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What changed in ADTRAN Holdings, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ADTRAN Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+716 added−610 removedSource: 10-K (2024-03-15) vs 10-K (2023-03-01)

Top changes in ADTRAN Holdings, Inc.'s 2023 10-K

716 paragraphs added · 610 removed · 433 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

90 edited+21 added−34 removed40 unchanged
Biggest changeAreas of focus in our environmental sustainability program include: • established an ESG Committee of the Board of Directors; • maintained our mature environmental management system certified to ISO 14001 from 2006; • advanced our Energy Management program where we have continually set targets for reduced energy and water consumption since 2005; • continued investment in Wind Renewable Energy Credits; • purchased certified carbon offsets to achieve net zero for our Scope 1 emissions; • continued to monitor and report our carbon emissions to CDP; • adopted a platform to engage top suppliers to obtain an ESG assessment aligned with international standards, allowing us to monitor ESG risks in our supply chain; • the Technology organization established Eco-Design guidelines; • completed an initial Life Cycle Assessment pilot; • initiated innovative packaging solutions to reduce materials and waste; • committed to SBTi for Net Zero targets within the next two years; • increased visibility of our program internally and externally through customer engagement, joining peer sustainability groups, offering training to team members and web site enhancements; • implemented GRI standards; and • actively engaged our stakeholders with investor and supply chain assessments 20 For further discussion of risks associated with government regulation, see “Risk Factors – Expectations relating to environmental, social and governance considerations expose the Company to potential liabilities, increased costs, reputational harm, and other adverse effects on the Company’s business.” ESG Report Due to certain regulations, proceedings of the merger and the operations of ADTRAN and ADVA during 2022 there will be separate reports published for the two organizations.
Biggest changeAreas of focus in our environmental sustainability program include: • established an ESG Committee of the Board of Directors; • maintained our mature environmental management system certified to ISO 14001 from 2015; 18 • advanced our Energy Management program with ISO 50001 readiness for the Huntsville site for 2024; • submitted our detailed Net Zero targets to SBTi in 2023; • continued purchase of Renewable Energy Credits, equaling ~20% of total Adtran energy consumption; • purchased certified carbon offsets to achieve Net Zero for our Scope 1 emissions; • continued using IntegrityNext, a platform to engage suppliers to obtain an ESG assessment aligned with international standards, allowing us to monitor ESG risks in our supply chain; • established Eco-Design guidelines in the Technology organization; • continued with Life Cycle Assessments across the portfolio; • continued with packaging optimization to reduce related materials and waste; • increased visibility of our program internally and externally through customer engagement, joining peer sustainability groups, offering training to team members and web site enhancements; • switched from the GRI reporting standard to the newer and more comprehensive ESRS standard; and • actively engaged our stakeholders with investor and supply chain assessments.
To service our customers and grow revenue, we are continually conducting research and developing new products addressing customer needs and testing those products for the specific requirements of the particular customers.
To service our customers and grow revenue, we are continually conducting research, developing new products addressing customer needs and testing those products for the specific requirements of particular customers.
We rely on subcontractors for assembly and testing of certain printed circuit board assemblies, sub-assemblies, chassis, enclosures and equipment shelves, and to purchase some of the raw materials used in such assemblies. We typically manufacture our lower-volume, higher-mix products and build and test product prototypes and many of our initial production units at our manufacturing site in Huntsville, Alabama.
We rely on subcontractors for the assembly and testing of certain printed circuit board assemblies, sub-assemblies, chassis, enclosures and equipment shelves, and to purchase some of the raw materials used in such assemblies. We typically manufacture our lower-volume, higher-mix products and build and test product prototypes and many of our initial production units at our manufacturing site in Huntsville, Alabama.
Marketing is complemented by product marketing and management teams that work with our engineering teams to develop and promote new products and services, as well as product enhancements. Research and Development Rapidly changing technologies, evolving industry standards, changing customer requirements, supply constraints and continuing developments in communications service offerings characterize the markets for our products.
Marketing is complemented by product marketing and management teams that work with our engineering teams to develop and promote new products and services, as well as product enhancements. 14 Research and Development Rapidly changing technologies, evolving industry standards, changing customer requirements, supply constraints and continuing developments in communications service offerings characterize the markets for our products.
For a discussion of risks associated with our research and development activities, see “Risk Factors – We must continue to update and improve our products and develop new products to compete and to keep pace with improvements in communications technology” and “Risk Factors – We engage in research and development activities to develop new, innovative solutions and to improve the application of developed technologies, and as a consequence may miss certain market opportunities enjoyed by larger companies with substantially greater research and development effort and which may focus on more leading edge development,” in Part I, Item 1A of this report. 16 Manufacturing and Operations The principal steps in our manufacturing process include the purchase and management of materials, assembly, testing, final inspection, packing and shipping.
For a discussion of risks associated with our research and development activities, see “Risk Factors – We must continue to update and improve our products and develop new products to compete and to keep pace with improvements in communications technology” and “Risk Factors – We engage in research and development activities to develop new, innovative solutions and to improve the application of developed technologies, and as a consequence may miss certain market opportunities enjoyed by larger companies with substantially greater research and development effort and which may focus on more leading edge development,” in Part I, Item 1A of this report. 15 Manufacturing and Operations The principal steps in our manufacturing process include the purchase and management of materials, assembly, testing, final inspection, packing and shipping.
We compete with a number of companies in the markets we serve. In the Subscriber Solutions & Experience category, our primary competitors include Calix, Cisco, CommScope, Juniper Networks, Ribbon Communications. In our Access & Aggregation solutions category, key competitors include Calix, Casa Systems, Ciena, CommScope, DZS, Harmonic, Huawei, Nokia, Reliance/Radisys, Vecima Networks and ZTE.
We compete with a number of companies in the markets we serve. In the Subscriber Solutions & Experience category, our primary competitors include Calix, Cisco, CommScope, and Ribbon Communications. In our Access & Aggregation solutions category, key competitors include Calix, Casa Systems, Ciena, CommScope, DZS, Harmonic, Huawei, Nokia, Reliance/Radisys, Vecima Networks and ZTE.
We have established ESG and Sustainability programs and policies that encompass the elements of Environmental, Health & Safety, Ethics, Labor, and Management Systems in alignment with the ISO 26000 Guidelines. We are committed to operating in full compliance with the laws, rules and regulations of all the countries in which we operate.
We have established ESG and sustainability programs and policies that encompass the elements of Environmental, Health & Safety, Ethics, Labor, and the related management systems in alignment with the ISO 26000 Guidelines. We are committed to operating in full compliance with the laws, rules and regulations of all the countries in which we operate.
This revenue category includes hardware and software based products and services. Our solutions within this category includes open optical terminals, open line systems, optical subsystems and modules, network infrastructure assurance systems, and automation platforms that are used to build high-scale, secure and assured optical networks.
This revenue category includes hardware- and software-based products and services. Our solutions within this category include open optical terminals, open line systems, optical subsystems and modules, network infrastructure assurance systems, and automation platforms that are used to build high-scale, secure and assured optical networks.
Our innovative solutions and services enable voice, data, video and internet-communications across a variety of network infrastructures and are currently in use by millions of people worldwide. We support our customers through our direct global sales organization and our distribution networks.
Our innovative solutions and services enable voice, data, video and internet-communications across a variety of network infrastructures and are currently in use by millions worldwide. We support our customers through our direct global sales organization and our distribution networks.
In addition to diversity in our workforce, we seek to ensure diversity in our Board of Directors with respect to skills, experience, gender, race and ethnicity. Our Board of Directors is comprised of nine members, three of which are females and three of which are ethnically diverse.
In addition to diversity in our workforce, we seek to ensure diversity in our Board of Directors with respect to skills, experience, gender, race and ethnicity. Our Board of Directors is comprised of nine members, two of which are females and three of which are ethnically diverse.
For a discussion of risks associated with our intellectual property and proprietary rights, see “Risk Factors – Our failure to maintain rights to intellectual property used in our business could adversely affect the development, functionality, and commercial value of our products” in Part I, Item 1A of this report. 22 Information about our Executive Officers Set forth below is certain information regarding our current executive officers.
For a discussion of risks associated with our intellectual property and proprietary rights, see “Risk Factors – Our failure to maintain rights to intellectual property used in our business could adversely affect the development, functionality, and commercial value of our products” in Part I, Item 1A of this report. 21 Information about our Executive Officers Set forth below is certain information regarding our current executive officers.
Drivers facilitating this network investment cycle include the evolution of government funding programs, private equity infrastructure investment appetite, regulatory broadband policies, competition, merger obligations and ever-increasing subscriber demand for higher speed broadband. Subscriber demand for greater bandwidth continues to increase as connectivity is being woven ever more tightly into the fabric of everyone’s day-to-day lives.
Drivers facilitating this network investment cycle include the evolution of government funding programs, private equity infrastructure investment appetite, regulatory broadband policies, competition and ever-increasing subscriber demand for higher-speed broadband. Subscriber demand for greater bandwidth continues to increase as connectivity is being woven ever more tightly into the fabric of everyone’s day-to-day lives.
We are an active participant in several SDOs and have assisted with the development of worldwide standards in many technologies. Our SDO activities are primarily in the area of broadband access, optical networking and synchronization. This includes involvement with the ITU-T, ATIS, ETSI, ONF and the BBF. We are involved in the evolution of optical access technologies on next-generation PON.
We are an active participant in several SDOs and have assisted with the development of worldwide standards in many technologies. Our SDO activities are primarily in the areas of broadband access, optical networking and synchronization. This includes involvement with the ITU-T, ATIS, ETSI, ONF and the BBF. We are involved in the evolution of optical access technologies on next-generation PON.
Assets and liabilities denominated in foreign currencies are remeasured at the balance sheet dates using the closing rates of exchange between those foreign currencies and the functional currency with any transaction gains or losses reported in other income (expense). Our primary exposures to foreign currency exchange rate movements are with the Euro and the British pound sterling.
Assets and liabilities denominated in foreign currencies are remeasured at the balance sheet dates using the closing rates of exchange between those foreign currencies and the functional currency with any transaction gains or losses reported in other income, net. Our primary exposures to foreign currency exchange rate movements are with the euro and the British pound sterling.
Our research function and advanced technology team is driving many specific research projects in the fields of sustainable optical transmission, security, quantum communications, SDN and access technologies. It fosters differentiated product concepts and guides our various product design and engineering teams in IPR creation, industry and network standards and technological forecasting.
Our research function and advanced technology team is driving many specific research projects in the fields of sustainable optical transmission, security, quantum communications, SDN and access technologies. This research fosters differentiated product concepts and guides our various product design and engineering teams in IPR creation, industry and network standards and technological forecasting.
Across our markets and segments, the principal competitive factors can include, among others: • differentiated feature functionality of our products and solutions; • price performance of our solutions and lowest total cost of ownership for customers; • quality and reliability of our products; 17 • financial stability and health of our company; • ability to manage supply chains and produce and deliver products in accordance with customer wish date; • ability to innovate and provide customers with differentiated solutions, advantageous to their business model; • compelling technology roadmap and R&D power; • industry thought leadership and time to market with innovative solutions; • country of origin for products and solutions and trusted supplier status; • security of enterprise value chain, from design to product development, support processes, to products and solutions; • energy consumption of our products and commitment to sustainability, supporting customers in achieving their climate goals; • customer relationship and incumbency; • ability to deliver comprehensive solutions with a high degree of automation and ease-of-use, including hardware, software and services; and • broad range of services and support capabilities.
Across our markets and segments, the principal competitive factors can include, among others: • differentiated feature functionality of our products and solutions; • price performance of our solutions and lowest total cost of ownership for customers; • quality and reliability of our products; • financial stability and health of our company; • ability to manage supply chains and produce and deliver products in accordance with customer wish date; • ability to innovate and provide customers with differentiated solutions, advantageous to their business model; 16 • compelling technology roadmap and research and development power; • industry thought leadership and time to market with innovative solutions; • country of origin for products and solutions and trusted supplier status; • security of enterprise value chain, from design to product development, support processes, to products and solutions; • energy consumption of our products and commitment to sustainability, supporting customers in achieving their climate goals; • customer relationship and incumbency; • ability to deliver comprehensive solutions with a high degree of automation and ease-of-use, including hardware, software and services; and • broad range of services and support capabilities.
Most of our facilities are certified pursuant to the most current releases of ISO 9001, TL 9000, ISO 14001 and ISO 27001. Our Huntsville, Alabama facilities and many of our key suppliers are C-TPAT certified. Our products are also certified to certain other customer, industry and privacy standards, including those relating to emission of electromagnetic energy and safety specifications.
Most of our facilities are certified pursuant to the most current releases of ISO 9001, TL 9000, ISO 14001 and ISO 27001. Our Huntsville, Alabama facilities and many of our key suppliers are C-TPAT certified. Our products are also certified to certain other customers' industry and privacy standards, including those relating to the emission of electromagnetic energy and safety specifications.
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 also enabling them to transition to the fully converged, scalable, highly-automated, cloud-controlled voice, data, internet and video network of the future.
We offer a broad portfolio of flexible software and hardware network solutions and services that enable network operators to meet today’s service demands while also enabling them to transition to the fully converged, scalable, highly automated, cloud-controlled voice, data, internet and video network of the future.
We also continue to be involved in driving optical networking, synchronization and SDN standardization and participate in industry-wide interoperability, performance-testing and system-level projects related to those standards in e.g. BBF and ONF. We are also members of MEF, TIA, CableLabs and TIP.
We also continue to be involved in driving optical networking, synchronization and SDN standardization and participate in industry-wide interoperability, performance-testing and system-level projects related to those standards in BBF and ONF. We are also members of MEF, TIA, CableLabs and TIP.
We ship the majority of products to our U.S. customers from our facilities in Huntsville, Alabama and Norcross, Georgia. The majority of international customers are being served from our logistics hubs in Meiningen, Germany and York, United Kingdom. We also ship directly from subcontractors to a number of customers in the U.S. and international locations.
We ship the majority of products to our U.S. customers from our facilities in Huntsville, Alabama. The majority of international customers are being served from our logistics hubs in Meiningen, Germany and York, United Kingdom. We also ship directly from subcontractors to a number of customers in the U.S. and international locations.
As we continue to create more software-based intellectual property, such as our SDN/NFV portfolio, our use of lean agile practices in research and development ensures we remain responsive and customer-focused. This enables us to deliver products faster, at higher quality and more economically to our customers and the market on a continuous basis.
As we continue to create more software-based intellectual property, such as our SDN/Edge Cloud portfolio, our use of lean agile practices in research and development ensures we remain responsive and customer-focused. This enables us to deliver products faster, at higher quality and more economically to our customers and the market on a continuous basis.
The major aims of our program are eliminating waste and emissions, maximizing energy efficiency and productivity and minimizing practices that can adversely affect utilization of natural resources by coming generations. Our ESG programs are important to us. ESG is a dedicated focus throughout the company.
The major aims of our program are reducing waste and emissions, maximizing energy efficiency and productivity and minimizing practices that can adversely affect utilization of natural resources by coming generations. Our ESG programs are important to us, consequently, ESG is a dedicated focus throughout the company.
We do not derive any material amount of revenue from the licensing of our patents. The ADTRAN corporate logo is a registered trademark of ours, as is the name “ADTRAN”, “SmartRG” and a number of our product identifiers and names. We also claim rights to a number of unregistered trademarks.
We do not derive any material amount of revenue from the licensing of our patents. The name "ADTRAN" is a registered trademark of ours, as is the name “SmartRG” and a number of our product identifiers and names. We also claim rights to a number of unregistered trademarks.
The reference to our website address does not constitute incorporation by reference of the information contained on the website, which information should not be considered part of this report. 23
The reference to our website address does not constitute incorporation by reference of the information contained on the website, which information should not be considered part of this report. 22
Distribution, Sales and Marketing We sell our products through our direct sales organization and our distribution network. Our direct sales organization supports major accounts and has offices in domestic and international locations. Sales to most smaller and independent telephone companies are fulfilled through a combination of direct sales and distributors.
Distribution, Sales and Marketing We sell our products through our direct sales organization and our distribution network. Our direct sales organization supports major accounts and has offices in global locations. Sales to most smaller and independent telephone companies are fulfilled through a combination of direct sales and distributors.
Main competitors of our Optical Networking solutions portfolio are Ciena, Cisco, Ekinops, Huawei, Infinera, Nokia, Ribbon and ZTE.
Main competitors of our Optical Networking solutions portfolio are Ciena, Cisco, Ekinops, Huawei, Infinera, Nokia, Ribbon Communications and ZTE Corporation.
During the years ended December 31, 2022, 2021 and 2020, research and development expenditures totaled $173.8 million, $108.7 million and $113.3 million, respectively. We develop the majority of our products internally, and we also leverage partners for some solutions. Additionally, we license intellectual property or acquire technologies.
During the years ended December 31, 2023, 2022 and 2021, research and development expenditures totaled $258.3 million, $173.8 million and $108.7 million, respectively. While we develop the majority of our products internally, we also leverage partners for some solutions. Additionally, we license intellectual property or acquire technologies.
ADTRAN has one of the most comprehensive solutions portfolios that empowers operators to build a converged infrastructure from the metro core to the customer premise, serving all networking applications for residential, business, wholesale and mobile users.
We have one of the most comprehensive solutions portfolios that empowers operators to build a converged infrastructure from the metro core to the customer premise, serving all networking applications for residential, business, wholesale and mobile users.
As of December 31, 2022, approximately 170 employees (75%) of ADTRAN GmbH were subject to collective bargaining agreements of either the Association of Metal and Electrical Industry in Berlin and Brandenburg e.V. or NORDMETALL Association of Metal and Electrical Industry e.V.
As of December 31, 2023, approximately 167 employees (75%) of ADTRAN GmbH were subject to collective bargaining agreements of either the Association of Metal and Electrical Industry in Berlin and Brandenburg e.V. or NORDMETALL Association of Metal and Electrical Industry e.V.
As employees increase their competencies in these areas and master skills within their individual roles, this program offers a variety of career advancement paths. Employees also have access to the ADTRAN Learning Network. This platform houses all required training, as well as optional training in a variety of areas.
As employees increase their competencies in these areas and master skills within their individual roles, this program offers a variety of career advancement paths. Employees also have access to the Learning module available in Workday. This platform houses all required training, as well as optional training in a variety of areas.
This is further compounded with the prevalence of IoT and the increasing transition of applications over to cloud-based services and internet applications where recurring revenues replace one-time sales. Performance and user satisfaction are directly related to bandwidth availability and service robustness.
This is further compounded by the rapid adoption of AI, the prevalence of IoT and the increasing transition of applications over to cloud-based services and internet applications where recurring revenues replace one-time sales. Performance and user satisfaction are directly related to bandwidth availability and service robustness.
Once approved, product orders are typically placed under single or multi-year supply agreements that are generally not subject to minimum volume commitments. Service providers generally prefer having two or more suppliers for most products. Therefore, individual orders are usually subject to competition based on some combination of total value, service, price, delivery and other terms.
Once approved, product orders are typically placed under single or multi-year supply agreements that are generally not subject to minimum volume commitments. Service Providers generally prefer having two or more suppliers for most products. Therefore, individual orders are usually subject to competitive combinations of total value, service, price, delivery and other terms.
These solutions include fiber termination solutions for residential, business and wholesale subscribers, Wi-Fi access solutions for residential and business subscribers, Ethernet switching and network edge virtualization solutions for business subscribers, and cloud software solutions covering a mix of subscriber types. 11 The Subscriber Solutions category includes the following products, software and services: Residential Gateways ("RGs"): • Residential Gateways • Gfast CPE Optical Networking Terminals ("ONTs"): • EPON ONUs • GPON/XGS-PON ONTs Enterprise Connectivity: • Traditional SSE • Routers • Switches Edge Compute: • Edge Cloud (VEC) Carrier Ethernet Network Interface Devices ("CE NIDs"): • FSP 150-GE110 • FSP 150-XG100 • FSP 150-XG210 • FSP 150-XG300 • FSP 150-XG400-NIDs Software: • MCP • AOE and ACI-E • Mosaic One • Ensemble Controller Service: • Build • Care • Training • Professional Services • Software Services • Managed Services Our Access & Aggregation Solutions are solutions that are used by communications service providers to connect residential subscribers, business subscribers and mobile radio networks to the service providers’ metro network, primarily through fiber-based connectivity.
These solutions include fiber termination solutions for residential, business and wholesale subscribers, Wi-Fi access solutions for residential and business subscribers, Ethernet switching and network edge virtualization solutions for business subscribers, and cloud software solutions covering a mix of subscriber types. 10 The Subscriber Solutions category includes the following products, software and services: Residential Gateways ("RGs"): • Residential Gateways Optical Networking Terminals ("ONTs"): • EPON ONUs • GPON/XGS-PON ONTs Enterprise Connectivity: • Traditional SSE • Routers • Switches Edge Compute: • Edge Cloud (VEC) Carrier Ethernet Network Interface Devices ("CE NIDs"): • FSP 150-GE110 • FSP 150-XG100 • FSP 150-XG210 • FSP 150-XG300 • FSP 150-XG400-NIDs Software: • Mosaic One SaaS applications • n-Command • Procloud Service: • Build • Care • Training • Professional Services • Software Services • Managed Services Our Access & Aggregation Solutions are solutions that are used by communications Service Providers to connect residential subscribers, business subscribers and mobile radio networks to the Service Providers’ metro network, primarily through fiber-based connectivity.
We are focused on being a top global supplier of fiber-based communications infrastructure and SaaS applications spanning from the cloud edge (data center) to the subscriber edge (customer premise) serving both the residential and enterprise connectivity markets.
We are focused on being a top global supplier of fiber-based communications infrastructure and SaaS applications spanning from the network core to the cloud edge (data center) to the subscriber edge (customer premise) serving both the residential and enterprise connectivity markets including fiber-based infrastructure for mobile networks.
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 and may continue to have a material adverse effect on operating results and could have a material adverse effect on customer relations.
Our dependence on a limited number of suppliers for certain raw materials, key components and ODM products, has prevented and may in the future prevent us from delivering our products on a timely basis, which has had and may continue to have a material adverse effect on operating results and could have a material adverse effect on customer relations.
We also utilized 177 contractors and numerous temporary employees domestically and internationally in various manufacturing, engineering, sales and general and administrative capacities. We believe that our relationship with our employees is good. We have a diverse employee base located in 37 countries.
We also utilized 192 contractors and 160 temporary employees domestically and internationally in various manufacturing, engineering, sales and general and administrative capacities. We believe that our relationship with our employees is good. We have a diverse employee base located in 36 countries.
Optical Networking Solutions is a new revenue category added to represent a meaningful portion of ADVA’s portfolio. Our Subscriber Solutions portfolio is used by service providers to terminate their access services infrastructure at the customer premises while providing an immersive and interactive experience for residential, business and wholesale subscribers. This revenue category includes hardware and software based products and services.
Optical Networking Solutions was added as a revenue category to represent a meaningful portion of Adtran Networks' portfolio. Our Subscriber Solutions portfolio is used by Service Providers to terminate their access services infrastructure at customers' premises while providing an immersive and interactive experience for residential, business and wholesale subscribers. This revenue category includes hardware- and software-based products and services.
Intellectual Property ADTRAN develops and owns a significant amount of intellectual property. We hold over 1,000 patents worldwide related to our products and over 50 additional pending patent applications. Our patents expire at various dates between 2023 and 2041. We continue to seek additional patents related to our research and development activities.
Intellectual Property We develop and own a significant amount of intellectual property. We hold over 1,000 patents worldwide related to our products and over 50 additional pending patent applications. Our patents expire at various dates between 2024 and 2041. We continue to seek additional patents related to our research and development activities.
Following the Business Combination with ADVA, we have recast these revenues such that our former Access & Aggregation revenue is combined with a portion of the applicable ADVA solutions to create Access & Aggregation Solutions, our former Subscriber Solutions & Experience revenue is combined with a portion of the applicable ADVA solutions to create Subscriber Solutions, and the revenue from Traditional & Other products is now included in the applicable Access & Aggregation Solutions or Subscriber Solutions category.
Following the Business Combination with Adtran Networks, we recast these revenues such that ADTRAN, Inc.'s former Access & Aggregation revenue is combined with a portion of the applicable Adtran Networks solutions to create Access & Aggregation Solutions, ADTRAN’s former Subscriber Solutions & Experience revenue is combined with a portion of the applicable Adtran Networks solutions to create Subscriber Solutions and the revenue from Traditional & Other products is now included in the applicable Access & Aggregation Solutions or Subscriber Solutions category.
To date, our compliance actions and costs relating to these laws, rules and regulations have not resulted in a material cost or effect on our capital expenditures, earnings or competitive position.
We have policies and procedures in place to promote compliance with these laws and regulations. To date, our compliance actions and costs relating to these laws, rules and regulations have not resulted in a material cost or effect on our capital expenditures, earnings or competitive position.
As the demand for high-definition video and game streaming services, symmetric bandwidth for online collaboration, ever lower latency for interactive cloud applications and smart home video surveillance applications continue to increase, so too does the need for fiber-based broadband to every home, business and location of socioeconomic activity.
As the demand for high-definition video and game streaming services, symmetric bandwidth for online collaboration, lower latency for interactive AI and cloud applications and smart home video surveillance applications continue to increase, so too does the need increase for fiber-based broadband to be in every home and business.
Adjustments resulting from translating financial statements of international subsidiaries are recorded as a component of accumulated other comprehensive (loss) income. Inventory 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.
Adjustments resulting from translating financial statements of international subsidiaries are recorded as a component of accumulated other comprehensive income. Inventory A substantial portion of our shipments in any fiscal period relate 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 delivery within a few days.
Additionally, we offer access to many programs that provide additional monetary support in the event of a qualifying incident, including accident insurance, life insurance and hospital indemnity insurance, among others. We understand that mental health is an essential aspect of our employees’ wellbeing.
Additionally, we offer access to many programs that provide additional monetary support in the event of a qualifying incident, including accident insurance, life insurance and hospital indemnity insurance, among others. We understand that mental health is an essential aspect of our employees’ wellbeing and we offer an employee assistance program at no charge to employees and their family members.
However, with the current global supply chain and transportation constraints, and limited availability of semiconductor chips and other components of our products, we have experienced and may continue to experience extended lead times, increased logistics intervals and costs, and lower volume of products deliveries, which have had 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.
However, with the current global supply chain and transportation constraints, and limited availability of semiconductor chips and other components of our products, we have experienced and may continue to experience extended lead times, increased logistics intervals and costs, and lower volume of products deliveries, which have had 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. 17 We maintain substantial inventories of raw materials for long lead time components to support this demand and avoid expedite fees.
In order to satisfy these complex requirements and deliver on the efficiency improvements demanded by operators, communications service providers are transitioning to full fiber access networks.
In order to satisfy these complex requirements and deliver on the efficiency improvements demanded by operators, communications Service Providers are transitioning to full fiber access networks. We aim to serve as a trusted partner to our customers.
We attempt to manage these risks through developing alternative sources, by staging inventories at strategic locations, through engineering efforts designed to prevent the necessity of certain components and by maintaining close contact and building long-term relationships with our suppliers.
We attempt to manage these risks through developing alternative sources, by staging inventories at strategic locations, through engineering efforts designed to prevent the necessity of certain components and by maintaining close contact and building long-term relationships with our suppliers. See Inventory included in Part I, Item 1 of this report for additional information.
Age 52 2019 to present Chief Revenue Officer 2015 – 2019 Senior Vice President of Technology and Strategy 2006 – 2015 Senior Vice President and General Manager of Carrier Networks There are no family relationships among our directors or executive officers.
Wilson, Jr. Age 53 2019 to present Chief Revenue Officer 2015 – 2019 Senior Vice President of Technology and Strategy 2006 – 2015 Senior Vice President and General Manager (Carrier Networks) There are no family relationships among our directors or executive officers. Adtran Networks is a majority-owned subsidiary of the Company.
We cannot predict whether we will prevail in any claims or litigation over alleged infringements, or whether we will be able to license any valid and infringed patents, or other intellectual property, on commercially reasonable terms.
We have received, and may continue to receive, notices of claims alleging that we are infringing upon patents or other intellectual property. We cannot predict whether we will prevail in any claims or litigation over alleged infringements, or whether we will be able to license any valid and infringed patents, or other intellectual property, on commercially reasonable terms.
Increasing numbers of connected devices, shifting working arrangements, the transition of entertainment over to OTT video, along with the evolution of gaming towards subscription models where new hybrids of download and streaming are emerging globally.
Specifically, subscriber demand for greater bandwidth is being driven by increasing numbers of connected devices, shifting working arrangements, the transition of entertainment over to OTT video, and the evolution of gaming platforms towards subscription models where new hybrids of download and streaming are emerging globally.
Unprecedented levels of investment by communications service providers in their networks is being driven by the pursuit of growth in subscriber acquisition, retention, and average revenue per user, alongside the streamlining of operations to reduce operational costs and complexity, while lowering energy consumption and improving their overall ESG position.
Communications Service Providers' investment in their networks is being driven by the pursuit of growth in subscriber acquisition, retention, and average revenue per user, as well as by the aims of streamlining operations, lowering energy consumption and improving their overall ESG position.
Violations of these laws and regulations may harm our business, subject us to penalties and to other adverse consequences.” Environmental, Social, and Governance We believe that as we follow our corporate vision to enable a fully connected world, we must continue to be responsible corporate citizens. As more people are connected, work and life can be accomplished using fewer resources.
Environmental, Social, and Governance We believe that as we follow our corporate vision to enable a fully connected world, we must continue to be responsible corporate citizens. As more people are connected, work and life can be accomplished using fewer resources.
As of December 31, 2022, we had 3,307 full-time employees, with 1,417 in the U.S. and 1,890 in our international subsidiaries located in North America, Latin America, EMEA and APAC regions. 1,948 of these full-time employees are employees of ADVA and its subsidiaries.
As of December 31, 2023, we had 3,227 full-time employees, with 1,249 in the U.S. and 1,978 in our international subsidiaries located in North America, Latin America, EMEA and APAC regions. 2,027 of these full-time employees are employees of Adtran Networks and its subsidiaries.
The Access & Aggregation category includes the following products, software and services: Optical Access: • SDX OLT • TA5000 Fiber • Systems • EPON OLT Broadband products: • Gfast DPUs • HiX • Total Access FTTN • Traditional Broadband Aggregation products: • SDX Aggregation • FSP 150 XG400 Software: • MCP • AOE and ACI-E • Mosaic One • Ensemble Controller • Ensemble Activator (Disaggregated NOS) 12 Synchronizations and Timing: • OSA CoreSync Cesium • OSA CoreSync GM/SSU • OSA EdgeSync+ • OSA EdgeSync • OSA AccessSync Services: • Care • Build • Training • Professional Services • Software Services • Managed Services Our Optical Networking Solutions are used by communications service providers, internet content providers and large-scale enterprises to securely interconnect metro and regional networks over fiber.
The Access & Aggregation category includes the following products, software and services: Optical Line Terminals ("OLTs"): • TA5000 OLT • SDX OLT • EPON OLT • Pluggable Optics Optical Networking Terminals ("ONTs"): • EPON ONUs • GPON-XGS-PON ONTs Packet Aggregation: • FSF 150-XG400 Aggregators • SDX Aggregation • Activator Copper Access • Gfast DPUs • hiX • Total Access FTTN • Traditional Broadband Oscilloquartz: • OSA AccessSync • OSA Edge Sync Software: • MCP • AOE and ACI-E 11 • OSA CoreSync • OSA Inside • Mosaic One SaaS Applications • Ensemble Controller Service: • Build • Care • Training • Professional Services • Software Services • Managed Services Our Optical Networking Solutions are used by communications Service Providers, internet content providers and large-scale enterprises to securely interconnect metro and regional networks over fiber.
Compensation and Benefits We continually work to provide a competitive compensation and benefits program as this plays a key role in our ability to attract and retain a highly skilled workforce.
This program provides access to qualified personnel to address various issues such as grief, financial stress, family and emotional issues. Compensation and Benefits We continually work to provide a competitive compensation and benefits program as this plays a key role in our ability to attract and retain a highly skilled workforce.
In 2022, we released many market-leading products like additions to our SDX OLT range, new residential gateway and ONT families, outdoor packet demarcation devices, 100G packet demarcation, encryption/security products, 800G transport solutions and the unique Optical Cesium based atomic clocks. Furthermore, we enhanced our SaaS delivery abilities and Mosaic One software.
In 2023, we released many market-leading products like additions to our SDX OLT range, new residential gateway and ONT families, outdoor packet demarcation devices, packet demarcation, encryption/security products, edge and core transport solutions. We enhanced our market leading synchronization & timing portfolio, as well as our SaaS delivery abilities and Mosaic One software.
For further discussion of risks associated with managing our inventory, see “Risk Factors – Managing our inventory is complex and may include write-downs of excess or obsolete inventory,” in Part I, Item 1A of this report. 19 Government Regulation Our products must comply with various regulations and standards established by communications authorities in various countries, as well as those of certain international bodies.
For further discussion of risks associated with managing our inventory, see “Risk Factors – Managing our inventory is complex and may include write-downs of excess or obsolete inventory,” in Part I, Item 1A of this report. Government Regulation Telecommunications Matters Our products that are incorporated into wireless communications systems must comply with various government regulations, including those of the FCC.
For further discussion of risks associated with government regulation, see “Risk Factors – We are subject to complex and evolving U.S. and foreign laws, regulations and standards governing the conduct of our business.
For further discussion of risks associated with government regulation, see “Risk Factors – 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,” in Part 1, Item 1A of this report.
The Optical Networking Solutions category includes the following products, software and services: Optical Transport: • FSP3000 R7 • FSP3000C • WDM Legacy Pluggables: • MicroMux • Pluggable Optics Services: • Build • Care • Training • Professional Services • Software Services • Managed Services Active Line Moduling: • 16 ALM • 64 ALM Software: • MCP • AOE and ACI-E • Mosaic One • Ensemble Controller 13 Industry Overview The global growth of cloud and mobility, home office and mobile working, industrial applications and 5G are accelerating the demand for more bandwidth, requiring more flexible provisioning of telecommunications services and more precise network synchronization.
The Optical Networking Solutions category includes the following products, software and services: Optical Transport: • FSP 3000 CC • FSP 3000 R7 Optical Engines: • AOE Coherent Pluggables • AOE MicroMax • AOE AccessWave Infrastructure Monitoring: • ALM Fiber Monitoring Software: • Ensemble Controller Services: • Build • Care • Training • Professional Services • Software Services • Managed Services 12 Industry Overview The global growth of the cloud and mobility, home office and mobile working, industrial applications and 5G are accelerating the demand for more bandwidth, requiring more flexible provisioning of telecommunications services and more precise network synchronization.
Although these collective bargaining agreements will expire on September 30, 2024, negotiations with the employees of ADTRAN GmbH for a new collective bargaining agreement are ongoing and we have not experienced any work stoppage. As of December 31, 2022, ADVA had 85 employees in Switzerland, France, Italy, Finland and Spain that were subject to collective bargaining agreements of different associations.
Although these collective bargaining agreements will expire on September 30, 2024, negotiations with the employees of ADTRAN GmbH for a new collective bargaining agreement are ongoing and we have not experienced any work stoppage.
We plan to achieve this goal through innovation in network, home and business technology paired with a customer-focused organizational structure that tailors solutions to meet the needs of our target customers.
We aspire to be one of the top communication technology players in the world and an innovation leader around the converged edge, enabling the intelligent, self-optimizing, fiber-everywhere future. We plan to achieve this goal through innovation in network, home and business technology paired with a customer-focused organizational structure that tailors solutions to meet the needs of our target customers.
Our development process is conducted in accordance with ISO 9001, TL 9000, ISO 14001, and ISO 27001, all of which are international standards for quality and environmental management systems.
Our development process is conducted in accordance with ISO 9001, TL 9000, ISO 14001, and ISO 27001, all of which are international standards for quality and environmental management systems. Environmental Matters Our products must comply with various regulations and standards established by communications authorities in various countries, as well as those of certain international bodies.
Some regions are supported from a field office that offers sales and support functions, and in some cases, warehousing and manufacturing support.
Some regions are supported from a field office that offers sales and support functions, and in some cases, warehousing and manufacturing support. Our field sales organizations, distributors and Service Provider customers receive support from regional-based marketing, sales and customer support groups.
Our practice of maintaining sufficient inventory levels to 18 assure prompt delivery of our products and services increases the amount of inventory that may be considered excess and/or obsolete. This excess and obsolete inventory may require us to write down the value of the inventory, which may have an adverse effect on our operating results.
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.
Our field sales organizations, distributors and service provider customers receive support from regional-based marketing, sales and customer support groups. 15 Our marketing organization promotes all brands associated with us to key stakeholders, including customers, partners and prospects throughout the world.
Our marketing organization promotes all brands associated with us to key stakeholders, including customers, partners and prospects throughout the world.
More specifically, our corporate strategy consists of the following elements: • Leadership in fiber networking : Breadth of portfolio, open and advanced architecture, assured and secure connectivity. • Growth in focus markets: More turnkey solutions and in-region resources, especially North America and EMEA. • Investment in converged edge: Innovation in optics, security, AI-driven networking, virtualization, SaaS, etc. • Transformation through software: Open and cloud-centric systems, end-to-end programmability, simplification through software, and innovative SaaS offerings. 14 • Diversification of customers: Cross-selling current portfolio, acquisition of new customers and partners based on larger portfolio and trusted supplier status. • Focus on sustainability: Science-based emissions targets, process-based product eco-design, optimization of operations, logistics and all packaging, circular-economy processes.
More specifically, our corporate strategy consists of the following elements: • Leadership in fiber networking : Breadth of portfolio, open and advanced architecture, assured and secure connectivity. • Growth in focus markets: More turnkey solutions and in-region resources, especially North America and EMEA. • Investment in converged edge: Innovation in optics, security, AI-driven networking, virtualization, SaaS, etc. • Transformation through software: Open and cloud-centric systems, end-to-end programmability, simplification through software, and innovative SaaS offerings. • Diversification of customers: Cross-selling current portfolio, acquisition of new customers and partners based on larger portfolio and trusted supplier status. • Focus on sustainability: Science-based emissions targets, process-based product eco-design, optimization of operations, logistics and all packaging, circular-economy processes. 13 Business Efficiency Program On November 6, 2023, due to the uncertainty around the current macroeconomic environment and its impact on customer spending levels, the Company’s management decided to implement a business efficiency program (the “Business Efficiency Program”) targeting the reduction of ongoing operating expenses and focusing on capital efficiency inclusive of certain salary reductions, an early retirement program, a site consolidation plan to include lease impairments and the partial sale of owned real estate (including the potential sale of portions of our headquarters), inventory write downs from product discontinuances, and the suspension of the quarterly dividend.
Revenue Categories In addition to classifying our operations into two reportable segments, we report revenue across three categories of products and services: (1) Subscriber Solutions, (2) Access & Aggregation Solutions and (3) Optical Networking Solutions. 10 Prior to the Business Combination with ADVA on July 15, 2022, we reported revenue across the following three categories: (1) Access & Aggregation, (2) Subscriber Solutions & Experience and (3) Traditional & Other Products.
Prior to the Business Combination with Adtran Networks on July 15, 2022, ADTRAN, Inc. reported revenue across the following three categories: (1) Access & Aggregation, (2) Subscriber Solutions & Experience and (3) Traditional & Other Products.
We believe that our combined technology portfolio can best address current and future requirements, especially regarding the convergence of solutions at the network edge.
We believe that the combined technology portfolio can best address current and future customer needs for high-speed connectivity from the network core to the end consumer, especially upon the convergence of solutions at the network edge.
Environmental legislation within the EU may increase our cost of doing business as we amend our products to comply with these requirements. For example, the EU issued the RoHS directive, the WEEE directive and the REACH regulation. We continue to implement measures to comply with these and other similar directives and regulations from additional countries.
Environmental legislation within the EU may increase our cost of doing business as we amend our products to comply with these requirements. For example, the EU issued the RoHS directive, the WEEE directive and the REACH regulation. We are also subject to disclosure and related requirements that apply to the presence of conflict minerals in our products or supply chain.
Our goal is to retain as many of these students as possible for full-time employment after graduation building our organization's future. Diversity, Equity and Inclusion We believe that maintaining a diverse and inclusive workforce is critical to the success of our business.
Diversity, Equity and Inclusion We believe that maintaining a diverse and inclusive workforce is critical to the success of our business.
This includes optical transport, packet demarcation and aggregation, synchronization and fiber-optic access, DSL, access routing, Ethernet switching, wireless LANs, integrated access, converged services, VoIP, network management and professional services. In addition, we focus on vertical optical technologies like Silicon Photonics, as well as microelectronics in order to differentiate and fully control the vertical value stack of our solutions.
In addition, we focus on vertical optical technologies like Silicon Photonics, as well as microelectronics in order to differentiate and fully control the vertical value stack of our solutions.
We protect our intellectual property and proprietary rights in accordance with good legal and business practices. We believe, however, that our competitive success will not fully depend on the ownership of intellectual property, but instead will depend primarily on the innovative skills, technical competence and marketing abilities of our personnel.
We believe, however, that our competitive success will not fully depend on the ownership of intellectual property, but instead will depend primarily on the innovative skills, technical competence and marketing abilities of our personnel. 20 The communications industry is characterized by the existence of an ever-increasing volume of patent litigation and licensing activities.
In addition to our global headquarters in Huntsville, Alabama and our European headquarters in Munich, Germany, we have sales, research and development, and production facilities in strategic global locations.
In addition to our global headquarters in Huntsville, Alabama, and our European headquarters in Munich, Germany, we have sales, administrative, services and support and research and development facilities in strategic global locations. The Company solely owns ADTRAN, Inc. and is the majority shareholder of Adtran Networks (formerly ADVA Optical Networking SE).
Our ability to attract and retain a high-quality workforce is dependent on our ability to maintain a diverse, equitable and inclusive workplace that provides opportunities for our employees to learn and grow in their careers. This is supported by competitive compensation and benefits, along with strong community service and other programs that enable employees to build connections within the community.
This is supported by competitive compensation and benefits, along with strong community service and other programs that enable employees to build connections within the community.
Network Solutions Segment The Network Solutions segment includes hardware and software products that enable a digital future. Our cloud-managed Wi-Fi gateways, virtualization software, and switches provide a mix of wired and wireless connectivity at the customer premises.
Our cloud-managed Wi-Fi gateways, virtualization software, and switches provide a mix of wired and wireless connectivity at the customer premises. In addition, its Carrier Ethernet products support a variety of applications at the network edge ranging from mobile backhaul to connecting enterprise customers (“Subscriber Solutions").
Domination and Profit and Loss Transfer Agreement The DPLTA between the Company, as the controlling company, and ADVA Optical Networking SE, as the controlled company, which was executed on December 1, 2022, became effective on January 16, 2023 as a result of its registration with the commercial register ( Handelsregister ) of the local court ( Amtsgericht ) at the registered seat of ADVA (Jena).
Domination and Profit and Loss Transfer Agreement The DPLTA between the Company, as the controlling company, and Adtran Networks, as the controlled company, was executed on December 1, 2022 in connection with the Company’s business combination with Adtran Networks, and became effective on January 16, 2023.
ITEM 1. BUSINESS Company Overview We are a leading global provider of open networking and communications platforms, software, systems and services focused on the broadband access market, serving a diverse domestic and international customer base in multiple countries that includes traditional communication services providers, alternative service providers, such as utilities, municipalities and fiber overbuilders, cable/MSOs, SMBs and distributed enterprises.
ITEM 1. BUSINESS Company Overview We are a leading global provider of networking and communications platforms, software, systems and services focused on the broadband access and optical networking market.
We back these services with a global support organization that offers on-site and off-site support services with varying SLAs.
We back these services with a global support organization that offers on-site and off-site support services with varying SLAs. Revenue Categories In addition to operating under two reportable segments, we also report revenue across three categories – Subscriber Solutions, Access & Aggregation Solutions and Optical Networking Solutions.
The Mosaic and Ensemble software suites include a mix of orchestration and management solutions that simplify the deployment and virtualization of next generation fiber networks. Services & Support Segment The Services & Support segment offers a comprehensive portfolio of network design, implementation, maintenance and cloud-hosted services supporting our Subscriber, Access and Aggregation, and Optical Networking Solutions.
Our portfolio includes products for multi-gigabit service delivery over fiber or alternative media to homes and businesses. Services & Support Segment The Services & Support segment offers a comprehensive portfolio of network design, implementation, maintenance and cloud-hosted services supporting its Subscriber, Access & Aggregation, and Optical Networking Solutions.
None of our other employees are subject to collective bargaining agreements. Additionally, we continually work to recruit technical talent in diverse communities through our cooperative education program. This program seeks to identify college students that major in relevant technological areas and expose them to our work environment on an alternating semester basis.
As of December 31, 2023, Adtran Networks had 91 employees in Switzerland, France, Italy, Finland and Spain that were subject to collective bargaining agreements of different associations. None of our other employees are subject to collective bargaining agreements. Additionally, we continually work to recruit technical talent in diverse communities through our cooperative education program.
The age of each executive set forth below is as of February 28, 2023. Thomas R. Stanton Age 58 2007 to present Chief Executive Officer and Chairman of the Board Michael K.
The age of each executive set forth below is as of February 29, 2024. Thomas R.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese factors include, but are not limited to: • fluctuations in demand for our products and services, especially with respect to significant network expansion projects undertaken by service providers; • continued growth of communications network traffic and the adoption of communication services and applications by enterprise and consumer end users; • changes in sales and implementation cycles for our products and reduced visibility into our customers’ spending plans and associated revenue, especially should a slowdown in communications industry spending occur due to economic downturns, tight capital markets, or declining liquidity trends; • reductions in demand for our traditional products as new technologies gain acceptance; • our ability, and that of our distributors, to maintain appropriate inventory levels and related purchase commitments; • price and product competition in the communications and networking industries, which can change rapidly due to technological innovation; • the overall movement toward industry consolidation among both our competitors and our customers; • our dependence on sales of our products by channel partners, the timing of their replenishment orders, the potential for conflicts and competition involving our channel partners and large end-user customers and the potential for consolidation among our channel partners; • variations in sales channels, product cost or mix of products and services sold; • delays in receiving acceptance, as defined under contract, from certain customers for shipments or services performed near the end of a reporting period; 41 • our ability to maintain high levels of product support and professional services; • manufacturing and customer order lead times, and potential restrictions in the supply of key components; • fluctuations in our gross margin and the factors that contribute to this (as described above); • our ability to achieve cost reductions; • the ability of our customers, channel partners and suppliers to obtain financing or to fund capital expenditures; • our ability to execute on our strategy and operating plans; • benefits anticipated from our investments in engineering, sales and marketing activities; • the effects of climate change and other natural events; • the effect of political or economic conditions, including the effect of tariffs or so-called “trade wars” on us and our supply chain, acts of war, terrorist attacks or other unrest in certain international markets; • the effect of escalating tensions along the Russia-Ukraine border.
Biggest changeThese factors include, but are not limited to: • fluctuations in demand for our products and services, especially with respect to significant network expansion projects undertaken by Service Providers; • continued growth of communications network traffic and the adoption of communication services and applications by enterprise and consumer end users; • changes in sales and implementation cycles for our products and reduced visibility into our customers’ spending plans and associated revenue, especially should a slowdown in communications industry spending occur due to economic downturns, tight capital markets, or declining liquidity trends; • reductions in demand for our traditional products as new technologies gain acceptance; • our ability, and that of our distributors, to maintain appropriate inventory levels and related purchase commitments; • price and product competition in the communications and networking industries, which can change rapidly due to technological innovation; • the overall movement toward industry consolidation among both our competitors and our customers; • our dependence on sales of our products by channel partners and the timing of their replenishment orders.
For example, numerous states have adopted within the past three years or are in the process of adopting various privacy-related laws and regulations. In addition, on July 16, 2020, the Court of Justice of the European Union issued a decision that invalidated the EU-U.S.
For example, within the past three years, numerous states have adopted or are in the process of adopting various privacy-related laws and regulations. In addition, on July 16, 2020, the Court of Justice of the European Union issued a decision that invalidated the EU-U.S.
Such costs, and the demands on management time during such an event, could harm our business, reputation and have a material adverse effect on our liquidity, results of operations, financial condition and cash flows. If we are unable to successfully develop and maintain relationships with SIs, service providers and enterprise VARs, our revenue may be negatively affected.
Such costs, and the demands on management time during such an event, could harm our business, reputation and have a material adverse effect on our liquidity, results of operations, financial condition and cash flows. 39 If we are unable to successfully develop and maintain relationships with SIs, Service Providers and enterprise VARs, our revenue may be negatively affected.
Such write-downs or write-offs could negatively affect our operating results for the period in which they occur and could potentially have a material adverse effect on our results of operations, financial condition and cash flows. 30 We expect gross margins to continue to vary over time, and our levels of product and services gross margins may not be sustainable.
Such write-downs or write-offs could negatively affect our operating results for the period in which they occur and could potentially have a material adverse effect on our results of operations, financial condition and cash flows. We expect gross margins to continue to vary over time, and our levels of product and services gross margins may not be sustainable.
If shipments fall below forecasted levels, we may incur increased costs or be required to take ownership of excess inventory. Changes in international tariff structures could adversely impact our product costs. We also have experienced and expect to continue to experience increased inflationary pressures on input costs, such as, raw materials, labor and distribution costs.
If shipments fall below forecasted levels, we may incur increased costs or be required to take ownership of excess inventory. Changes in international tariff structures could adversely impact our product costs. We also have experienced and expect to continue to experience ongoing inflationary pressures on input costs, such as, raw materials, labor and distribution costs.
In addition, any failure to make scheduled payments of interest and principal on our outstanding indebtedness or dividend payments on our outstanding shares of preferred stock would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness or otherwise raise capital on commercially reasonable terms or at all.
In addition, any failure to make scheduled payments of interest and principal on our outstanding indebtedness or dividend payments on any future outstanding shares of preferred stock would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness or otherwise raise capital on commercially reasonable terms or at all.
Moreover, we could incur additional depreciation and amortization expense over the useful lives of certain assets acquired in connection with these transactions, and, to the extent that the value of goodwill or intangible assets with indefinite lives acquired in connection with a transaction becomes impaired, we may be required to incur additional material charges relating to the impairment of those assets.
Moreover, we could incur additional depreciation and amortization expense over the useful lives of certain assets acquired in connection with these transactions, and, to the extent that the value of goodwill or intangible assets acquired in connection with a transaction becomes impaired, we may be required to incur additional material charges relating to the impairment of those assets.
If significant warranty obligations arise due to reliability or quality issues arising from defects in software, faulty components or manufacturing methods, our operating results, financial position and cash flows could be negatively impacted by: • costs associated with fixing software or hardware defects; • costs associated with internal or third-party installation errors; • high service and warranty expenses; • costs associated with recalling and replacing products with software or hardware defects, including costs from writing-off defective products recalled; • high inventory obsolescence expense; • delays in collecting accounts receivable; • payment of liquidated damages for performance failures; • extended performance bond expenses; and • a decline in revenue to existing customers.
If significant warranty obligations arise due to reliability or quality issues arising from defects in software, faulty components or manufacturing methods, our operating results, financial position and cash flows could be negatively impacted by: • costs associated with fixing software or hardware defects; • costs associated with internal or third-party installation errors; • high service and warranty expenses; • costs associated with recalling and replacing products with software or hardware defects, including costs from writing-off defective products recalled or recovering expenses from our suppliers; • high inventory obsolescence expense; • delays in collecting accounts receivable; • payment of liquidated damages for performance failures; • extended performance bond expenses; and • a decline in revenue from existing customers.
Federal Communications Commission (the “FCC”) in November 2022 prohibited communications equipment deemed to pose an unacceptable risk to national security from obtaining the equipment authorization that allows the products to be imported, marketed, or sold in the U.S.
Federal Communications Commission in November 2022 prohibited communications equipment deemed to pose an unacceptable risk to national security from obtaining the equipment authorization that allows the products to be imported, marketed, or sold in the U.S.
In the event that we become committed to 31 purchasing raw materials or components at prices in excess of the current market price when the raw materials or components are actually used, our gross margins could decrease.
In the event that we become committed to purchasing raw materials or components at prices in excess of the current market price when the raw materials or components are actually used, our gross margins could decrease.
We have been successful in the past in obtaining these approvals; however, we cannot be certain that we will obtain these approvals in the future or that sales of these products will continue to occur.
We have generally been successful in the past in obtaining these approvals; however, we cannot be certain that we will obtain these approvals in the future or that sales of these products will continue to occur.
(U.S GAAP) and compliance with the Sarbanes-Oxley Act of 2002, as amended, and the rules promulgated thereunder by the SEC; • legal and regulatory compliance; • dual market filing and publications obligations; • creating and implementing uniform standards, controls, procedures and policies; • litigation relating to the transactions contemplated by a reorganization, including shareholder litigation; • diversion of management’s attention from other operations; • maintaining existing agreements and relationships with customers, distributors, providers and vendors and avoiding delays in entering into new agreements with prospective customers, distributors, providers and vendors; • realizing the benefits from our restructuring programs; 24 • unforeseen and unexpected liabilities related to the Business Combination, including the risk that certain executive officers may be subject to additional fiduciary duties and liability; • 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.
GAAP) and compliance with the Sarbanes-Oxley Act of 2002, as amended, and the rules promulgated thereunder by the SEC; • legal and regulatory compliance; • dual market filing and publications obligations; • creating and implementing uniform standards, controls, procedures and policies; • litigation relating to the transactions contemplated by a reorganization, including shareholder litigation; • diversion of management’s attention from other operations; • maintaining existing agreements and relationships with customers, distributors, providers and vendors and avoiding delays in entering into new agreements with prospective customers, distributors, providers and vendors; • realizing the benefits from our restructuring programs; • unforeseen and unexpected liabilities related to the Business Combination, including the risk that certain executive officers may be subject to additional fiduciary duties and liability; 35 • 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.
We also require international distributors, resellers and agents to complete an Anti-Corruption Due Diligence Questionnaire, which is reviewed and assessed by a cross-functional compliance committee and our export-compliance function. 43 • environmental, health and safety regulation governing the manufacture, assembly and testing of our products, including without limitation regulations governing the use of hazardous materials.
We also require international distributors, resellers and agents to complete an Anti-Corruption Due Diligence Questionnaire, which is reviewed and assessed by a cross-functional compliance committee and our export-compliance function. • environmental, health and safety regulations governing the manufacture, assembly and testing of our products, including without limitation regulations governing the use of hazardous materials.
This, to a certain extent, 35 is subject to general economic, financial, competitive, business, legislative, regulatory and other factors that are beyond our control.
This, to a certain extent, is subject to general economic, financial, competitive, business, legislative, regulatory and other factors that are beyond our control.
The European Commission published revised standard contractual clauses for data transfers from the European Economic Area in 2021, which were required to go into effect by December 2022. Finally, the U.K. has enacted a version of the GDPR the implementation of which occurred by way of the Data Protection Act 2018, collectively referred to as the U.K. GDPR.
Additionally, the European Commission published revised standard contractual clauses for data transfers from the European Economic Area in 2021, 41 which were required to go into effect by December 2022. Finally, the U.K. has enacted a version of the GDPR the implementation of which occurred by way of the Data Protection Act 2018, collectively referred to as the "U.K.
The challenges involved in integrating and divesting include: • combining service and product offerings and entering into new markets in which we are not experienced; • convincing customers and distributors that any such transaction will not diminish client service standards or business focus, preventing customers and distributors from deferring purchasing decisions or switching to other suppliers or service providers (which could result in additional obligations to address customer uncertainty), and coordinating service, sales, marketing and distribution efforts; • consolidating and rationalizing corporate information technology infrastructure, which may include multiple legacy systems from various acquisitions and integrating software code; • minimizing the diversion of management attention from ongoing business concerns; • persuading employees that business cultures are compatible, maintaining employee morale and retaining key employees, integrating employees into our company, correctly estimating employee benefit costs and implementing restructuring programs; • coordinating and combining administrative, service, manufacturing, research and development and other operations, subsidiaries, facilities and relationships with third parties in accordance with local laws and other obligations while maintaining adequate standards, controls and procedures; • our responsibility for the liabilities of the businesses we acquire, some of which we may not anticipate, including costs of third-party advisors to resolve disputes; • achieving savings from supply chain and administration integration; and 36 • efficiently divesting combined business operations which may cause increased costs as divested businesses are de-integrated from embedded systems and operations.
The challenges involved in integrating and divesting include: • combining service and product offerings and entering into new markets in which we are not experienced; • convincing customers and distributors that any such transaction will not diminish client service standards or business focus, preventing customers and distributors from deferring purchasing decisions or switching to other suppliers or Service Providers (which could result in additional obligations to address customer uncertainty), and coordinating service, sales, marketing and distribution efforts; • consolidating and rationalizing corporate information technology infrastructure, which may include multiple legacy systems from various acquisitions and integrating software code; • minimizing the diversion of the Board of Directors and management's attention from ongoing business concerns; • persuading employees that business cultures are compatible, maintaining employee morale and retaining key employees, integrating employees into our company, correctly estimating employee benefit costs and implementing restructuring programs; • coordinating and combining administrative, service, manufacturing, research and development and other operations, subsidiaries, facilities and relationships with third parties in accordance with local laws and other obligations while maintaining adequate standards, controls and procedures; • increasing our responsibility for the liabilities of the businesses we acquire, some of which we may not anticipate, including costs of third-party advisors to resolve disputes; • achieving savings from supply chain and administration integration; and 31 • efficiently divesting combined business operations which may cause increased costs as divested businesses are de-integrated from embedded systems and operations.
Uncertainty remains, however, regarding how aspects of data protection in the U.K. will be handled in the medium to long term.
GDPR." Uncertainty remains, however, regarding how aspects of data protection in the U.K. will be handled in the medium to long term.
If key employees terminate their employment, or if an insufficient number of employees are retained to maintain effective operations, our 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 our business to deteriorate.
If key employees terminate their employment, or if an insufficient number of employees are retained to maintain effective operations, our business activities may be adversely affected and management’s attention may be diverted from successfully integrating ADTRAN and Adtran Networks to hiring suitable replacements, all of which may cause our business to deteriorate.
Any increased or unexpected costs, unanticipated delays or failure to achieve contractual obligations could make these agreements less profitable or unprofitable. Managing these types of transactions requires varying levels of management resources, which may divert our attention from other business operations.
Any increased or unexpected costs, unanticipated delays or failure to achieve contractual obligations could make these agreements less profitable or unprofitable. Managing these types of transactions require varying levels of management resources, which may divert our attention from other business operations.
Any failure, or perceived failure, by us to achieve our targets, further our initiatives, adhere to our public statements, comply with federal, state or international environmental, social and governance laws and regulations, or meet evolving and varied stakeholder expectations and standards could result in legal and regulatory proceedings against us and materially adversely affect our business, reputation, results of operations, financial condition and stock price. 46 ITEM 1B.
Any failure, or perceived failure, by us to achieve our targets, further our initiatives, adhere to our public statements, comply with federal, state or international environmental, social and governance laws and regulations, or meet evolving and varied stakeholder expectations and standards could result in legal and regulatory proceedings against us and materially adversely affect our business, reputation, results of operations, financial condition and stock price.
In 40 such event, we could be required to make our proprietary software generally available to third parties, including competitors, at no cost, to seek licenses from third parties in order to continue offering our products, to re-engineer our products or to discontinue the sale of our products in the event re-engineering cannot be accomplished on a timely basis or at all, any of which could adversely affect our revenue and operating expenses.
In such event, we could be required to make our proprietary software generally available to third parties, including competitors, at no cost, to seek licenses from third parties in order to continue offering our products, to re-engineer our products or to discontinue the sale of our products in the event re-engineering cannot be accomplished on a timely basis or at all, any of which could adversely affect our revenue and operating profitability.
Department of Commerce imposed additional export control restrictions targeting the provision of, inter alia, certain semiconductors and related technology to China that could further disrupt supply chains that could adversely impact our business. In addition, the U.S.
Department of Commerce imposed additional export control restrictions targeting the provision of certain semiconductors and related technology to China that could further disrupt supply chains that could adversely impact our business. In addition, the U.S.
Because our supply chain is complex, we may face reputational challenges with our customers, stockholders and other stakeholders if we are unable to verify sufficiently the origins for the conflict minerals used in our products and cannot assert that our products are “conflict free.” Environmental or similar social initiatives may also make it difficult to obtain supply of compliant components or may require us to write off non-compliant inventory, which could have an adverse effect on our business and operating results. • the insider trading prohibitions and the respective directors' dealing rules under the German Securities Trading Act ( Wertpapierhandelsgesetz ) and Regulation (EU) No. 596/2014 of the European Parliament and of the Council of April 16, 2014, and other applicable regulations.
Because our supply chain is complex, we may face reputational challenges with our customers, stockholders and other stakeholders if we are unable to verify sufficiently the origins for the conflict minerals used in our products and cannot assert that our products are “conflict free.” Environmental or similar social initiatives may also make it difficult to obtain supply of compliant components or may require us to write off non-compliant inventory, which could have an adverse effect on our business and operating results. 42 • the insider trading prohibitions and the respective directors' dealing rules, as well as disclosure and reporting obligations under the German Securities Trading Act ( Wertpapierhandelsgesetz ) and Regulation (EU) No. 596/2014 of the European Parliament and of the Council of April 16, 2014, and other applicable regulations.
Significant negative industry or economic trends, disruptions to our business, the inability to effectively integrate acquired businesses, the underperformance of our business as compared to management’s initial expectations, unexpected significant changes or planned changes in use of the assets, divestitures, and market capitalization declines may impair goodwill and other intangible assets.
Significant negative industry or economic trends, disruptions to our business, the inability to effectively integrate acquired businesses, the under performance of our business as compared to management’s initial expectations, unexpected significant changes or planned changes in use of the assets, divestitures, and market capitalization declines may impair goodwill and other intangible assets.
We have and may continue to lose customers or our share of customers’ business as entities that were customers of both ADTRAN and AVDA seek to diversify their suppliers of services and products. 25 The terms of the DPLTA may have a material adverse effect on our financial results and condition.
We have and may continue to lose customers or our share of customers’ business as entities that were customers of both ADTRAN and Adtran Networks seek to diversify their suppliers of services and products. The terms of the DPLTA may have a material adverse effect on our financial results and condition.
In addition, we may not be able to effect any of these actions, if necessary, on commercially reasonable terms or at all. Our ability to restructure or refinance our indebtedness will depend on the condition of the capital markets and our financial condition at such time.
In addition, we may not be able to effect any of these actions, if necessary, on commercially reasonable terms or at all. Our ability to raise additional debt capital or to restructure or refinance our indebtedness will depend on the condition of the capital markets and our financial condition at such time.
This international expansion has increased and may continue to 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 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; 33 • 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; • potential exposure to natural disasters, epidemics and pandemics (and government regulations in response thereto) and acts of war or terrorism; and • potential exposure to ongoing military conflict in Ukraine.
This international expansion has increased and may continue to increase our operational risks and impact our results of operations, including: • foreign currency exchange rate volatility has had and may continue to have an unfavorable impact on our cash flows, financial condition and results of operations; • 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; • potential exposure to natural disasters, epidemics and pandemics (and government regulations in response thereto) and acts of war or terrorism; and • potential exposure to ongoing military conflicts, including the conflict in Ukraine and in Israel and surrounding regions.
Difficulties in the integration of the business, which may result in significant costs and delays, include: • managing a significantly larger company; • integrating and unifying the offerings and services available to customers and coordinating distribution and marketing efforts; • coordinating corporate and administrative infrastructures and harmonizing insurance coverage; • unanticipated issues in coordinating accounting, information technology, communications, administration and other systems; • difficulty addressing possible differences in corporate cultures and management philosophies; • challenges associated with converting ADVA's financial reporting from international financial reporting standards (IFRS) to accounting principles generally accepted in the U.S.
Difficulties in the integration of the business, which have resulted and may in the future result in significant costs and delays, include: • managing a significantly larger company; • integrating and unifying the offerings and services available to customers and coordinating distribution and marketing efforts; • coordinating corporate and administrative infrastructures and harmonizing insurance coverage; • unanticipated issues in coordinating accounting, information technology, communications, administration and other systems; • difficulty addressing possible differences in corporate cultures and management philosophies; • challenges associated with converting Adtran Networks' financial reporting from international financial reporting standards (IFRS) to accounting principles generally accepted in the U.S.
As a result of our global operations, our revenue, gross margins, operating expense and operating income in some international markets have been and may continue to be affected by foreign currency fluctuations. We will require a significant amount of cash to service our indebtedness, our potential payment obligations to ADVA shareholders under the DPLTA, and other obligations.
As a result of our global operations, our revenue, gross margins, operating expense and operating income in some international markets have been and may continue to be affected by foreign currency fluctuations. We require a significant amount of cash to service our indebtedness, our potential payment obligations to Adtran Networks shareholders under the DPLTA, and other obligations.
Our ability to generate cash depends on many factors beyond our control and any failure to service our outstanding indebtedness could harm our business, financial condition and results of operations. Furthermore, we have entered into a DPLTA with ADVA.
Our ability to generate cash depends on many factors beyond our control and any failure to service our outstanding indebtedness could harm our business, financial condition and results of operations. Furthermore, we have entered into a DPLTA with Adtran Networks.
A reduction or interruption in supply, including disruptions on our global supply chain, caused in part by public health emergencies (including the COVID-19 pandemic), geopolitical tensions (including as a result of the ongoing conflict in Ukraine and China-Taiwan relations) or a significant natural disaster (including as a result of climate change); a significant increase in the price of one or more components (including as a result of inflation); a failure to adequately authorize procurement of inventory by our contract manufacturers; a failure to appropriately cancel, reschedule, or adjust our requirements based on our business needs; or a decrease in demand for our products could materially adversely affect our business, operating results, and financial condition and could materially damage customer relationships.
A reduction or interruption in supply, including disruptions on our global supply chain, caused in part by public health emergencies, geopolitical tensions (including as a result of the ongoing conflict in Ukraine and in Israel and surrounding regions, as well as China-Taiwan relations) or a significant natural disaster (including as a result of climate change); a significant increase in the price of one or more components (including as a result of inflation); a failure to adequately authorize procurement of inventory by our contract manufacturers; a failure to appropriately cancel, reschedule, or adjust our requirements based on our business needs; or a decrease in demand for our products could materially adversely affect our business, operating results, and financial condition and could materially damage customer relationships.
Additionally, pursuant to the terms of the DPLTA, each ADVA shareholder (other than the Company) has received an offer to elect either (1) to remain an ADVA shareholder and receive from us an Annual Recurring Compensation payment, or (2) to receive Exit Compensation.
Additionally, pursuant to the terms of the DPLTA, each Adtran Networks shareholder (other than the Company) has received an offer to elect either (1) to remain an Adtran Networks shareholder and receive from us an Annual Recurring Compensation payment, or (2) to receive Exit Compensation.
Our inability to develop alternative subcontractors if and as required in the future, or the need to undertake required retraining and other activities related to establishing and developing a new subcontractor relationship, could result in delays or reductions in product shipments which, in turn, could have a negative effect on our customer relationships and operating results.
Our inability to identify and engage alternative subcontractors if and as required in the future, or the need to undertake required retraining and other activities related to establishing and developing a 38 new subcontractor relationship, could result in delays or reductions in product shipments which, in turn, could have a negative effect on our customer relationships and operating results.
In addition, an event of default under such credit facilities would permit the lenders to terminate all commitments to extend further credit under the applicable facility. Furthermore, if we were unable to repay the amounts due and payable under such credit facilities, those lenders could proceed against the collateral granted them to secure that indebtedness.
In addition, an event of default under the Credit Agreement would permit the lenders to terminate all commitments to extend further credit under the applicable facility. Furthermore, if we were unable to repay the amounts due and payable under the Credit Agreement, the lenders could proceed against the collateral granted them to secure that indebtedness.
Our information systems are designed to appropriate industry standards and resiliently engineered to reduce downtime in the event of power outages, weather or climate events and cybersecurity issues.
Our information systems are designed to reflect industry standards and are engineered to reduce downtime in the event of power outages, weather or climate events and cybersecurity issues.
The terms of the DPLTA, including the adequacy of compensation payments to minority ADVA shareholders under the terms of the DPLTA, have been challenged by minority shareholders of ADVA by initiating court-led appraisal proceedings under German law.
The terms of the DPLTA, including the adequacy of compensation payments to minority Adtran Networks shareholders under the terms of the DPLTA, have been challenged by minority shareholders of Adtran Networks by initiating court-led appraisal proceedings under German law.
As a result of the Business Combination, we continue to be exposed to litigation risk and uncertainty associated with the remaining minority shareholders of ADVA.
As a result of the Business Combination, we continue to be exposed to litigation risk and uncertainty associated with the remaining minority shareholders of Adtran Networks.
Furthermore, the delay in sales until the completion of the approval process, the length of which is difficult to predict, could result in fluctuations of revenue and uneven operating results from quarter to quarter or year to year.
Furthermore, the delay in sales until the completion of the approval process, the length of which is difficult to predict, has and may continue to result in fluctuations of revenue and uneven operating results from quarter to quarter or year to year.
In addition, we have incurred significant banking, legal, accounting and other transaction fees and costs related to the Business Combination. As of December 31, 2022, we have incurred $26.1 million of transaction costs related to the Business Combination.
In addition, we have incurred significant banking, legal, accounting and other transaction fees and costs related to the Business Combination. As of December 31, 2023, we have incurred $26.2 million of transaction costs related to the Business Combination.
These risks, as well as the number and frequency of cybersecurity events globally, may also be heightened during times of geopolitical tension or instability between countries, including, for example, the ongoing military conflict in Ukraine with Russia, from which a number of recent cybersecurity events have been alleged to have originated.
These risks, as well as the number and frequency of cybersecurity events globally, may also be heightened during times of geopolitical tension or instability between countries. For example, a number of recent cybersecurity events have been alleged to have originated from the ongoing military conflict in Ukraine and in the Israel/Hamas war.
Privacy Shield framework as a basis for transfers of personal data from the EU to the U.S., resulting in uncertainty and potential additional compliance obligations to ensure that a valid basis under the GDPR exists for these data transfers.
Privacy Shield framework as a basis for transfers of personal data from the EU to the U.S., resulting in uncertainty and potential additional compliance obligations to ensure that a valid basis under the GDPR exists for these data transfers. Since that time, the E.U. and U.S. have developed the successor E.U.-U.S.
We cannot rule out that the competent court in these appraisal proceedings may adjudicate higher Exit Compensation or Annual Recurring Compensation payment obligations (in each case, including interest thereon) than agreed upon in the DPLTA, the financial impact and timing of which is uncertain.
We cannot rule out that the competent court in these appraisal proceedings may adjudicate higher Exit Compensation or Annual Recurring Compensation payment obligations (in each case, including interest thereon) than agreed upon in the DPLTA, the financial impact and timing of which is uncertain. We may be unable to successfully retain and motivate our personnel.
We have incurred and expect to continue to incur significant transaction fees and costs in connection with the Business Combination and post-closing integration efforts. We have incurred and expect to continue to incur a number of significant non-recurring implementation and restructuring costs associated with combining the operations of ADTRAN and ADVA.
We have incurred and expect to continue to incur significant costs in connection with the Business Combination and post-closing integration and restructuring efforts. We have incurred significant non-recurring implementation and restructuring costs associated with combining the operations of ADTRAN and Adtran Networks.
The U.S. and certain other countries imposed sanctions on Russia and could impose further sanctions against it, which could damage or disrupt international commerce and the global economy.
The U.S. and certain other countries-imposed sanctions on Russia in connection with the conflict in Ukraine and could impose further sanctions against it, which could damage or disrupt international commerce and the global economy.
Other potential consequences include, but are not limited to, a heightened risk of cyber-warfare, biological warfare or nuclear warfare, growth in the number of popular uprisings in the region, increased political discontent, especially in the regions most affected by the conflict or economic sanctions, continued displacement of persons to regions close to the areas of conflict and an increase in the number of refugees, among other unforeseen social and humanitarian effects which could impact our business, customers, and suppliers.
Other potential consequences of such military conflicts include, but are not limited to, a heightened risk of cyber-warfare, biological warfare or nuclear warfare, growth in the number of popular uprisings in the affected regions, increased political discontent, especially in the regions most affected by the conflicts or economic sanctions, continued displacement of persons to regions close to the areas of conflict and an increase in the number of refugees, among other unforeseen social and humanitarian effects which could impact our business, customers, and suppliers. 29 Our success depends on attracting and retaining key personnel.
Any failure by us to continue to anticipate or respond in a cost-effective and timely manner to changes in technology, industry standards, service provider offerings or new product announcements by our competitors, or any significant delays in product development or introduction, could have a material adverse effect on our ability to competitively market our products and on our revenue, results of operations, financial condition and cash flows.
Any failure by us to continue to anticipate or respond in a cost-effective and timely manner to changes in technology, industry standards, Service Provider offerings or new product announcements by our competitors, or any significant delays in product development or introduction, could have a material adverse effect on our ability to competitively market our products and on our revenue, results of operations, financial condition and cash flows. 37 Our failure or the failure of our contract manufacturers to comply with applicable environmental regulations could adversely impact our results of operations.
As a result of these restrictions, we may be: • limited in how we conduct our business; • unable to raise additional debt or equity financing to operate during general economic or business downturns; and • unable to compete effectively or to take advantage of new business opportunities. 28 These restrictions may affect our ability to grow in accordance with our strategy.
As a result of these restrictions, we have and may be: • limited in how we conduct our business; • unable to raise additional debt or equity financing to operate during general economic or business downturns; and • unable to compete effectively or to take advantage of new business opportunities.
We also may experience risks relating to the challenges and costs of closing a transaction and the risk that an announced transaction may not close. As a result, any completed, pending or future transactions may contribute to financial results that differ materially from the investment community’s expectations.
We also may experience risks relating to the challenges and costs of closing a transaction and the risk that an announced transaction may not close. As a result, any completed, pending or future transactions may contribute to financial results that differ materially from the investment community’s expectations. Ongoing inflationary pressures have negatively impacted our revenues and profitability.
China has retaliated by raising tariffs, and imposing new tariffs, on certain exports of U.S. goods to China, as well as introducing blocking measures to restrict the ability of domestic companies to comply with U.S. trade restrictions.
China has retaliated by raising tariffs, and imposing new tariffs, on certain exports of U.S. goods to China, as well as introducing blocking measures to restrict the ability of domestic companies to comply with U.S. trade restrictions and could take further steps to retaliate against U.S. industries or companies.
If our business does not generate sufficient cash flow from operations or if future borrowings are not available to us in an amount sufficient to enable us and our subsidiaries to pay our indebtedness or to fund our other liquidity needs, we may need to refinance all or a portion of our indebtedness on or before the maturity thereof, sell assets, reduce or delay capital investments or seek to raise additional capital, any of which could have a material adverse effect on us.
Nevertheless, if our business does not generate sufficient cash flow from operations, we do not sufficiently reduce costs in a timely manner, or our future borrowings are not available to us in an amount sufficient to enable us and our subsidiaries to pay our indebtedness or to fund our other liquidity needs, we may need to raise additional debt or equity capital, refinance all or a portion of our indebtedness, sell assets, reduce or delay capital investments, any of which could have a material adverse effect.
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 revenue.
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 revenue.
If we are not able to effectively provide different solutions and successfully achieve the growth and cost savings objectives, the anticipated benefits of the Business Combination may not be realized fully, or at all, or may take longer to realize than expected. We have experienced operational challenges and may also experience negative synergies and loss of customers.
If we are not able to effectively provide different solutions and successfully achieve the growth and cost savings objectives, the anticipated benefits of the Business Combination may not be realized fully, or at all, or may take longer to realize than expected.
Managing our inventory is complex and may include write-downs of excess or obsolete inventory.
Managing our inventory is complex and has included and may continue to include write downs of excess or obsolete inventory.
Our common stock is traded on the NASDAQ Global Select Market under the symbol ADTN.
Our common stock is traded on the NASDAQ Global Select Market under the symbol ADTN and on the Frankfurt Stock Exchange under the symbol QH9.
Recent significant increases in inflation may result in decreased demand for our products and services, increased manufacturing and operating costs (including our labor costs), reduced liquidity, and limitations on our ability to access credit or otherwise raise debt and equity capital.
Ongoing inflationary pressures have resulted and may continue to result in decreased demand for our products and services, increased manufacturing and operating costs (including our labor costs), reduced liquidity, and limitations on our ability to access credit or otherwise raise debt and equity capital.
In an inflationary environment, because certain of our customer contracts provide for fixed pricing and/or due to our competitor’s pricing strategies, we may be unable to raise the sales prices of our products and services at or above the rate at which our costs increase, which would reduce our profit and operating margins and could have a material adverse effect on our financial results.
In the current inflationary environment, because certain of our customer contracts provide for fixed pricing and/or due to our competitor’s pricing strategies, we are not always been able to raise the sales prices of our products and services at or above the rate at which our costs increase, which has reduced our profit and operating margins and has and could continue to have a material adverse effect on our financial results.
In addition, we may make statements about our environmental, social and governance goals and initiatives through our website, press statements and other communications. Responding to these environmental, social and governance considerations and implementation of these goals and initiatives involves risks and uncertainties, requires investments, and depends in part on third-party performance or data that is outside of our control.
Responding to these environmental, social and governance considerations and implementation of these goals and initiatives involves risks and uncertainties, requires investments, and depends in part on third-party performance or data that is outside of our control.
We are expanding our presence in international markets, which represented 49.5%, 33.5% and 30.5% of our net revenue for the years ended December 31, 2022, 2021 and 2020, respectively, and as a result, we anticipate increased revenue and operating costs in these markets.
We are expanding our presence in international markets, which represented 59.8% and 49.5% of our net revenue for the years ended December 31, 2023 and 2022, and as a result, we have experienced increased revenue and operating costs in these markets.
A portion of our research and development activities are focused on the continued innovation of currently accepted access and edge transmission technologies in order to deliver faster internet speeds, more capacity, better quality of service and operational efficiency.
A portion of our research and development activities are focused on the continued innovation of currently accepted access and edge transmission technologies in order to deliver faster internet speeds, more capacity, better quality of service and operational efficiency. These research and development efforts result in improved applications of technologies for which demand already exists or is latent.
The U.S. government has raised tariffs, and imposed new tariffs, on a wide range of imports of Chinese products, including component elements of our solutions and certain finished goods products that we sell. U.S. tariff policy involving imports from China are slated for a broad review in 2023.
The U.S. government has raised tariffs, and imposed new tariffs, on a wide range of imports of Chinese products, including component elements of our solutions and certain finished goods products that we sell. U.S. tariff policy involving imports from China remains under review by the Office of the United States Trade Representative.
In the past, revenue to our large customers have fluctuated, and may fluctuate in the future, significantly from quarter to quarter and year to year. The loss of, or a significant reduction or delay in, revenue to any such customer or the occurrence of revenue fluctuations could have a material adverse effect on our business and results of operations.
The loss of, or a significant reduction or delay in, revenue to any such customer or the occurrence of revenue fluctuations could have a material adverse effect on our business and results of operations.
We cannot predict whether we will prevail in any claims or litigation over alleged infringements, or whether we will be able to license any valid and infringed patents, or other intellectual property, on commercially reasonable terms.
We cannot predict whether we will prevail in any claims or litigation over alleged infringements, or whether we will be able to license any valid and infringed patents, or other intellectual property, on commercially reasonable terms. For example, on August 22, 2023, Adtran Networks and its subsidiary Adtran Networks North America, Inc.
Our level of gross margins may not be sustainable and has been and may continue to be adversely affected by numerous factors, including: • changes in customer, geographic or product or services mix, including software and the mix of configurations and professional services revenue within each product segment; • mix of domestic versus international revenue; • introduction of new products by competitors, including products with price-performance advantages; • our ability to reduce product cost; • increases in labor or material cost, including increases in material costs resulting from inflation or tariffs; • foreign currency exchange rate movements; • expediting costs incurred to meet customer delivery requirements; • excess inventory and inventory holding charges; • excess and obsolescence charges; • changes in shipment volume; • our ability to absorb fixed manufacturing costs during short-term fluctuations in customer demand; • loss of cost savings due to changes in component pricing or charges incurred due to inventory holding periods if parts ordering does not correctly anticipate product demand; • lower than expected benefits from value engineering; • increased price competition, including competitors from Asia, specifically China; • changes in distribution channels; • increased warranty cost or quality issues; • liquidated damages costs relating to customer contractual terms; • our ability to manage the impact of foreign currency exchange rate fluctuations relating to our revenue or cost of revenue; • slowdowns, recessions, economic instability, political unrest, armed conflicts (such as the ongoing military conflict in Ukraine), or outbreaks of disease, such as the COVID-19 pandemic, around the world; and • Business Combination purchase price allocations.
Our level of gross margins may not be sustainable and has been and may continue to be adversely affected by numerous factors, including: • changes in customer, geographic or product or services mix, including software and the mix of configurations and professional services revenue within each product segment; • mix of domestic versus international revenue; • introduction of new products by competitors, including products with price-performance advantages; • our ability to reduce product cost; • increases in labor or material cost, including increases in material costs resulting from inflation or tariffs; • foreign currency exchange rate movements; • expediting costs incurred to meet customer delivery requirements; • excess inventory and inventory holding charges; • excess and obsolescence charges; • changes in shipment volume; • our ability to absorb fixed manufacturing costs during short-term fluctuations in customer demand; • loss of cost savings due to changes in component pricing or charges incurred due to inventory holding periods if parts ordering does not correctly anticipate product demand; • lower than expected benefits from value engineering; • increased price competition, including competitors from Asia, specifically China; • changes in distribution channels; • increased warranty cost or quality issues; • liquidated damages costs relating to customer contractual terms; • our ability to manage the impact of foreign currency exchange rate fluctuations relating to our revenue or cost of revenue; • slowdowns, recessions, economic instability (such as the instability in the financial services sector), political unrest, armed conflicts (such as the ongoing military conflict in Ukraine and in Israel and surrounding regions), or outbreaks of disease around the world; and • an extended government shutdown resulting from budgetary decisions or other potential delays or changes in the government appropriations or other funding authorization processes. 26 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 and may continue to have a material adverse effect on operating results and could have a material adverse effect on customer relations.
The U.S. and certain other countries imposed sanctions on Russia and could impose further sanctions against it, which could damage or disrupt international commerce and the global economy; and • changes in tax laws and regulations or accounting pronouncements.
The U.S. and certain other countries imposed sanctions on Russia and could impose further sanctions against it, which could damage or disrupt international commerce and the global economy; and • changes in tax laws and regulations or accounting pronouncements. The price of our common stock has been volatile and may continue to fluctuate significantly.
Our obligation to pay Annual Recurring Compensation under the DPLTA would lead to a continuing payment obligation, which would amount to approximately EUR $10.6 million, or $11.4 million based on the current exchange rate, per year assuming none of the minority ADVA shareholders were to elect Exit Compensation.
Our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately €10.6 million or $11.7 million (based on the exchange rate as of December 31, 2023) per year assuming none of the minority Adtran Networks shareholders were to elect Exit Compensation.
We rarely engage in research projects that represent a vast departure from the current business practices of our key customers. While we believe our strategy provides a higher likelihood of producing nearer term or more sustainable revenue streams, this strategy could result in lost revenue opportunities and higher operating expenses should a new technology achieve rapid and widespread market acceptance.
While we believe our strategy provides a higher likelihood of producing nearer term or more sustainable revenue streams, this strategy could result in lost revenue opportunities and higher operating expenses should a new technology achieve rapid and widespread market acceptance.
Additionally, our ability to realize anticipated benefits of the Business Combination could be affected by a number of other factors, including: the need for greater than expected cash or other financial resources or management time in order to integrate ADVA; increases in other expenses related to the Business Combination, including restructuring and other exit costs; the timing and impact of purchase accounting adjustments; accounting for IFRS to U.S.
Our ability to realize anticipated benefits of the Business Combination has been and may continue to be affected by a number of factors, including: the need for greater than expected cash or other financial resources or management time in order to integrate Adtran Networks; and increases in other expenses related to the Business Combination, including restructuring and other exit costs.
While we attempt to monitor these situations carefully and attempt to take appropriate measures to collect accounts receivable balances, there are no assurances we can avoid write-downs and/or write-offs of accounts receivable as a result of declining financial conditions for our customers, including bankruptcy.
While we attempt to monitor these situations carefully and attempt to take appropriate measures to collect accounts receivable balances, including through the recent $20.0 million expansion of a Receivables Purchase and Servicing Agreement with True Value S.A.R.L., there are no assurances we can avoid write-downs and/or write-offs of accounts receivable as a result of declining financial conditions for our customers, including bankruptcy.
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.
Furthermore, 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.
The availability of these raw materials and supplies may be subject to market forces beyond our control, such as inflation, merger and acquisition activity of our suppliers and consolidation in some segments of our supplier base.
The availability of these raw materials and supplies may be subject to market forces beyond our control, such as inflation, merger and acquisition activity of our suppliers and consolidation in some segments of our supplier base. We have experienced and expect to continue to experience increased inflationary pressures on input costs, such as, raw materials, supplies, labor and distribution costs.
We carry cybersecurity insurance policies meant to limit our risk and exposure should one of these cybersecurity issues occur. However, a significant failure of our systems due to these issues could result in significant remediation costs, disrupt business operations, and divert management attention, which could result in harm to our business reputation, operating results, financial condition, and cash flows.
However, a significant failure or other compromise of our systems due to these issues could result in significant remediation costs, disrupt business operations, and divert management attention, which could result in harm to our business reputation, operating results, financial condition, and cash flows.
If technologies or standards applicable to our products, or service provider offerings based on our products, become obsolete or fail to gain widespread commercial acceptance, our existing products or products under development may become obsolete or unmarketable.
If technologies or standards applicable to our products, or Service Provider offerings based on our products, become obsolete or fail to gain widespread commercial acceptance, our existing products or products under development may become obsolete or unmarketable, which can result in the discontinuation of products and write off of related inventory.
Assuming all of the minority holders of currently outstanding ADVA shares were to elect the second option, we would be obligated to make aggregate Exit Compensation payments of approximately EUR 310.6 million or approximately $333.2 million. based on an exchange rate as of December 31, 2022.
Assuming all the minority holders of currently outstanding Adtran Networks shares were to elect the first option, we would be obligated to make aggregate Exit Compensation payments, including guaranteed interest, of approximately €310.3 million or approximately $342.5 million, based on an exchange rate as of December 31, 2023.
The success of the Business Combination and our post-closing integration efforts depends, in part, on our ability to retain the talents and dedication of key employees, including key decision-makers, currently employed by ADTRAN, Inc. and ADVA. Some of our employees have decided and others may decide not to remain with us as a result of the Business Combination.
The success of the Business Combination and our post-closing integration efforts depends, in part, on our ability to retain the talents and dedication of key employees, including key decision-makers, currently employed by ADTRAN, Inc. and Adtran Networks.
Since our initial public offering in August 1994, there has been, and may continue to be, significant volatility in the market for our common stock, based on a variety of factors, including factors listed in this section, some of which are beyond our control. 42 Risks related to the regulatory environments in which we do business We are subject to complex and evolving U.S. and foreign laws, regulations and standards governing the conduct of our business.
Since our initial public offering in August 1994, there has been, and may continue to be, significant volatility in the market for our common stock, based on a variety of factors, including factors listed in this section, some of which are beyond our control.
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.
These issues have and may continue to 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.
Our failure or the failure of our contract manufacturers to comply with applicable environmental regulations could adversely impact our results of operations. The manufacture, assembly and testing of our products may require the use of hazardous materials that are subject to environmental, health and safety regulations.
The manufacture, assembly and testing of our products may require the use of hazardous materials that are subject to environmental, health and safety regulations. Our failure or the failure of our contract manufacturers to comply with any of these applicable requirements could result in regulatory penalties, legal claims or disruption of production.
In addition, particularly in the service provider market, rapid consolidation will lead to fewer customers, with the effect that a loss of a major customer could have a material impact on our results that we would not have anticipated in a marketplace composed of more numerous participants.
In addition, particularly in the Service Provider market, rapid consolidation will lead to fewer customers, with the effect that a loss of a major customer could have a material impact on our results that we would not have anticipated in a marketplace composed of more numerous participants. 25 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 are subject to taxation in various jurisdictions, both domestically and internationally, in which we conduct business. Significant judgment is required in the determination of our provision for income taxes, and this determination requires the interpretation and application of complex and sometimes uncertain tax laws and regulations.
Significant judgment is required in the determination of our provision for income taxes, and this determination requires the interpretation and application of complex and sometimes uncertain tax laws and regulations.
GAAP adjustments; difficulties in employee or management integration; the impact of appraisal proceedings in connection with the DPLTA; and unanticipated liabilities associated with the Business Combination. Any potential cost-saving opportunities may take several years following the Business Combination to implement, and any results of these actions may not be realized for several years thereafter, if at all.
GAAP results. Any potential cost-saving opportunities may take several years following the Business Combination to implement, and any results of these actions may not be realized for several years thereafter, if at all.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeFor more information, see Note 9 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report. We also have numerous sales and support staff operating from home-based offices serving both our Network Solutions and our Services & Support segments, which are located within the U.S. and abroad.
Biggest changeFor more information, see Note 8 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report. We also have numerous sales and support staff operating from home-based offices serving both our Network Solutions and our Services & Support segments, which are located within the U.S. and abroad.
We lease engineering facilities in the U.S., EMEA and APAC that are used to develop products sold by our Network Solutions segment. In addition, we lease office space in North America, Latin America, EMEA and APAC, which provide sales and service support for both of our segments. These cancelable and non-cancelable leases expire at various times through 2032.
We lease engineering facilities in the U.S., EMEA and APAC that are used to develop products sold by our Network Solutions segment. In addition, we lease office space in North America, Latin America, EMEA and APAC, which provide sales and service support for both of our segments. These cancelable and non-cancelable leases expire at various times through 2033.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeSuch Legal Matters, even if not meritorious, could result in the expenditure of significant financial and managerial resources. Additionally, an unfavorable outcome in a legal matter, including in a patent dispute, could require us to pay damages, entitle claimants to other relief, such as royalties, or could prevent us from selling some of our products in certain jurisdictions.
Biggest changeSuch Legal Matters, even if not meritorious, could result in the expenditure of significant financial and managerial resources. Additionally, an unfavorable outcome in a Legal Matter could require us to pay damages, entitle claimants to other relief, such as royalties, or could prevent us from selling some of our products in certain jurisdictions.
At this time, we are unable to predict the outcome of or estimate the possible loss or range of loss, if any, associated with these legal matters. ITEM 4. MINE SAF ETY DISCLOSURES Not applicable. 47 PART II
At this time, we are unable to predict the outcome of or estimate the possible loss or range of loss, if any, associated with these Legal Matters. ITEM 4. MINE SAF ETY DISCLOSURES Not applicable. 46 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeFiscal year ending December 31. 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 ADTRAN Holdings, Inc. $ 100.00 $ 56.83 $ 53.88 $ 83.18 $ 130.95 $ 109.66 NASDAQ Telecommunications $ 100.00 $ 105.27 $ 119.63 $ 148.58 $ 157.71 $ 119.73 NASDAQ Composite $ 100.00 $ 97.18 $ 132.88 $ 192.74 $ 235.56 $ 158.97 The stock price performance included in this graph is not necessarily indicative of future stock price performance. 48 Stock Repurchases The following table sets forth repurchases of our common stock for the months indicated.
Biggest changeFiscal year ending December 31. 47 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 ADTRAN Holdings, Inc. $ 100.00 $ 94.81 $ 146.36 $ 230.41 $ 192.95 $ 77.38 NASDAQ Composite $ 100.00 $ 136.69 $ 198.10 $ 242.03 $ 163.28 $ 236.17 NASDAQ Telecommunications $ 100.00 $ 113.65 $ 141.14 $ 149.82 $ 113.74 $ 130.05 The stock price performance included in this graph is not necessarily indicative of future stock price performance.
The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from 12/31/2017 to 12/31/2022. * $100 invested on 12/31/17 in stock or index-including reinvestment of dividends.
The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from December 31, 2018 to December 31, 2023. * $100 invested on 12/31/18 in stock or index-including reinvestment of dividends.
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 October 1, 2022 – October 31, 2022 — $ — — — November 1, 2022 – November 30, 2022 — $ — — — December 1, 2022 – December 31, 2022 — $ — — — Total — — (1) During the year ended December 31, 2022, the Company did not repurchase any shares of Company Common Stock and there is no current authorization to repurchase Company Common Stock.
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 October 1, 2023 – October 31, 2023 356 $ 7.47 — — November 1, 2023 – November 30, 2023 128,122 $ 5.44 — — December 1, 2023 – December 31, 2023 7,105 $ 7.09 — — Total 135,583 — (1) During the year ended December 31, 2023, the Company did not repurchase any shares of Company common stock as part of a publicly announced plan or program and there is no current authorization to repurchase Company common stock.
As of February 27, 2023, we had 45 stockholders of record and approximately 19,485 beneficial owners of shares held in street name.
As of January 22, 2024, we had 47 stockholders of record and approximately 19,709 beneficial owners of shares held in street name. Dividends We declared a quarterly dividend of $0.09 per share of common stock to record holders during each of the quarters through September 30, 2023.
Removed
We declared a quarterly dividend of $0.09 per share of common stock to record holders in each quarter of 2022. The declaration and payment by us of any future dividends to holders of our common stock is at the sole discretion of our Board of Directors. 49 ITEM 6. R E SERVED 50
Added
On November 6, 2023, the Board of Directors suspended the Company’s quarterly cash dividend in order to reduce debt and interest expense and support the Company's capital efficiency program.
Added
The payment of any future dividends will be at the discretion of the Board of Directors and will depend on the Company’s financial condition, results of operations, capital requirements, and any other factors deemed relevant by the Board of Directors. In addition, the Wells Fargo Credit Agreement currently does not allow for the payment of dividends to shareholders.
Added
For additional information, see Note 20 of Notes to Consolidated Financial Statements included in Part II, Item 8 and Liquidity & Capital Resources included in Part II, Item 7 of this report .
Added
Purchases of Equity Securities The following table sets forth repurchases of our common stock for the months indicated.
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The shares purchased relate to shares withheld to cover taxes for vested stock awards. 48 ITEM 6. R E SERVED

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeAll U.S. borrowings under the Credit Agreement (other than swingline loans, which will bear interest at the Base Rate (as defined below)) will bear interest, at the Company’s option, at a rate per annum equal to (A)(i) the highest of (a) the federal funds rate (i.e., for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System, as published by the Federal Reserve Bank of New York on the business day next succeeding such day) plus ½ of 1%, (b) the prime commercial lending rate of the Administrative Agent, as established from time to time at its principal U.S. office (which such rate is an index or base rate and will not necessarily be its lowest or best rate charged to its customers or other banks), and (c) the daily Adjusted Term SOFR (as defined in the Credit Agreement) for a one-month tenor plus 1%, plus (ii) the applicable rate, ranging from 0.5% to 1.25% (the “Base Rate”), or (B) the sum of the Adjusted Term SOFR (as defined in the Credit Agreement) plus the applicable rate, ranging from 1.4% to 2.15%, provided that such sum is subject to a 0.0% floor (such loans utilizing this interest rate, “SOFR Loans”).
Biggest change“Base Rate” means the highest of (a) the federal funds rate (i.e., for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System, as published by the Federal Reserve Bank of New York on the business day next succeeding such day) plus ½ of 1.0%, (b) the prime commercial lending rate of the Administrative Agent, as established from time to time at its principal U.S. office (which such rate is an index or base rate and will not necessarily be its lowest or best rate charged to its customers or other banks), and (c) the daily Adjusted Term SOFR (as defined in the Credit Agreement) for a one-month tenor plus 1.0%.
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 optimal selling prices and increased functionality as compared to both the prior generation of a product and to the products of competitors in order to gain market share.
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 optimal selling prices and increased functionality as compared to both the prior generation of a product and the products of competitors in order to gain market share.
As of December 31, 2022, cash on hand was $108.6 million and short-term investments were $0.3 million, which resulted in available short-term liquidity of $108.9 million, of which $86.3 million was held by our foreign subsidiaries.
As of December 31, 2022, our cash on hand was $108.6 million and our short-term investments were $0.3 million, which resulted in available short-term liquidity of $108.9 million, of which $86.3 million was held by our foreign subsidiaries.
However, due to the appraisal proceedings that have been initiated in accordance with applicable German law, this time period for tendering shares has been extended pursuant to the German Stock Corporation Act ( Aktiengesetz ) and will end two months after the date on which a final decision in such appraisal proceedings has been published in the Federal Gazette ( Bundesanzeiger ).
However, due to the appraisal proceedings that have been initiated in accordance with applicable German law, this time period for tendering shares has been extended pursuant to the German Stock Corporation Act ( Aktiengesetz ) and will end two months after the date on which a final decision in such appraisal proceedings has been published in the Federal Gazette ( Bundesanzeiger ).
Our solutions within this category are a mix of fiber access and aggregation platforms, precision network synchronization and timing solutions and access orchestration solutions that ensure highly reliable and efficient network performance. 51 Our Optical Networking Solutions are used by communications service providers, internet content providers and large-scale enterprises to securely interconnect metro and regional networks over fiber.
Our solutions within this category are a mix of fiber access and aggregation platforms, precision network synchronization and timing solutions and access orchestration solutions that ensure highly reliable and efficient network performance. Our Optical Networking Solutions are used by communications Service Providers, internet content providers and large-scale enterprises to securely interconnect metro and regional networks over fiber.
The Company’s estimates of fair value are based on historical experience, industry knowledge, certain information obtained from the management of the acquired company and, in some cases, valuations performed by independent third-party firms. The results of operations of acquired companies are included in the accompanying Consolidated Statements of (Loss) Income since their dates of acquisition.
The Company’s estimates of fair value are based on historical experience, industry knowledge, certain information obtained from the management of the acquired company and, in some cases, valuations performed by independent third-party firms. The results of operations of acquired companies are included in the accompanying Consolidated Statements of Loss since their dates of acquisition.
We may incur significant research and development expenses prior to the receipt of revenue from a major new product group. 57 Asset Impairments In connection with the planned integration of information technology following the Business Combination, we determined that certain projects no longer fit our needs.
We may incur significant research and development expenses prior to the receipt of revenue from a major new product group. Asset Impairments In connection with the planned integration of information technology following the Business Combination, we determined that certain projects no longer fit our needs.
The plan is financed by contributions paid by the Company. • In India, the post-employment benefit plan is required due to statutory provisions. The plan is financed directly by the Company on a pay-as-you-go basis. Our defined benefit plan assets consist of a balanced portfolio of equity funds, bond funds, emerging market funds, real estate funds and balanced funds.
The plan is financed by contributions paid by the Company. 64 • In India, the post-employment benefit plan is required due to statutory provisions. The plan is financed directly by the Company on a pay-as-you-go basis. Our defined benefit plan assets consist of a balanced portfolio of equity funds, bond funds, emerging market funds, real estate funds and balanced funds.
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.
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 55 for customers.
The fluctuations in our net investments were primarily attributable to changes in the fair value of our securities recognized during the period. We expect that any future market volatility could result in continued fluctuations in our investment portfolio.
The fluctuations in our net investments were primarily attributable to market driven changes in the fair value of our securities recognized during the period. We expect that any future market volatility could result in continued fluctuations in our investment portfolio.
For goodwill impairment testing purposes, we determined the Company's reporting units are generally the same as its operating segments, which are identified in Note 18 to the Consolidated Financial Statements.
For impairment testing purposes, we determined the Company's reporting units are generally the same as its operating segments, which are identified in Note 18 to the Consolidated Financial Statements.
Costs incurred to complete the Business Combination, such as legal, accounting or other professional fees, are charged to selling, general and administrative expenses as incurred. Recently Issued Accounting Pronouncements For a discussion of recently issued accounting pronouncements, see Note 1 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for additional information. 70
Costs incurred to complete the Business Combination, such as legal, accounting or other professional fees, are charged to selling, general and administrative expenses as incurred. Recently Issued Accounting Pronouncements For a discussion of recently issued accounting pronouncements, see Note 1 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for additional information. 74
The balance in the reserve account is included in other assets on the Consolidated Balance Sheets. Inventory We carry our inventory at the lower of cost and net realizable value, with cost being determined using the first-in, first-out method. Standard costs for material, labor, and manufacturing overhead are used to value inventory and are updated at least quarterly.
The balance in the reserve account was included in other assets on the Consolidated Balance Sheets. Inventory We carry our inventory at the lower of cost and net realizable value, with cost being determined using the first-in, first-out method. Standard costs for material, labor, and manufacturing overhead are used to value inventory and are updated at least quarterly.
Our ADVA international revenue is largely focused on the manufacture and selling of networking solutions that are based on three core areas of expertise: fiber-optic transmission technology (cloud interconnect), cloud access technology for rapid creation of innovative services around the network edge and solutions for precise timing and synchronization of networks.
Our Adtran Networks international revenue is largely focused on the manufacture and selling of networking solutions that are based on three core areas of expertise: fiber-optic transmission technology (cloud interconnect), cloud access technology for rapid creation of innovative services around the network edge and solutions for precise timing and synchronization of networks.
(0.2 )% (1.5 )% 0.5 % The following discussion and financial information are presented to aid in an understanding of our current consolidated financial position, changes in financial position, results of operations and cash flows and should be read in conjunction with the audited consolidated financial statements and notes thereto included herein.
(23.3 )% (0.2 )% (1.5 )% The following discussion and financial information are presented to aid in an understanding of our current consolidated financial position, changes in financial position, results of operations and cash flows and should be read in conjunction with the audited consolidated financial statements and notes thereto included herein.
We also estimate the fair value of our reporting units based on a peer group analysis, whereby companies in the telecommunications industry or with a comparable product and market structure are used to calculate a fair enterprise value using revenue, EBITDA and debt multiples of trading value.
We also estimated the fair value of our reporting units based on a peer group analysis, whereby companies in the telecommunications industry or with a comparable product and market structure are used to calculate a fair enterprise value using revenue, EBITDA and debt multiples of trading value.
See Note 20 of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report for more information. (7) We have operating leases for office space, automobiles and various other equipment in the U.S. and in certain international locations.
See Note 20 of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report for more information. (4) We have operating leases for office space, automobiles and various other equipment in the U.S. and in certain international locations.
Liability for Warranty Our products generally include warranties of 90 days to five years for product defects. We accrue for warranty returns at the time of product shipment based on our historical return rate and an estimate of the cost to repair or replace the defective products.
Liability for Warranty Our products generally include warranties of 90 days to five years for product defects. We accrue a provision for warranty returns at the time of product shipment based on our historical return rate and an estimate of the cost to repair or replace the defective products.
For a discussion of risks associated with our operating results, see Part I, Item 1A, Risk Factors of this report. 54 Results of Operations The following table presents selected financial information derived from our Consolidated Statements of (Loss) Income expressed as a percentage of revenue for the years indicated. Amounts may not foot due to rounding.
For a discussion of risks associated with our operating results, see Part I, Item 1A, Risk Factors of this report. 53 Results of Operations The following table presents selected financial information derived from our Consolidated Statements of Loss expressed as a percentage of revenue for the years indicated. Amounts may not foot due to rounding.
Under the DPLTA, subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, (i) the Company is entitled to issue binding instructions to the management board of ADVA, (ii) ADVA will transfer its annual profit to the Company, subject to, among other things, the creation or dissolution of certain reserves, and (iii) the Company will generally absorb the annual net loss incurred by ADVA.
Under the DPLTA, subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, (i) the Company is entitled to issue binding instructions to the management board of Adtran Networks, (ii) Adtran Networks will transfer its annual profit to the Company, subject to, among other things, the creation or dissolution of certain reserves, and (iii) the Company will generally absorb the annual net loss incurred by Adtran Networks.
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.
Also, not maintaining sufficient inventory levels to ensure prompt delivery of our products may cause us to incur expediting costs to meet customer delivery requirements, which may negatively impact our operating results.
See “Investing Activities” in “Liquidity and Capital Resources” of this report and Note 1 and Note 6 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.
See “Investing Activities” in “Liquidity and Capital Resources” of this report and Note 1 and Note 5 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.
The identification of our reporting units begins at the operating segment level and considers whether components one level below the operating segment levels should be identified as reporting units for the purpose of testing goodwill for impairment.
The identification of our reporting units begins at the operating segment level and considers whether components one level below the operating segment levels should be identified as reporting units for the purpose of testing assets for impairment.
The stock option pricing model requires the use of several assumptions that impact the fair value estimate. These variables include, but are not limited to, the volatility of the Company's stock price and employee exercise behaviors. As of December 31, 2022, total unrecognized compensation expense related to the non-vested portion of stock options was approximately $8.3 million.
The stock option pricing model requires the use of several assumptions that impact the fair value estimate. These variables include, but are not limited to, the volatility of the Company's stock price and employee exercise behaviors. As of December 31, 2023, total unrecognized compensation expense related to the non-vested portion of stock options was approximately $8.1 million.
As a result, the Company recognized impairment charges of $17.4 million during the year ended December 31, 2022, primarily attributable to capitalized implementation costs for a cloud computing arrangement. There were no asset impairments recognized during the year ended December 31, 2021.
As a result, the Company recognized impairment charges of $17.4 million during the year ended December 31, 2022, primarily attributable to capitalized implementation costs for a cloud computing arrangement. There were no asset impairments recognized during the years ended December 31, 2023 and 2021.
The Swap may be accelerated or terminated early for a number of reasons, including but not limited to (i) non-payment by the Company or the Hedge Counterparty, (ii) breach of representation or warranty or covenant by either party or (iii) insolvency or bankruptcy of either party.
The Initial Forward may be accelerated or terminated early for a number of reasons, including but not limited to (i) non-payment by the Company or the Hedge Counterparty, (ii) breach of representation or warranty or covenant by either party or (iii) insolvency or bankruptcy of either party.
A discounted cash flow analysis requires us to make various judgmental assumptions about future sales, operating margins, growth rates and discount rates, which are based on our budgets, business plans, economic projections, anticipated future cash flows and market participants.
Our discounted cash flow analysis required us to make various judgmental assumptions about future sales, operating margins, growth rates and discount rates, which are based on our budgets, business plans, economic projections, anticipated future cash flows and market participants.
Our general policy is to qualitatively assess the carrying value of goodwill each reporting period for events or changes in circumstances that would more likely than not reduce the fair value of the reporting unit below its carrying amount.
Our general policy is to qualitatively assess the carrying value of assets in our reporting units each reporting period for events or changes in circumstances that would more likely than not reduce the fair value of the reporting unit below its carrying amount.
Syndicated Credit Agreement Working Capital Line of Credit In September 2018, ADVA entered into a syndicated credit agreement with Bayerische Landesbank and Deutsche Bank AG Branch German Business to borrow up to $10.7 million as part of a working capital line of credit.
Syndicated Credit Agreement Working Capital Line of Credit In September 2018, Adtran Networks entered into a syndicated credit agreement with Bayerische Landesbank and Deutsche Bank AG Branch German Business to borrow up to $10.7 million as part of a working capital line of credit.
The Swap, which is governed by the provisions of an ISDA Master Agreement (including schedules thereto and transaction confirmations that supplement such agreement) entered into between the Company and the Hedge Counterparty, enable the Company to convert a portion of its Euro denominated payment obligations under the DPLTA into U.S. Dollars.
The Initial Forward, which is governed by the provisions of an ISDA Master Agreement (including schedules thereto and transaction confirmations that supplement such agreement) entered into between the Company and the Hedge Counterparty, enable the Company to convert a portion of its euro denominated payment obligations under the proposed DPLTA into U.S. Dollars.
Intangible Assets Purchased intangible assets with finite lives are carried at cost less accumulated amortization. Amortization is recorded over the estimated useful lives of the respective assets. 68 As part of the purchase price allocation related to the Business Combination with ADVA, the Company recognized $403.8 million of intangible assets on July 15, 2022.
Intangible Assets Purchased intangible assets with finite lives are carried at cost less accumulated amortization. Amortization is recorded over the estimated useful lives of the respective assets. As part of the purchase price allocation related to the Business Combination with Adtran Networks, the Company recognized $403.8 million of intangible assets on July 15, 2022.
Prior to the Business Combination with ADVA on July 15, 2022, ADTRAN reported revenue across the following three categories: (1) Access & Aggregation, (2) Subscriber Solutions & Experience and (3) Traditional & Other Products.
Prior to the Business Combination with Adtran Networks on July 15, 2022, ADTRAN, Inc. reported revenue across the following three categories: (1) Access & Aggregation, (2) Subscriber Solutions & Experience and (3) Traditional & Other Products.
In addition, ADVA's international operations offers a comprehensive portfolio of network design, implementation and maintenance services to assist operators in the deployment of market-leading networks while reducing their cost to maintain these networks.
In addition, Adtran Networks' international operations offers a comprehensive portfolio of network design, implementation and maintenance services to assist operators in the deployment of market-leading networks while reducing their cost to maintain these networks.
Following the Business Combination with ADVA, we have recast these revenues such that ADTRAN’s former Access & Aggregation revenue is combined with a portion of the applicable ADVA solutions to create Access & Aggregation Solutions, ADTRAN’s former Subscriber Solutions & Experience revenue is combined with a portion of the applicable ADVA solutions to create Subscriber Solutions and the revenue from Traditional & Other products is now included in the applicable Access & Aggregation Solutions or Subscriber Solutions category.
Following the Business Combination with Adtran Networks, we have recast these revenues such that ADTRAN, Inc's former Access & Aggregation revenue is combined with a portion of the applicable Adtran Networks solutions to create Access & Aggregation Solutions, ADTRAN’s former Subscriber Solutions & Experience revenue is combined with a portion of the applicable Adtran Networks solutions to create Subscriber Solutions and the revenue from Traditional & Other products is now included in the applicable Access & Aggregation Solutions or Subscriber Solutions category.
See Note 6 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.
See Note 15 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.
The adequacy of both forms of compensation have been challenged by minority shareholders of ADVA via court-led appraisal proceedings under German law, and it is possible that the courts in such appraisal proceedings may adjudicate a higher Exit Compensation or Annual Recurring Compensation (in each case, including interest thereon) than agreed upon in the DPLTA.
The adequacy of both forms of compensation has been challenged by minority shareholders of Adtran Networks via court-led appraisal proceedings under German law, and it is possible that the courts in such appraisal proceedings may adjudicate a higher Exit Compensation or Annual Recurring Compensation (in each case, including interest thereon) than agreed upon in the DPLTA.
At December 31, 2022, the estimated fair market value of our defined benefit pension plans' assets increased to $48.7 million from $32.7 million at December 31, 2021. The defined benefit pension plan is accounted for on an actuarial basis, which requires the use of various assumptions, including an expected rate of return on plan assets and a discount rate.
At December 31, 2023, the estimated fair market value of our defined benefit pension plans' assets increased to $55.2 million from $48.7 million at December 31, 2022. The defined benefit pension plan is accounted for on an actuarial basis, which requires the use of various assumptions, including an expected rate of return on plan assets and a discount rate.
Unless the context otherwise indicates or requires, references in this Quarterly Report on Form 10-Q to "ADTRAN", the “Company,” “we,” “us” and “our” refer to ADTRAN Holdings, Inc. and its consolidated subsidiaries for periods subsequent to the Merger and to ADTRAN, Inc. and its consolidated subsidiaries for periods prior to the Merger.
Unless the context otherwise indicates or requires, references in this Annual Report on Form 10-K to "ADTRAN", the “Company,” “we,” “us” and “our” refer to ADTRAN Holdings, Inc. and its consolidated subsidiaries for periods subsequent to the Merger and to ADTRAN, Inc. and its consolidated subsidiaries for periods prior to the Merger.
The maximum number of shares of ADTRAN Holdings stock potentially issuable upon such assumption was 2.3 million shares. The period in which such options could be assumed ended July 22, 2022. A total of 2.1 million shares of ADTRAN Holdings stock are subject to assumed ADVA options.
The maximum number of shares of ADTRAN Holdings stock potentially issuable upon such assumption was 2.3 million shares. The period in which such options could be assumed ended July 22, 2022. A total of 2.1 million shares of ADTRAN Holdings stock were subject to assumed Adtran Networks options.
In addition to our global headquarters in Huntsville, Alabama, and our European headquarters in Munich, Germany, we have sales, administrative and research and development facilities in strategic global locations. ADTRAN Holdings, Inc. solely owns ADTRAN, Inc. and is the majority shareholder of ADVA Optical Networking SE ("ADVA"). ADTRAN is a leading global provider of open, disaggregated networking and communications solutions.
In addition to our global headquarters in Huntsville, Alabama, and our European headquarters in Munich, Germany, we have sales and research and development facilities in strategic global locations. The Company solely owns ADTRAN, Inc. and is the majority shareholder of Adtran Networks (formerly ADVA Optical Networking SE). ADTRAN is a leading global provider of open, disaggregated networking and communications solutions.
The components of net periodic pension cost and amounts recognized in other comprehensive (loss) income for the years ended December 31, 2022 and 2021 were ($5.8) million and ($5.0) million, respectively. Actuarial gains and losses are recorded in accumulated other comprehensive (loss) income.
The components of net periodic pension cost and amounts recognized in other comprehensive income (loss) for the years ended December 31, 2023 and 2022 were $5.1 million and ($5.8) million, respectively. Actuarial gains and losses are recorded in accumulated other comprehensive (loss) income.
On each sale date, the financial institution retains from the sale price a default reserve, up to a required balance, which is held by the financial institution in a reserve account and pledged to the Company. The financial institution is entitled to withdraw from the reserve account the sale price of a defaulted receivable.
On each sale date, the financial institution retained from the sale price a default reserve, up to a required balance, which was held by the financial institution in a reserve account and pledged to the Company. The financial institution was entitled to withdraw from the reserve account the sale price of a defaulted receivable.
We estimate that less than $0.1 million will be amortized from accumulated other comprehensive (loss) income into net periodic pension cost in 2023 for the net actuarial loss. The net actuarial loss recognized in accumulated other comprehensive loss as of December 31, 2022 and 2021 was $1.1 million and $7.7 million, respectively.
We estimate that less than $0.1 million will be amortized from accumulated other comprehensive income into net periodic pension cost in 2024 for the net actuarial loss. The net actuarial loss recognized in accumulated other comprehensive loss as of December 31, 2023 and 2022 was $2.5 million and $1.1 million, respectively.
See Note 13 and Note 14 of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report and “Financing Activities” in “Liquidity and Capital Resources” below. Net Investment (Loss) Gain We recognized a net investment gain of $1.8 million and a loss of $11.3 million for the years ended December 31, 2021 and 2022, respectively.
See Note 12 and Note 13 of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report and “Financing Activities” in “Liquidity and Capital Resources” below. Net Investment Gain (Loss) We recognized a net investment loss of $11.3 million and a gain of $2.8 million for the years ended December 31, 2022 and 2023, respectively.
See Note 12 of Notes to Consolidated Financial Statements included in Part II, Item 8 of the report for additional information on foreign exchange contracts. Income Tax Benefit (Expense) Our effective tax rate changed from an expense of 37.0%, for the year ended December 31, 2021 to a benefit of 87.5% for the year ended December 31, 2022.
See Note 11 of Notes to Consolidated Financial Statements included in Part II, Item 8 of the report for additional information on foreign exchange contracts. Income Tax (Expense) Benefit Our effective tax rate changed from a benefit of 87.5%, for the year ended December 31, 2022 to an expense of 12.2% for the year ended December 31, 2023.
We estimate the fair value of our reporting units based on an income approach, whereby we calculate the fair value of a reporting unit based on the present value of estimated future cash flows.
We estimated the fair value of our reporting units based on an income approach, whereby we calculated the fair value of a reporting unit based on the present value of estimated future cash flows.
ADVA Domination and Profit and Loss Transfer Agreement The DPLTA between the Company, as the controlling company, and ADVA Optical Networking SE, as the controlled company, which was executed on December 1, 2022, became effective on January 16, 2023, as a result of its registration with the commercial register ( Handelsregister ) of the local court ( Amtsgericht ) at the registered seat of ADVA (Jena).
Adtran Networks Domination and Profit and Loss Transfer Agreement The DPLTA between the Company, as the controlling company, and Adtran Networks, as the controlled company, which was executed on December 1, 2022, became effective on January 16, 2023, as a result of its registration with the commercial register ( Handelsregister ) of the local court ( Amtsgericht ) at the registered seat of Adtran Networks (Jena).
The opportunity for outside ADVA shareholders to tender ADVA shares in exchange for Exit Compensation had been scheduled to expire on March 16, 2023.
The opportunity for outside Adtran Networks shareholders to tender Adtran Networks shares in exchange for Exit Compensation had been scheduled to expire on March 16, 2023.
The emphasis of the discussion is a comparison of the years ended December 31, 2022 and December 31, 2021.
The emphasis of the discussion is a comparison of the years ended December 31, 2023 and December 31, 2022.
See Note 15 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for additional information. Net (Loss) Income Attributable to ADTRAN Holdings, Inc.
See Note 14 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for additional information. 57 Net Loss Attributable to ADTRAN Holdings, Inc.
In addition to our cash and cash equivalents and the credit facility, we may fund a portion or all of the Exit Compensation through the sale of securities. There can be no assurances that we would be successful in effecting these actions on commercially reasonable terms or at all.
In addition to our cash and cash equivalents and the credit facility, we may fund a portion or all of the Exit Compensation through the sale of securities or additional alternative funding sources, if available. There can be no assurances that we would be successful in effecting these actions on commercially reasonable terms or at all.
Additionally, and subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, the DPLTA provides that ADVA shareholders (other than us) be offered, at their election, (i) to put their ADVA shares to the Company in exchange for a compensation in cash of EUR 17.21 per share (the “Exit Compensation”), or (ii) to remain ADVA shareholders and receive a recurring compensation in cash of EUR 0.59 (EUR 0.52 net under the current tax regime) per share for each full fiscal year of ADVA (the “Annual Recurring Compensation”).
Additionally, and subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, the DPLTA provides that Adtran Networks shareholders (other than us) be offered, at their election, (i) to put their Adtran Networks shares to the Company in exchange for compensation in cash of €17.21 per share plus guaranteed interest (the "Exit Compensation"), or (ii) to remain Adtran Networks shareholders and receive a recurring compensation in cash of €0.59 (€0.52 net under the current tax regime) per share for each full fiscal year of Adtran Networks (the “Annual Recurring Compensation”).
If actual trends and market conditions are less favorable than those projected by management, we may be required to make additional inventory write-downs. Our reserve for excess and obsolete inventory was $51.8 million and $44.6 million at December 31, 2022 and 2021, respectively.
If actual trends and market conditions are less favorable than those projected by management, we may be required to make additional inventory write-downs. Our reserve for excess and obsolete inventory was $83.1 million and $51.8 million at December 31, 2023 and 2022, respectively.
Revenue is generated by two reportable segments: Network Solutions and Services & Support. 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.
Revenue is generated by two reportable segments: Network Solutions and Services & Support. 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. The majority of the revenue from this segment is from hardware revenue.
As a percentage of that segment's revenue, Network Solutions gross profit decreased from 38.3% for the year ended December 31, 2021 to 29.4% for the year ended December 31, 2022.
As a percentage of that segment's revenue, Network Solutions gross profit decreased from 29.4% for the year ended December 31, 2022 to 23.3% for the year ended December 31, 2023.
Stock Option Exercises To accommodate employee stock option exercises, the Company issued 0.5 million and 0.4 million shares of common stock and treasury stock which resulted in proceeds of $6.9 million and $6.4 million during the years ended December 31, 2022 and 2021, respectively.
Stock Option Exercises To accommodate employee stock option exercises, the Company issued 23 thousand and 0.5 million shares of common stock and treasury stock which resulted in proceeds of $0.5 million and $6.9 million during the years ended December 31, 2023 and 2022, respectively.
For a discussion of a comparison of the years ended December 31, 2021 and December 31, 2020, please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022.
For a discussion of a comparison of the years ended December 31, 2022 and December 31, 2021, please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K/A for the year ended December 31, 2022, filed with the SEC on August 14, 2023.
Accounts Receivable Factoring The Company has entered into a factoring agreement to sell certain receivables to an unrelated third-party financial institution on a non-recourse basis.
Previous Accounts Receivable Factoring Agreement The Company had previously entered into a factoring agreement to sell certain receivables to an unrelated third-party financial institution on a non-recourse basis.
Inventory disposals charged against the reserve were $2.9 million and $1.0 million for the years ended December 31, 2022 and December 31, 2021, respectively. 67 Stock-Based Compensation For purposes of determining the estimated fair value of market-based PSU awards on the date of grant, the Monte Carlo Simulation valuation method is used.
Inventory disposals charged against the reserve were $7.6 million and $2.9 million for the years ended December 31, 2023 and December 31, 2022, respectively. Stock-Based Compensation For purposes of determining the estimated fair value of market-based PSU awards on the date of grant, the Monte Carlo Simulation valuation method is used.
Our investments decreased from $71.0 million as of December 31, 2021 to $33.0 million as of December 31, 2022 and was primarily attributable to the sale of certain equity and fixed income investments for working capital and other purposes.
Our investments decreased from $33.0 million as of December 31, 2022 to $27.7 million as of December 31, 2023 and was primarily attributable to the sale of certain equity and fixed income investments for working capital and other purposes.
Trade accounts receivables balances sold are removed from the Consolidated Balance Sheets and cash received is reflected as cash provided by (used in) operating activities in the Consolidated Statements of Cash Flow. Factoring related interest expense is recorded to interest expense on the Consolidated Statements of (Loss) Income.
Trade accounts receivables balances sold were removed from the Consolidated Balance Sheets and cash received was reflected as cash flows (used in) provided by operating activities in the Consolidated Statements of Cash Flow. Factoring related interest expense was recorded to interest expense on the Consolidated Statements of Loss.
The Credit Agreement contains customary affirmative and negative covenants, including incurrence covenants and certain other limitations on the ability of the Company and the Company’s subsidiaries to incur additional debt, guarantee other obligations, grant liens on assets, make investments, dispose of assets, pay dividends or other payments on capital stock, make restricted payments, engage in mergers or consolidations, engage in transactions with affiliates, modify its organizational documents, and enter into certain restrictive agreements.
Furthermore, the Credit Agreement, as amended, contain customary affirmative and negative covenants, including incurrence covenants and certain other limitations on the ability of the Company and the Company’s subsidiaries to incur additional debt, guarantee other obligations, grant liens on assets, make investments, dispose of assets, make restricted payments, engage in mergers or consolidations, engage in transactions with affiliates, modify its organizational documents, and enter into certain restrictive agreements.
The projected benefit obligation for our defined benefit pension plans was $59.3 million and $44.2 million as of December 31, 2022 and 2021, respectively. The components of net periodic pension cost, other than the service cost component, are included in other income (expense), net in the Consolidated Statements of (Loss) Income.
The projected benefit obligation for our defined benefit pension plans was $67.9 million and $59.3 million as of December 31, 2023 and 2022, respectively. The components of net periodic pension cost, other than the service cost component, are included in other income, net in the Consolidated Statements of Loss.
Network Solutions cost of revenue, as a percentage of that segment’s revenue, increased from 61.7% of revenue in 2021 to 70.6% of revenue in 2022.
Network Solutions cost of revenue, as a percentage of that segment’s revenue, increased from 70.6% of revenue in 2022 to 76.7% of revenue in 2023.
New Wells Fargo Credit Agreement On July 18, 2022, ADTRAN Holdings, Inc. and ADTRAN, Inc., as the borrower, entered into a credit agreement with a syndicate of banks, including Wells Fargo Bank, National Association, as administrative agent (“Administrative Agent”), and the other lenders named therein (the “Credit Agreement”).
On July 18, 2022, ADTRAN, Inc., as the borrower, and ADTRAN Holdings, Inc. entered into a credit agreement with a syndicate of banks, including Wells Fargo Bank, National Association, as administrative agent (“Administrative Agent”), and the other lenders named therein (the “Credit Agreement”), which has since been amended three times.
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.
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 additional adverse effect on our business and operating results beyond the effects of the most recent inventory write-downs.
International revenue, which is defined as revenue generated from the Network Solutions and Services & Support segments provided to a customer outside of the U.S., increased by 169.7% from $188.4 million for the year ended December 31, 2021 to $508.1 million for the year ended December 31, 2022.
International revenue, which is defined as revenue generated from the Network Solutions and Services & Support segments provided to a customer outside of the U.S., increased 35.4% from $508.1 million for the year ended December 31, 2022 to $688.1 million for the year ended December 31, 2023.
Year Ended December 31, 2022 2021 2020 Revenue Network Solutions 89.4 % 88.6 % 86.5 % Services & Support 10.6 11.4 13.5 Total Revenue 100.0 100.0 100.0 Cost of Revenue Network Solutions 63.1 54.7 48.2 Services & Support 5.0 6.5 8.8 Total Cost of Revenue 68.1 61.2 57.0 Gross Profit 31.9 38.8 43.0 Selling, general and administrative expenses 20.4 22.1 22.5 Research and development expenses 16.9 19.3 22.4 Asset impairments 1.7 — — Operating Loss (7.1 ) (2.6 ) (1.9 ) Interest and dividend income 0.2 0.5 0.4 Interest expense (0.3 ) — — Net investment (loss) gain (1.1 ) 0.3 1.0 Other income (expense), net 1.4 0.7 (0.6 ) Loss Before Income Taxes (6.9 ) (1.1 ) (1.2 ) Income tax benefit (expense) 6.1 (0.4 ) 1.7 Net (Loss) Income (0.9 )% (1.5 )% 0.5 % Less: Net Loss attributable to non-controlling interest (0.7 ) — — Net (Loss) Income attributable to ADTRAN Holdings, Inc.
Year Ended December 31, 2023 2022 2021 Revenue Network Solutions 84.8 % 89.4 % 88.6 % Services & Support 15.2 10.6 11.4 Total Revenue 100.0 100.0 100.0 Cost of Revenue Network Solutions 62.9 63.1 54.7 Network Solutions - Inventory Write Down 2.1 — — Services & Support 6.0 5.0 6.5 Total Cost of Revenue 71.0 68.1 61.2 Gross Profit 29.0 31.9 38.8 Selling, general and administrative expenses 22.5 20.4 22.1 Research and development expenses 22.5 16.9 19.3 Asset impairment — 1.7 — Goodwill impairments 3.3 — — Operating Loss (19.3 ) (7.1 ) (2.6 ) Interest and dividend income 0.2 0.2 0.5 Interest expense (1.4 ) (0.3 ) — Net investment gain (loss) 0.2 (1.1 ) 0.3 Other income, net 0.1 1.4 0.7 Loss Before Income Taxes (20.1 ) (6.9 ) (1.1 ) Income tax benefit (expense) (2.4 ) 6.1 (0.4 ) Net Loss (22.6 )% (0.9 )% (1.5 )% Net Income (loss) attributable to non-controlling interest 0.7 (0.7 ) — Net Loss attributable to ADTRAN Holdings, Inc.
For the year ended December 31, 2022 as compared to the year ended December 31, 2021, changes in foreign currencies relative to the U.S dollar decreased our selling, general and administrative expenses by approximately $4.4 million.
For the year ended December 31, 2023, as compared to the year ended December 31, 2022, changes in foreign currencies relative to the U.S dollar increased our selling, general and administrative expenses by approximately $1.3 million.
As a percentage of that segment's revenue, Services & Support gross profit increased from 42.7% for the year ended December 31, 2021 to 52.9% for the year ended December 31, 2022.
As a percentage of that segment's revenue, Services & Support gross profit increased from 52.9% for the year ended December 31, 2022 to 60.4% for the year ended December 31, 2023.
International revenue, as a percentage of total revenue, increased from 33.5% for the year ended December 31, 2021 to 49.5% for the year ended December 31, 2022.
International revenue, as a percentage of total revenue, increased from 49.5% for the year ended December 31, 2022 to 59.8% for the year ended December 31, 2023.
Additionally, pursuant to the terms of the DPLTA, each 58 ADVA shareholder (other than the Company) has received an offer to elect either (1) to remain an ADVA shareholder and receive from us an Annual Recurring Compensation payment, or (2) to receive Exit Compensation.
Pursuant to the terms of the DPLTA, each Adtran Networks shareholder (other than the Company) has received an offer to elect either (1) to remain an Adtran Networks shareholder and receive from us an Annual Recurring Compensation payment, or (2) to receive Exit Compensation plus guaranteed interest.
Long-term investments as of December 31, 2022 and 2021 also included $22.9 million and $26.9 million, respectively, related to our deferred compensation plan. Financing Activities Dividends During 2022 and 2021, we paid shareholder dividends totaling $22.9 million and $17.5 million, respectively.
Long-term investments as of December 31, 2023 and 2022 also included $26.8 million and $22.9 million, respectively, related to our deferred compensation plan. 63 Financing Activities Dividends During 2023 and 2022, we paid shareholder dividends totaling $21.2 million and $22.9 million, respectively.
Selling, General and Administrative Expenses Selling, general and administrative expenses as a percentage of revenue decreased from 22.1% for the year ended December 31, 2021 to 20.4% for the year ended December 31, 2022.
Selling, General and Administrative Expenses Selling, general and administrative expenses as a percentage of revenue increased from 20.4% for the year ended December 31, 2022, to 22.5% for the year ended December 31, 2023.
Employees receive their pension payments as a function of salary, inflation and a notional account. • In Israel, there is a defined benefit plan that provides benefits in the event of a participant being dismissed involuntarily, retirement or death.
The plan is financed directly by the Company on a pay-as-you-go basis. Employees receive their pension payments as a function of salary, inflation and a notional account. • In Israel, there is a defined benefit plan that provides benefits in the event of a participant being dismissed involuntarily, retirement or death.
The Annual Recurring Compensation is due on the third banking day following the ordinary general shareholders’ meeting of ADVA for the respective preceding fiscal year (but in any event within eight months following expiration of the fiscal year) and is first granted for the 2023 fiscal year, payable for the first time after the ordinary general shareholders’ meeting of ADVA in 2024.
The Annual Recurring Compensation is due on the third banking day following the ordinary general shareholders’ meeting of Adtran Networks for the respective preceding fiscal year (but in any event within eight months following expiration of the fiscal year), and it will be payable for the first time after the ordinary general shareholders’ meeting of Adtran Networks in 2024 for the fiscal year ended December 31, 2023.
As a percentage of revenue, net loss was 1.5% for the year ended December 31, 2021 and net loss was 0.2% for the year ended December 31, 2022. Liquidity and Capital Resources Liquidity We have historically financed, our ongoing business with existing cash, investments and cash flow from operations.
As a percentage of revenue, net loss was 0.2% for the year ended December 31, 2022 and net loss was 23.3% for the year ended December 31, 2023. Liquidity and Capital Resources Liquidity We have historically financed our ongoing business with existing cash, investments and cash flow from operations. We had a net operating cash outflow in 2023.
If we have recognized revenue but have not billed the customer, the right to consideration is recognized as a contract asset that is included in other receivables on the Consolidated Balance Sheets. The contract asset is transferred to accounts receivable when the completed performance obligation is invoiced to the customer.
If we have recognized revenue but have not billed the customer, the right to consideration is recognized as a contract asset that is included in other receivables on the Consolidated Balance Sheets.
The increase in cost of revenue as a percentage of revenue was primarily attributable to acquisition related expenses, amortizations and adjustments consisting of intangible amortization of backlog, developed technology and fair value adjustments to inventory costs that flow through to cost of revenue as a result of the Business Combination with ADVA, as well as supply chain constraint related expenses and to a lesser extent changes in customer and product mix and a regional revenue shift in our ADTRAN, Inc. operations.
The increase in cost of revenue as a percentage of revenue was primarily attributable to acquisition related expenses, amortizations and adjustments consisting of intangible amortization of backlog, developed technology and fair value adjustments to inventory costs that flow through to cost of revenue as a result of the Business Combination with Adtran Networks, a write down of inventory due to a restructuring discontinuation of certain product lines and to a lesser extent changes in customer and product mix and a regional revenue shift in our ADTRAN, Inc. operations partially offset by supply chain cost improvements.
Services & Support cost of revenue, as a percentage of that segment’s revenue, decreased from 57.3% of revenue in 2021 to 47.1% of revenue in 2022. The decrease in cost of revenue as a percentage of revenue was primarily attributable to customer mix and changes in Services & Support mix as a result of the Business Combination with ADVA.
Services & Support cost of revenue, as a percentage of that segment’s revenue, decreased from 47.1% of revenue in 2022 to 39.6% of revenue in 2023. The decrease in cost of revenue as a percentage of revenue was primarily attributable to customer mix and changes in Services & Support mix as a result of the Business Combination with Adtran Networks.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

16 edited+5 added−2 removed8 unchanged
Biggest changeAs a result, changes in currency exchange rates could cause variations in our operating income (loss). We have certain customers and suppliers who are invoiced or pay in a non-functional currency.
Biggest changeActual future gains and losses associated with our foreign currency exposures and positions may differ materially from the sensitivity analyses performed as of December 31, 2023 due to the inherent limitations associated with predicting the foreign currency exchange rates, and our actual exposures and positions. We have certain customers and suppliers who are invoiced or pay in a non-functional currency.
Foreign Currency Exchange Rate Risk 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.
Foreign Currency Exchange Rate Risk 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, operating expenses, and assets and liabilities held in non-functional currencies related to our foreign subsidiaries.
All non-functional currencies invoiced by suppliers would result in a combined hypothetical gain or loss of $10.4 million if the U.S. dollar weakened or strengthened 10% against the billing currencies.
All non-functional currencies invoiced by suppliers would result in a combined hypothetical gain or loss of $11.4 million if the U.S. dollar weakened or strengthened 10% against the billing currencies.
The Swap may be accelerated or terminated early for a number of reasons, including but not limited to (i) non-payment by the Company or the Hedge Counterparty, (ii) breach of representation or warranty or covenant by either party or (iii) insolvency or bankruptcy of either party.
The Initial Forward may be accelerated or terminated early for a number of reasons, including but not limited to (i) non-payment by the Company or the Hedge Counterparty, (ii) breach of representation or warranty or covenant by either party or (iii) insolvency or bankruptcy of either party.
We do not hold or issue derivative instruments for trading or other speculative purposes. All non-functional currencies billed would result in a combined hypothetical gain or loss of $8.0 million if the U.S. dollar weakened or strengthened 10% against the billing currencies.
We do not hold or issue derivative instruments for trading or other speculative purposes. All non-functional currencies billed would result in a combined hypothetical gain or loss of $6.7 million if the U.S. dollar weakened or strengthened 10% against the billing currencies.
The majority of our global supply chain predominately makes payments in U.S. dollars and some of our operating expenses are paid in certain local currencies (approximately 28.5% of total operating expense for the year ended December 31, 2022, respectively). Therefore, our revenue, gross margins, operating expenses and operating income (loss) are all subject to foreign currency fluctuations.
The majority of our global supply chain predominately makes payments in U.S. dollars and some of our operating expenses are paid in certain local currencies (approximately 43.2% of total operating expense for the year ended December 31, 2023, respectively). Therefore, our revenue, gross margins, operating expenses and operating loss are all subject to foreign currency fluctuations.
As of December 31, 2022, we had certain material contracts subject to currency revaluation, including accounts receivable, accounts payable and lease liabilities denominated in foreign currencies. As of December 31, 2022, we had 47 forward contracts outstanding with a fair value of $11.9 million.
As of December 31, 2023, we had certain material contracts subject to currency revaluation, including accounts receivable, accounts payable and lease liabilities denominated in foreign currencies. As of December 31, 2023, we had 47 forward contracts outstanding with a fair value of $4.8 million.
We maintain depository investments with certain financial institutions. As of December 31, 2022, $100.1 million of our cash and cash equivalents, primarily certain domestic money market funds and foreign depository accounts, were in excess of government provided insured depository limits.
We maintain depository investments with certain financial institutions. As of December 31, 2023, $83.2 million of our cash and cash equivalents, primarily certain domestic money market funds and foreign depository accounts, were in excess of government provided insured depository limits.
Interest Rate Risk As of December 31, 2022, approximately $10.6 million of our cash and investments may be directly affected by changes in interest rates. As of December 31, 2022, we held $1.5 million of cash and variable-rate investments where a change in interest rates would impact our interest income.
Interest Rate Risk As of December 31, 2023, approximately $5.7 million of our cash and investments may be directly affected by changes in interest rates. As of December 31, 2023, we held $5.7 million of cash and variable-rate investments where a change in interest rates would impact our interest income.
A hypothetical 50 basis point decline in interest rates as of December 31, 2022, assuming all other variables remain constant, would reduce annualized interest income on our cash and investments by less than $0.1 million. In addition, we held $9.1 million of fixed-rate bonds whose fair values may be directly affected by a change in interest rates.
A hypothetical 50 basis point decline in interest rates as of December 31, 2023, assuming all other variables remain constant, would reduce annualized interest income on our cash and investments by less than $0.1 million.
Under the Swap, the Company will exchange an aggregate notional amount of $160.0 million U.S. dollars for Euros at a daily fixed forward rate ranging from $0.98286 to 71 $1.03290. The aggregate amount of $160.0 million will be divided into eight quarterly tranches of $20.0 million.
Under the Initial Forward, the Company agreed to exchange an aggregate notional amount of €160.0 million for U.S. dollars at a daily fixed forward rate ranging from $1.0141 to $1.0305. The aggregate amount of €160.0 million is divided into eight quarterly tranches of €20.0 million, which commenced in the fourth quarter of 2022.
For further information about the fair value of our investments as of December 31, 2022, see Note 6 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report. 72
The drawdown dates of the Initial Forward are set to the same date as the maturity of the new offsetting Forward. For further information about the fair value of our investments as of December 31, 2023, see Note 5 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report. 76
A hypothetical 50 basis point increase in interest rates as of December 31, 2022, assuming all other variables remain constant, would reduce the fair value of our fixed-rate bonds by approximately $0.1 million.
As of December 31, 2023, the carrying amounts of our revolving credit agreements totaled $195.0 million where a change in interest rates would impact our interest expense. A hypothetical 50 basis point increase in interest rates as of December 31, 2023, assuming all other variables remain constant, would increase our interest expense by $1.0 million.
Hedging of our currency exposures may not always be effective to protect us against currency exchange rate fluctuations. See Note 12 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.
Hedging of our currency exposures may not always be effective to protect us against currency exchange rate fluctuations. See Note 11 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report. 75 On November 3, 2022, the Company entered into a euro/U.S. dollar forward contract arrangement (the "Initial Forward") with Wells Fargo Bank, N.A.
The discount rates used were based on the market interest rates in effect at December 31, 2022.
The analyses cover our debt and investments. The analyses use actual or approximate maturities for the debt and investments. The discount rates used were based on the market interest rates in effect at December 31, 2023.
In addition, on November 3, 2022, the Company entered into the Swap with the Hedge Counterparty, which enables the Company to convert a portion of its Euro denominated payment obligations under the DPLTA into U.S. Dollars.
(the “Hedge Counterparty”). The Initial Forward, which is governed by the provisions of an ISDA Master Agreement (including schedules thereto and transaction confirmations that supplement such agreement) entered into between the Company and the Hedge Counterparty, enable the Company to convert a portion of its euro denominated payment obligations under the proposed DPLTA into U.S. Dollars.
Removed
As of December 31, 2022, the carrying amounts of our revolving credit agreements and notes payable totaled $95.9 million and $24.6 million, respectively, where a change in interest rates would impact our interest expense.
Added
As a result, changes in currency exchange rates could cause variations in our operating loss. A hypothetical 10% movement in foreign exchange rates would result in a before-tax positive or negative impact of approximately $15.0 million for the year ended December 31, 2023.
Removed
A hypothetical 50 basis point increase in interest rates as of December 31, 2022, assuming all other variables remain constant, would increase our interest expense by $0.6 million. The analyses cover our debt and investments. The analyses use actual or approximate maturities for the debt and investments.
Added
During the twelve months ended December 31, 2023, the Company settled four €20.0 million forward contract tranches and the remaining amount will be divided into four quarterly tranches of €20.0 million over the course of 2024.
Added
On March 21, 2023, the Company entered into a euro/U.S. dollar forward contract arrangement (the “Forward”) with the Hedge Counterparty.
Added
Under the Forward, which is governed by the provisions of an ISDA Master Agreement (including schedules thereto and transaction confirmations that supplement such agreement) entered into between the Company and the Hedge Counterparty, the Company will exchange an aggregate notional amount of €160.0 million U.S. dollars for euros at a daily fixed forward rate ranging from $1.0882 to $1.0955 per €1.00.
Added
During the twelve months ended December 31, 2023, the Company settled four $20.0 million forward contract tranches and the remaining amount will be divided into four quarterly tranches of $20.0 million. These forward contracts were executed on March 21, 2023 (to sell EUR/buy USD) and were entered into for the purpose of unwinding the Initial Forward (to buy EUR/sell USD).

Other ADTN 10-K year-over-year comparisons