| Item 4.02 | Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review. |
On February 20, 2024, the Audit Committee of the Board of Directors (the “Audit Committee”) of ADTRAN Holdings, Inc. (the “Company”) concluded, after considering the recommendations of management, that the presentation of the results attributable to the non-controlling interest and of the net loss attributable to the Company and, as a consequence, of the loss per common share attributable to the Company, were materially misstated in (i) the Company’s unaudited condensed consolidated financial statements as of and for the quarter ended March 31, 2023 included in the Company’s Quarterly Report on Form 10-Q/A for the fiscal quarter ended March 31, 2023, (ii) the Company’s unaudited condensed consolidated financial statements as of and for the quarter and six months ended June 30, 2023 included in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023, and (iii) the Company’s unaudited condensed consolidated financial statements as of and for the quarter and nine months ended September 30, 2023 included in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2023, respectively (collectively, the “Non-Reliance Periods”), and such financial statements should no longer be relied upon.
The error does not have any impact on, or result in any change to, the reported amounts through consolidated net loss on the Condensed Consolidated Statements of Loss, the Company’s Condensed Consolidated Balance Sheets or Condensed Consolidated Statements of Cash Flows. The understatements were solely related and limited to the financial statement presentation below the reported consolidated net loss line item and specific to the bifurcation of net income and loss per share on the Condensed Consolidated Statements of Loss to the Company and the non-controlling interest.
The misstatements occurred following the effectiveness of the Domination Profit and Loss Transfer Agreement (“DPLTA”) between the Company and the Company’s majority-owned subsidiary, Adtran Networks SE (“Adtran Networks”) upon the registration of the DPLTA with the commercial register on January 16, 2023. Pursuant to the DPLTA, the minority shareholders of Adtran Networks are guaranteed recurring cash compensation commencing with respect to the 2023 fiscal year. The Company incorrectly presented the guaranteed cash compensation attributable to the non-controlling interest as a loss rather than income attributable to the non-controlling interest during the Non-Reliance Periods. This error resulted in an understatement of net income attributable to the non-controlling interest, and an understatement of net loss attributable to the Company and loss per common share attributable to ADTRAN Holdings, Inc. - basic and diluted.
The following table reflects the impact of the corrections to the specific line items presented in the Company’s previously reported Condensed Consolidated Statements of Loss for the three months ended March 31, 2023, the three and six months ended June 30, 2023, and the three and nine months ended September 30, 2023:
| | | | | | | | | | | | |
| | | For the Three Months Ended March 31, 2023 | |
| (In thousands) | | As Reported | | | Adjustment | | | As Restated | |
Plus: Net Loss attributable to non-controlling interest | | $ | (5,989 | ) | | $ | 5,619 | | | $ | (370 | ) |
Net Loss attributable to ADTRAN Holdings, Inc. | | $ | (34,464 | ) | | $ | (5,619 | ) | | $ | (40,083 | ) |
Loss per common share attributable to ADTRAN Holdings, Inc. – basic | | $ | (0.44 | ) | | $ | (0.07 | ) | | $ | (0.51 | ) |
Loss per common share attributable to ADTRAN Holdings, Inc. – diluted | | $ | (0.44 | ) | | $ | (0.07 | ) | | $ | (0.51 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended June 30, 2023 | | | For the Six Months Ended June 30, 2023 | |
| (In thousands) | | As Reported | | | Adjustment | | | As Restated | | | As Reported | | | Adjustment | | | As Restated | |
Plus: Net (Loss) income attributable to non-controlling interest | | $ | (2,881 | ) | | $ | 5,763 | | | $ | 2,882 | | | $ | (8,870 | ) | | $ | 11,382 | | | $ | 2,512 | |
Net Loss attributable to ADTRAN Holdings, Inc. | | $ | (33,334 | ) | | $ | (5,763 | ) | | $ | (39,097 | ) | | $ | (67,798 | ) | | $ | (11,382 | ) | | $ | (79,180 | ) |
Loss per common share attributable to ADTRAN Holdings, Inc. – basic | | $ | (0.43 | ) | | $ | (0.07 | ) | | $ | (0.50 | ) | | $ | (0.87 | ) | | $ | (0.14 | ) | | $ | (1.01 | ) |
Loss per common share attributable to ADTRAN Holdings, Inc. – diluted | | $ | (0.43 | ) | | $ | (0.07 | ) | | $ | (0.50 | ) | | $ | (0.87 | ) | | $ | (0.14 | ) | | $ | (1.01 | ) |
| | |
| | | For the Three Months Ended September 30, 2023 | | | For the Nine Months Ended September 30, 2023 | |
| (In thousands) | | As Reported | | | Adjustment | | | As Restated | | | As Reported | | | Adjustment | | | As Restated | |
Plus: Net (Loss) income attributable to non-controlling interest | | $ | (2,914 | ) | | $ | 5,828 | | | $ | 2,914 | | | $ | (11,784 | ) | | $ | 17,210 | | | $ | 5,426 | |
Net Loss attributable to ADTRAN Holdings, Inc. | | $ | (72,735 | ) | | $ | (5,828 | ) | | $ | (78,563 | ) | | $ | (140,533 | ) | | $ | (17,210 | ) | | $ | (157,743 | ) |
Loss per common share attributable to ADTRAN Holdings, Inc. – basic | | $ | (0.93 | ) | | $ | (0.07 | ) | | $ | (1.00 | ) | | $ | (1.79 | ) | | $ | (0.22 | ) | | $ | (2.01 | ) |
Loss per common share attributable to ADTRAN Holdings, Inc. – diluted | | $ | (0.93 | ) | | $ | (0.07 | ) | | $ | (1.00 | ) | | $ | (1.79 | ) | | $ | (0.22 | ) | | $ | (2.01 | ) |
As a result of these errors in the Company’s financial statements, investors also should no longer rely upon the Condensed Consolidated Statements of Loss, as well as the presentations of non-GAAP net loss attributable to the Company, non-GAAP net (loss) income attributable to the non-controlling interest, and non-GAAP loss per share - basic and diluted, attributable to the Company, in the Company’s earnings releases for the Non-Reliance Periods or other communications relating to these items.
The errors in the consolidated financial statements for each of the Non-Reliance Periods will be corrected in restated financial statements for each such period in amendments to the Company’s Quarterly Reports on Form 10-Q for each of the fiscal quarters ended March 31, 2023, June 30, 2023, and September 30, 2023. The Company is diligently pursuing completion of the restatements and intends to file such amendments prior to the filing of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
