)	Revenue		Gross Profit		Revenue		Gross Profit
Network Solutions	$	360,025	$	143,981	$	323,924	$	145,432
Services & Support		48,821		19,961		52,457		18,602
Total	$	408,846	$	163,942	$	376,381	$	164,034

Revenue by ~~reportable segment; therefore, it is not reported.~~Category

Three Months Ended

September 30, 2017

September 30, 2016

(In thousands)

Sales

Gross Profit

Sales

Gross Profit

Network Solutions

$
145,467

$
71,939

$
136,277

$
65,289

Services & Support

39,645

14,559

32,613

10,519

Total

$
185,112

$
86,498

$
168,890

$
75,808

Nine Months Ended

September 30, 2017

September 30, 2016

(In thousands)

Sales

Gross Profit

Sales

Gross Profit

Network Solutions

$
444,607

$
214,762

$
398,709

$
195,804

Services & Support

95,457

30,083

75,086

24,753

Total

$
540,064

$
244,845

$
473,795

$
220,557

~~Sales by Category~~

In addition to our ~~reporting~~reportable segments, werevenue is also ~~report revenue~~reported for the following ~~three~~3 categories – Access & Aggregation, ~~Customer Devices,~~Subscriber Solutions & Experience and Traditional & Other Products.

The table below presents ~~sales~~revenue information by ~~category for the three and nine months ended September 30, 2017 and 2016:~~category:


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
(In thousands)	2017		2016		2017		2016		2021		2020		2021		2020
Access & Aggregation	$	135,959	$	120,618	$	394,741	$	316,705	$	89,173	$	85,423	$	249,211	$	234,165
Customer Devices		35,582		32,984		105,683		106,213
Subscriber Solutions & Experience										44,912		43,125		147,291		125,697
Traditional & Other Products		13,571		15,288		39,640		50,877		3,996		4,595		12,344		16,519
Total	$	185,112	$	168,890	$	540,064	$	473,795	$	138,081	$	133,143	$	408,846	$	376,381

~~13.~~

Revenue by Geographic Area

The following table presents revenue information by geographic area:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2021		2020		2021		2020
United States	$	91,868	$	92,838	$	273,009	$	256,287
International		46,213		40,305		135,837		120,094
Total	$	138,081	$	133,143	$	408,846	$	376,381

17. LIABILITY FOR WARRANTY RETURNS

Our products generally include warranties of 90 days to five years for product defects. We accrue for warranty returns at the time ~~revenue is recognized~~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. ~~Our products continue to become more complex in both size and functionality as many of our product offerings migrate from line card applications to total systems.~~ The increasing complexity of our products ~~will~~may cause warranty incidences, when they arise, to be more costly. ~~Our estimates~~Estimates regarding future warranty obligations may change due to product failure rates, material usage and other rework costs incurred in correcting a product failure. In addition, from time to time, specific warranty accruals may be recorded if unforeseen problems arise. Should our actual experience relative to these factors be worse than our estimates, we will be required to record additional warranty expense. ~~Alternatively, if we provide for more reserves than we require, we will reverse a portion of such provisions in future periods.~~ The liability for warranty obligations totaled ~~$10.9~~$5.6 million and ~~$8.5~~$7.1 million atas of September 30, ~~2017~~2021 and December 31, ~~2016 respectively.~~ 2020, respectively, and is included in accrued expenses and other liabilities in the Condensed Consolidated Balance Sheets. During the three and nine months ended ~~March 31, 2017,~~September 30, 2021 and 2020, we ~~recorded~~had a ~~receivable and a reduction in warranty expense~~net reversal of prior provisions related to ~~a settlement with a third party supplier for a defective component,~~warranty expirations, the impact of which is reflected in the table ~~below. These liabilities are included in accrued expenses~~below:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands)	2021			2020			2021			2020
Balance at beginning of period	$	5,997		$	7,294		$	7,146		$	8,394
Plus: Amounts charged to cost and expenses		472			632			253			970
Less: Deductions		(822	)		(734	)		(1,752	)		(2,172	)
Balance at end of period	$	5,647		$	7,192		$	5,647		$	7,192

18. COMMITMENTS AND CONTINGENCIES

Shareholder Derivative Lawsuit

On March 31, 2020, a shareholder derivative suit, captioned Johnson (Derivatively on behalf of ADTRAN) v. Stanton, et al., Case No. 5:20-cv-00447, was filed in the ~~accompanying Consolidated Balance Sheets.~~

~~A summary of warranty expense and write-off activity~~U.S. District Court for the ~~three~~Northern District of Alabama against 2 of the Company’s current executive officers, 1 of its former executive officers, and ~~nine months ended September 30, 2017~~certain current and ~~2016~~former members of its Board of Directors. The derivative suit alleges, among other things, that the defendants made or caused the Company to make materially false and misleading statements regarding, and/or failed to disclose material adverse facts about, the Company’s business, operations and prospects, specifically relating to the Company’s internal control over financial reporting, excess and obsolete inventory reserves, financial results and demand from certain customers. The case was temporarily stayed pending an order on the defendants’ motion to dismiss in a separate securities class action case that included similar factual allegations, Burbridge v. ADTRAN, Inc., et al., Case No. 5:20-cv-00050-LCB (N.D. Ala.). The Burbridge case was dismissed on March 31, 2021, and the time to appeal the dismissal has expired, such that the dismissal is ~~as follows:~~now final. Following the dismissal, the plaintiff in the shareholder derivative suit sent a demand letter dated June 29, 2021 to ADTRAN’s Board of Directors. The letter contains similar allegations to those made in the plaintiff’s filed complaint and in the now dismissed securities class action, and it demands, among other things, that the Board commence an investigation into the alleged wrongdoing. We expect that the derivative suit will remain stayed pending the Board’s response to the demand. At this time, we are unable to predict the outcome of or estimate the possible loss or range of loss, if any, associated with the derivative lawsuit or the demand letter.

Three Months Ended

Nine Months Ended

September 30,

September 30,

(In thousands)

2017

2016

2017

2016

Balance at beginning of period

$
9,180

$
8,935

$
8,548

$
8,739

Plus: Amounts charged to cost and expenses

4,087

4,012

6,401

6,341

Less: Deductions

(2,328
)

(4,195
)

(4,010
)

(6,328
)
Balance at end of period

$
10,939

$
8,752

$
10,939

$
8,752

~~14. COMMITMENTS AND CONTINGENCIES~~

Other Legal Matters

In addition to the ~~ordinary course of business,~~litigation described above, from time to time we ~~may be~~are subject to or otherwise involved in various lawsuits, claims, investigations and legal proceedings that arise out of or are incidental to the conduct of our business (collectively, “Legal Matters”), including those relating to patent rights, employment matters, regulatory compliance matters, stockholder claims, and ~~claims, including employment disputes, patent claims, disputes over contract agreements~~contractual and other commercial disputes. ~~In some cases,~~Such Legal Matters, even if not meritorious, could result in the expenditure of significant financial and managerial resources. Additionally, an unfavorable outcome in any legal matter, including in a patent dispute, could require the Company to pay damages, entitle claimants ~~seek damages or~~to other relief, such as ~~royalty payments related to patents,~~royalties, or could prevent the Company from selling some of its products in certain jurisdictions. While the Company cannot predict with certainty the results of the Legal Matters in which ~~if granted, could require significant expenditures. Although~~it is currently involved, the Company does not expect that the ultimate outcome of ~~any claim~~such Legal Matters will individually or ~~litigation can never be certain, it is our opinion that~~in the ~~outcome~~aggregate have a material adverse effect on its business, results of ~~all contingencies of which we are currently aware will not materially affect our business,~~ operations, financial condition or cash flows.

Business Combination Agreement

On August 30, 2021, the Company, and ADVA Optical Networking SE, a European stock corporation incorporated under the laws of the European Union and Germany (“ADVA”), entered into a business combination agreement (the “Business Combination Agreement”), pursuant to which both companies agreed to combine their respective businesses and each become subsidiaries of a new holding company, Acorn HoldCo, Inc. (the "surviving corporation"), a Delaware corporation and currently a wholly-owned direct subsidiary of the Company.

Under the terms of the Business Combination Agreement, Acorn MergeCo, Inc., a newly formed Delaware corporation and wholly-owned direct subsidiary of Acorn HoldCo (“Merger Sub”), will merge with and into ADTRAN, with ADTRAN surviving the merger (the “Merger”) as a wholly-owned direct subsidiary of Acorn HoldCo. Pursuant to the Merger, each outstanding share of common stock of the Company will be converted into the right to receive 1 share of common stock of Acorn HoldCo. Acorn HoldCo will also make a public exchange offer to exchange each issued and outstanding no-par value bearer share of ADVA, pursuant to which each ADVA share tendered and accepted for exchange will be exchanged for 0.8244 shares of common stock of Acorn HoldCo (the “Exchange Offer”, and together with the Merger, the “Business Combination”). Upon completion of the Business Combination, and assuming that all of the outstanding ADVA shares are exchanged in the Exchange Offer, former ADTRAN stockholders and former ADVA shareholders will own approximately 54% and 46%, respectively, of the outstanding Acorn HoldCo shares.

The Business Combination Agreement was unanimously approved by the Board of Directors of the Company and by the supervisory board and management board of ADVA. The Company anticipates consummation of the Business Combination during mid-2022, subject to customary closing conditions as well as regulatory and shareholder approvals.

Acorn HoldCo has entered into an irrevocable undertaking agreement (the “Irrevocable Undertaking”) with EGORA Holding GmbH and Egora Investments GmbH (collectively, the “Supporting Shareholders”) to validly accept the public exchange offer with respect to 7,000,000 shares held by them, representing 13.7% of the share capital of ADVA. The Irrevocable Undertaking includes other customary provisions, including certain restrictions on the Supporting Shareholders from disposing of the relevant shares.

Additional information about the Business Combination Agreement and proposed Business Combination is set forth in the Company’s filings with the SEC, as well as in the registration statement on Form S-4 that Acorn HoldCo filed with the SEC, which has not yet become effective.

Performance Bonds

Certain contracts, customers and jurisdictions in which we do business require us to provide various guarantees of performance such as bid bonds, performance bonds and customs bonds. As of September 30, 2021 and December 31, 2020, we had commitments related to these bonds totaling $20.9 million and $15.2 million, respectively, which expire at various dates through August 2024. In general we would only be liable for the amount of these guarantees in the event of default under each contract, the probability of which we believe is remote.

In June 2020, the Company entered into a letter of credit with a bank to guarantee performance obligations under a contract with a certain customer. The obligations under this customer contract will be performed over multiple years. We reached the maximum value of our minimum collateral requirement of $15.0 million during the three months ended March 31, 2021 as the Company reached certain milestones through the first quarter of 2021 as outlined in the customer contract. The letter of credit was secured by a pledge of a portion of the Company’s fixed-income securities, which totaled $18.4 million as of September 30, 2021, of which $0.1 million is included in restricted cash and $18.3 million is included in long-term investments on the Condensed Consolidated Balance Sheets. This pledged collateral value will fluctuate as the Company changes the mix of the pledged collateral between restricted cash and investments. Any shortfalls in the minimum collateral value are required to be restored by the Company from available cash and cash equivalents, short-term investments and/or long-term investments. The collateral under the letter of credit will be released when all obligations under the

customer contract have been met. As of September 30, 2021, the Company was in compliance with all contractual requirements under the letter of credit.

Investment Commitment

We have committed to invest up to an aggregate of ~~$7.9~~$5.0 million in ~~two~~a private equity ~~funds, and we have contributed $8.4~~fund, of which $4.9 million has been invested as of September 30, ~~2017,~~2021.

19. RESTRUCTURING

During the second half of 2019, the Company initiated a restructuring plan to realign its expense structure with the reduction in revenue experienced in recent years and overall Company objectives. As part of this restructuring plan, the Company announced plans to reduce its overall operating expenses, both in the U.S. and internationally. Management continued to assess the efficiency of operations during 2020 and the first nine months of 2021 and, in turn, consolidated locations and personnel, among other things, where possible.

In February 2019, the Company announced the restructuring of a certain portion of its workforce predominantly in Germany, which ~~$7.7 million has been applied~~included the closure of the Company’s office location in Munich, Germany accompanied by relocation or severance benefits for the affected employees. Voluntary early retirement was offered to ~~these commitments.~~certain other employees and was announced in March 2019 and again in August 2020.

The cumulative amount of restructuring expenses incurred as of September 30, 2021 for the restructuring plans was $12.5 million.

~~15.~~

A reconciliation of the beginning and ending restructuring liability, which is included in accrued wages and benefits in the Condensed Consolidated Balance Sheets is as follows:


	Three Months Ended			Nine Months Ended
(In thousands)	September 30, 2021			September 30, 2021
Balance at beginning of period	$	1,521		$	4,186
Plus: Amounts charged to cost and expense		—			309
Less: Amounts paid		(42	)		(3,016	)
Balance as of September 30, 2021	$	1,479		$	1,479


(In thousands)	For the Year Ended December 31, 2020
Balance as of December 31, 2019	$	1,568
Plus: Amounts charged to cost and expense		6,229
Less: Amounts paid		(3,611	)
Balance as of December 31, 2020	$	4,186

Restructuring expenses included in the Condensed Consolidated Statements of Income (Loss) were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2021		2020		2021		2020
Network Solutions - Cost of revenue	$	—	$	187	$	12	$	220
Services & Support - Cost of revenue		—		45		3		68
Cost of revenue	$	—	$	232	$	15	$	288
Selling, general and administrative expenses (1)		—		1,050		145		1,622
Research and development expenses (1)		—		621		149		1,738
Total restructuring expenses	$	—	$	1,903	$	309	$	3,648

(1) The Company does not allocate selling, general and administrative expense and research and development expense to the segment level.

Components of restructuring expense by geographic area were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2021		2020		2021		2020
United States	$	—	$	448	$	212	$	2,191
International		—		1,455		97		1,457
Total restructuring expenses	$	—	$	1,903	$	309	$	3,648

20. SUBSEQUENT EVENTS

On ~~October 17, 2017,~~November 1, 2021, we announced that our Board of Directors declared a quarterly cash dividend of ~~$0.09~~$0.09 per common share to be paid to the Company’s stockholders of record atas of the close of business on November ~~1, 2017.~~16, 2021. The payment date will be November ~~15, 2017. The quarterly dividend payment will be~~30, 2021 in the aggregate amount of approximately ~~$4.3~~$4.4 million. ~~In July 2003, our Board~~

On November 4, 2021, the Company entered into a loan modification agreement and amendment to loan documents to extend the maturity date of ~~Directors elected to begin declaring quarterly dividends on our common stock considering~~ the ~~tax treatment~~Revolving Credit Agreement through November 3, 2022. See Item 5, Other Information, of ~~dividends and adequate levels of Company liquidity.~~this report for additional information regarding the loan modification agreement.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the ~~Consolidated Financial Statements~~consolidated financial statements and the related notes that appear ~~elsewhere~~ in Part I, Item 1 of this document. In addition, the following discussion should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2020, Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Part I, Item 1, Business, and Item 1A, Risk Factors, included in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 26, 2021 (the “2020 Form 10-K”).

~~OVERVIEW~~This discussion is designed to provide the reader with information that will assist in understanding our condensed consolidated financial statements, the changes in certain key items in those financial statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our condensed consolidated financial statements. See “Cautionary Note Regarding Forward-Looking Statements” on page 3 of this report for a description of important factors that could cause actual results to differ from expected results. See also Part 1, Item 1A, Risk Factors, of the 2020 Form 10‑K and Part II, Item 1A, Risk Factors of this Form 10-Q.

OVERVIEW

ADTRAN ~~Inc.~~ is a leading global provider of networking and communications ~~equipment.~~platforms, systems and services focused on the broadband access market, serving a diverse domestic and international customer base in multiple countries that includes Tier-1, -2 and -3 service providers, alternative service providers, such as utilities, municipalities and fiber overbuilders, cable/MSOs, SMBs and distributed enterprises. Our innovative solutions and services enable voice, data, video and ~~Internet communications~~internet-communications across a variety of network ~~infrastructures. These solutions~~infrastructures and are ~~deployed~~currently in use by ~~many of the United States’~~millions worldwide. We support our customers through our direct global sales organization and the world’s largest communications service providers (CSPs), distributed enterprises and small and medium-sized businesses, public and private enterprises, and millions of individual users worldwide.

our distribution networks. Our success depends upon our ability to increase unit volume and market share through the introduction of new products and succeeding generations of products having ~~lower~~optimal selling prices and increased functionality as compared to both the prior generation of a product and to the products of ~~competitors. An important part of our strategy is to reduce the cost of each succeeding product generation and then lower the product’s selling price based on the cost savings achieved~~competitors in order to gain market ~~share and/~~share. In order to service our customers and grow revenue, we are continually conducting research and development of new products addressing customer needs and testing those products for the specific requirements of the particular customers. We are focused on being a top global supplier of access infrastructure and related value-added solutions from the cloud edge to the subscriber edge. We offer a broad portfolio of flexible software and hardware network solutions and services that enable service providers to meet today’s service demands, while enabling them to transition to the fully-converged, scalable, highly-automated, cloud-controlled voice, data, internet and video network of the future. In addition to our corporate headquarters in Huntsville, Alabama, we have sales and research and development facilities in strategic global locations.

We ended the third quarter of 2021 with a year-over-year revenue increase of 3.7% as compared to the three months ended September 30, 2020, driven by increased shipments to a diverse mix of global Tier-1 and regional service providers. During the third quarter of 2021, we had two 10% revenue customers geographically diversified, one U.S. distributor and one international customer. Our year-over-year domestic revenue declined by 1.0% as compared to the three months ended September 30, 2020, driven by decreased network planning and implementation services in our Services & Support segment. Internationally, our revenue increased by 14.7% compared to the prior year period, primarily driven by access network builds in the Asia Pacific region, with a focus on Australia, increased shipments to alternative network operators and a Tier-1 operator in Europe. We experienced record demand for our solutions in the third quarter of 2021 setting an all-time high for bookings in a quarter. This increased demand comes from service providers planning to deploy our fiber access platforms, in-home service delivery platforms and SaaS applications. We expect this growth to accelerate. During the third quarter we secured two additional Tier-1 fiber customers, and previously announced Tier-1 fiber customers significantly increased their bookings for our fiber access platforms. Although our revenue growth and profitability in the near-term are impacted by supply chain issues, our long-term outlook continues to strengthen given the record demand for our products and our expectation of an improving supply chain in 2022.

In March 2020, the World Health Organization declared the novel coronavirus (COVID-19) outbreak a global pandemic. The SARS-CoV-2 coronavirus (or variants of the SARS-CoV-2 coronavirus, including the Delta variant) continues to spread throughout the U.S. and the world and has resulted in authorities implementing varying measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. Although vaccines have been approved and are being distributed, it cannot be predicted how long it will take before market conditions return to normal and there can be no assurance that the economic recovery will occur or ~~improve~~offset the uncertainty and instability triggered by the pandemic. New and potentially more contagious variants of the COVID-19 virus are developing in several countries, including regions in which we have significant operations. The COVID-19 variants could further amplify the impact of the pandemic. While we are unable to accurately predict the full impact that the COVID-19 global pandemic will have on our results of operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures, our compliance with these measures has impacted our day-to-day operations and could disrupt our business and operations, as well as that of our key customers, suppliers and other counterparties, for an indefinite period of time. We have experienced a significant impact to our supply chain given COVID-19 and the related global semiconductor chip shortage, including delays in supply chain deliveries, extended lead times and shortages of some key components, some raw material cost increases and slowdowns at certain production facilities. We have also had to increase our volume of inventory to ensure supply continuity during the pandemic. In addition, we have experienced significant increases in freight-related costs due to the global shipping crisis. During the third quarter of 2021, the Company incurred supply chain constraint expenses which lowered our gross ~~margins. As a part~~margins and decreased our profitability. While throughout the pandemic we have seen increased demand in networking requirements and utilization due to social distancing guidelines issued by governments, as well as COVID-19 related reductions in travel and infrastructure expenses, it is possible that we could experience some slowdown in demand, further supply chain issues and an increased impact from the ongoing semiconductor shortage and shortages of certain other key components as the pandemic continues. If the impacts of this ~~strategy,~~shortage are more severe than we ~~seek~~expect, it could result in ~~most instances~~longer lead times, inventory supply challenges and further increased costs, all of which could result in the deterioration of our results, potentially for a longer period than currently anticipated. To support the health and well-being of our employees, customers, partners and communities, many of our employees are working remotely as of the date of filing this report. However, there is risk that a number of our employees could be infected with COVID-19, including our key personnel. In addition, actions that have been taken and that may be taken by the Company, its customers, suppliers and counterparties in response to bethe pandemic, including the implementation of alternative work arrangements for certain employees, as well as the impacts to our supply chain, including delays in supply chain deliveries and the related global semiconductor chip shortage, have delayed and may continue to delay the timing of some orders and expected deliveries. Lastly, even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a ~~high-quality, low-cost provider~~result of any economic recession that has occurred or may occur in the future as a result of the COVID-19 pandemic.

Among our customers, we made progress with our fiber, fiber-extension, in-home service delivery platforms and cloud services while also continuing to engage in value-added service opportunities that we expect will contribute to sales over the remainder of 2021 and beyond. In addition, we believe that we are at the beginning of a significant investment cycle for fiber deployment and in-home Wi-Fi connectivity driven by technology advancements and regulatory influences. The transition to next-generation network architectures is beginning, and we are seeing demand for our next-generation fiber access and connected home solutions. In 2021, payments to service providers under government funding programs such as the FCC RDOF have started.

In addition to classifying our operations into two reportable segments, we report revenue across three categories of products ~~in our markets. Our success to date is attributable in large measure to our ability to design our products initially with a view to their subsequent redesign, allowing both increased functionality~~ and reduced manufacturing costs in each succeeding product generation. This strategy enables us to sell succeeding generations of products to existing customers, while increasing our market share by selling these enhanced products to new customers.

~~We report revenue for the following three categories~~services – (1) Access & Aggregation, ~~Customer Devices,~~(2) Subscriber Solutions & Experience and (3) Traditional & Other Products.

Our Access & Aggregation ~~solutions~~platforms are used by CSPs to connect their network infrastructure to ~~their~~ subscribers. This revenue category includes ~~software~~hardware- and ~~hardware-based~~software-based products and services that aggregate and/or originate access technologies. ~~The portfolio of~~ ADTRAN solutions within this category ~~includes~~include a wide array of modular or fixed ~~physical form factors~~platforms designed to deliver the best technology and ~~economic fit~~economy based on ~~the target~~ subscriber density and environmental conditions.

~~The Access~~Our Subscriber Solutions & ~~Aggregation category includes product~~Experience portfolio is used by service providers to terminate their infrastructure at the customer’s premises while providing an immersive and ~~service families such as:~~

•

~~Total Access~~^®~~5000 Series Fiber to the Premises (FTTP)~~interactive experience for the subscriber. These solutions include copper and ~~Fiber to the Node (FTTN) Multi-Service Access Nodes (MSAN)~~

~~hiX 5600 Series~~ fiber ~~aggregation~~WAN termination, LAN switching, Wi-Fi access, and ~~FTTN MSAN~~

~~Fiber to the Distribution Point (FTTdp) G.fast Optical Network Units (ONU)~~

~~GPON, EPON and 10G PON Optical Line Terminals (OLT)~~

~~SDX Fiber Access network elements~~

~~Optical Networking Edge (ONE) aggregation~~

~~IP Digital Subscriber Line Access Multiplexers (DSLAMs)~~

~~Cabinet and Outside-Plant (OSP) enclosures and~~cloud software services,

~~Network Management and Cloud-based software platforms and applications~~

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

~~Planning, engineering, program management, maintenance, installation and commissioning services to implement customer network solutions~~

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

~~Customer Devicesincludes our products and services that provide end users access to CSP networks. Our Customer Devices portfolio includes a comprehensive array of~~ ~~service provider and enterprise~~ ~~hardware and software products and services.~~

~~The Customer Devices category includes products and services such as:~~

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

~~Radio Frequency over Glass (RFoG) MicroNodes~~

~~Residential~~ for both residential and business ~~gateways~~markets.

~~Wi-Fi access points and associated powering and switching infrastructure~~

~~enterprise Session Border Controllers (eSBC)~~

~~Branch office and access routers~~

~~Carrier Ethernet services termination devices~~

~~VoIP media gateways~~

~~ProServices pre-sale and post-sale technical support~~

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

~~Other products and services that are generally applicable to customer devices~~

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

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

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

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

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

~~See Note 12 of Notes to Consolidated Financial Statements in this report for further information regarding these product categories.~~

Sales were $185.1 million and $540.1 million for the three and nine months ended September 30, 2017, compared to $168.9 million and $473.8 million for the three and nine months ended September 30, 2016. Our gross margin increased to 46.7% in the three months ended September 30, 2017 from 44.9% in the three months ended September 30, 2016, and decreased to 45.3% in the nine months ended September 30, 2017 from 46.6% in the nine months ended September 30, 2016. Our operating income margin increased to 9.9% and 7.7% for the three and nine months ended September 30, 2017, from 6.0% and 6.4% for the three and nine months ended September 30, 2016. Net income was $15.9 million and $35.0 million for the three and nine months ended September 30, 2017, compared to $12.4 million and $27.7 million for the three and nine months ended September 30, 2016. Our effective tax rate, excluding the effect of the bargain purchase gain in 2016, decreased to 17.2% and 23.1% for the three and nine months ended September 30, 2017, from 25.9% and 34.0% for the three and nine months ended September 30, 2016. Earnings per share, assuming dilution, were $0.33 and $0.72 for the three and nine months ended September 30, 2017, compared to $0.26 and $0.56 for the three and nine months ended September 30, 2016.

Our operating results have fluctuated, and may continue to fluctuate, on a quarterly basis ~~in the past, and may vary significantly in future periods~~ due to ~~a number of~~several factors, including customer order activity, supply chain constraints, component availability, and backlog. ~~Backlog levels vary because of seasonal trends, the timing of customer projects and other factors that affect customer order lead times. Many~~A substantial portion of our shipments in any fiscal period relates to orders received and shipped within that fiscal period for customers under agreements containing non-binding purchase commitments. Further, a significant percentage of orders require ~~prompt~~ delivery ~~of products. This requires~~within a few days requiring us to maintain ~~sufficient~~higher inventory ~~levels to satisfy anticipated customer demand. If near-term demand for~~levels. These factors normally result in a varying order backlog and limited order flow visibility; however, with the current global supply chain and transportation constraints, and limited availability of semiconductor chips and other components of our products, ~~declines, or if potential sales in any quarter do not occur as anticipated,~~we have experienced and may continue to experience extended lead times, increased logistics intervals and costs, and lower volume of products deliveries, which has had and may continue to have a material adverse effect on our operating results and could have a material

adverse effect on customer relations and our financial ~~results could be adversely affected. Operating~~condition. Normal operating expenses are relatively fixed in the short term; therefore, a shortfall in quarterly revenues could significantly impact our financial results in a given quarter.

27We continue to support our customer demand for our products by working with our suppliers, contract manufacturers, distributors, and customers to address and to limit the disruption to our operations and order fulfillment.

Our operating results may also fluctuate as a result of a number of other factors, including a decline in general economic and market conditions, specifically the decline that initially resulted from the COVID-19 pandemic and that may recur, foreign currency exchange rate movements, increased competition, customer order patterns, changes in product and services mix, timing differences between price decreases and product cost reductions, product warranty returns, expediting costs, tariffs and announcements of new products by us or our competitors. Additionally, maintaining sufficient inventory levels to assure prompt delivery of our products increases the amount of inventory that may become obsolete and increases the risk that the obsolescence of this inventory may have an adverse effect on our business and operating results. Also, not maintaining sufficient inventory levels to assure prompt delivery of our products may cause us to incur expediting costs to meet customer delivery requirements, which may negatively impact our operating ~~results~~results. In recent years, the Company initiated restructuring plans to realign its expense structure with the reduction in ~~a given quarter.~~revenue experienced and with overall Company objectives. Management assessed the efficiency of our operations and consolidated locations and personnel, among other things, and implemented certain cost savings initiatives, where possible. See Note 19 of the Notes to Condensed Consolidated Financial Statements included in Part 1, Item 1 of this report for additional information on this restructuring.

~~Accordingly, our~~Our historical financial performance is not necessarily a meaningful indicator of future results, and in general, management expects that our financial results may vary from period to period. Factors that could materially affect our business, financial condition or operating results are included in Part I, Item 1A of ~~Part I~~the 2020 Form 10-K.

BUSINESS COMBINATION AGREEMENT

On August 30, 2021, the Company and ADVA Optical Networking SE, a European stock corporation incorporated under the laws of the European Union and Germany (“ADVA”), entered into a business combination agreement (the “Business Combination Agreement”), pursuant to which both companies agreed to combine their respective businesses and each become subsidiaries of a new holding company, Acorn HoldCo, Inc. (the "surviving corporation"), a Delaware corporation and currently a wholly-owned direct subsidiary of the Company.

Under the terms of the Business Combination Agreement, Acorn MergeCo, Inc., a newly formed Delaware corporation and wholly-owned direct subsidiary of Acorn HoldCo (“Merger Sub”), will merge with and into ADTRAN, with ADTRAN surviving the merger (the “Merger”) as a wholly-owned direct subsidiary of Acorn HoldCo. Pursuant to the Merger, each outstanding share of common stock of the Company will be converted into the right to receive one share of common stock of Acorn HoldCo. Acorn HoldCo will also make a public exchange offer to exchange each issued and outstanding no-par value bearer share of ADVA, pursuant to which each ADVA share tendered and accepted for exchange will be exchanged for 0.8244 shares of common stock of Acorn HoldCo (the “Exchange Offer”, and together with the Merger, the “Business Combination”). Upon completion of the Business Combination, and assuming that all of the outstanding ADVA shares are exchanged in ~~our most recent Annual Report~~the Exchange Offer, former ADTRAN stockholders and former ADVA shareholders will own approximately 54% and 46%, respectively, of the outstanding Acorn HoldCo shares.

Acorn HoldCo has entered into an irrevocable undertaking agreement (the “Irrevocable Undertaking”) with EGORA Holding GmbH and Egora Investments GmbH (collectively, the “Supporting Shareholders”) to validly accept the public exchange offer with respect to 7,000,000 shares held by them, representing 13.7% of the share capital of ADVA. The Irrevocable Undertaking includes other customary provisions, such as certain restrictions on the Supporting Shareholders from disposing of the relevant shares.

Additional information about the Business Combination Agreement and proposed Business Combination is set forth in the Company’s filings with the SEC, as well as in the registration statement on Form ~~10-K for the year ended December 31, 2016,~~S-4 that Acorn HoldCo filed ~~on February 24, 2017~~ with the ~~SEC.~~SEC, which has not yet become effective.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

~~Our~~There have been no material changes to our critical accounting policies and estimates ~~have not changed significantly~~ from those ~~detailed~~disclosed in our ~~most recent Annual Report on~~2020 Form ~~10-K for the year ended December 31, 2016, filed on February 24, 2017 with the SEC.~~10-K.

EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

See Note 1 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this ~~Form 10-Q~~report for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition, which is incorporated herein by reference.

RESULTS OF OPERATIONS – THREE AND NINE MONTHS ENDED SEPTEMBER 30, ~~2017~~2021 COMPARED TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, ~~2016~~2020

~~SALES~~The following table presents selected financial information derived from our Condensed Consolidated Statements of Income (Loss) expressed as a percentage of revenue for the periods indicated. Amounts may not foot due to rounding.


	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2021				2020				2021				2020
Revenue
Network Solutions		87.5		%		86.5		%		88.1		%		86.1		%
Services & Support		12.5				13.5				11.9				13.9
Total Revenue		100.0				100.0				100.0				100.0
Cost of Revenue
Network Solutions		58.7				47.2				52.8				47.4
Services & Support		6.8				8.6				7.1				9.0
Total Cost of Revenue		65.5				55.7				59.9				56.4
Gross Profit		34.5				44.3				40.1				43.6
Selling, general and administrative expenses		22.4				20.4				21.8				22.5
Research and development expenses		19.4				20.4				20.1				22.8
Asset impairments		—				—				—				—
Operating Income (Loss)		(7.3	)			3.4				(1.8	)			(1.7	)
Interest and dividend income		0.2				0.3				0.2				0.3
Interest expense		—				—				—				—
Net investment gain (loss)		—				2.1				0.7				0.5
Other income (expense), net		0.5				(1.3	)			0.7				(0.6	)
Income (Loss) Before Income Taxes		(6.6	)			4.5				(0.2	)			(1.6	)
Income tax (expense) benefit		(0.9	)			(0.4	)			(0.8	)			0.6
Net Income (Loss)		(7.6	)	%		4.1		%		(1.1	)	%		(1.0	)	%

REVENUE

Our ~~sales~~revenue increased ~~9.6%~~3.7% from ~~$168.9~~$133.1 million in the three months ended September 30, 2016 to $185.1 million in the three months ended September 30, 2017, and increased 14.0% from $473.8 million in the nine months ended September 30, 2016 to $540.1 million in the nine months ended September 30, 2017. The increase in sales for the three months ended September 30, ~~2017 is primarily attributable~~2020 to ~~a $15.3~~$138.1 million ~~increase in sales of our Access & Aggregation products, a $2.6~~for the three months ended September 30, 2021 and increased 8.6% from $376.4 million ~~increase in sales of our Customer Devices products, partially offset by a $1.7 million decrease in sales of our Traditional & Other Products. The increase in sales~~ for the nine months ended September 30, ~~2017 is primarily attributable~~2020 to ~~a $78.0~~$408.8 million ~~increase in sales of our Access & Aggregation products, partially offset by an $11.2 million decrease in sales of our Traditional & Other Products.~~

Network Solutions sales increased 6.7% from $136.3 million in the three months ended September 30, 2016 to $145.5 million in the three months ended September 30, 2017, and increased 11.5% from $398.7 million in the nine months ended September 30, 2016 to $444.6 million in the nine months ended September 30, 2017. The increase in sales for the three months ended September 30, 2017 is primarily attributable to an increase in sales of Access & Aggregation products and Customer Devices products, partially offset by a decrease in sales of Traditional & Other Products. The increase in sales for the nine months ended September 30, ~~2017 is primarily attributable to an increase in Access & Aggregation product sales, partially offset by a decrease in sales of Traditional & Other Products.~~2021. The increase in ~~sales of our Access & Aggregation products~~revenue for the three and nine months ended September 30, ~~2017 is~~2021 was primarily attributable to ~~increased VDSL2 vectoring product sales~~a $3.8 million and $15.0 million increase in Access & Aggregation revenue, respectively, and a $1.8 million and $21.6 million increase in Subscriber Solutions & Experience revenue, respectively, partially offset by a $0.6 million and $4.2 million decrease in the ~~U.S. and European carrier markets. The increase in sales~~revenue of our ~~Customer Devices~~Traditional & Other Products, respectively. Although our revenue increased, supply of semiconductor chips and other components of our products has become constrained resulting in extended lead times and increased costs. Transportation constraints, including shortages for both air and surface freight, as well as labor shortages in the transportation industry, have also affected the timing and the cost of obtaining raw materials and production supplies. Although our revenue growth and profitability in the near-term may be impacted by these global supply chain issues, our long-term outlook continues to strengthen given the strong customer order bookings during the third quarter of 2021.

Network Solutions segment revenue increased 4.8% from $115.2 million for the three months ended September 30, ~~2017 is~~2020 to $120.8 million for the three months ended September 30, 2021 and increased 11.1% from $323.9 million for the nine months ended September 30, 2020 to $360.0 million for the nine months ended September 30, 2021. The increase in revenue for the three and nine months ended September 30, 2021 was due primarily to revenue of Subscriber Solutions & Experience and Access & Aggregation products. The increase in Subscriber Solutions & Experience revenue for the three and nine months ended September 30, 2021 was primarily attributable to increased ~~sales~~volume of ~~GPON ONTs.~~network termination and Fiber CPE. The increase in the Access & Aggregation category for the three and nine months ended September 30, 2021 was due to increased volume of fiber access. While we expect that ~~revenues~~revenue from Traditional & Other Products will continue to decline over time, ~~these revenues~~this revenue may fluctuate and continue for years because of the time required for our customers to transition to newer technologies.

Services & Support ~~sales increased 21.6%~~segment revenue decreased 3.3% from ~~$32.6~~$17.9 million infor the three months ended September 30, ~~2016~~2020 to ~~$39.6~~$17.3 million infor the three months ended September 30, ~~2017,~~2021 and ~~increased 27.1%~~decreased 6.9% from ~~$75.1~~$52.5 million infor the nine months ended September 30, ~~2016~~2020 to ~~$95.5~~$48.8 million infor the nine months ended September 30, ~~2017.~~2021. The ~~increase~~decrease in ~~sales~~revenue for the three and nine months ended September 30, ~~2017 is~~2021 was primarily attributable to decreased network planning and implementation services partially offset by an increase in ~~network installation services for Access & Aggregation products.~~maintenance and managed services.

International ~~sales,~~revenue, which ~~are included in~~is defined as revenue generated from the Network Solutions and Services & Support segments amounts ~~discussed above, decreased 9.7%~~and provided to a customer outside of the U.S., increased 15% from ~~$41.2~~$34.3 million in the three months ended September 30, 2016 to $37.2 million in the three months ended September 30, 2017, and increased 31.2% from $96.2 million in the nine months ended September 30, 2016 to $126.2 million in the nine months ended September 30, 2017. International sales, as a percentage of total sales, decreased from 24.4.% for the three months ended September 30, ~~2016~~2020 to ~~20.1%~~$39.4 million for the three months ended September 30, ~~2017,~~2021 and increased 13.1% from ~~20.3%~~$120.1 million for the nine months ended September 30, ~~2016~~2020 to ~~23.4%~~$135.8 million for the nine months ended September 30, ~~2017. The decrease in sales~~2021. International revenue, as a percentage of total revenue, increased from 29.8% for the three months ended September 30, ~~2017 is primarily attributable~~2020 to ~~a decrease in sales in EMEA~~32.7% for the three months ended September 30, 2021 and ~~Latin America. The increase in sales~~increased from 31.9% for the nine months ended September 30, ~~2017 is primarily attributable~~2020 to an33.2% for the nine months ended September 30, 2021. The increase in ~~sales~~percentage of international revenue for the three and nine months ended September 30, 2021, was primarily driven by access network builds in ~~EMEA, partially offset by~~the Asia Pacific region with a ~~decrease~~focus on Australia, increased shipments to alternative network operators in ~~sales~~Europe and revenue from a Tier-1 operator in Latin America. In the first quarter of 2017, our largest European customer resumed network upgrades, whereas, in 2016, they focused on completing network upgrades activities in regions outside of our footprint with them.Europe.

Our international ~~revenues are~~revenue is largely focused on broadband infrastructure and ~~are impacted~~is consequently affected by the decisions of our customers as to timing for installation of new technologies, expansion of their networks and/or network upgrades. Our international customers must make these decisions in the regulatory and political environment in which they operate – both nationally and in some instances, regionally – whether of a multi-country region or a more local region within a country. For example, the European Commission launched a Gigabit Society initiative, and before that, the Digital Agenda, which has provided a favorable market environment for the deployment of ultra-broadband and Gigabit network solutions. Although the overall environment and market demand for broadband service deployment in the European Union has improved, some new broadband technologies are still being reviewed for regulatory and standards completion, which may affect the timing of those technologies. In Mexico, regulatory changes have created uncertainty for customers, which has resulted in slowdowns in network buying patterns. The competitive landscape in certain international markets is also ~~impacted~~affected by the increased presence of Asian manufacturers that seek to compete aggressively on price. ~~A strengthening U.S. dollar~~

As a result of our global operations, our revenue and operating income in some international markets can ~~also negatively impact our revenues in regions such as Latin America, where our products are traditionally priced in U.S. dollars, while in regions where our products are sold in local~~be affected by foreign currency ~~such as Europe, a stronger U.S. dollar can negatively impact operating income.~~fluctuations. Consequently, while we expect the global trend towards deployment of more robust broadband speeds and access to continue ~~to create expanded~~creating additional market opportunities for us, the factors described above may result in pressure on ~~revenues~~revenue and operating income. However, ~~we do not presently foresee a significant negative impact to our financial condition based on our strong liquidity and the generally positive environment described above.~~

We recognized a positive impact to our revenues in the first half of 2017 due to our being awarded a network expansion program by a large European tier-1 customer. We anticipate that as our European and Latin American customers resume their network upgrade projects, we may experience further enhancement to our revenues. We have recently announced receipt of a new nationwide award in the Pacific region, as well as additional awards based on new ADTRAN technologies in the EMEA region that we believe will likely result in a positive impact to our revenues. Further, we expect that a resolution of the regulatory changes in Mexico may result in business with our major customer in that region returning to a more normal level.

~~COST OF SALES~~

~~As a percentage of sales, cost of sales decreased from 55.1% in~~for the three ~~months ended September 30, 2016 to 53.3% in the three months ended September 30, 2017,~~ and ~~increased from 53.4% in the~~ nine months ended September 30, ~~2016 to 54.7% in~~2021, foreign currency fluctuations did not materially impact the ~~nine months ended September 30, 2017. The decrease in cost~~Company's results of ~~sales as~~operations.

COST OF REVENUE

As a percentage of ~~sales~~revenue, cost of revenue increased from 55.7% for the three months ended September 30, ~~2017 is primarily attributable~~2020 to 65.5% for the ~~customer~~three months ended September 30, 2021 and ~~product mix, services and support mix and a decrease in warranty expense. The increase in cost of sales as a percentage of sales~~increased from 56.4% for the nine months ended September 30, ~~2017 is primarily attributable~~2020 to ~~a regional revenue shift, customer and product mix, and services and support mix.~~

~~Network Solutions cost of sales, as a percent of that segment’s sales, decreased from 52.1% in~~59.9% for the nine months ended September 30, 2021. For the three months ended September 30, ~~2016~~2021, the increase was primarily attributable to ~~50.5% in the three months ended September 30, 2017, and increased from 50.9% in~~supply chain constraint related expenses. For the nine months ended September 30, ~~2016~~2021, the increase was primarily attributable to ~~51.7%~~supply chain constraint related expenses and to a lesser extent changes in ~~the nine months ended September 30, 2017. The decrease in~~customer and product mix and a regional revenue shift.

Network Solutions cost of ~~sales~~revenue, as a percentage of ~~sales~~that segment’s revenue, increased from 54.5% for the three months ended September 30, ~~2017 is primarily attributable~~2020 to ~~a decrease in warranty expense. The increase in cost of sales as a percentage of sales~~67.1% for the three months ended September 30, 2021 and increased from 55.1% for the nine months ended September 30, ~~2017 is primarily attributable~~2020 to ~~customer and product mix.~~

An important part of our 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 may cause variations in our gross profit percentage due to timing differences between the recognition of cost reductions and the lowering of product selling prices.

Services & Support cost of sales, as a percent of that segment’s sales, decreased from 67.7% in the three months ended September 30, 2016 to 63.3% in the three months ended September 30, 2017, and increased from 67.0% in60.0% for the nine months ended September 30, ~~2016~~2021. The increase in cost of revenue as a percentage of revenue for the three and nine months ended September 30, 2021 was primarily attributable to ~~68.5%~~supply chain constraint related expenses. The increase in cost of revenue as a percentage of revenue for the nine months ended September 30, ~~2017. The decrease~~2021 was primarily attributable to supply chain constraint related expenses and to a lesser extent changes in customer and product mix and a regional revenue shift.

Services & Support cost of ~~sales~~revenue, as a percentage of ~~sales~~that segment’s revenue, decreased from 63.6% for the three months ended September 30, ~~2017 is primarily attributable~~2020 to ~~services~~54.2% for the three months ended September 30, 2021 and ~~support mix. The increase in cost of sales as a percentage of sales~~decreased from 64.5% for the nine months ended September 30, ~~2017 is~~2020 to 59.1% for the nine months ended September 30, 2021. The decrease in cost of revenue as a percentage of revenue for the three and nine months ended September 30, 2021 was primarily attributable to ~~an increase~~customer mix, changes in ~~network installation~~ services ~~during 2017, which have higher costs, as opposed to a greater mix of maintenance~~ and support ~~services, which have lower costs.~~mix.

~~Our Services business has experienced significant growth since 2015 as competitive pressures to expand broadband access and speeds have strained carriers’ ability to respond to customer demand. Our~~ Services & Support ~~revenues are~~revenue is comprised of network planning and implementation, maintenance, support and cloud-based management services, with network planning and implementation being the largest and fastest growing ~~component.~~component in the long-term. Compared to our other services, such as maintenance, support and cloud-based management services, our network planning and implementation services typically utilize a higher percentage of internal and subcontracted engineers, professionals and contractors to perform the work for customers. The additional costs incurred to perform these infrastructure and ~~labor intensive~~labor-intensive services inherently result in lower average gross margins as compared to maintenance and support services.

As our network planning and implementation revenues have grown and are now the largest component of our Services & Support business, our Services & Support segment gross margins have decreased versus those reported when maintenance and support comprised the majority of the business. Further, because the growth in our network planning and implementation services has resulted in our Services & Support revenues comprising a larger percentage of our overall revenues, and because our Services & Support gross margins are below those of the Network Solutions segment, our overall corporate gross margins have declined as that business has continued to grow. Within the Services & Support segment, we do expect variability in gross margins from quarter-to-quarter based on the mix of the services recognized.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

As a percentage of revenue, selling, general and administrative expenses increased from 20.4% for the three months ended September 30, 2020 to 22.4% for the three months ended September 30, 2021 and decreased from 22.5% for the nine months ended September 30, 2020 to 21.8% for the nine months ended September 30, 2021. Selling, general and administrative expenses as a percentage of revenue will generally fluctuate whenever there is a significant fluctuation in revenue for the periods being compared.

Selling, general and administrative expenses increased ~~2.8%~~13.8% from ~~$33.7~~$27.2 million infor the three months ended September 30, ~~2016~~2020 to ~~$34.7~~$31.0 million infor the three months ended September 30, ~~2017,~~2021 and increased ~~6.9%~~5.5% from ~~$97.4~~$84.6 million infor the nine months ended September 30, ~~2016~~2020 to ~~$104.1~~$89.3 million infor the nine months ended September 30, ~~2017.~~2021. The increase in selling, general and administrative expenses for the three months ended September 30, ~~2017 is~~2021 was primarily attributable to ~~increases in ERP implementation~~increased acquisition expenses ~~performance~~ and ~~equity-based compensation expense, and~~labor related expenses, partially offset by deferred compensation ~~expense.~~related costs and lower restructuring expenses. The increase in selling, general and administrative expenses for the nine months ended September 30, ~~2017 is~~2021 was primarily attributable to ~~increases in performance and equity-based compensation expense,~~increased acquisition expenses, deferred compensation related costs and insurance expense, ~~ERP implementation~~partially offset by decreases in restructuring expenses, travel related expense and ~~travel expenses.~~legal expense.

RESEARCH AND DEVELOPMENT EXPENSES

As a percentage of ~~sales, selling, general~~revenue, research and ~~administrative~~development expenses decreased from 20.0% in the three months ended September 30, 2016 to 18.7% in the three months ended September 30, 2017, and decreased from 20.6% in the nine months ended September 30, 2016 to 19.3% in the nine months ended September 30, 2017. Selling, general and administrative expenses as a percentage of sales may fluctuate whenever there is a significant fluctuation in revenues for the periods being compared.

~~RESEARCH AND DEVELOPMENT EXPENSES~~

Research and development expenses increased 4.9% from $32.0 million in the three months ended September 30, 2016 to $33.5 million in the three months ended September 30, 2017, and increased 6.7% from $92.7 million in the nine months ended September 30, 2016 to $98.9 million in the nine month ended September 30, 2017. The increase in research and development expenses20.4% for the three months ended September 30, ~~2017 is primarily attributable~~2020 to ~~an increase in labor~~19.4% for the three months ended September 30, 2021 and ~~engineering materials related to customer specific projects. The increase in research and development expenses~~decreased from 22.8% for the nine months ended September 30, ~~2017 is primarily attributable~~2020 to ~~an increase in labor and engineering materials related to customer specific projects and amortization of intangibles acquired in the third quarter of 2016.~~

As a percentage of sales, research and development expenses decreased from 18.9% in the three months ended September 30, 2016 to 18.1% in the three months ended September 30, 2017, and decreased from 19.6% in20.1% for the nine months ended September 30, ~~2016 to 18.3% in the nine months ended September 30, 2017.~~2021. Research and development expenses as a percentage of ~~sales~~revenue will fluctuate whenever there are incremental product development activities or a significant ~~fluctuation~~fluctuations in ~~revenues~~revenue for the periods being compared.

Research and development expenses decreased 1.7% from $27.2 million for the three months ended September 30, 2020 to $26.8 million for the three months ended September 30, 2021 and decreased 4.3% from $85.8 million for the nine months ended September 30, 2020 to $82.1 million for the nine months ended September 30, 2021. The decrease in research and development expenses for the three and nine months ended September 30, 2021 was primarily attributable to lower personnel costs which were mainly the result of our restructuring programs, partially offset by increased contract services.

We expect to continue to incur research and development expenses in connection with our new and existing ~~products and our expansion into international markets.~~products. We continually evaluate new product opportunities and engage in ~~intensive~~significant research and product development efforts, which provides for new product development, enhancement of existing products and product cost reductions. We may incur significant research and development expenses prior to the receipt of ~~revenues~~revenue from a major new product group.

ASSET IMPAIRMENTS

~~INTEREST AND DIVIDEND INCOME~~

~~Interest and dividend income increased 4.6% from $0.9~~Asset impairments, which were $0.1 million for the nine months ended September 30, 2020, related to the abandonment of certain information technology projects in which we had previously capitalized costs. There were no asset impairments recognized during the three months ended September 30, ~~2016 to $1.0~~2020 or September 30, 2021 or for the nine months ended September 30, 2021.

INTEREST AND DIVIDEND INCOME

Interest and dividend income remained constant at $0.3 million infor the three months ended September 30, ~~2017,~~2020 and ~~increased 6.1%~~2021, and decreased 14.0% from ~~$2.7~~$1.0 million infor the nine months ended September 30, ~~2016~~2020 to ~~$2.9~~$0.9 million infor the nine months ended September 30, ~~2017.~~2021. The ~~increase~~decrease in interest and dividend income was primarily attributable to a decrease in the rate of return on our investments due to lower interest rates. Our total investments increased from $84.2 million as of September 30, 2020 to $86.5 million as of September 30, 2021.

INTEREST EXPENSE

Interest expense was less than $0.1 million for each of the three and nine months ended September 30, ~~2017 is primarily attributable to an increase in the rate of return on fixed income investments.~~

~~INTEREST EXPENSE~~

2021 and 2020. Interest expense ~~which is~~during the first nine months of 2021 was primarily related to our ~~taxable revenue bond, remained constant at~~Revolving Credit Agreement that we entered into during the fourth quarter of 2020.

NET INVESTMENT GAIN (LOSS)

We recognized a net investment gain of $2.8 million and a net investment loss of $0.1 million infor the three months ended September 30, ~~2016~~2020 and ~~2017,~~2021, respectively, and ~~$0.4~~a net investment gain of $1.8 million inand $2.9 million for the nine months ended September 30, ~~2016~~2020 and ~~2017, as we had no substantial change~~2021, respectively. The fluctuations in our ~~fixed-rate borrowing. See “Liquidity and Capital Resources” below for additional information on our revenue bond.~~

~~NET REALIZED INVESTMENT GAIN~~

Net realized investment gains decreased 23.3% from $1.3 million in the three months ended September 30, 2016 to $1.0 million in the three months ended September 30, 2017, and decreased 30.9% from $4.2 million in the nine months ended September 30, 2016 to $2.9 million in the nine months ended September 30, 2017. The decrease in net ~~realized investment gains for the three and nine months ended September 30, 2017 is~~investments were primarily attributable to ~~decreased gains~~changes in the fair value of our securities recognized during the period. We expect that any future market volatility, whether from COVID-19 or other factors, will result in continued volatility in our investment portfolio. See Note 6 of the ~~sale~~Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of ~~equity securities, partially offset by increased investment gains on our deferred compensation plans. See~~this report, and “Investing Activities” in “Liquidity and Capital Resources” below for additional information.

OTHER ~~EXPENSE,~~INCOME (EXPENSE), NET

Other ~~expense,~~income (expense), net, ~~comprised~~which primarily consisted of ~~miscellaneous income,~~ gains and losses on foreign currency transactions ~~gains~~ and ~~losses on foreign exchange forward contracts, investment account management fees, and scrap raw~~income from excess material sales, ~~increased 279.3%~~improved from ~~$0.2~~expense of $1.7 million ~~of expense in~~for the three months ended September 30, ~~2016~~2020 to ~~$0.9~~income of $0.6 million ~~of expense in~~for the three months ended September 30, ~~2017,~~2021 and ~~increased 346.0%~~improved from ~~$0.4~~expense of $2.3 million ~~of expense in~~for the nine months ended September 30, ~~2016~~2020 to ~~$1.7~~income of $2.7 million ~~of expense in~~for the nine months ended September 30, ~~2017. The increase in other~~2021.

INCOME TAX EXPENSE (BENEFIT)

Our effective tax rate increased from an expense of 9.3% of pre-tax income for the three ~~and nine~~ months ended September 30, ~~2017 is primarily attributable~~2020, to ~~increased losses on our foreign exchange contracts.~~

~~GAIN ON BARGAIN PURCHASE OF A BUSINESS~~

~~Gain on bargain purchase~~an expense of ~~a business is related to our acquisition~~14.1% of ~~key fiber access products, technologies~~pre-tax loss for the three months ended September 30, 2021 and ~~service relationships~~increased from a ~~third party on September 13, 2016. See note 2~~benefit of ~~Notes to Consolidated Financial Statements~~36.8% of pre-tax loss for ~~additional information.~~

~~INCOME TAXES~~

~~Our effective tax rate decreased from 34.0%, excluding the tax impact of the bargain purchase gain, in~~ the nine months ended September 30, ~~2016~~2020 to ~~23.1% in~~an expense of 354.5% of pre-tax loss for the nine months ended September 30, ~~2017.~~2021. The ~~decrease~~change in the effective tax rate ~~between~~for the ~~periods is primarily attributable to~~three months ended September 30, 2021 was driven by tax expense in our international operations and additional ~~R&D tax credits being recognized~~changes in the ~~current quarter, an increase~~valuation allowance related to our domestic operations. The change in ~~stock option exercises and~~the effective tax rate for the nine months ended September 30, 2021 was primarily driven by a ~~greater mix~~tax benefit of ~~international income.~~$7.8 million recognized during the nine months ended September 30, 2020 as a result of the enactment of the CARES Act in March 2020. See Note 4 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report for additional information.

NET INCOME (LOSS)

As a result of the above factors, net income ~~increased $3.5~~(loss) decreased from net income of $5.5 million ~~from $12.4 million in~~for the three months ended September 30, ~~2016~~2020 to ~~$15.9~~a net loss of $10.4 million infor the three months ended September 30, ~~2017,~~2021 and ~~increased $7.3~~from a net loss of $3.7 million ~~from $27.7 million in~~for the nine months ended September 30, ~~2016~~2020 to ~~$35.0~~net loss of $4.4 million infor the nine months ended September 30, ~~2017.~~2021.

As a percentage of sales, net income increased from 7.4% in the three months ended September 30, 2016 to 8.6% in the three months ended September 30, 2017, and increased from 5.8% in the nine months ended September 30, 2016 to 6.5% in the nine months ended September 30, 2017.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

We ~~intend~~have historically financed, and we currently expect to continue to finance, our ~~operations~~ongoing business with existing cash, investments and cash flow from operations. We have used, and expect to continue to use, ~~the~~existing cash, investments and cash generated from operations for working capital, business acquisitions, purchases of treasury stock, shareholder dividends and other general corporate purposes, including ~~(i)~~ product development activities to enhance our existing products and develop new products, ~~and (ii)~~ expansion of our sales and marketing ~~activities.~~activities and capital expenditures. We believe that our cash and cash equivalents, investments and cash generated from operations towill be adequate to meet our operating and capital needs for at least the next 12 months.

AtAs of September 30, ~~2017,~~2021, cash on hand was ~~$128.3~~$75.5 million and short-term investments were ~~$31.4~~$2.6 million, which resulted in available short-term liquidity of ~~$159.6~~$78.1 million, of which ~~$63.9~~$55.9 million was held by our foreign subsidiaries. AtAs of December 31, ~~2016,~~2020, cash on hand was ~~$79.9~~$60.2 million and short-term investments were ~~$43.2~~$3.1 million, which resulted in available short-term liquidity of ~~$123.1~~$63.3 million, of which ~~$42.1~~$49.7 million was held by our foreign subsidiaries. WeGenerally, we intend to permanently reinvest ~~these~~ funds held outside the U.S. ~~and our current business plans do not indicate a need~~, except to ~~repatriate~~the extent that any of these funds can be repatriated without withholding tax.

During the fourth quarter of 2020, the Company entered into a Revolving Credit and Security Agreement and related Promissory Note (together, the “Revolving Credit Agreement”) with Cadence Bank, N.A., as lender (the “Lender”). The Revolving Credit Agreement provides the Company with a new $10.0 million secured revolving credit facility. Loans under the Revolving Credit Agreement will bear interest at a rate equal to ~~finance domestic operations. The increase~~1.50% over the screen rate as obtained by Reuter’s, Bloomberg or another commercially available source as may be designated by the Lender from time to time; provided, however, that in ~~short-term liquidity from December 31, 2016 to~~no event shall the applicable rate of interest under the Revolving Credit Agreement be less than 1.50% per annum. Such loans are secured by all of the cash, securities, securities entitlements and investment property in a certain bank account, as outlined in the Revolving Credit Agreement, at a maximum loan-to-value ratio of 75% determined by dividing the full commitment amount under the Revolving Credit Agreement on the date of testing, determined by the Lender each fiscal quarter, by the market value of the collateral. Based on the market value of the collateral at September 30, ~~2017 is primarily attributable to shifts among available investment option tenures to provide funds for our short-term cash needs.~~

~~Operating Activities~~

~~Our working capital, which consists~~2021, the Company had $10.0 million of ~~current assets less current liabilities, increased 30.0% from $226.4 million~~loan availability under the revolving credit facility as of ~~December 31, 2016~~such date. The Revolving Credit Agreement matures on November 4, 2021, subject to ~~$294.2 million as~~earlier termination upon the occurrence of certain events of default. The Company entered into the Revolving Credit Agreement in order to increase the flexibility and management of its short-term liquidity. To date, the Company has not made any draws under the Revolving Credit Agreement. The Company agreed to certain negative covenants that are customary for credit arrangements of this type, including, among other things, restrictions on the Company’s ability to enter into mergers, acquisitions or other business combination transactions, grant liens or suffer a material adverse change in the condition or affairs (financial or otherwise) of the Company, which negative covenants are subject to certain exceptions. The Company must be in compliance with all covenants to be able to draw on the line of credit. As of September 30, ~~2017, and our current ratio, defined as current assets divided~~2021, the Company was in compliance with all covenants.

Operating Activities

Net cash provided by ~~current liabilities, increased from 2.79 as~~operating activities of ~~December 31, 2016 to 3.36 as of~~$28.9 million during the nine months ended September 30, ~~2017. The~~2021 increased by $34.2 million compared to net cash used of $5.3 million during the nine months ended September 30, 2020. This increase ~~in our~~was primarily due to net cash inflows from working capital, ~~and current ratio is primarily attributable to~~ specifically, an increase in ~~cash~~the average number days payable to our trade suppliers, a decrease in other receivables and ~~cash equivalents,~~an increase in inventory ~~accounts receivable,~~turnover, and ~~prepaid expenses and other current assets,~~ partially offset by an increase in ~~income tax payable. The quick ratio, defined as cash, cash equivalents, short-term investments, and net~~ accounts receivable ~~divided by current liabilities,~~and the average number of days it takes the Company to collect cash payment for sales. Additional details related to our working capital and its drivers are discussed below.

Net accounts receivable increased 25.6% from ~~1.70~~$98.8 million as of December 31, ~~2016~~2020 to ~~2.09~~$124.1 million as of September 30, ~~2017.~~2021. Our allowance for expected credit losses was $38 thousand as of December 31, 2020. There was no allowance for expected credit losses as of September 30, 2021. The increase in ~~the quick ratio is primarily attributable~~net accounts receivable was due to an increase in ~~cash~~sales volume and ~~cash equivalents, short-term investments, and accounts receivable.~~

Accounts receivable increased 10.0% from $92.3 million at December 31, 2016 to $101.6 million at September 30, 2017. We had no allowance for doubtful accounts at December 31, 2016 or September 30, 2017.the timing of shipments within the quarter. Quarterly accounts receivable ~~days sales outstanding (DSO) decreased~~DSO increased from 5270 days as of December 31, ~~2016~~2020 to 5183 days as of September 30, ~~2017.~~2021. The ~~change~~increase in ~~net accounts receivable is~~DSO was due to ~~changes in customer mix and~~ the timing of ~~sales~~product shipments and ~~collections during the quarter. Certain international customers can have longer payment terms than U.S. customers.~~ customer mix.

Other receivables ~~increased 22.5%~~decreased 54.2% from ~~$15.1~~$21.5 million atas of December 31, ~~2016~~2020 to ~~$18.5~~$9.9 million atas of September 30, ~~2017.~~2021. The ~~increase~~decrease in other receivables iswas primarily attributable to the receipt of an ~~increase~~income tax refund and a decrease in lease receivables, partially offset by the timing of filing returns and collections of VAT receivables in our international subsidiaries and the timing of shipments and collections for materials supplied to our contract ~~manufacturers during the quarter.~~manufacturer purchases.

Quarterly inventory turnover ~~decreased~~increased from ~~3.67~~2.5 turns as of December 31, ~~2016~~2020 to ~~3.43~~2.9 turns atas of September 30, ~~2017.~~2021. Inventory increased ~~10.6%~~1.4% from ~~$105.1~~$125.5 million atas of December 31, ~~2016~~2020 to ~~$116.2~~$127.2 million atas of September 30, ~~2017. The increase in inventory at September 30, 2017 is primarily attributable~~2021. While we remain subject to ~~customer specific projects. We~~COVID-19 uncertainties related to supply chain and demand, we expect inventory levels to fluctuate as we attempt to maintain sufficient inventory in response to ~~services activity and~~ seasonal cycles of our business and ensuring competitive lead times while managing the risk of ~~inventory obsolescence that may occur~~inventory.

Accounts payable increased 58.4% from $49.9 million as of December 31, 2020 to $79.1 million as of September 30, 2021. The increase was primarily due to ~~rapidly changing technology and customer demand.~~

~~Prepaid expense and other current assets increased 40.5% from $16.5 million at December 31, 2016 to $23.1 million at September 30, 2017. The~~an increase in ~~prepaid expenses and other current assets is primarily attributable~~the average number days payable to ~~deferred costs related to incomplete network installation services.~~

~~Accounts payable decreased 5.4% from $77.3 million at December 31, 2016 to $73.1 million at September 30, 2017.~~our trade suppliers,. Accounts payable will ~~fluctuate~~fluctuate due to variations in the timing of the receipt of supplies, inventory and services and our subsequent payments for these purchases.

Investing Activities

Capital expenditures totaled approximately ~~$12.3~~$3.6 million and ~~$12.7~~$5.1 million for the nine months ended September 30, ~~2017~~2021 and ~~2016,~~2020, respectively. These expenditures were primarily used to purchase ~~computer hardware, software,~~ manufacturing and test equipment, software, computer hardware and to finance building improvements.

Our combined short-term and long-term investments ~~decreased $50.9~~increased $3.2 million from ~~$219.3~~$83.3 million atas of December 31, ~~2016~~2020 to ~~$168.4~~$86.5 million atas of September 30, ~~2017.~~2021. This ~~decrease~~increase reflects ~~our cash needs for capital expenditures, purchases~~the impact of ~~treasury stock, and shareholder dividends partially offset by funds available for investment provided by our operating activities and stock option exercises by our employees, as well as~~ net realized and unrealized gains and losses ~~and amortization of net premiums~~ on our ~~combined~~ investments.

We typically invest all available cash not required for immediate use in operations, primarily in securities that we believe bear minimal risk of loss. ~~At September 30, 2017 these investments~~See Note 6 of the Notes to Condensed Consolidated Financial Statements included ~~corporate bonds~~in Part I, Item 1 of $45.2 million, municipal fixed-rate bonds of $4.9 million, asset-backed bonds of $7.8 million, mortgage/agency-backed bonds of $7.3 million, U.S. government bonds of $20.9 million, and foreign government bonds of $0.7 million. At December 31, 2016, these investments included corporate bonds of $66.4 million, municipal fixed-rate bonds of $11.8 million, asset-backed bonds of $10.2 million, mortgage/agency-backed bonds of $13.0 million, U.S. government bonds of $29.8 million, foreign government bonds of $3.7 million and variable rate demand notes of $11.9 million.this report for additional information. As of September 30, ~~2017,~~2021, our corporate bonds, municipal ~~fixed-rate~~ bonds, asset-backed bonds, mortgage/~~agency-backed~~agency bonds, U.S. government bonds, ~~and foreign~~other government bonds and variable-rate demand notes were classified as available-for-sale and had a combined duration of ~~0.8~~1.67 years with an average Standard & Poor’s credit rating of ~~A+.~~AA-. Because our ~~bond~~investment portfolio has a ~~high quality~~high-quality rating and contractual maturities of a short duration, we are able to obtain prices for these bonds derived from observable market inputs, or for similar securities traded in an active market, on a daily basis.

Our long-term investments ~~decreased 22.2%~~increased 4.7% from ~~$176.1~~$80.1 million atas of December 31, ~~2016~~2020 to ~~$137.0~~$83.9 million atas of September 30, ~~2017. Long-term~~2021. Our investments atinclude various marketable equity securities classified as long-term investments with a fair market value of $12.1 million and $11.0 million as of September 30, ~~2017~~2021 and December 31, ~~2016 included an investment in a certificate~~2020, respectively. Long-term investments as of deposit of $27.8 million, which serves as collateral for our revenue bond. See “Debt” below for additional information. We have various equity investments included in long-term investments at a cost of $32.4 million and $30.6 million, and with a fair value of $34.1 million and $29.4 million, at September 30, ~~2017~~2021 and December 31, ~~2016, respectively.~~

~~Long-term investments at September 30, 2017 and December 31, 2016~~2020 also included ~~$19.1~~$25.7 million and ~~$14.6~~$23.9 million, respectively, related to our deferred compensation plans, and $0.5 million and $0.8 million, respectively, of other investments carried at cost, consisting of interests in two private equity funds and an investment in a privately held telecommunications equipment manufacturer.plans.

Financing Activities

Dividends

In July 2003, our Board of Directors elected to begin declaring quarterly dividends on our common stock considering the tax treatment of dividends and adequate levels of Company liquidity. During the nine months ended September 30, ~~2017,~~2021 and 2020, we paid dividends totaling $13.1 million and $13.0 ~~million.~~

~~Debt~~

~~We have amounts outstanding under loans made pursuant to an Alabama State Industrial Development Authority revenue bond (the Bond) which totaled $27.8~~ million, respectively. The continued payment of dividends is at ~~September 30, 2017 and December 31, 2016. At September 30, 2017,~~ the ~~estimated fair value~~discretion of the Bond was approximately $28.0 million, based on a debt security with a comparable interest rate and maturity and a Standard & Poor’s credit rating of AAA. Included in long-term investments are restricted funds in the amount of $27.8 million at September 30, 2017 and December 31, 2016, which is a collateral deposit against the principal amount of the Bond. We have the right to set-off the balance of the Bond with the collateral deposit in order to reduce the balance of the indebtedness. The Bond matures on January 1, 2020, and bears interest at the rate of 2% per annum. In conjunction with this program, we are eligible to receive certain economic incentives from the state of Alabama that reduce the amount of payroll withholdings we are required to remit to the state for those employment positions that qualify under this program. We are required to make payments in the amounts necessary to pay the interest on the amounts currently outstanding. It is our intent to make annual principal payments in addition to the interest amounts that are due. In connection with this decision, $1.0 million of the Bond has been classified as a current liability in accounts payable in the Consolidated Balance Sheet at September 30, 2017.

~~Stock Repurchase Program~~

~~Since 1997, our~~Company’s Board of Directors ~~has approved multiple share repurchase programs that have authorized open market repurchase transactions~~and is subject to general business conditions and ongoing financial results of ~~up to 50.0 million shares of our common stock, which will be implemented through open market or private purchases from time to time as conditions warrant. During~~ the nine months ended September 30, 2017, we repurchased 0.9 million shares of our common stock at an average price of $20.27 per share. As of September 30, 2017, we have the authority to purchase an additional 3.6 million shares of our common stock under the current plans approved by the Board of Directors.Company.

Stock Option Exercises

WeTo accommodate employee stock option exercises, the Company issued 0.1 million and 0.4 million shares of treasury stock which resulted in proceeds of $2.6 million and $6.1 million during the three and nine months ended September 30, ~~2017 to accommodate employee stock option exercises. The~~2021, respectively. No stock options ~~had exercise prices ranging from $15.29 to $23.64. We received proceeds totaling $6.6 million from~~were exercised during the ~~exercise of these stock options during the~~three and nine months ended September 30, ~~2017.~~2020.

Off-Balance Sheet Arrangements ~~and Contractual Obligations~~

We do not have off-balance sheet financing arrangements and have not engaged in any related party transactions or arrangements with unconsolidated entities or other persons that are reasonably likely to materially affect liquidity or the availability of or requirements for capital resources.

Contractual Obligations

Certain contracts, customers and jurisdictions in which we do business require us to provide various guarantees of performance such as bid bonds, performance bonds and customs bonds. As of September 30, 2021 and December 31, 2020, we had commitments related to these bonds totaling $20.9 million and $15.2 million, respectively, which expire at various dates through August 2024. Although the triggering events vary from contract to contract, in general we would only be liable for the amount of these guarantees in the event of default under each contract, the probability of which we believe is remote.

In June 2020, the Company entered into a letter of credit with a bank to guarantee performance obligations under a contract with a certain customer. The obligations under this customer contract will be performed over multiple years. We reached the maximum value of our minimum collateral requirement of $15.0 million during the three months ended March 31, 2021, as the Company reached certain milestones through the first quarter of 2021 as outlined in the customer contract. The letter of credit was secured by a pledge of a portion of the Company’s fixed-income securities, which totaled $18.4 million as of September 30, 2021, of which $0.1 million is included in restricted cash and $18.3 million is included in long-term investments on the Condensed Consolidated Balance Sheet. This pledged collateral value will fluctuate as the Company changes the mix of the pledged collateral between restricted cash and investments. Any shortfalls in the minimum collateral value are required to be restored by the Company from available cash and cash equivalents, short-term investments and/or long-term investments. The collateral under the letter of credit will be released when all obligations under the customer contract have been met. As of September 30, 2021, the Company was in compliance with all contractual requirements under the letter of credit.

We have committed to invest up to an aggregate of $5.0 million in a private equity fund, of which $4.9 million has been invested as of September 30, 2021.

During the nine months ended September 30, ~~2017,~~2021, there have been no other material changes in contractual obligations and commercial commitments from those discussed in ~~our most recent Annual Report on~~the 2020 Form ~~10-K for the year ended December 31, 2016 filed on February 24, 2017 with the SEC.~~10-K.

We have committed to invest up to an aggregate of $7.9 million in two private equity funds, and we have contributed $8.4 million as of September 30, 2017, of which $7.7 million has been applied to these commitments.

ITEM 3. QUANTITATIVE AND ~~QUALITATI~~VEQUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to financial market risks, including changes in ~~interest rates,~~ foreign currency rates, ~~and~~ prices of marketable equity and fixed-income securities. In addition, the ongoing global pandemic raises the possibility of an extended economic downturn and has caused volatility in financial markets. The primary objective of the large majority of our investment activities is to preserve principal while at the same time achieving appropriate yields without significantly increasing risk. To achieve this objective, a majority of our marketable securities are investment grade, ~~corporate bonds, municipal~~ fixed-rate ~~bonds, asset-backed bonds, mortgage/agency backed bonds, U.S. and foreign government~~ bonds and municipal money market instruments denominated in U.S. dollars. Our investment policy provides limitations for issuer concentration, ~~which limits,~~by restricting, at the time of purchase, the concentration in any one issuer to 5% of the market value of our total investment portfolio.

We maintain depository investments with certain financial institutions. Although these depository investments may exceed government insured depository limits, we have evaluated the ~~credit worthiness~~creditworthiness of these financial institutions and determined the risk of material financial loss due to exposure of such credit risk to be minimal. As of September 30, ~~2017, $125.2~~2021, $71.2 million of our cash and cash equivalents, primarily certain domestic money market funds ~~commercial paper~~ and foreign depository accounts, were in excess of government provided insured depository limits.

As of September 30, ~~2017,~~2021, approximately ~~$108.1~~$46.5 million of our cash and investments may be directly affected by changes in interest rates. ~~We have performed a hypothetical sensitivity analysis assuming market interest rates increase or decrease by 50 basis points (bps) for an entire year, while all other variables remain constant. At~~As of September 30, ~~2017,~~2021, we held ~~$39.4~~$6.5 million of cash and variable-rate investments where a change in interest rates would impact our interest income. A hypothetical 50 ~~bps~~basis point decline in interest rates as of September 30, ~~2017~~2021, assuming all other variables remain constant, would reduce annualized interest income on our cash and investments by less than approximately ~~$0.2~~$0.1 million. In addition, we held ~~$68.7~~$40.0 million of fixed-rate bonds whose fair values may be directly affected by a change in interest rates. A hypothetical 50 ~~bps~~basis point increase in interest rates as of September 30, ~~2017~~2021, assuming all other variables remain constant, would reduce the fair value of our fixed-rate bonds by approximately $0.3 million.

As of September 30, 2016, approximately $178.8 million of our cash and investments was subject to being directly affected by changes in interest rates. We have performed a hypothetical sensitivity analysis assuming market interest rates increase or decrease by 50 bps for the entire year, while all other variables remain constant. A hypothetical 50 bps decline in interest rates as of September 30, 2016 would have reduced annualized interest income on our cash, money market instruments and variable rate demand notes by approximately $0.4 million. In addition, a hypothetical 50 bps increase in interest rates as of September 30, 2016 would have reduced the fair value of our fixed-rate bonds by approximately $0.5 million.

We are exposed to changes in foreign currency exchange rates to the extent that such changes affect our revenue and gross margin on revenue derived from some international customers, expenses, and assets and liabilities held in non-functional currencies related to our foreign subsidiaries. Our primary exposures to foreign currency exchange ~~rates~~rate movements are with our German subsidiary, whose functional currency is the Euro, and our Australian subsidiary, whose functional currency is the Australian ~~dollar, and our Mexican subsidiary, whose~~dollar. Our revenue is primarily denominated in the respective functional currency of the subsidiary and paid in that subsidiary’s functional currency or certain other local currency, our global supply chain predominately invoices us in the respective functional currency of the subsidiary and is paid in U.S. dollars and some of our operating expenses are invoiced and paid in certain local currencies (approximately 9.4% of total operating expense for both the ~~United States dollar. We~~three and nine months ended September 30, 2021). Therefore, our revenues, gross margins, operating expense and operating income are ~~exposed~~all subject to ~~changes in~~ foreign currency exchange rates to the extent of our German subsidiary’s use of contract manufacturers and raw material suppliers whom we predominately pay in U.S. dollars. We may establish cash flow hedges utilizing foreign exchange forward contracts to reduce the risk that movements in exchange rates will adversely affect the net cash flows resulting from the planned purchase of products from foreign suppliers.fluctuations. As a result, changes in currency exchange rates could cause variations in ~~gross margin in the products that we sell in the EMEA region.~~our operating income.

We ~~have~~have certain customers and suppliers who are invoiced or pay in a non-functional currency. Changes in the monetary exchange rates used to invoice such customers versus the functional currency of the entity billing such customers may adversely affect our results of operations and financial ~~condition, as outstanding non-functional balances are revalued to the functional currency through profit and loss. When appropriate, we utilize foreign exchange forward contracts to help~~condition. To manage the volatility relating to these ~~valuation exposures. All changes in the fair value of our~~typical business exposures, we may enter into various derivative ~~instruments that do not qualify for or are not designated for hedged accounting~~ transactions, ~~are recognized as other income (expense) in the Consolidated Statements of Income.~~when appropriate. We do not hold or issue derivative instruments for trading or other speculative purposes. ~~All~~For balances as of September 30, 2021, all non-functional currencies billed would result in a combined hypothetical gain or loss of ~~$0.1~~$3.4 million if the U.S. dollar weakened or ~~strengthened~~strengthened 10% against the billing currencies. ~~Any~~This change represents an increase in the amount of hypothetical gain or loss compared to prior periods and is mainly due to an increase in U.S. dollar denominated billings in a non-U.S. dollar denominated subsidiary. Although we do not currently hold any derivative instruments, any gain or loss would be partially mitigated by ~~these~~any derivative ~~instruments.~~instruments held.

As of September 30, ~~2017,~~2021, we had nocertain material contracts ~~other than~~subject to currency revaluation, including accounts receivable, ~~and~~ accounts payable and lease liabilities, denominated in foreign currencies. As of September 30, ~~2017,~~2021, we ~~had~~did not have any forward contracts ~~outstanding with notional amounts totaling $7.0 million (€5.9 million).~~outstanding.

For further information about the fair value of our ~~available-for-sale~~ investments ~~and our derivative and hedging activities~~ as of September 30, ~~2017,~~2021, see ~~Notes~~Note 6 ~~and 7~~ of the Notes to Condensed Consolidated Financial ~~Statements.~~Statements included in Part I, Item 1 of this report.

ITEM 4. CONTROLS AND PROCEDURES

~~(a)~~ Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and ~~procedures.~~ ~~Our Chief Executive Officer and Chief Financial Officer~~procedures that are ~~responsible for establishing and maintaining "disclosure controls and procedures" (as defined~~designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, ~~Rules 13a-15(e)~~as amended (the “Exchange Act”), is recorded, processed, summarized and ~~15d-15(e)) for ADTRAN. Our~~reported within the time periods specified in the rules and forms promulgated by the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, ~~after evaluating~~as appropriate, to allow timely decisions regarding required disclosure. Because of the inherent limitations to the effectiveness of any system of disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that all control issues, if any, with a company have been prevented or detected on a timely basis. Even disclosure controls and procedures determined to be effective can only provide reasonable assurance that their objectives are achieved.

As of the end of the period covered by this report, an evaluation was carried out by management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of the end of the period covered by this ~~quarterly~~ report, ~~have concluded that~~ our disclosure controls and procedures ~~are effective.~~were effective at the reasonable assurance level.

~~(b)~~ Changes in ~~internal control~~Internal Control over ~~financial reporting.~~Financial Reporting.

There were no changes in ~~our~~the Company’s internal control over financial reporting that occurred during ~~our~~the most recent fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, ~~our~~its internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Shareholder Derivative Lawsuit

On March 31, 2020, a shareholder derivative suit, captioned Johnson (Derivatively on behalf of ADTRAN) v. Stanton, et al., Case No. 5:20-cv-00447, was filed in the U.S. District Court for the Northern District of Alabama against two of the Company’s current executive officers, one of its former executive officers, and certain current and former members of its Board of Directors. The derivative suit alleges, among other things, that the defendants made or caused the Company to make materially false and misleading statements regarding, and/or failed to disclose material adverse facts about, the Company’s business, operations and prospects, specifically relating to the Company’s internal control over financial reporting, excess and obsolete inventory reserves, financial results and demand from certain customers. The case was temporarily stayed pending an order on the defendants’ motion to dismiss in a separate securities class action case that included similar factual allegations, Burbridge v. ADTRAN, Inc., et al., Case No. 5:20-cv-00050-LCB (N.D. Ala.). The Burbridge case was dismissed on March 31, 2021, and the time to appeal the dismissal has expired, such that the dismissal is now final. Following the dismissal, the plaintiff in the shareholder derivative suit sent a demand letter dated June 29, 2021 to ADTRAN’s Board of Directors. The letter contains similar allegations to those made in the plaintiff’s filed complaint and in the now dismissed securities class action, and it demands, among other things, that the Board commence an investigation into the alleged wrongdoing. We expect that the derivative suit will remain stayed pending the Board’s response to the demand. At this time, we are unable to predict the outcome of or estimate the possible loss or range of loss, if any, associated with the derivative lawsuit or the demand letter.

ITEM 1A. RISK FACTORS

A list of factors that could materially affect our business, financial condition or operating results is described in Part I, Item 1A, “Risk Factors” in the 2020 Form 10-K. There have been no material changes to our risk factors from those disclosed in Part I, Item 1A, “Risk Factors” in the 2020 Form 10-K, other than as described in the risk factors below.

Risks Related to ADTRAN’s Business

The ongoing COVID-19 pandemic has impacted and may continue to impact our business, results of operations and financial condition, particularly our supply chain and workforce.

The global spread of COVID-19 created significant volatility, uncertainty and economic disruption. The restrictions imposed to prevent the spread of COVID-19 disrupted economic activity, resulting in reduced commercial and consumer confidence and spending, increased unemployment, closure or restricted operating conditions for businesses, volatility in the global capital markets, instability in the credit and financial markets, labor shortages, regulatory relief for impacted consumers and disruption in supply chains. COVID-19, as well as intensified measures undertaken to contain the spread of COVID-19, could adversely affect demand for our products and services in the future. A decrease in orders could negatively affect our revenues in future periods, particularly if experienced on a sustained basis. Also, we may be unable to collect receivables from those customers significantly impacted by COVID-19.

In addition, due to the ongoing pandemic and global semiconductor chip shortage, we have experienced disruption and delays in our supply chain and significant price increases with certain of our manufacturing partners, and those disruptions, delays and price increases may continue. For example, in the third quarter of 2021, our results of operations were negatively impacted by increased expenses resulting from supply chain disruptions. There are also restrictions and delays on logistics, such as air cargo carriers, as well as increased logistics costs due to limited capacity and high demands for freight forwarders. Although we continue to work with our supply chain and dual source partners to take the necessary steps to resolve these disruptions, there can be no assurance that the ongoing disruptions due to COVID-19, the related global semiconductor chip shortage or other supply chain constraints or price increases will be resolved in the near term, which could continue to result in longer lead times, inventory supply challenges and further increased costs, all of which could continue to adversely affect our business, financial condition, and results of operations.

Although vaccines have been approved and are being distributed, it cannot be predicted how long it will take before market conditions return to normal and there can be no assurance that the economic recovery will occur or offset the uncertainty and instability triggered by the pandemic. Additionally, as vaccinations become readily available, we cannot predict what restrictions may be imposed in the event of vaccine mandates for travel to and from particular destinations. New and potentially more contagious variants of the COVID-19 virus are developing in several countries, including regions in which we have significant operations. The COVID-19 variants could further amplify the impact of the pandemic.

To support the health and well-being of our employees, customers, partners and communities, many of our employees are working remotely as of the date of filing this report. However, there is risk that a number of our employees could be infected with COVID-19, including our key personnel. In addition, actions that have been taken and that may be taken by the Company, its customers, suppliers and counterparties in response to the pandemic, including the implementation of alternative work arrangements for certain employees, as well as the impacts to our supply chain, including delays in supply chain deliveries and the related global semiconductor chip shortage,

have delayed and may continue to delay the timing of some orders and expected deliveries. The disruptions to our operations caused by COVID-19, the related global semiconductor chip shortage and actions by other parties have resulted in and may continue to result in inefficiencies and additional costs in our product development, sales, marketing and customer service efforts that we cannot fully mitigate. These additional costs may be partially offset by reduced travel expenses as a result of travel restrictions that we have in place, as well as lower marketing-related costs.

We will continue to evaluate the nature and extent of the impact of COVID-19 on our business.

Changes in trade policy in the U.S. and other countries, specifically the UK and China, including the imposition of additional tariffs and the resulting consequences, may adversely impact our gross profits, gross margins, results of operations and financial condition.

The U.S. government has imposed tariffs on a wide range of products and goods manufactured in China and imported into the U.S. These tariffs are intended to address trade imbalances, which include decreasing imports from China and encouraging increased production of these products in the U.S. These proposals have, and could continue to, result in increased customs duties and tariffs. We import an increasing percentage of our products into the U.S. from China and an increase in customs duties and tariffs with respect to these imports could negatively impact our gross profit, gross margins and results of operations. These customs duties and tariffs may also cause other U.S. trading partners to take certain actions with respect to U.S. imports in their respective countries. Any potential changes in trade policies in the U.S. and the potential actions by other countries in which we do business could adversely impact our financial performance.

In June 2016, the UK held a referendum, commonly referred to as “Brexit,” in which the majority of voters elected to withdraw from the EU. The UK formally departed from the EU on Friday, January 31, 2020. The UK and the EU have signed an EU-UK Trade and Cooperation Agreement, which became provisionally applicable on January 1, 2021 and went into force permanently on May 1, 2021, following formal approval by the UK and the EU. The agreement is limited in its scope primarily to the trade of goods, transport, energy links and fishing, and uncertainties remain relating to certain aspects of the UK's future economic, trading and legal relationships with the EU and with other countries. The actual or potential consequences of Brexit, and the associated uncertainty, could adversely affect economic and market conditions in the UK, the EU and its member states, and elsewhere, and could contribute to instability in global financial markets. The past year has been challenging for the credit markets due to a shift from a time of quantitative easing to a time of quantitative tightening by central banks around the world. If global economic and market conditions, or economic conditions in key markets, remain uncertain or further deteriorate, we may experience material impacts on our business and operating results. We may also be adversely affected in ways that we do not currently anticipate.

Our revenue for a particular period can be difficult to predict, and a shortfall in revenue may harm our operating results.

As a result of the many factors discussed in this report, our revenue for a particular quarter is difficult to predict and will fluctuate from quarter to quarter. Typically, our customers request product delivery within a short period following our receipt of an order. Consequently, we do not typically carry a significant order backlog and are dependent upon obtaining orders and completing delivery in accordance with shipping terms that are predominantly within each quarter to achieve our targeted revenues. Supply of semiconductor chips and other components of our products has become constrained resulting in extended lead times. Transportation constraints, including shortages for both air and surface freight, as well as labor shortages in the transportation industry, have also affected the timing and the cost of obtaining raw materials and production supplies. As a result, our net revenue and gross profit declined in the third quarter of 2021. If supply chain constraints and transportation constraints continue, it could cause our net revenue and gross profit to decline or to grow at a slower rate than in previous quarters. Our deployment/installation cycle can also vary depending on the customer’s schedule, site readiness, network size and complexity and other factors, which can cause our revenue to fluctuate from period to period. Our ability to meet financial expectations could also be affected if the variable revenue patterns seen in prior quarters recur in future quarters. We have experienced periods of time during which manufacturing issues have delayed shipments, leading to variable shipping patterns. In addition, to the extent that manufacturing issues and any related component shortages continue to result in delayed shipments in the future, and particularly in quarters in which we and our subcontractors are operating at higher levels of capacity, it is possible that revenue for a quarter could be adversely affected, and we may not be able to remediate the conditions within the same quarter. Currently, our revenue growth and profitability in the near-term are being impacted by supply chain constraint issues. While we are working closely with our suppliers and customers to address the near-term supply chain challenges facing the industry and believe these challenges are peaking during the second half of 2021 and will begin to normalize by mid-2022, there can be no assurance this will be the case.

In the past, under certain market conditions, long manufacturing lead times have caused our customers to place the same order multiple times. When multiple ordering occurs, along with other factors, it may cause difficulty in predicting our sales and, as a result, could impair our ability to manage inventory effectively.

We plan our operating expense levels based primarily on forecasted revenue levels. These expenses and the impact of long-term commitments are relatively fixed in the short term. A shortfall in revenue could lead to operating results being below expectations because we may not be able to quickly reduce these fixed expenses in response to short-term business changes.

Our dependence on a limited number of suppliers for certain raw materials, key components and ODM products, combined with supply shortages, have prevented and may continue to prevent us from delivering our products on a timely basis, which has had a material adverse effect on operating results and could have a material adverse effect on customer relations.

Certain raw materials and key components used in our products are currently available from only one source, and others are available from only a limited number of sources. The availability of these raw materials and supplies may be subject to market forces beyond our control, such as merger and acquisition activity of our suppliers and consolidation in some segments of our supplier base. From time to time, there may not be sufficient quantities of raw materials and supplies in the marketplace to meet customer demand. For example, wafer foundries that support chipmakers have not invested enough in recent years to increase capacities to the levels need to support demand from all of their customers and wafers have a long lead time for production, in some cases up to 30 weeks, which has led to a recent shortage in chip supplies.Many companies utilize the same raw materials and supplies that we do in the production of their products. Companies with more resources than our own may have a competitive advantage in obtaining raw materials and supplies due to greater buying power. These factors have resulted in reduced supply, higher prices of raw materials and delays in the receipt of certain of our key components, which in turn has generated increased costs, lower margins and delays in product delivery, with a corresponding adverse effect on revenues. Delays in product deliveries and corresponding product price increases may likewise have an adverse effect on customer relationships. We attempt to manage these risks through developing alternative sources, by staging inventories at strategic locations, through engineering efforts designed to obviate the necessity of certain components and by building long-term relationships and close contact with each of our key suppliers; however, we cannot assure that delays in or failures of deliveries of key components, either to us or to our contract manufacturers, and consequent delays in product deliveries, will not continue to occur in the future. For a discussion of the impact of the COVID-19 pandemic on our supply chain see “- The ongoing COVID-19 pandemic could adversely affect our business, results of operations and financial condition.”

Managing our inventory is complex and may include write-downs of excess or obsolete inventory.

Managing our inventory of components and finished products is complicated by a number of factors, including the need to maintain a significant inventory of certain components that are in short supply, that have been discontinued by the component manufacturer, that must be purchased in bulk to obtain favorable pricing or that require long lead times. These issues may result in our purchasing and maintaining significant amounts of inventory, which if not used or expected to be used based on anticipated production requirements, may become excess or obsolete. Any excess or obsolete inventory could also result in sales price reductions and/or inventory write- downs, which could adversely affect our business and results of operations.

The continuing growth of our international operations could expose us to additional risks, increase our costs and adversely affect our operating results, financial condition and cash flows.

We are expanding our presence in international markets, which represented 33.2% and 30.5% of our net revenue for the nine months ended September 30, 2021 and for the year ended December 31, 2020, respectively, and as a result, we anticipate increased sales and operating costs in these markets. This international expansion may increase our operational risks and impact our results of operations, including:



exposure to unfavorable commercial terms in certain countries;



the time and cost to staff and manage foreign operations, including the time and cost to maintain good relationships with employee associations and works councils;



exposure to unfavorable commercial terms in certain countries;



the time and cost to staff and manage foreign operations, including the time and cost to maintain good relationships with employee associations and work councils;



the time and cost to ensure adequate business interruption controls, processes and facilities;



the time and cost to manage and evolve financial reporting systems, maintain effective financial disclosure controls and procedures, and comply with corporate governance requirements in multiple jurisdictions;



the cost to collect accounts receivable and extension of collection periods;



the cost and potential disruption of facilities transitions required in some business acquisitions;



risks as a result of less regulation of patents or other safeguards of intellectual property in certain countries;



the potential impact of adverse tax, customs regulations and transfer-pricing issues;



exposure to increased price competition from additional competitors in some countries;



exposure to global social, political and economic instability, changes in economic conditions and foreign currency exchange rate movements;



potential exposure to liability or damage of reputation resulting from a higher incidence of corruption or unethical business practices in some countries;



potential regulations on data protection, regarding the collection, use, disclosure and security of data;



potential trade protection measures, export compliance issues, domestic preference procurement requirements, qualification to transact business and additional regulatory requirements; and



potential exposure to natural disasters, epidemics and pandemics (and government regulations in response thereto) and acts of war or terrorism.

If we are unable to successfully address the potential risks associated with our overall international expansion, our operating results, financial condition and cash flows may be negatively impacted.

Risks Related to the Business Combination Agreement with ADVA

The consummation of the Business Combination is subject to a number of conditions, and the Business Combination Agreement may be terminated by each of ADTRAN and ADVA under certain circumstances. If the Business Combination is not completed, the price of our common stock may be adversely affected.

The consummation of the Business Combination is subject to a number of conditions, including, among others, (i) adoption of the Business Combination Agreement by holders of a majority of the outstanding shares of ADTRAN common stock, (ii) the tender in the Exchange Offer of at least 70% of the outstanding ADVA shares, (iii) the declaration of effectiveness by the SEC of the registration statement on Form S-4 that Acorn HoldCo filed with the SEC for the shares to be issued in the Merger and the Exchange Offer, with no stop order in effect or being sought with respect thereto, (iv) receipt of certain antitrust and foreign direct investment regulatory approvals for the transaction (the “regulatory condition”) and (vi) the absence of any law, regulation, administrative act, injunction, temporary restraining order or preliminary or permanent injunction or other order issued by any governmental entity in any relevant jurisdiction prohibiting or making illegal (a) the consummation of the Exchange Offer or the Merger or (b) the ownership of ADVA shares or shares of the surviving corporation by Acorn HoldCo. Furthermore, ADTRAN’s obligation to consummate the Business Combination is subject to certain additional customary conditions, including (i) the absence of a Target Material Adverse Change for ADVA, as defined in the Business Combination Agreement, (ii) the absence of the violation of law by ADVA related to bribery, corruption or export sanctions, (iii) the absence of an increase or decrease in ADVA’s share capital of more than 1%, subject to certain exceptions and the absence of a loss in the amount of half or more of ADVA’s share capital and (iv) the absence of any insolvency proceedings against ADVA or circumstances requiring the opening of insolvency proceedings. Except for the regulatory condition, all conditions to the Business Combination must be satisfied on or prior to the end of the acceptance period for the Exchange Offer. The regulatory condition may remain outstanding for up to twelve months following the end of the acceptance period. The completion of the Business Combination will depend on the satisfaction of such conditions. No assurance can be given that all of the conditions to the Business Combination will be satisfied or, if they are, as to the timing of the closing of the Business Combination.

Furthermore, pursuant to the Business Combination Agreement, both we and ADVA may terminate the Business Combination Agreement under certain circumstances, including, among others, the occurrence of a material adverse change affecting ADVA or certain changes in the recommendation to the ADVA management or supervisory board.

If the conditions to the Business Combination are not satisfied or validly waived in advance, or if termination rights are exercised, the Business Combination Agreement will terminate and the Business Combination will not be completed. If the Business Combination is delayed or not completed, the price of our common stock may decline.

Acorn HoldCo, which will be the holding company of ADTRAN and ADVA following the completion of the Business Combination, may enter into a domination and/or profit and loss transfer agreement with ADVA after the closing of the Business Combination that could be disadvantageous to Acorn HoldCo.

Following completion of the Business Combination, Acorn HoldCo may enter into a domination and/or profit and loss transfer agreement (a “DPLTA”) with ADVA after the completion of the Exchange Offer. Pursuant to applicable provisions of the German Stock Corporation Act, under a DPLTA, Acorn HoldCo would be obligated to compensate any annual net loss of ADVA. Further, each ADVA shareholder who did not tender in the Exchange Offer would be offered to elect either (1) to remain an ADVA shareholder and receive, in the case of a domination agreement, an adequate fixed or variable annual guaranteed dividend or, in the case of a profit and loss transfer agreement, receive annual recurring compensation pursuant to applicable provisions of the German Stock Corporation Act, or (2) to receive adequate exit compensation in exchange for its ADVA shares pursuant to applicable provisions of the German Stock Corporation Act. ADVA shareholders electing the first option may later elect the second option for as long as the offer for the exit compensation is open. Acorn HoldCo’s obligation to pay an adequate fixed or variable annual guaranteed dividend or annual recurring compensation would lead to a continuing payment obligation for Acorn HoldCo which could be disadvantageous to Acorn HoldCo’s financial condition.

The announcement and pendency of the Business Combination, during which ADTRAN and ADVA are subject to certain operating restrictions, could have an adverse effect on Acorn HoldCo’s, ADTRAN’s and ADVA’s businesses and cash flows, financial condition and results of operations.

The announcement and pendency of the Business Combination could disrupt ADTRAN’s and ADVA’s businesses, and uncertainty about the effect of the Business Combination may have an adverse effect on Acorn HoldCo, ADTRAN and ADVA. These uncertainties could cause suppliers, vendors, partners, customers and others that deal with ADTRAN and ADVA to defer entering into contracts with, or making other decisions concerning ADTRAN and ADVA or to seek to change or cancel existing business relationships with the companies. In addition, ADTRAN’s and ADVA’s employees may experience uncertainty regarding their roles after the Business Combination. Employees may depart either before or after the completion of the Business Combination because of uncertainty and issues relating to the difficulty of coordination or because of a desire not to remain following the Business Combination. Therefore, the pendency of the Business Combination may adversely affect Acorn HoldCo’s, ADTRAN’s and ADVA’s ability to retain, recruit and motivate key personnel. Additionally, the attention of ADTRAN’s and ADVA’s management may be directed towards the completion of the Business Combination, including obtaining regulatory approvals, and may be diverted from the day-to-day business operations of ADTRAN and ADVA. Matters related to the Business Combination may require commitments of time and resources that could otherwise have been devoted to other opportunities that might have been beneficial to ADTRAN and ADVA. Additionally, the Business Combination Agreement requires ADTRAN and ADVA to refrain from taking certain specified actions, for example significant investments or disposals, while the Business Combination is pending. These restrictions may prevent ADTRAN and ADVA from pursuing otherwise attractive business opportunities or capital structure alternatives and from executing certain business strategies prior to the completion of the Business Combination. Further, the Business Combination may give rise to potential liabilities, including those that may result from pending and future stockholder lawsuits relating to the Business Combination or a potential post-completion reorganization. Any of these matters could adversely affect the businesses of, or harm the results of operations, financial condition or cash flows of Acorn HoldCo, ADTRAN and ADVA.

Further, certain adverse changes in the business of ADVA or ADTRAN in the period prior to the closing of the Business Combination may occur that would not result in ADTRAN, ADVA or Acorn HoldCo having the right to terminate the Business Combination Agreement or the Exchange Offer. If adverse changes occur but ADTRAN and ADVA are still required to complete the Business Combination, the market value of ADTRAN shares, ADVA shares or Acorn HoldCo shares may decrease. If the Business Combination is not completed, these risks may still materialize and adversely affect the business and financial results of ADTRAN and/or ADVA.

Negative publicity related to the Business Combination may adversely affect ADTRAN, ADVA or Acorn HoldCo.

From time to time, political and public sentiment in connection with a proposed Business Combination may result in a significant amount of adverse press coverage and other adverse public statements affecting the parties to the Business Combination. Adverse press coverage and public statements, whether or not driven by political or popular sentiment, may also result in legal claims or in investigations by regulators, legislators and law enforcement officials. Responding to these investigations and lawsuits, regardless of the ultimate outcome of the proceedings, can divert the time and effort of senior management from operating their businesses. Addressing any adverse publicity, governmental scrutiny or enforcement or other legal proceedings could be time-consuming and expensive and, regardless of the factual basis for the assertions being made, could have a negative impact on the reputation of ADTRAN, ADVA and Acorn HoldCo, on the morale and performance of their employees and on the relationships with regulators, suppliers and customers. It may also have a negative impact on our ability to take timely advantage of various business and market opportunities. The direct and indirect effects of negative publicity, and the demands of responding to and addressing it, may have a material adverse effect on ADTRAN’s and ADVA’s respective businesses and cash flows, financial condition and results of operations.

Certain of our directors and executive officers and certain of the designees to the pre-closing Acorn HoldCo board of directors may have interests in the Business Combination that may be different from, or in addition to, those of ADTRAN stockholders generally.

Certain of our directors and executive officers, as well as certain designees to the pre-closing Acorn HoldCo board of directors, may have interests in the Business Combination that may be different from, or in addition to, the interests of ADTRAN stockholders. These interests include the continued service of certain directors and executive officers following the closing of the Business Combination, the treatment of restricted stock units, performance stock units, stock options and other equity-based awards in connection with the Business Combination, and the indemnification of ADTRAN directors, executive officers and designees to the pre-closing Acorn HoldCo board of directors by Acorn HoldCo.

We will incur significant transaction fees and costs in connection with the Business Combination.

We expect to incur a number of significant non-recurring implementation and restructuring costs associated with combining the operations of the two companies. In addition, we will incur significant banking, legal, accounting and other transaction fees and costs related to the Business Combination.

Additional costs substantially in excess of currently anticipated costs may also be incurred in connection with the integration of the businesses of ADTRAN and ADVA. For additional information regarding estimates of fees and costs relating to the Business Combination Agreement and proposed Business Combination refer to the Company’s filings with the SEC, as well as the registration statement on Form S-4 that Acorn HoldCo has filed with the SEC.

Any cost savings or other efficiencies related to the integration of the businesses that could offset these transaction- and combination-related costs over time may not be achieved in the near term, or at all. In addition, the timeline in which cost savings are expected to be realized is lengthy and may not be achieved. Failure to realize these synergies and cost reductions and other efficiencies in a timely manner or at all could have a material adverse effect on Acorn HoldCo’s and ADTRAN’s respective businesses and cash flows, financial condition and results of operations.

Risks relating to the businesses of ADTRAN and ADVA after the completion of the Business Combination may have a significant adverse impact on Acorn HoldCo’s business and financial performance.

Due to the size and geographic reach of Acorn HoldCo’s operations following the completion of the Business Combination, a wide range of factors could materially affect its operations and financial performance. In addition to the risks described herein, the risks relating to ADTRAN described below under “Risks Relating to ADTRAN’s Business” and in Item 1A of ADTRAN’s Annual Report on Form 10-K for the year ended December 31, ~~2016. There have been no material changes~~2020, and the risks relating to ~~our risk factors since our Annual Report~~ADVA’s business described in “Risk Factors — Risks Relating to the Business of ADVA” in the registration statement on Form ~~10-K~~S-4 that Acorn HoldCo filed with the SEC, which has not yet become effective and which you are urged to read, may significantly impact Acorn HoldCo’s business and financial performance after the completion of the Business Combination.

Acorn HoldCo may fail to realize the anticipated strategic and financial benefits sought from the Business Combination.

Acorn HoldCo may not realize all of the anticipated benefits of the Business Combination. The success of the Business Combination will depend on, among other things, Acorn HoldCo’s ability to combine ADTRAN’s business with ADVA’s business in a manner that facilitates growth and realizes anticipated cost savings.

However, Acorn HoldCo must successfully combine the businesses of ADTRAN and ADVA in a manner that permits these anticipated benefits to be realized. In addition, Acorn HoldCo must achieve the anticipated growth and cost savings without adversely affecting current revenues and investments in future growth.

In addition, the actual integration of ADTRAN and ADVA will involve complex operational, technological and personnel-related challenges. This process will be time-consuming and expensive, and it may be disruptive to the combined businesses. Acorn HoldCo may not realize all of the anticipated benefits of the Business Combination. Difficulties in the integration of the businesses, which may result in significant costs and delays, include:



managing a significantly larger combined group;



aligning and executing the strategy of the combined group;



integrating and unifying the offerings and services available to customers and coordinating distribution and marketing efforts in geographically separate organizations;



coordinating corporate and administrative infrastructures and aligning insurance coverage;



coordinating accounting, information technology, communications, administration and other systems;



addressing possible differences in corporate cultures and management philosophies;



coordinating the compliance program and creating uniform standards, controls, procedures and policies;



the implementation, ultimate impact and outcome of potential post-completion reorganization transactions, which may be delayed or not take effect as a result of litigation or otherwise;



unforeseen and unexpected liabilities related to the Business Combination or Acorn HoldCo's business;



managing tax costs or inefficiencies associated with integrating the operations of the combined group;



identifying and eliminating redundant and underperforming functions and assets;



effecting actions that may be required in connection with obtaining regulatory approvals; and



a deterioration of credit ratings.

These and other factors could result in increased costs and diversion of management’s time and energy, as well as decreases in the amount of expected revenue and earnings, which could materially impact Acorn HoldCo’s business, financial condition and results of

operations. The integration process and other disruptions resulting from the Business Combination may also adversely affect Acorn HoldCo’s relationships with employees, suppliers, customers, distributors, licensors and others with whom ADTRAN and ADVA have business or other dealings, and difficulties in integrating the businesses of ADTRAN and ADVA could harm the reputation of the combined group.

If the combined group is not able to successfully combine the businesses of ADTRAN and ADVA in an efficient, cost-effective and timely manner, the anticipated benefits and cost savings of the Business Combination may not be realized fully, or at all, or may take longer to realize than expected.

Following the completion of the Business Combination, ADVA will be majority owned by Acorn HoldCo. While Acorn HoldCo may enter into a domination agreement with ADVA, the effectiveness of such agreement may be delayed as a result of litigation or otherwise or may not occur, which may have an adverse effect on the ability to realize synergies and cost reductions and the market value of Acorn HoldCo shares.

Following the completion of the Business Combination, ADVA will be directly majority-owned by Acorn HoldCo and, thus, become a dependent company of Acorn HoldCo within the meaning of the German Stock Corporation Act. The legal framework for this dependency between Acorn HoldCo and ADVA is, subject to other applicable law, set forth in applicable provisions of the ~~year ended December 31, 2016.~~German Stock Corporation Act, which may prevent or impede the realization of synergies and cost reductions absent a domination agreement. If Acorn HoldCo pursues a domination agreement but does not hold enough of ADVA’s outstanding shares after the completion of the Business Combination or such approval is contested or the effectiveness of such agreement is delayed as a result of litigation or otherwise or does not occur, Acorn HoldCo may be unable to initiate any transactions or measures that are disadvantageous to ADVA, unless Acorn HoldCo provides adequate compensation to ADVA. If the disadvantage caused by any transaction or other measure cannot be assessed or compensated, Acorn HoldCo will be unable to initiate such transaction or measure, which may preclude Acorn HoldCo from implementing certain transactions related to the integration of ADVA into the combined group, including realizing synergies. The failure to realize synergies may lead to a decline of the value of Acorn HoldCo shares.

A combined ADTRAN and ADVA may experience a loss of customers or may fail to win new customers in certain countries.

Following the Business Combination, third parties with whom ADTRAN or ADVA had relationships prior to the announcement of the Business Combination may terminate or otherwise reduce the scope of their relationship with either party in anticipation or after the completion of the Business Combination. In addition, the combined group may face difficulties to acquire new customers in certain countries. Any such loss of business or the inability to win new customers could limit the combined group’s ability to achieve the anticipated benefits of the Business Combination. Such risks could also be exacerbated by a delay in the settlement of the exchange offer and the Business Combination.

ADTRAN and ADVA may be unable to retain and motivate their respective personnel successfully while the Business Combination is pending or following the completion of the Business Combination.

The success of the Business Combination will depend, in part, on the combined group’s ability to retain the talents and dedication of key employees, including key decision-makers, currently employed by ADTRAN and ADVA. Such employees may decide not to remain with ADTRAN and ADVA, as applicable, while the Business Combination is pending or with the combined group after the Business Combination is completed. If key employees terminate their employment, or if an insufficient number of employees are retained to maintain effective operations, the combined group’s business activities may be adversely affected and management’s attention may be diverted from successfully integrating ADTRAN and ADVA to hiring suitable replacements, all of which may cause Acorn HoldCo’s business to deteriorate. ADTRAN and ADVA may not be able to locate suitable replacements for any key employees who leave either company or offer employment to potential replacements on reasonable terms. In addition, Acorn HoldCo, ADTRAN and ADVA may not be able to motivate certain key employees following the completion of the Business Combination due to organizational changes, reassignments of responsibilities, the perceived lack of appropriate opportunities for advancement or other reasons. If the combined group fails to successfully retain and motivate the employees of ADTRAN and/or ADVA, relevant capabilities and expertise may be lost which may have an adverse effect on the cash flows and the financial condition and results of operations of Acorn HoldCo, ADTRAN and ADVA.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth repurchases of our common stock for the months indicated:

Period

Total
Number of
Shares
Purchased

Average
Price
Paid per
Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs

July 1, 2017 – July 31, 2017

—

$
—

—

3,560,769

August 1, 2017 – August 31, 2017

1,701

$
21.50

1,701

3,559,068

September 1, 2017 – September 30, 2017

—

$
—

—

3,559,068

Total

1,701

1,701


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2021 – July 31, 2021		—	$	—		—		2,545,430
August 1, 2021 – August 31, 2021		—	$	—		—		2,545,430
September 1, 2021 – September 30, 2021		—	$	—		—		2,545,430
Total		—				—

~~On July 14, 2015, our~~(1) Since 1997, the Company’s Board of Directors has approved multiple share repurchase programs that have authorized open market repurchase transactions of the ~~repurchase of an additional 5.0 million shares of our~~Company’s common stock, ~~(bringing the total shares authorized for repurchase to 50.0 million). This authorization will be~~which are implemented through open market or private purchases from time to time as conditions warrant. We currently have authorization to repurchase an additional 2.5 million shares of our common stock under the current authorization of up to 5.0 million shares.

ITEM 5. OTHER INFORMATION

The information set forth below is included herein for the purpose of providing disclosure under Item 1.01 (Entry into a Material Definitive Agreement) and Item 2.03 (Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant) of Form 8-K.

ITEM 6. EXHIBITS

Exhibits.


Exhibit No.		Description

31	2.1	Business Combination Agreement, dated August 30, 2021, by and among ADTRAN, Inc., Acorn HoldCo, Inc., Acorn MergeCo, Inc. and ADVA Optical Networking SE (incorporated by reference to Exhibit 2.1 to ADTRAN’s Form 8-K filed August 30, 2021)

2.2	Irrevocable Undertaking, dated August 30, 2021, by and among Acorn HoldCo, Inc., EGORA Holding GmbH and Egora Investments GmbH (incorporated by reference to Exhibit 2,2 to ADTRAN’s Form 8-K filed August 30, 2021)

3.1	Restated Certificate of Incorporation of ADTRAN, Inc. (incorporated by reference to Exhibit 3.1 to ADTRAN's Form 10-Q filed August 6, 2021)

3.2	Bylaws, as Amended, of ADTRAN, Inc. (incorporated by reference to Exhibit 3.1 to ADTRAN’s Form 8-K filed July 23, 2020)

10.1*	Loan Modification Agreement and Amendment to Loan Documents, dated as of November 4, 2021, between ADTRAN, Inc., as borrower, and Cadence Bank, N.A., as lender

10.2	Revolving Credit and Security Agreement, dated as of November 4, 2020 between ADTRAN, Inc., as borrower, and Cadence Bank, N.A., as lender

10.3	Promissory Note, dated as of November 4, 2020, between ADTRAN, Inc., as borrower, and Cadence Bank, N.A., as lender

10.4	Security Agreement, dated as of November 4, 2020, between ADTRAN, Inc., as pledgor, and Cadence Bank, N.A., as secured party

10.5	Control Agreement, dated as of November 4, 2020, between ADTRAN, Inc., as pledgor, Cadence Bank, N.A., as secured party, and US Bank, N.A., as intermediary

31*	Rule 13a-14(a)/15d-14(a) Certifications

32	32*	Section 1350 Certifications

~~101.INS~~101		~~XBRL Instance Document~~The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020; (ii) Condensed Consolidated Statements of Income (Loss) for the three and nine months ended September 30, 2021 and 2020; (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2021 and 2020; (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020; (v) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020; and (vi) Notes to Condensed Consolidated Financial Statements

~~101.SCH~~104		Cover Page Interactive Data File (formatted as Inline XBRL ~~Taxonomy Extension Schema Document~~

~~101.CAL~~		~~XBRL Taxonomy Extension Calculation Linkbase Document~~

~~101.LAB~~		~~XBRL Taxonomy Extension Labels Linkbase Document~~

~~101.PRE~~		~~XBRL Taxonomy Extension Presentation Linkbase Document~~

~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase Document~~and contained in Exhibit 101)

* Filed herewith.

~~SIGNATURE~~

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 ~~7, 2017~~5, 2021		/s/ ~~Roger D. Shannon~~Michael Foliano
		~~Roger D. Shannon~~Michael Foliano
		Senior Vice President of Finance and
		Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)
		~~Corporate Treasurer and Secretary~~
		~~(Principal Financial Officer)~~

(In Thousands)
Assets
Inventory	$	3,131
Property, plant and equipment		352
Intangible assets		4,700
Total assets acquired		8,183

Liabilities
Accounts payable		(1,250	)
Warranty payable		(61	)
Accrued wages and benefits		(122	)
Deferred income taxes		(2,265	)
Total liabilities assumed		(3,698	)

Total net assets		4,485
Gain on bargain purchase of a business, net of tax		(3,542	)
Total purchase price	$	943

In thousands	Value		Life (years)
Supply agreement	$	1,400		0.8
Customer relationships		1,200		6.0
Developed technology		800		10.0
License		500		1.3
Patent		500		7.3
Non-compete		200		2.3
Trade name		100		2.0
Total	$	4,700

(In thousands, except per share amounts)	Number of Stock Options			Weighted Avg. Exercise Price		Weighted Avg. Remaining Contractual Life In Years		Aggregate Intrinsic Value
Stock options outstanding, December 31, 2016		6,338		$	22.14		5.63	$	16,972
Stock options granted		—		$	—
Stock options exercised		(358	)	$	18.44
Stock options forfeited		(54	)	$	17.49
Stock options expired		(90	)	$	27.31
Stock options outstanding, September 30, 2017		5,836		$	22.33		4.92	$	20,669
Stock options vested and expected to vest, September 30, 2017		5,836		$	22.33		4.92	$	20,669
Stock options exercisable, September 30, 2017		4,311		$	24.02		3.99	$	10,845

(In thousands, except per share amounts)	Number of Shares			Weighted Avg. Grant Date Fair Value
Unvested PSUs, RSUs and restricted stock outstanding, December 31, 2016		519		$	20.51
PSUs, RSUs and restricted stock granted		526		$	22.23
PSUs, RSUs and restricted stock vested		(4	)	$	18.00
PSUs, RSUs and restricted stock forfeited		(21	)	$	20.88
Unvested PSUs, RSUs and restricted stock outstanding, September 30, 2017		1,020		$	21.40

	Amortized		Gross Unrealized					Carrying
(In thousands)	Cost		Gains		Losses			Value
Deferred compensation plan assets	$	15,898	$	3,230	$	(15	)	$	19,113
Corporate bonds		45,223		75		(79	)		45,219
Municipal fixed-rate bonds		4,887		4		(17	)		4,874
Asset-backed bonds		7,791		5		(11	)		7,785
Mortgage/Agency-backed bonds		7,364		7		(41	)		7,330
U.S. government bonds		21,000		3		(109	)		20,894
Foreign government bonds		725		3	—				728
Marketable equity securities		32,394		2,649		(961	)		34,082
Available-for-sale securities held at fair value	$	135,282	$	5,976	$	(1,233	)	$	140,025
Restricted investment held at cost									27,800
Other investments held at cost									547
Total carrying value of available-for-sale investments								$	168,372

(In thousands)	Balance Sheet Location	September 30, 2017			December 31, 2016
Derivatives Not Designated as Hedging Instruments (Level 2):
Foreign exchange contracts – derivative assets	Other receivables	$	—		$	159
Foreign exchange contracts – derivative liabilities	Accounts payable		(402	)		—
Total derivatives		$	(402	)	$	159

		Three Months Ended						Nine Months Ended
	Income Statement	September 30,						September 30,
(In thousands)	Location	2017			2016			2017			2016
Derivatives Not Designated as Hedging Instruments:
Foreign exchange contracts	Other income (expense)	$	(334	)	$	(37	)	$	(819	)	$	153

	Amount of Gains (Losses) Recognized in						Amount of Gains (Losses) Reclassified
	OCI on Derivatives						from AOCI into Income
	Three Months Ended					Location of Gains	Three Months Ended
	September 30,					(Losses) Reclassified	September 30,
(In thousands)	2017			2016		from AOCI into Income	2017			2016
Derivatives Designated as Hedging Instruments:
Foreign exchange contracts	$	(127	)	$	—	Cost of Sales	$	(269	)	$	—

(In thousands)	Amount
Remainder of 2017	$	473
2018		1,207
2019		691
2020		654
2021		599
Thereafter		1,477
Total	$	5,101

(In thousands)	Stockholders’ Equity
Balance, December 31, 2016	$	479,517
Net income		34,950
Dividend payments		(13,031	)
Dividends accrued for unvested restricted stock units		(43	)
Net unrealized gains on available-for-sale securities (net of tax)		2,512
Net unrealized losses on cash flow hedges (net of tax)		(196	)
Defined benefit plan adjustments (net of tax)		214
Foreign currency translation adjustment		5,402
Proceeds from stock option exercises		6,606
Purchase of treasury stock		(17,348	)
ASU 2016-09 adoption		10
Stock-based compensation expense		5,573
Balance, September 30, 2017	$	504,166

Record Date	Payment Date	Per Share Amount		Total Dividend Paid
February 2, 2017	February 16, 2017	$	0.09	$	4,369
May 4, 2017	May 18, 2017	$	0.09	$	4,350
August 3, 2017	August 17, 2017	$	0.09	$	4,312

	Three Months Ended September 30, 2017
(In thousands)	Unrealized Gains (Losses) on Available- for-Sale Securities			Unrealized Gains (Losses) on Cash Flow Hedges			Defined Benefit Plan Adjustments			Foreign Currency Adjustments			Total
Beginning balance	$	2,112		$	(338	)	$	(4,876	)	$	(3,714	)	$	(6,816	)
Other comprehensive income (loss) before reclassifications		1,420			(127	)		—			1,541			2,834
Amounts reclassified from accumulated other comprehensive income		(616	)		269			73			—			(274	)
Net current period other comprehensive income (loss)		804			142			73			1,541			2,560
Ending balance	$	2,916		$	(196	)	$	(4,803	)	$	(2,173	)	$	(4,256	)

	Three Months Ended September 30, 2016
(In thousands)	Unrealized Gains (Losses) on Available- for-Sale Securities			Defined Benefit Plan Adjustments			Foreign Currency Adjustments			Total
Beginning balance	$	1,512		$	(3,828	)	$	(6,379	)	$	(8,695	)
Other comprehensive income (loss) before reclassifications		1,028			—			575			1,603
Amounts reclassified from accumulated other comprehensive income		(770	)		36			—			(734	)
Net current period other comprehensive income (loss)		258			36			575			869
Ending balance	$	1,770		$	(3,792	)	$	(5,804	)	$	(7,826	)

	Nine Months Ended September 30, 2017
(In thousands)	Unrealized Gains (Losses) on Available- for-Sale Securities			Unrealized Gains (Losses) on Cash Flow Hedges			Defined Benefit Plan Adjustments			Foreign Currency Adjustments			Total
Beginning balance	$	404		$	—		$	(5,017	)	$	(7,575	)	$	(12,188	)
Other comprehensive income (loss) before reclassifications		4,262			(619	)		—			5,402			9,045
Amounts reclassified from accumulated other comprehensive income		(1,750	)		423			214			—			(1,113	)
Net current period other comprehensive income (loss)		2,512			(196	)		214			5,402			7,932
Ending balance	$	2,916		$	(196	)	$	(4,803	)	$	(2,173	)	$	(4,256	)

	Nine Months Ended September 30, 2016
(In thousands)	Unrealized Gains (Losses) on Available- for-Sale Securities			Defined Benefit Plan Adjustments			Foreign Currency Adjustments			Total
Beginning balance	$	1,932		$	(3,895	)	$	(7,006	)	$	(8,969	)
Other comprehensive income (loss) before reclassifications		2,267			—			1,202			3,469
Amounts reclassified from accumulated other comprehensive income		(2,429	)		103			—			(2,326	)
Net current period other comprehensive income (loss)		(162	)		103			1,202			1,143
Ending balance	$	1,770		$	(3,792	)	$	(5,804	)	$	(7,826	)

(In thousands)	Three Months Ended September 30, 2017
Details about Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income			Affected Line Item in the Statement Where Net Income Is Presented
Unrealized gains (losses) on available-for- sale securities:
Net realized gain on sales of securities	$	1,066		Net realized investment gain
Impairment expense		(57	)	Net realized investment gain
Net losses on derivatives designated as hedging instruments		(385	)	Cost of sales
Defined benefit plan adjustments – actuarial losses		(106	)	⁽¹⁾
Total reclassifications for the period, before tax		518
Tax (expense) benefit		(244	)
Total reclassifications for the period, net of tax	$	274

	Three Months Ended
	September 30, 2017				September 30, 2016
(In thousands)	Sales		Gross Profit		Sales		Gross Profit
Network Solutions	$	145,467	$	71,939	$	136,277	$	65,289
Services & Support		39,645		14,559		32,613		10,519
Total	$	185,112	$	86,498	$	168,890	$	75,808

Large accelerated filer

Accelerated filer

Non-accelerated filer

☐ ~~(Do not check if a small reporting company)~~

~~Small~~Smaller reporting company

Emerging growth company