SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q/A
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2000
OR
[_] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period from ______ to ______
Commission File Number 0-24612
ADTRAN, INC.
(Exact name of Registrant as specified in its charter)
Delaware 63-0918200
(State of Incorporation) (I.R.S. Employer
Identification No.)
901 Explorer Boulevard, Huntsville, Alabama 35806-2807
(Address of principal executive offices, including zip code)
(256) 963-8000
(Registrant's telephone number, including area code)
_______________
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ______
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Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock as of the latest practicable date:
Class Outstanding at July 31, 2000
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Common Stock, $.01 Par Value 38,692,386 shares
ADTRAN, INC.
SUPPLEMENTAL EXPLANATORY NOTE
AMENDMENT NO. 1 TO FORM 10-Q, AS FILED AUGUST 14, 2000
ADTRAN, Inc. is filing this Amendment NO. 1 to Form 10-Q to adjust for a
clerical error in the second sentence of the section entitled "NET INCOME" under
Part 1 Item 2 "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The sentence originally read " As a percentage of sales,
net income decreased from 12.1% in the three months ended June 30, 1999 to 16.3%
in the three months ended June 30, 2000 and increased from 12.0% in the six
months ended June 30, 1999 to 16.1% in the six months ended June 30, 2000". The
corrected sentence now reads "As a percentage of sales, net income increased
from 12.1% in the three months ended June 30, 1999 to 16.3% in the three months
ended June 30, 2000 and increased from 12.0% in the six months ended June 30,
1999 to 16.1% in the six months ended June 30, 2000".
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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Overview
ADTRAN, Inc. designs, develops, manufactures, markets and services a broad range
of high speed digital transmission products utilized by telephone companies
("Telcos") and corporate end-users to implement advanced digital data services
over existing telephone networks. We currently sell our products to Telcos
including all Regional Bell Operating Companies (through what is now referred
to as our Carrier Network Division), and to private end-users through our
Enterprise Network Division (formerly known as the Customer Premises Equipment
or CPE Division).
ADTRAN's sales have increased each year due primarily to increases in the number
of units sold to both new and existing customers. These annual sales increases
reflect our strategy of increasing unit volume and market share through the
introduction of succeeding generations of products having lower selling prices
and increased functionality as compared to the prior generation of a product and
to the products of competitors. An important part of ADTRAN's strategy is to
engineer the reduction of the product cost of each succeeding product generation
and then to lower the product's price based on the cost savings achieved. As a
part of this strategy, we seek in most instances to be a low-cost, high-quality
provider of products in our markets. ADTRAN's success to date is attributable in
large measure to our ability to initially design our products with a view to
their subsequent re-design, allowing efficient enhancements of the product in
each succeeding product generation. This strategy enables ADTRAN to sell
succeeding generations of products to existing customers while increasing our
market share by selling these enhanced products to new customers.
ADTRAN intends to retain all earnings for use in the development of our business
and does not anticipate paying any cash dividends in the foreseeable future.
When used in this Form 10-Q, the words "believe," "anticipate," "think,"
"intend," "will be," and similar expressions identify forward-looking
statements. Such statements are subject to certain risks and uncertainties
which could cause actual results to differ materially from those projected.
Readers are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date hereof. Readers are also urged to
carefully review and consider the various disclosures made by ADTRAN which
attempt to advise interested parties of the factors which affect our business,
including the disclosures made in other periodic reports on Forms 10-K, 10-Q and
8-K filed with the Securities and Exchange Commission.
10
RESULTS OF OPERATIONS - THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 COMPARED
TO THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999
SALES
ADTRAN's sales increased 29.3% from $88,506,872 in the three months ended June
30, 1999 to $114,446,655 in the three months ended June 30, 2000. Sales
increased 29.1% from $165,669,520 in the six months ended June 30, 1999 to
$213,917,006 in the six months ended June 30, 2000. The increased sales
resulted from an increase in sales volume to existing customers and from
increased market penetration. Carrier Network sales increased from $56,624,433
in the three months ended June 30, 1999 to $77,053,480 in the three months ended
June 30, 2000 and increased from $104,276,102 in the six months ended June 30,
1999 to $144,589,269 in the six months ended June 30, 2000. Carrier Network
sales for the 2000 period increased primarily from continued success of High
bit-rate Digital Subscriber Line ("HDSL") products and strong sequential growth
in our Systems products. Carrier Network sales as a percentage of total sales
increased from 64.0% in the three months ended June 30, 1999 to 67.3% in the
three months ended June 30, 2000 and increased from 62.9% in the six months
ended June 30, 1999 to 67.5% in the six months ended June 30, 2000. Sales of
Enterprise Network products increased from $31,882,439 in the three months ended
June 30, 1999 to $37,393,175 in the three months ended June 30, 2000. The
increase was also due to strong growth in our Systems products as well as
increased sales of "T-1" products, (a digital transmission link with a capacity
of 1.544 Megabits per second used predominantly in North America). Sales of
Enterprise Network products increased 12.9% from $61,393,418 in the six months
ended June 30,1999 to $69,327,737 in the six months ended June 30, 2000. As a
percentage of sales, Enterprise Network sales decreased from 36.0% in the three
months ended June 30, 1999 to 32.7% in the three months ended June 30, 2000 and
decreased from 37.1% in the six months ended June 30, 1999 to 32.5% in the six
months ended June 30, 2000. The financial effect of the increase in overall unit
volume was offset somewhat by lower unit selling prices for many of ADTRAN's
products.
COST OF SALES
Cost of sales increased 16.9% from $45,151,016 in the three months ended June
30, 1999 to $52,776,203 in the three months ended June 30, 2000 and increased
18.4% from $82,635,552 in the six months ended June 30, 1999 to $97,842,065 in
the six months ended June 30, 2000. As a percentage of sales, cost of sales
decreased from 51.0% in the three months ended June 30, 1999 to 46.1% in the
three months ended June 30, 2000 and decreased from 49.9% in the six months
ended June 30, 1999 to 45.7% in the six months ended June 30, 2000. An
important part of ADTRAN's strategy is to reduce the product cost of each
succeeding product generation and then to lower the product's price based on the
cost savings achieved. This strategy sometimes results in variations in
ADTRAN's gross profit margin due to timing differences between the recognition
of cost reductions and the lowering of product selling prices. In view of the
rapid pace of new product introductions by ADTRAN, this strategy may result in
variations in gross profit margins that, for any particular financial period,
can be difficult to predict.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased 22.7% from $17,463,138 in
the three months ended June 30, 1999 to $21,427,211 in the three months ended
June 30, 2000 and increased 17.2% from $34,218,521 in the six months ended June
30, 1999 to $40,099,910 in the six months ended June 30, 2000. The increase
was due to additional sales and support expenditures necessary as a result of
our expanded sales base. Selling, general and administrative expenses as a
percentage of sales decreased from 19.7% in the three months ended June 30,
1999 to 18.7% in the three months ended June 30, 2000 and decreased from 20.7%
in the six months ended June 30, 1999 and 18.8% in the six months ended June 30,
2000. Sales and support organization expansion, which resulted in increased
costs during the quarter, will continue because they are necessary to position
ADTRAN to accumulate market share and maintain growth over the longer term.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased 25.4% from $10,362,428 in the three
months ended June 30, 1999 to $12,993,822 in the three months ended June 30,
2000 and increased 20.9% from $20,059,091 in the six months ended June 30, 1999
to $24,255,790 in the six months ended June 30, 2000. The increase was due to
increased investment in product development and cost reduction through
engineering. As a percentage of sales, research and development expenses
decreased from 11.7% in the three months ended June 30, 1999 to 11.3% in the
three months ended June 30, 2000 and decreased from 12.1% in the six months
ended June 30, 1999 to 11.3% in the six months ended June 30, 2000. ADTRAN
will continue to invest in these product development activities because they are
necessary to position us to accumulate market share and maintain growth over the
longer term.
INTEREST EXPENSE
Interest expense remained the same at $576,333 for the three months ended June
30, 1999 and the three months ended June 30, 2000 and remained relatively
unchanged from $1,146,333 in the six months ended June 30, 1999 to $1,152,667 in
the six months ended June 30, 2000.
NET INCOME
As a result of the above factors, net income increased 74.0% from $10,716,232 in
the three months ended June 30, 1999 to $18,648,150 in the three months ended
June 30, 2000 and increased 78.8% from $19,826,735 in the six months ended June
30, 1999 to $35,442,624 in the six months ended June 30, 2000. As a percentage
of sales, net income increased from 12.1% in the three months ended June 30,
1999 to 16.3% in the three months ended June 30, 2000 and increased from 12.0%
in the six months ended June 30, 1999 to 16.6% in the six months ended June 30,
2000.
Liquidity and Capital Resources
ADTRAN is committed to spend approximately an additional $4,500,000 completing
the construction of Phase IV of our corporate headquarters in Huntsville,
Alabama, with an expected completion date of October 30, 2000. Over the next
several years, we expect to spend approximately an additional $25,000,000 to
equip Phase IV. Fifty million dollars of ADTRAN's Phase III expansion was
approved for participation in an incentive program offered by the Alabama State
Industrial Development Authority (the "Authority"). The incentive program
enables participating companies to generate Alabama corporate income tax credits
that can be used to reduce the amount of Alabama corporate income taxes that
would otherwise be payable. There can be no assurance that the State of Alabama
will continue to make these corporate income tax credits available in the
future, and ADTRAN therefore may not realize the full benefit of these
incentives. Through December 31, 1999, the
Authority had issued $50,000,000 of its taxable revenue bonds pursuant to the
incentive program and loaned the proceeds from the sale of the bonds to ADTRAN.
ADTRAN is required to make payments to the Authority in the amounts necessary to
pay the principal of and interest on the Authority's Taxable Revenue Bond,
Series 1995, as amended, currently outstanding in the aggregate principal amount
of $50,000,000. The bond matures on January 1, 2020, and bears interest at the
rate of 45 basis points over the money market rate of First Union National Bank
of Tennessee.
ADTRAN's working capital position increased from $181,147,292 as of December 31,
1999 to $208,264,624 as of June 30, 2000 due to cash generated from operations.
ADTRAN has used, and expects to continue to use, the cash generated from
operations for working capital and other general corporate purposes, including
(i) product development activities to enhance its existing products and develop
new products and (ii) expansion of sales and marketing activities. Inventory
increased 17.5% from December 31, 1999 to June 30, 2000. The increase is
attributable to our anticipation of increased shipments to existing customers.
On March 31, 1997, the Board of Directors authorized ADTRAN to re-purchase up to
1,000,000 shares of our outstanding common stock. In October 1998, the Board
approved the re-purchase of an additional 2,000,000 shares. As of June 30,
2000, we had re-purchased 1,121,017 shares of our common stock at a total cost
of $23,595,265.
Capital expenditures totaling $36,237,000 for the year ended December 31, 1999
and $8,832,000 in the first six months of 2000 were used to expand our
headquarters and to purchase equipment.
At June 30, 2000, ADTRAN's cash on hand of $23,599,150 and short-term
investments of $61,678,506 placed our potential cash availability at
$85,277,656, of which a portion is being used to expand ADTRAN's facilities
under the incentive program described above. ADTRAN determined not to renew the
$10,000,000 bank line of credit, which expired on March 29, 2000.
During July 2000, ADTRAN sold certain marketable equity securities (included in
long-term investments in the accompanying condensed consolidated balance sheet)
for $85,932,536 net of transaction cost of $4,705,670, resulting in a realized
gain of $85,356,467. The realized gain will be reflected in the financial
statements of ADTRAN in the third quarter 2000.
We intend to finance our operations in the future with cash flow from operations
and remaining borrowed taxable revenue bond proceeds. We believe these available
sources of funds to be adequate to meet our operating and capital needs for the
foreseeable future.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADTRAN, INC.
(Registrant)
Date: August 22, 2000 /s/ John R. Cooper
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John R. Cooper
Vice President - Finance and
Chief Financial Officer