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Press Release -- October 16th, 2014
Source: ADTRAN
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ADTRAN, Inc. Reports Results for the Third Quarter 2014 and Declares Quarterly Cash Dividend

HUNTSVILLE, Ala.–(BUSINESS WIRE)–Oct. 14, 2014– ADTRAN, Inc. (NASDAQ:ADTN, news, filings) reported results for the third quarter 2014. For the quarter, sales were$162,892,000 compared to$177,404,000 for the third quarter of 2013. Net income was$11,326,000 compared to$16,205,000 for the third quarter of 2013. Earnings per share, assuming dilution, were$0.21 compared to$0.28 for the third quarter of 2013. Non-GAAP earnings per share were$0.25 compared to$0.32 for the third quarter of 2013. The reconciliation between GAAP earnings per share, diluted, and non-GAAP earnings per share, diluted, is in the table provided.

ADTRAN Chief Executive Officer Tom Stanton stated, “Revenue came in as we anticipated in our press release of October 2, 2014 with a sequential decrease in our European business and a soft enterprise spending environment. Our domestic carrier business saw a sequential revenue increase. We believe our company is well positioned to take advantage of a re-acceleration of carrier spending in both Europe and the US we expect to begin in 2015.”

The Company also announced that its Board of Directors declared a cash dividend for the third quarter of 2014. The quarterly cash dividend is $0.09 per common share to be paid to holders of record at the close of business on October 30, 2014. The ex-dividend date is October 28, 2014 and the payment date is November 13, 2014.

The Company confirmed that its third quarter conference call will be held Wednesday, October 15, 2014 at 9:30 a.m. Central Time. This conference call will be web cast live through StreetEvents.com. To listen, simply visit the Investor Relations site at www.adtran.com or www.streetevents.com approximately 10 minutes prior to the start of the call and click on the conference call link provided.

An online replay of the conference call will be available for seven days at www.streetevents.com. In addition, an online replay of the conference call, as well as the text of the Company’s earnings release, will be available on the Investor Relations site at www.adtran.com for at least 12 months following the call.

ADTRAN, Inc. is a leading global provider of networking and communications equipment. ADTRAN’s products enable voice, data, video and Internet communications across a variety of network infrastructures. ADTRAN solutions are currently in use by service providers, private enterprises, government organizations, and millions of individual users worldwide. For more information, please visit www.adtran.com.

For more information, contact the company at 800 9ADTRAN (800 923-8726) or via email at info@adtran.com. On the Web, visit www.adtran.com.

This press release contains forward-looking statements which reflect management’s best judgment based on factors currently known. However, these statements involve risks and uncertainties, including the successful development and market acceptance of new products, the degree of competition in the market for such products, the product and channel mix, component costs, manufacturing efficiencies, and other risks detailed in our annual report on Form 10-K for the year ended December 31, 2013 and on Form 10-Q for the quarter ended June 30, 2014. These risks and uncertainties could cause actual results to differ materially from those in the forward-looking statements included in this press release.

Condensed Consolidated Balance Sheet

(Unaudited)

(In thousands)

September 30,

2014

December 31,
2013
Assets
Cash and cash equivalents $ 58,415 $ 58,298
Short-term investments 55,587 105,760
Accounts receivable, net 99,341 85,814
Other receivables 27,262 18,249
Inventory 86,879 90,111
Prepaid expenses 5,579 4,325
Deferred tax assets, net 15,697 17,083
Total Current Assets 348,760 379,640
Property, plant and equipment, net 75,201 76,739
Deferred tax assets, net 12,991 9,622
Goodwill 3,492 3,492
Other assets 11,748 11,180
Long-term investments 298,542 309,225
Total Assets $ 750,734 $ 789,898
Liabilities and Stockholders’ Equity
Accounts payable $ 49,972 $ 48,282
Unearned revenue 23,418 22,205
Accrued expenses 12,356 12,776
Accrued wages and benefits 17,591 14,040
Income tax payable, net 13,650 5,002
Total Current Liabilities 116,987 102,305
Non-current unearned revenue 13,822 14,643
Other non-current liabilities 23,548 22,144
Bonds payable 30,000 46,200
Total Liabilities 184,357 185,292
Stockholders’ Equity 566,377 604,606
Total Liabilities and Stockholders’ Equity $ 750,734 $ 789,898

Consolidated Statements of Income

(Unaudited)

(In thousands, except per share data)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2014 2013 2014 2013
Sales $ 162,892 $ 177,404 $ 486,025 $ 482,650
Cost of sales 84,635 94,857 243,181 250,628
Gross Profit 78,257 82,547 242,844 232,022
Selling, general and administrative expenses 32,438 32,794 100,165 96,082
Research and development expenses 33,324 32,543 99,547 98,114
Operating Income 12,495 17,210 43,132 37,826
Interest and dividend income 992 1,579 3,340 5,021
Interest expense (150 ) (581 ) (525 ) (1,737 )
Net realized investment gain 2,687 1,751 7,219 6,949
Other income (expense), net (963 ) 22 (1,615 ) (1,521 )
Income before provision for income taxes 15,061 19,981 51,551 46,538
Provision for income taxes (3,735 ) (3,776 ) (16,223 ) (12,584 )
Net Income $ 11,326 $ 16,205 $ 35,328 $ 33,954
Weighted average shares outstanding – basic 54,521 57,947 55,552 59,561
Weighted average shares outstanding – diluted (1) 54,824 58,617 55,976 59,929
Earnings per common share – basic $ 0.21 $ 0.28 $ 0.64 $ 0.57
Earnings per common share – diluted (1) $ 0.21 $ 0.28 $ 0.63 $ 0.57
(1) Assumes exercise of dilutive stock options calculated under the treasury stock method.

Consolidated Statements of Comprehensive Income

(Unaudited)

(In thousands)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2014 2013 2014 2013
Net Income $ 11,326 $ 16,205 $ 35,328 $ 33,954
Other Comprehensive Income (Loss), net of tax:
Unrealized gains (losses) on available-for-sale securities (3,148 ) 2,562 (2,850 ) (780 )
Foreign currency translation (2,568 ) (108 ) (2,182 ) (1,498 )
Other Comprehensive Income (Loss), net of tax (5,716 ) 2,454 (5,032 ) (2,278 )
Comprehensive Income, net of tax $ 5,610 $ 18,659 $ 30,296 $ 31,676

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Nine Months Ended
September 30,
2014 2013
Cash flows from operating activities:
Net income $ 35,328 $ 33,954
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 11,127 11,021
Amortization of net premium on available-for-sale investments 3,363 4,688
Net realized gain on long-term investments (7,219 ) (6,949 )
Net loss on disposal of property, plant and equipment 109 6
Stock-based compensation expense 6,296 6,516
Deferred income taxes (122 ) (1,296 )
Tax benefit from stock option exercises 71 113
Excess tax benefits from stock-based compensation arrangements (53 ) (106 )
Change in operating assets and liabilities:
Accounts receivable, net (15,957 ) (25,844 )
Other receivables (10,576 ) (3,724 )
Inventory 2,413 8,584
Prepaid expenses and other assets (4,095 ) (417 )
Accounts payable 3,563 30,073
Accrued expenses and other liabilities 7,507 (4,339 )
Income tax payable, net 9,265 (678 )
Net cash provided by operating activities 41,020 51,602
Cash flows from investing activities:
Purchases of property, plant and equipment (8,162 ) (6,123 )
Proceeds from disposals of property, plant and equipment 1
Proceeds from sales and maturities of available-for-sale investments 187,013 275,581
Purchases of available-for-sale investments (127,074 ) (216,129 )
Net cash provided by investing activities 51,778 53,329
Cash flows from financing activities:
Proceeds from stock option exercises 2,311 2,332
Purchases of treasury stock (62,144 ) (104,147 )
Dividend payments (15,060 ) (16,220 )
Payments on long-term debt (16,500 )
Excess tax benefits from stock-based compensation arrangements 53 106
Net cash used in financing activities (91,340 ) (117,929 )
Net increase (decrease) in cash and cash equivalents 1,458 (12,998 )
Effect of exchange rate changes (1,341 ) (1,148 )
Cash and cash equivalents, beginning of period 58,298 68,457
Cash and cash equivalents, end of period $ 58,415 $ 54,311
Supplemental disclosure of non-cash investing activities:
Purchases of property, plant and equipment included in accounts payable $ 598 $ 494

Supplemental Information

Acquisition Related Expenses, Amortizations and Adjustments

(Unaudited)

(In thousands)

On August 4, 2011, we closed on the acquisition of Bluesocket, Inc. and on May 4, 2012, we closed on the acquisition of the Nokia Siemens Networks Broadband Access business (NSN BBA). Acquisition related expenses, amortizations and adjustments for the three and nine months ended September 30, 2014 and 2013 for both transactions are as follows:

Three Months Ended
September 30,
Nine Months Ended
September 30,
2014 2013 2014 2013
Bluesocket, Inc. acquisition
Amortization of acquired intangible assets and other purchase accounting adjustments $ 227 $ 283 $ 699 $ 863
NSN BBA acquisition
Amortization of acquired intangible assets 287 291 884 873
Amortization of other purchase accounting adjustments 240 235 895 987
Acquisition related professional fees, travel and other expenses 24 93 89 329
Subtotal 551 619 1,868 2,189
Total acquisition related expenses, amortizations and adjustments 778 902 2,567 3,052
Provision for income taxes (259 ) (302 ) (851 ) (1,015 )
Total acquisition related expenses, amortizations and adjustments, net of tax $ 519 $ 600 $ 1,716 $ 2,037

The acquisition related expenses, amortizations and adjustments above were recorded in the following Consolidated Statements of Income categories for the three and nine months ended September 30, 2014 and 2013:

Three Months Ended
September 30,
Nine Months Ended
September 30,
2014 2013 2014 2013
Revenue (adjustments to deferred revenue recognized in the period) $ 105 $ 221 $ 528 $ 718
Cost of goods sold 47 (57 ) 104 94
Subtotal 152 164 632 812
Selling, general and administrative expenses 31 101 110 375
Research and development expenses 595 637 1,825 1,865
Subtotal 626 738 1,935 2,240
Total acquisition related expenses, amortizations and adjustments 778 902 2,567 3,052
Provision for income taxes (259 ) (302 ) (851 ) (1,015 )
Total acquisition related expenses, amortizations and adjustments, net of tax $ 519 $ 600 $ 1,716 $ 2,037

Supplemental Information

Stock-based Compensation Expense

(Unaudited)

(In thousands)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2014 2013 2014 2013
Stock-based compensation expense included in cost of sales $ 124 $ 118 $ 359 $ 334
Selling, general and administrative expense 1,048 1,024 3,089 3,129
Research and development expense 975 1,034 2,848 3,053
Stock-based compensation expense included in operating expenses 2,023 2,058 5,937 6,182
Total stock-based compensation expense 2,147 2,176 6,296 6,516
Tax benefit for expense associated with non-qualified options (298 ) (307 ) (878 ) (924 )
Total stock-based compensation expense, net of tax $ 1,849 $ 1,869 $ 5,418 $ 5,592

Reconciliation of GAAP net income per share, diluted, to

Non-GAAP net income per share, diluted

(Unaudited)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2014 2013 2014 2013
GAAP earnings per common share – diluted $ 0.21 $ 0.28 $ 0.63 $ 0.57
Acquisition related expenses, amortizations and adjustments 0.01 0.01 0.03 0.03
Stock-based compensation expense 0.03 0.03 0.10 0.09
Non-GAAP earnings per common share – diluted $ 0.25 $ 0.32 $ 0.76 $ 0.69

Source: ADTRAN, Inc.

ADTRAN, Inc.
Jim Matthews, 256-963-8775
Senior Vice President/CFO
or
Investor Services/Assistance:
Gayle Ellis, 256-963-8220

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