SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2001
OR
[_] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period from ______ to ______
Commission File Number 0-24612
ADTRAN, INC.
(Exact name of Registrant as specified in its charter)
Delaware 63-0918200
(State of Incorporation) (I.R.S. Employer
Identification No.)
901 Explorer Boulevard, Huntsville, Alabama 35806-2807
(Address of principal executive offices, including zip code)
(256) 963-8000
(Registrant's telephone number, including area code)
---------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock as of the latest practicable date:
Class Outstanding at July 31, 2001
- -------------------------------------- ----------------------------
Common Stock, $.01 Par Value 39,462,838 shares
Page 1 of 17
ADTRAN, INC.
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 2001
Table of Contents
-----------------
Item Page
Number Number
- ------ ------
PART I. FINANCIAL INFORMATION
1 Financial Statements: 3
Condensed Balance Sheets as of June 30, 2001 (unaudited) and
December 31, 2000 (audited) 3
Condensed Statements of Income for the three months
and six months ended June 30, 2001 and 2000 (unaudited) 4
Condensed Statements of Cash Flows for the six
months ended June 30, 2001 and 2000 (unaudited) 5
Notes to Condensed Financial Statements (unaudited) 6
2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
3 Quantitative and Qualitative Disclosures About Market Risk 14
PART II. OTHER INFORMATION
4 Submission of Matters to a Vote of Security Holders 15
6 Exhibits and Reports on Form 8-K 16
SIGNATURE 17
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ---------------------------
ADTRAN, INC.
CONDENSED BALANCE SHEETS
ASSETS
June 30, December 31,
2001 2000
------------ ------------
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents.................................. $ 87,692,766 $ 27,971,313
Short-term investments..................................... 14,778,697 60,286,332
Accounts receivable, less allowance for
doubtful accounts of $726,531 and $813,003
in 2001 and 2000, respectively............................ 65,359,868 82,133,831
Other receivables.......................................... 10,507,117 35,862,774
Inventory.................................................. 86,961,654 89,252,729
Prepaid expenses........................................... 3,417,485 4,032,438
Deferred income taxes...................................... 4,505,008 4,505,008
------------ ------------
Total current assets............................... 273,222,595 304,044,425
Property, plant and equipment, less accumulated
depreciation of $61,606,577 and $53,422,304
in 2001 and 2000, respectively.............................. 123,805,170 123,713,176
Other assets................................................. 489,000 469,000
Long-term investments........................................ 116,276,752 118,109,404
------------ ------------
$513,793,517 $546,336,005
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 15,118,080 $ 34,113,832
Accrued expenses........................................... 8,877,618 8,560,073
Income taxes payable....................................... 0 3,734,234
------------ ------------
Total current liabilities.......................... 23,995,698 46,408,139
Long term liabilities:
Bonds payable.............................................. 50,000,000 50,000,000
Deferred income taxes...................................... 8,530,175 15,342,435
------------ ------------
Total liabilities.................................. 82,525,873 111,750,574
------------ ------------
Minority interest in subsidiary.............................. 160,000 160,000
Stockholders' equity:
Common stock, par value $.01 per share,
200,000,000 shares authorized: 39,446,644 shares
issued and outstanding in 2001 and 2000................... 394,466 394,466
Additional paid-in capital................................. 96,620,506 96,707,263
Accumulated other comprehensive income..................... 7,812,263 19,870,288
Retained earnings.......................................... 341,500,744 332,905,389
Less treasury stock at cost: 722,172 and 733,192
shares in 2001 and 2000, respectively................... (15,220,335) (15,451,975)
------------ ------------
Total stockholders' equity................................. 431,107,644 434,425,431
------------ ------------
$513,793,517 $546,336,005
============ ============
See notes to condensed financial statements
3
ADTRAN, INC.
CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Sales................................................ $97,197,873 $114,446,655 $202,473,620 $213,917,006
Cost of sales........................................ 51,639,324 52,776,203 111,480,633 97,842,065
----------- ------------ ------------ ------------
Gross profit............................... 45,558,549 61,670,452 90,992,987 116,074,941
Selling, general and administrative expenses......... 24,837,935 21,427,211 50,902,771 40,099,910
Research and development expenses.................... 14,925,049 12,993,822 29,773,763 24,255,790
----------- ------------ ------------ ------------
Income from operations..................... 5,795,565 27,249,419 10,316,453 51,719,241
Interest expense..................................... (478,639) (576,333) (982,194) (1,152,667)
Other income, net.................................... 1,708,223 1,581,686 3,689,010 3,134,737
----------- ------------ ------------ ------------
Income before income taxes........................... 7,025,149 28,254,772 13,023,269 53,701,311
Provision for income taxes........................... (2,388,551) (9,606,622) (4,427,911) (18,258,687)
----------- ------------ ------------ ------------
Net income................................. $ 4,636,598 $ 18,648,150 $ 8,595,358 $ 35,442,624
=========== ============ ============ ============
Weighted average shares 38,722,761 38,667,341 38,720,784 38,611,437
outstanding......................................... =========== ============ ============ ============
Weighted average shares outstanding assuming
dilution (1)........................................ 38,857,510 39,840,435 38,859,545 39,869,569
=========== ============ ============ ============
Earnings per common share - basic.................... $ .12 $ .48 $ .22 $ .92
=========== ============ ============ ============
Earnings per common share assuming dilution (1)..... $ .12 $ .47 $ .22 $ .89
=========== ============ ============ ============
(1) Assumes exercise of dilutive stock options calculated under the treasury
stock method
See notes to condensed financial statements
4
ADTRAN, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
2001 2000
------------ ------------
Cash flows from operating activities:
Net income...................................................... $ 8,595,358 $ 35,442,624
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................................. 8,186,185 6,004,577
Loss (gain) on sale of short-term investments................. 94,603 86,218
Change in operating assets and liabilities:
Accounts receivable......................................... 16,773,963 (8,428,466)
Inventory................................................... 2,291,075 (10,277,685)
Other receivables........................................... 25,340,446 (1,059,635)
Prepaid expenses and other assets........................... 594,953 (2,896,005)
Accounts payable............................................ (18,995,752) 6,377,678
Income taxes payable........................................ (3,734,234) (4,618,385)
Accrued expenses............................................ 317,545 (612,256)
------------ ------------
Net cash provided by operating activities..................... 39,464,142 20,068,665
------------ ------------
Cash flows from investing activities:
Expenditures for property, plant and equipment.................. (8,276,268) (18,090,491)
Proceeds from sales of short-term investments................... 71,689,165 34,486,335
Purchases of short-term investments............................. (26,700,662) (55,170,283)
Proceeds from sales of long-term investments.................... 12,624,284 484,002
Purchases of long-term investments.............................. (29,224,091) (1,452,462)
------------ ------------
Net cash provided by (used in) investing activities............. 20,112,428 (39,742,899)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock.......................... 144,883 5,772,711
------------ ------------
Net cash provided by financing activities....................... 144,883 5,772,711
------------ ------------
Net increase (decrease) in cash and cash equivalents............ 59,721,453 (13,901,523)
Cash and cash equivalents, beginning of period.................... 27,971,313 37,500,674
------------ ------------
Cash and cash equivalents, end of period.......................... $ 87,692,766 $ 23,599,151
============ ============
See notes to condensed financial statements
5
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The interim condensed balance sheet of ADTRAN, Inc. ("ADTRAN") at December 31,
2000 has been derived from audited financial statements, but does not include
all disclosures required by accounting principles generally accepted in the
United States of America. The accompanying unaudited condensed financial
statements of ADTRAN have been prepared pursuant to the rules and regulations
for reporting on Quarterly Reports on Form 10-Q. Accordingly, certain
information and notes required by generally accepted accounting principles for
complete financial statements are not included herein. In the opinion of
management, all adjustments necessary for a fair presentation of these interim
statements have been included and are of a normal and recurring nature.
Operating results for the six months ended June 30, 2001 are not necessarily
indicative of the results that may be expected to occur for the year ending
December 31, 2001. The interim statements should be read in conjunction with the
financial statements and notes thereto included in ADTRAN's latest Annual Report
on Form 10-K.
2. INVENTORY
At June 30, 2001 and December 31, 2000, inventory consisted of the following:
June 30, December 31,
2001 2000
----------- -----------
Raw materials $54,149,773 $50,011,508
Work in progress 8,281,368 12,606,275
Finished goods 24,530,513 26,634,946
----------- -----------
$86,961,654 $89,252,729
=========== ===========
3. COMPREHENSIVE INCOME
Comprehensive income consists of net income and unrealized gains and losses on
marketable securities, net of deferred taxes. Comprehensive income of
$16,407,621 at June 30, 2001, consists of net income of $8,595,358 and
unrealized gains on marketable securities of $7,812,263 (net of deferred tax of
$4,412,947). Comprehensive income of $140,672,549 at December 31, 2000, consists
of net income of $120,802,261 and unrealized gains on marketable securities of
$19,870,288 (net of deferred tax of $14,695,744).
6
4. EARNINGS PER SHARE
A summary of the calculation of basic and diluted earnings per share (EPS) for
the three months and six months ended June 30, 2001 and 2000 is as follows:
For the Three Months Ended June 30, 2001
----------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS
Income available to common stockholders $4,636,598 38,722,761 $0.12
Effect of Dilutive Securities
Stock Options 134,749
Diluted EPS
Income available to common stockholders
plus assumed conversions $4,636,598 38,857,510 $0.12
For the Six Months Ended June 30, 2001
----------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS
Income available to common stockholders $8,595,358 38,720,784 $0.22
Effect of Dilutive Securities
Stock Options 138,761
Diluted EPS
Income available to common stockholders
plus assumed conversions $8,595,358 38,859,545 $0.22
7
Earnings Per Share (continued)
For the Three Months Ended June 30, 2000
----------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS
Income available to common stockholders $18,648,150 38,667,341 $0.48
Effect of Dilutive Securities
Stock Options 1,173,094
Diluted EPS
Income available to common stockholders
plus assumed conversions $18,648,150 39,840,435 $0.47
For the Six Months Ended June 30, 2000
----------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS
Income available to common stockholders $35,442,624 38,611,437 $0.92
Effect of Dilutive Securities
Stock Options 1,258,132
Diluted EPS
Income available to common stockholders
plus assumed conversions $35,442,624 39,869,569 $0.89
8
5. SEGMENT INFORMATION
ADTRAN operates two reportable segments - (1) the Carrier Network Division and
(2) the Enterprise Network Division. We evaluate the performance of our segments
based on gross profit; therefore, selling, general and administrative costs, as
well as research and development, interest income/expense, and the provision for
income taxes are reported on an entity wide basis only. There are no
intersegment revenues.
The table below presents information about the reported sales and gross profit
of ADTRAN's segments for the three months and six months ended June 30, 2001 and
2000. Asset information by reportable segment is not reported, since ADTRAN
does not produce such information internally.
Three Months Ended Six Months Ended
June 30, 2001 June 30, 2001
----------------------------------- -------------------------------
Sales Gross Profit Sales Gross Profit
------------ ------------ ------------ ------------
Carrier Network $ 60,252,677 $26,062,456 $129,470,337 $ 52,235,014
Enterprise Network 36,945,196 19,496,093 73,003,283 38,757,973
------------ ----------- ------------ ------------
Total $ 97,197,873 $45,558,549 $202,473,620 $ 90,992,987
============ =========== ============ ============
Three Months Ended Six Months Ended
June 30, 2000 June 30, 2000
----------------------------------- -------------------------------
Sales Gross Profit Sales Gross Profit
------------ ------------ ------------ ------------
Carrier Network $ 77,053,480 $40,313,974 $144,589,269 $ 76,422,233
Enterprise Network 37,393,175 21,356,478 69,327,737 39,652,708
------------ ----------- ------------ ------------
Total $114,446,655 $61,670,452 $213,917,006 $116,074,941
============ =========== ============ ============
The following table presents sales information by geographic area for the three
months and six months ended June 30, 2001 and 2000.
Three Months Ended Six Months Ended
------------------------------------ ------------------------------------
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
------------- ------------- ------------- -------------
United States $91,430,352 $112,268,918 $193,057,270 $208,711,367
Foreign 5,767,521 2,177,737 9,416,350 5,205,639
----------- ------------ ------------ ------------
Total $97,197,873 $114,446,655 $202,473,620 $213,917,006
=========== ============ ============ ============
9
6. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations, which has an effective date of June 30, 2001 for all
business combinations initiated after this date. This statement supersedes APB
Opinion No. 16, Business Combinations, and FASB Statement No. 38, Accounting for
Preacquisition Contingencies of Purchased Enterprises. This statement requires
all business combinations within the scope of the Statement to be accounted for
using the purchase method of accounting. For business combinations completed
prior to June 30, 2001, the statement requires companies to recognize intangible
assets apart from goodwill and expand the disclosures about assets acquired and
liabilities assumed.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,
Goodwill and Other Intangible Assets, which has an effective date starting with
fiscal years beginning after December 15, 2001. This statement supersedes APB
Opinion No. 17, Intangible Assets. This statement addresses how intangible
assets that are acquired individually or with a group of other assets should be
accounted for in financial statements upon their acquisition. This statement
also addresses how goodwill and other intangible assets should be accounted for
after they have been initially recognized in the financial statements. Goodwill
will cease to be amortized upon the implementation of the statement and
companies will test goodwill at least annually for impairment.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
OVERVIEW
ADTRAN designs, develops, manufactures, markets and services a broad range of
high speed digital transmission products utilized by providers of
telecommunications services (serviced by ADTRAN's Carrier Networks Division or
CN) and corporate end-users (serviced by ADTRAN's Enterprise Networks Division
or EN) to implement advanced digital data services over existing telephone
networks. We currently sell our products to a large number of carriers,
including all RBOCs, and to private and public enterprises worldwide.
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 both 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 design our products
initially with a view to their subsequent re-design, allowing both increased
functionality and reduced manufacturing costs 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.
While ADTRAN has experienced increased sales in each year, our operating results
have fluctuated on a quarterly basis in the past, and operating results may vary
significantly in future periods due to a number of factors. We operate with
very little order backlog. A substantial majority of our sales in each quarter
results from orders booked in that quarter and firm purchase orders released in
that quarter by customers under agreements containing non-binding purchase
commitments. Furthermore, a majority of customers typically require prompt
delivery of products. This results in a limited backlog of orders for these
products and requires us to maintain sufficient inventory levels to satisfy
anticipated customer demand. If near-term demand for ADTRAN's products
declines, or if potential sales in any quarter do not occur as anticipated, our
financial results will be adversely affected. Operating expenses are relatively
fixed in the short term; therefore, a shortfall in quarterly revenues could
impact ADTRAN's financial results significantly in a given quarter.
10
Further, maintaining sufficient inventory levels to assure prompt delivery of
our products increases the amount of inventory which may become obsolete and
increases the risk that the obsolescence of such inventory may have an adverse
effect on our business and operating results.
ADTRAN's operating results may also fluctuate as a result of a number of other
factors, including increased competition, customer order patterns, changes in
product mix, product warranty returns and announcements of new products by
ADTRAN or our competitors. Accordingly, ADTRAN's historical financial
performance is not necessarily a meaningful indicator of future results, and, in
general, management expects that ADTRAN's financial results may vary from period
to period.
This Form 10-Q contains "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A
of the Securities Act of 1933, as amended, which represent ADTRAN's expectations
or beliefs, including, but not limited to, statements concerning (i) the
business and financial outlook, (ii) our business, financial condition or
results of operations, and (iii) our business strategy. 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, including, but not limited to, the disclosures described
under the captions "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Liquidity and Capital Resources," and those
discussed in ADTRAN's filings with the Securities and Exchange Commission, as
well as the general economic conditions and industry trends which could cause
actual results or outcomes to differ materially from those expressed in any
forward-looking statements.
11
RESULTS OF OPERATIONS - THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2001 COMPARED
TO THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000
SALES
ADTRAN's sales decreased 15.1% from $114,446,655 in the three months ended June
30, 2000 to $97,197,873 in the three months ended June 30, 2001. Sales
decreased 5.3% from $213,917,006 in the six months ended June 30, 2000 to
$202,473,620 in the six months ended June 30, 2001. The decrease in sales for
the three months and six months ended June 30, 2001, is attributable to two
factors: (i) the lowering of HDSL product prices in the second half of 2000 and
(ii) the market wide slow down in the telecommunications industry. Carrier
Network sales decreased from $77,053,480 in the three months ended June 30, 2000
to $60,252,677 in the three months ended June 30, 2001 and decreased from
$144,589,269 in the six months ended June 30, 2000 to $129,470,337 in the six
months ended June 30, 2001. Carrier Network sales as a percentage of total
sales decreased from 67.3% in the three months ended June 30, 2000 to 62.0% in
the three months ended June 30, 2001 and decreased from 67.6% in the six months
ended June 30, 2000 to 63.9% in the six months ended June 30, 2001. Sales of
Enterprise Network products decreased from $37,393,175 in the three months ended
June 30, 2000 to $36,945,196 in the three months ended June 30, 2001. Sales of
Enterprise Network products increased 5.3% from $69,327,737 in the six months
ended June 30, 2000 to $73,003,283 in the six months ended June 30, 2001. As a
percentage of sales, Enterprise Network sales increased from 32.7% in the three
months ended June 30, 2000 to 38.0% in the three months ended June 30, 2001 and
increased from 32.4% in the six months ended June 30, 2000 to 36.1% in the six
months ended June 30, 2001.
COST OF SALES
Cost of sales decreased 2.2% from $52,776,203 in the three months ended June 30,
2000 to $51,639,324 in the three months ended June 30, 2001 and increased 13.9%
from $97,842,065 in the six months ended June 30, 2000 to $111,480,633 in the
six months ended June 30, 2001. The cost of sales decrease quarter over quarter
is directly related to the difference in second quarter revenues in each period.
The increase in cost of sales for the six months ended June 30, 2001 over the
six months ended June 30, 2000, is attributable to the timing of product price
reductions as compared to product cost savings. As a percentage of sales, cost
of sales increased from 46.1% in the three months ended June 30, 2000 to 53.1%
in the three months ended June 30, 2001 and increased from 45.7% in the six
months ended June 30, 2000 to 55.1% in the six months ended June 30, 2001. 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, as described above, 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 15.9% from $21,427,211 in
the three months ended June 30, 2000 to $24,837,935 in the three months ended
June 30, 2001 and increased 26.9% from $40,099,910 in the six months ended June
30, 2000 to $50,902,771 in the six months ended June 30, 2001. Beginning in mid
year 2000, ADTRAN increased expenditures for the expansion of our infrastructure
in both sales and support personnel in an effort to expand our customer base and
for increased initiatives in the EN and international markets. Selling, general
and administrative expenses as a percentage of sales increased from 18.7% in the
three months ended June 30, 2000 to 25.6% in the three months ended June 30,
2001 and increased from 18.7% in the six months ended June 30, 2000 to 25.1% in
the six months ended June 30, 2001. Selling, general and administrative
expenses as a percent of sales will fluctuate whenever there is significant
fluctuation in revenues in periods being compared.
12
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased 14.9% from $12,993,822 in the three
months ended June 30, 2000 to $14,925,049 in the three months ended June 30,
2001 and increased 22.7% from $24,255,790 in the six months ended June 30, 2000
to $29,773,763 in the six months ended June 30, 2001. ADTRAN continually
evaluates new product opportunities and engages in intensive research and
product development efforts. To date, ADTRAN has expensed all product research
and development costs as incurred. As a result, ADTRAN may incur significant
research and development expenses prior to the receipt of revenues from a major
new product group. As a percentage of sales, research and development expenses
increased from 11.3% in the three months ended June 30, 2000 to 15.4% in the
three months ended June 30, 2001 and increased from 11.4% in the six months
ended June 30, 2000 to 14.7% in the six months ended June 30, 2001. ADTRAN will
continue to incur research and development expenses in connection with its new
products and its expansion into international markets. Research and development
expenses as a percent of sales will fluctuate whenever there is a significant
fluctuation in revenues in periods being compared.
INTEREST EXPENSE
Interest expense decreased 17.0% from $576,333 for the three months ended June
30, 2000 to $478,639 in the three months ended June 30, 2001 and decreased 14.8%
from $1,152,667 in the six months ended June 30, 2000 to $982,194 in the six
months ended June 30, 2001.
OTHER INCOME
Other income increased 8.0% from $1,581,686 for the three months ended June 30,
2000 to $1,708,223 in the three months ended June 30, 2001 and increased 17.7%
from $3,134,737 in the six months ended June 30, 2000 to $3,689,010 in the six
months ended June 30, 2001.
NET INCOME
As a result of the above factors, net income decreased 75.1% from $18,648,150 in
the three months ended June 30, 2000 to $4,636,598 in the three months ended
June 30, 2001 and decreased 75.7% from $35,442,624 in the six months ended June
30, 2000 to $8,595,358 in the six months ended June 30, 2001. As a percentage of
sales, net income decreased from 16.3% in the three months ended June 30, 2000
to 4.8% in the three months ended June 30, 2001 and decreased from 16.6% in the
six months ended June 30, 2000 to 4.2% in the six months ended June 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
ADTRAN completed the construction of Phase IV of our corporate headquarters in
Huntsville, Alabama, in October 2000. Over the next several years, we expect to
spend approximately an additional $35,000,000 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, 2000,
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 decreased 3.3% from $257,636,000 as of
December 31, 2000 to $249,227,000 as of June 30, 2001. Accounts receivables and
other receivables decreased 20.4% and 71.0%, respectively from December
13
31, 2000 to June 30, 2001. Accounts payable decreased 55.7% from December 31,
2000 to June 30, 2001. These decreases are directly related to the overall
industry slow down and the consolidation of our subcontractors. 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 decreased 2.6% from
December 31, 2000 to June 30, 2001. The decrease in inventory is attributable to
management's continued efforts to streamline our production process and focus on
manufacturing velocity.
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,
2001, we had re-purchased 1,121,417 shares of our common stock at a total cost
of $23,612,000.
Capital expenditures totaling $32,540,000 for the year ended December 31, 2000
and $8,276,000 in the first six months of 2001 were used to expand our
headquarters and to purchase equipment.
At June 30, 2001, ADTRAN's cash on hand of $87,692,766 and short-term
investments of $14,778,697 placed our potential cash availability at
$102,471,463.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------------------------------------------------------------------
ADTRAN has not conducted transactions, established commitments or entered into
relationships requiring disclosures beyond those provided elsewhere in this Form
10-Q.
14
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
The 2001 Annual Meeting of Stockholders of ADTRAN was held on April 20, 2001.
Proxies with regard to the matters to be voted upon at the Annual Meeting were
solicited under Regulation 14A of the Securities Exchange Act of 1934, as
amended. Set forth below is a brief description of each matter voted upon at
the Annual Meeting and the results of the voting on each such matter.
(a) Election of each director named below to serve until the next Annual
Meeting of Stockholders. There was no solicitation in opposition to
any of the nominees listed in the proxy statement, and all of the
nominees were elected.
Nominees Votes
- -------- -----------------------------
For Withheld
---------- ---------
Mark C. Smith 32,093,737 2,456,118
Lonnie S. McMillian 32,089,651 2,460,204
Howard A. Thrailkill 32,091,506 2,458,349
W. Frank Blount 33,839,982 709,873
William J. Marks 34,291,750 258,105
Roy J. Nichols 33,842,964 706,891
James L. North 34,289,237 260,618
(b) Ratification of the appointment of PricewaterhouseCoopers LLP as
independent accountants of ADTRAN for 2001.
Votes
----------------------------------------------------------------
For Against Abstain
----------------------------------------------------------------
33,910,062 621,009 18,784
(c) Approval of an amendment to the 1996 Employee Incentive Stock Option
Plan which increases the aggregate number of shares of Common Stock
authorized for issuance under the plan from 5,488,100 to 8,488,100.
Votes
----------------------------------------------------------------
For Against Abstain
----------------------------------------------------------------
26,660,477 2,130,199 51,385
15
(d) Approval of an amendment to the 1996 Employee Incentive Stock Option
Plan to place limits on the number of options that may be granted
under the plan with an exercise price that is below the fair market
value of ADTRAN's common stock on the date of grant and on the class
of employees eligible to receive such options.
Votes
----------------------------------------------------------------
For Against Abstain
----------------------------------------------------------------
26,794,494 1,924,261 123,306
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) No reports on Form 8-K were filed during the quarter ended June 30,
2001.
16
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 13, 2001 /s/ John R. Cooper
----------------------------
John R. Cooper
Vice President - Finance and
Chief Financial Officer
17