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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2022

The accompanying unaudited Condensed Consolidated Financial Statements of ADTRAN Holdings, Inc. and its subsidiaries have been prepared pursuant to the rules and regulations of the SEC applicable to interim financial information presented in Quarterly Reports on Form 10-Q. Accordingly, certain information and notes required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for complete financial statements are not included herein. Certain prior year amounts have been reclassified to conform to the current period presentation. The December 31, 2021 Condensed Consolidated Balance Sheet is derived from audited financial statements but does not include all disclosures required by U.S. GAAP.

In the opinion of management, all adjustments necessary to fairly state these interim statements have been recorded and are of a normal and recurring nature. The results of operations for an interim period are not necessarily indicative of the results for the full year. The interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in ADTRAN, Inc. Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Significant estimates include allowance for credit losses on accounts receivable and contract assets, excess and obsolete inventory reserves, warranty reserves, customer rebates, determination and accrual of the deferred revenue related to performance obligations under contracts with customers, estimated costs to complete obligations associated with deferred and accrued revenues and network installations, estimated income tax provision and income tax contingencies, fair value of stock-based compensation, assessment of goodwill and other intangibles for impairment, estimated lives of intangible assets, estimated pension liability and fair value of investments. Actual amounts could differ significantly from these estimates.

We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts of the SARS-CoV-2 coronavirus/COVID-19 global pandemic (or variants of the SARS-CoV-2 coronavirus), supply chain constraints, inflationary pressures, the energy crisis, currency fluctuations and political tensions as of September 30, 2022 and through the date of this report. The accounting matters assessed included, but were not limited to, the allowance for credit losses, stock-based compensation, carrying value of goodwill, intangibles and other long-lived assets, financial assets, valuation allowances for tax assets, revenue recognition and costs of revenue. Future conditions related to the magnitude and duration of the COVID-19 pandemic, as well as other factors, including supply chain constraints and inflationary pressures could result in further impacts to the Company's consolidated financial statements in future reporting periods.

Revision of Previously Issued Financial Statements

Restatement of Previously Issued Financial Statements

During the second quarter of 2023, the Company determined that it overstated total current liabilities and understated non-current liabilities as of September 30, 2022, due to a revolving credit agreement being classified as a current liability instead of a non-current liability. The total amount of liabilities remains unchanged. The Company restated the September 30, 2022 Condensed Consolidated Balance Sheet presented in this report by decreasing current revolving credit agreements outstanding by $60.0 million and increasing non-current revolving credit agreement outstanding by $60.0 million.

The following table reflects the impact of the restatement to the specific line items presented in the Company’s previously reported condensed consolidated financial statements as of September 30, 2022:


(In thousands)	As Reported		Adjustment			As Restated
Revolving credit agreements outstanding	$	84,503	$	(60,000	)	$	24,503
Total current liabilities	$	525,291	$	(60,000	)	$	465,291
Non-current revolving credit agreement outstanding	$	—	$	60,000		$	60,000

During the first quarter of 2023, the Company determined that it understated total assets and total liabilities as of September 30, 2022, due to netting of deferred tax assets and deferred tax liabilities as of September 30, 2022. While the net amount of deferred tax assets and liabilities remains unchanged, the Company reported the deferred tax assets and liabilities balances without properly applying jurisdictional net reporting disclosure rules. The jurisdictional netting error was a result of the consolidation of financial statements with ADVA following the business combination, which closed on July 15, 2022. Management has determined that this misstatement was not material to any of its previously issued financial statements. However, in connection with the restatement described above, the Company restated the September 30, 2022 Condensed Consolidated Balance Sheet presented in this report by increasing deferred tax assets and total assets by $13.0 million and increasing deferred tax liability, total liabilities, and total liabilities, redeemable non-controlling interest and equity by $13.0 million.


(In thousands)	As Reported		Adjustment		As Restated
Deferred tax assets	$	—	$	13,035	$	13,035
Total assets	$	1,838,054	$	13,035	$	1,851,089
Deferred tax liabilities	$	36,884	$	13,035	$	49,919
Total liabilities	$	653,227	$	13,035	$	666,262

The accompanying applicable Notes have been updated to reflect the effects of the restatement as of September 30, 2022.

Recently Adopted Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2021-08, Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which would require an acquirer to recognize and measure acquired contract assets and contract liabilities in a manner consistent with how the acquiree recognized and measured them in its pre-acquisition financial statements in accordance with Topic 606, Revenue Recognition. The Company early adopted ASU 2021-08 on July 1, 2022 and the standard was applied retrospectively beginning with January 1, 2022. The effect of the adoption of this standard on the Company's Condensed Consolidated Financial Statements as of the date of this report is included in Note 2 of the Notes to Condensed Consolidated Financial Statements.

Recent Accounting Pronouncements Not Yet Adopted

There are currently no accounting pronouncements not yet adopted that had a material effect on the Condensed Consolidated Financial Statements.