<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-22336
ANTEC CORPORATION
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C>
DELAWARE 36-3892082
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
5720 PEACHTREE PARKWAY, NW
NORCROSS, GA 30092
(770) 441-0007
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
At July 31, 1998, there were 35,406,231 shares of Common Stock, $0.01 par
value, of the registrant outstanding.
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<PAGE> 2
PART I. OTHER INFORMATION
ANTEC CORPORATION
CONSOLIDATED BALANCE SHEETS
(AS RESTATED, SEE NOTE 8)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 798 $ 7,244
Accounts receivable (net of allowance for doubtful
accounts of $3,962 in 1998 and $4,289 in 1997) 119,420 87,800
Inventories 131,727 111,698
Other current assets 5,561 2,319
-------- --------
Total current assets 257,506 209,061
Property, plant and equipment, net 37,930 36,108
Goodwill (net of accumulated amortization of $39,238 in 1998
and $36,785 in 1997) 157,237 159,692
Deferred income taxes, net 22,666 19,281
Other assets 25,298 19,741
-------- --------
$500,637 $443,883
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 57,365 $ 38,404
Accrued compensation, benefits and related taxes 18,735 15,958
Other current liabilities 28,936 21,397
-------- --------
Total current liabilities 105,036 75,759
Long-term debt 161,500 72,339
-------- --------
Total liabilities 266,536 148,098
Stockholders' equity:
Preferred stock, par value $1.00 per share, 5 million
shares authorized, none issued and outstanding -- --
Common stock, par value $0.01 per share, 50 million shares
authorized; 35.2 million and 39.3 million shares issued
and outstanding in 1998 and 1997, respectively 352 393
Capital in excess of par value 200,377 261,081
Retained earnings 33,396 34,365
Cumulative translation adjustments (24) (54)
-------- --------
Total stockholders' equity 234,101 295,785
-------- --------
$500,637 $443,883
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE> 3
ANTEC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(AS RESTATED, SEE NOTE 8)
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $140,704 $124,262 $264,145 $244,296
Cost of sales 103,936 90,669 194,550 184,575
-------- -------- -------- --------
Gross profit 36,768 33,593 69,595 59,721
Operating expenses:
Selling, general and administrative 26,477 27,411 53,246 54,476
Amortization of goodwill 1,227 1,228 2,453 2,472
Non-recurring items -- -- 10,000 21,550
-------- -------- -------- --------
27,704 28,639 65,699 78,498
-------- -------- -------- --------
Operating income (loss) 9,064 4,954 3,896 (18,777)
Interest expense and other, net 1,923 1,679 3,278 3,041
-------- -------- -------- --------
Income (loss) before income taxes 7,141 3,275 618 (21,818)
Income tax expense (benefit) 3,492 2,292 1,587 (6,677)
-------- -------- -------- --------
Net income (loss) $ 3,649 $ 983 $ (969) $(15,141)
======== ======== ======== ========
Net income (loss) per weighted average common and
common equivalent shares:
Basic $ 0.10 $ 0.03 $ (0.02) $ (0.39)
======== ======== ======== ========
Diluted $ 0.09 $ 0.02 $ (0.02) $ (0.39)
======== ======== ======== ========
Weighted average common and common equivalent
shares:
Basic 38,273 38,452 38,809 38,436
======== ======== ======== ========
Diluted 41,303 39,729 38,809 38,436
======== ======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE> 4
ANTEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AS RESTATED, SEE NOTE 8)
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1998 1997
--------- --------
<S> <C> <C>
Operating activities:
Net loss $ (969) $(15,141)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 7,577 7,383
Deferred income taxes (3,385) (4,009)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (31,620) 14,578
(Increase) decrease in inventories (20,029) 19,306
Increase (decrease) in accounts payable and
accrued liabilities 29,604 (27,818)
(Increase) decrease in other, net (1,163) 6,497
--------- --------
Net cash provided by (used in) operating activities (19,985) 796
Investing activities:
Purchases of property, plant and equipment (6,946) (6,240)
Investments in / advances to joint ventures (3,300) (782)
Other 175 (71)
--------- --------
Net cash used in investing activities (10,071) (7,093)
Financing activities:
Net borrowings under credit facilities 91,000 66,000
Net reductions in borrowings under credit facilities (116,839) (82,271)
Issuance of 4.5% convertible subordinated notes 115,000 --
Purchase and retirement of common stock (63,459) --
Deferred financing costs paid (4,837) --
Proceeds from issuance of common stock 2,715 896
--------- --------
Net cash provided by (used in) financing activities 23,580 (15,375)
Effect of exchange rate changes on cash 30 (68)
--------- --------
Net decrease in cash and cash equivalents (6,446) (21,740)
Cash and cash equivalents at beginning of period 7,244 27,398
--------- --------
Cash and cash equivalents at end of period $ 798 $ 5,658
========= ========
Supplemental cash flow information:
Interest paid during the period $ 2,132 $ 3,310
========= ========
Income taxes paid during the period $ 2,718 $ 417
========= ========
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE> 5
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
Antec Corporation ("ANTEC" or herein together with its consolidated
subsidiaries called the "Company") is an international communications technology
company, headquartered in Atlanta, Georgia, with a major office in Englewood,
Colorado. The consolidated financial statements include the accounts of the
Company after elimination of intercompany transactions. The consolidated
financial statements furnished herein reflect all adjustments (consisting of
normal recurring accruals) which are, in the opinion of management, necessary
for a fair presentation of the consolidated financial statements for the periods
shown. Interim results of operations are not necessarily indicative of results
to be expected for a 12-month period. These interim financial statements should
be read in conjunction with the Company's audited consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the Company's year ended December 31, 1997.
NOTE 2. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In the first quarter of 1998, the Company adopted FASB Statement No. 130,
Reporting Comprehensive Income. Comprehensive income (loss) for the six months
ended June 30, 1998 and 1997 was $30 thousand and ($68) thousand, respectively.
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments
of an Enterprise and Related Information, which establishes standards for the
way that the public business enterprises report information about operating
segments and related disclosures about products and services, geographic areas,
and major customers. Statement 131 is effective for the 1998 annual financial
statements of the Company. Management has not completed its review of Statement
131, but does not anticipate that the adoption of this statement will have a
significant effect on the Company's financial statements.
NOTE 3. NON-RECURRING ITEMS
In January 1998, ANTEC announced a consolidation plan being implemented
concurrently with the creation of the new President and Chief Operating
organization in Atlanta. The Company will consolidate all of its Rolling
Meadows, Illinois offices and administrative functions into either the Atlanta
Technology Center or the Englewood, Colorado TeleWire Supply division
headquarters during 1998 and 1999. It is also anticipated as part of this plan
that the two principal facilities located in Atlanta will be consolidated and
that certain international operating and administrative functions located in
Miami and Chicago will also be consolidated in Atlanta. In connection with these
consolidations, the Company recorded a charge of approximately $10.0 million in
the first quarter of 1998. The components of the non-recurring charge included
approximately $7.6 million related to personnel costs; and approximately $2.4
million related to lease termination payments and other costs. The
personnel-related costs included termination costs related to the involuntary
termination of approximately 177 employees, primarily related to the finance,
management information systems, and international operations functions located
in Rolling Meadows and Miami. Terminated employees were offered separation
amounts in accordance with the Company's severance policy and were provided
specific separation dates. As of June 30, 1998, approximately 58 employees had
been terminated. As of June 30, 1998 approximately $6.0 million of the cash
costs related to personnel costs had yet to be expended. As of June 30, 1998,
approximately $1.4 million of cash costs related to lease termination payments
and other costs had yet to be expended. The Company anticipates these costs will
be expended in 1998 and 1999. As of June 30, 1998, there have been no
significant adjustments to the liability. The Company anticipates that these
consolidations will reduce annual operating costs (ie: personnel and facility
related) by as much as $10.0 million however, the impact of these savings is not
expected to be realized in full until 1999.
5
<PAGE> 6
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
In the first quarter of 1997, in connection with the February 6, 1997
merger between Antec Corporation and TSX Corporation ("Merger"), the Company
recorded merger / integration costs aggregating approximately $28.0 million. The
components of the non-recurring charge included $6.9 million related to the
investment banking, legal, accounting and contractual change of control payments
associated with the Merger; $11.2 million related to facility and operational
consolidation and reorganization due to the combining of various manufacturing
operations; and $3.4 million related to severance costs resulting from the
elimination of positions duplicated by the Merger and integration. The
personnel-related costs included charges related to the termination of
approximately 200 employees primarily resulting from the factors described
above. Also included in the total merger / integration charge was a write-off of
redundant inventories totaling approximately $6.5 million that has been
reflected in the cost of sales for the six months ended June 30, 1997. As of
June 30, 1998, approximately $0.9 million of the charge had yet to be utilized.
NOTE 4. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Raw material $ 30,994 $ 27,931
Work in process 7,305 6,343
Finished goods 93,428 77,424
======== ========
Total inventories $131,727 $111,698
======== ========
</TABLE>
NOTE 5. LONG TERM DEBT
Long term debt consists of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Revolving Credit Facility $ 46,500 $70,000
4.5% Convertible Subordinated Notes 115,000 --
Other -- 2,339
-------- -------
Total long term debt $161,500 $72,339
======== =======
</TABLE>
On May 8, 1998, the Company issued $115.0 million of 4.5% Convertible
Subordinated Notes ("Notes") due May 15, 2003 (the "Offering"). The Notes are
convertible, at the option of the holder, at any time prior to the close of
business on the stated maturity date, into the Company's common stock ("Common
Stock") at a conversion price of $24.00 per share. The Notes are redeemable, in
whole or in part, at the Company's option, at any time on or after May 15, 2001.
The net proceeds from the Offering were used to repay all outstanding amounts
under the Company's existing credit facility, and the remainder of the net
proceeds were invested in government securities, certificates of deposits or
similar investment grade securities until June 1998 when the Company completed
the repurchase of approximately 4.4 million shares of Common Stock owned by
Anixter International Inc. ("Anixter") for approximately $63.5 million. (See
Note 6 of the Notes to the Consolidated Financial Statements.)
On May 21, 1998, the Company entered into a new secured four-year credit
facility ("New Credit Facility") with a group of banks aggregating $85.0
million. The New Credit Facility permits the Company to borrow, on a revolving
basis, an amount contingent upon the level of certain eligible assets. The New
Credit Facility provides for various interest rate alternatives. The average
annual interest rate on borrowings was approximately 8.1% at June 30, 1998. The
commitment fee on unused borrowings is approximately 0.5%. The
6
<PAGE> 7
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
New Credit Facility contains various restrictions including covenants, limits on
payments to stockholders and interest coverage and net worth tests.
NOTE 6. COMMON STOCK
In June 1998, the Company repurchased approximately 4.4 million shares of
Common Stock owned by Anixter for approximately $63.5 million. The TCI Venture
Group, an affiliate of the Company, acquired the remaining 500,000 shares of
Common Stock owned by Anixter for approximately $7.3 million.
NOTE 7. EARNINGS PER SHARE
The following is an illustration of the reconciliation of the numerators
and denominators of the basic and diluted earnings per share ("EPS")
computations and other related disclosures.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- -------------------
1998 1997 1998 1997
------ ------- ------- --------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss); numerator for basic and diluted
earnings per share -- income (loss) available to
common stockholders $3,649 $ 983 $ (969) $(15,141)
====== ======= ======= ========
Denominator:
Denominator for basic earnings per
share-weighted-average shares 38,273 38,452 38,809 38,436
Effects of dilutive securities:
Options/warrants 3,030 1,277 -- --
------ ------- ------- --------
Denominator for diluted earnings per share 41,303 39,729 38,809 38,436
====== ======= ======= ========
Basic earnings per share $ 0.10 $ 0.03 $ (0.02) $ (0.39)
====== ======= ======= ========
Diluted earnings per share $ 0.09 $ 0.02 $ (0.02) $ (0.39)
====== ======= ======= ========
</TABLE>
The 4.5% Convertible Subordinated Notes were antidilutive for the three and six
month periods ended June 30, 1998. The effects of the options and warrants were
not presented for the six months ended June 30, 1998 and 1997 as the Company
incurred a net loss and inclusion of these securities would be antidilutive.
NOTE 8. RESTATEMENTS
The Company has revised previously reported financial statements primarily
to eliminate a portion of a non-recurring item relating to the impairment of
equipment and leasehold improvements directly resulting from the Company's plan
to consolidate several facilities. The estimated impairment of fixed assets as
it relates to this plan is now being written off over the remaining useful life
of the fixed asset.
7
<PAGE> 8
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
The following summarizes the revisions to the consolidated statement of
operations (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1998
---------------------- ----------------------
(UNAUDITED) (UNAUDITED)
PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Operating income (loss) $9,624 $9,064 $ 2,946 $3,896
====== ====== ======= ======
Net income (loss) $3,988 $3,649 $(1,544) $ (969)
====== ====== ======= ======
Net income (loss) per weighted average common and common
equivalent shares:
Basic $ 0.10 $ 0.09 $ (0.04) $(0.02)
====== ====== ======= ======
Diluted $ 0.10 $ 0.09 $ (0.04) $(0.02)
====== ====== ======= ======
</TABLE>
8
<PAGE> 9
ANTEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND
1997
Net Sales. Net sales for the three and six-month periods ended June 30,
1998 were $140.7 million and $264.1 million, respectively, as compared to $124.3
million and $244.3 million for the same periods in 1997. This represents an
increase of 13.2% and 8.1% for the three and six month periods, respectively.
These increases primarily reflect additional capital spending by the Company's
largest customer, Tele-Communications, Inc. ("TCI"). TCI sales for the six
months ended June 30, 1998 and 1997 were $61.1 million and $16.4 million
respectively. These gains were partially offset by lower international sales
primarily in Latin America due to regulatory uncertainties and in the Pacific
Rim resulting from currency issues.
Gross Profit. Gross profit for the three and six-month periods ended June
30, 1998 was $36.8 million and $69.6 million, respectively, as compared to $33.6
million and $59.7 million for the same periods in 1997. The six-month period
ended June 30, 1997 includes a $6.5 million write-off of redundant inventories
in connection with the merger between Antec Corporation and TSX Corporation
("Merger"). Excluding the inventory charge, gross profit as a percentage of
sales for the three and six-month periods ended June 30, 1998 was 26.1% and
26.3%, respectively, as compared to 27.0% and 27.1% for the same periods in
1997. The decreased gross profit percentage for the three and six-month periods
ended June 30, 1998 are primarily due to the completion of certain material
management contracts and from manufacturing inefficiencies associated with new
product introductions.
Gross profit for the three and six month periods ended June 30, 1998 does
not reflect the $0.1 million and the $0.2 million, respectively which was
incurred in the periods to make modifications to previously sold TSX products.
These costs were charged against the reserve recorded in December 1996 when TSX
agreed to make these modifications. Performance of the agreed modifications was
delayed by a general hold on contributions imposed by the customer in 1997, the
effects of which continued until 1998. See the discussion of gross profit for
1997 in Management's Discussion and Analysis of Financial Condition and Results
of Operations in the Company's Report on Form 10-K for the year ended December
31, 1997. Gross profit for the six and three month period ended June 30, 1998
does reflect, however, a charge of $0.1 million in the first quarter to increase
that reserve. Gross profit for the three month and six month periods ended June
30, 1997 included $1.0 million for the reduction of this reserve due to changed
circumstances. As of June 30, 1998, this reserve stood at $1.4 million, the
estimated cost for completion of the modifications. It currently is estimated
that these modifications will be substantially completed in 1998 and fully
completed by March 31, 1999.
Selling, General and Administrative ("SG&A") Expenses. SG&A expenses for
the three and six month periods ended June 30, 1998 were $26.5 million and $53.2
million, respectively, as compared to $27.4 million and $54.5 million for the
same periods in 1997. These expenses decreased by 3.3% and 2.4% for the three
and six-month periods, respectively, as a result of ongoing expense control.
Non-Recurring Items. In January 1998, ANTEC announced a consolidation plan
being implemented concurrently with the creation of the new President and Chief
Operating organization in Atlanta. The Company will consolidate all of its
Rolling Meadows, Illinois offices and administrative functions into either the
Atlanta Technology Center or the Englewood, Colorado TeleWire Supply division
headquarters during 1998 and 1999. It is also anticipated as part of this plan
that the two principal facilities located in Atlanta will be consolidated and
that certain international operating and administrative functions located in
Miami and Chicago will also be consolidated in Atlanta. In connection with these
consolidations, the Company recorded a charge of approximately $10.0 million in
the first quarter of 1998. The components of the non-recurring charge included
approximately $7.6 million related to personnel costs; and approximately $2.4
million related to lease termination payments and other costs. The
personnel-related costs included termination costs related to the involuntary
termination of approximately 177 employees, primarily related to the finance,
management information systems, and international operations functions located
in Rolling Meadows and Miami. Terminated employees were offered separation
amounts in accordance with the Company's severance policy
9
<PAGE> 10
ANTEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
and were provided specific separation dates. As of June 30, 1998 approximately
58 employees had been terminated. As of June 30, 1998 approximately $6.0 million
of the cash costs related to personnel costs had yet to be expended. As of June
30, 1998, approximately $1.4 million of cash costs related to lease termination
payments and other costs had yet to be expended. The Company anticipates these
costs will be expended in 1998 and 1999. As of June 30, 1998, there have been no
significant adjustments to the liability. The Company anticipates that these
consolidations will reduce annual operating costs (ie: personnel and facility
related) by as much as $10.0 million however, the impact of these savings is not
expected to be realized in full until 1999.
In the first quarter of 1997, the Company recorded merger/integration costs
aggregating approximately $28.0 million. The non-recurring charge included
investment banking, legal, accounting and contractual change of control payments
associated with the Merger; facility and operational consolidation and
reorganization costs due to the combining of various manufacturing operations;
and severance costs resulting from the elimination of positions duplicated by
the Merger and integration. Also included in the total merger/integration charge
was a write-off of redundant inventories as noted in the gross profit narrative.
The costs related to the facility and operational consolidation and
reorganization were comprised of costs associated with the shutdown of several
of the Company's operating locations. These costs consisted of lease termination
payments, losses on sale and disposal of building and equipment and other
related fixed assets. All of the planned facility closings were completed and
related cash costs were expended by the end of 1997. In 1997 and 1998, the
Company paid in aggregate approximately $2.5 million relating to
personnel-related costs which represented the termination of approximately 175
employees. As of June 30, 1998, approximately $0.9 million of cash costs had yet
to be expended which consisted of contractual obligations resulting from the
Merger and other personnel-related costs. The Company anticipates these costs
will be expended in 1998. As of June 30, 1998, there have been no significant
adjustments to the liability. (See Note 3 of the Notes to the Consolidated
Financial Statements.)
Interest Expense and Other, Net. Interest expense and other, net for the
three and six-month periods ended June 30, 1998 were $1.9 million and $3.3
million, respectively, as compared to $1.7 million and $3.0 million for the same
periods in 1997. The three and six-months ended June 30, 1998 includes the
impact of the issuance of $115.0 million of 4.5% Convertible Subordinated Notes
("Notes") and the related deferred financing fees. The periods ended June 30,
1998 also include the impact of the repurchase of 4.4 million shares of the
Company's common stock ("Common Stock") from Anixter International Inc.
("Anixter") for $63.5 million. Additionally, interest expense for 1998 includes
the write-off of the remaining deferred financing fees related to the Company's
previous credit facility paid down in May 1998. (See Notes 5 and 6 of the Notes
to the Consolidated Financial Statements.)
Net Income (Loss). Net income (loss) for the three and six-month periods
ended June 30, 1998 was $3.6 million and $(1.0) million, respectively, as
compared to $1.0 million and $(15.1) million for the same periods in 1997.
Included in the net losses for the six month periods ended June 30, 1998 and
1997 were non-recurring items of approximately $10.0 and $28.0 million,
respectively. (See Note 3 of the Notes to the Consolidated Financial
Statements.)
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
FINANCING
On May 8, 1998, the Company issued $115.0 million of 4.5% Notes due May 15,
2003 (the "Offering"). The Notes are convertible, at the option of the holder,
at any time prior to the close of business on the stated maturity date, into the
Company's Common Stock at a conversion price of $24.00 per share. The Notes are
redeemable, in whole or in part, at the Company's option, at any time on or
after May 15, 2001. The net proceeds from the Offering were used to repay all
outstanding amounts under the Company's existing credit facility, and the
remainder of the net proceeds were invested in government securities,
certificates of deposits or similar investment grade securities until June 1998
when the Company completed the repurchase of
10
<PAGE> 11
ANTEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
FINANCING -- (CONTINUED)
approximately 4.4 million shares of Common Stock owned by Anixter for
approximately $63.5 million. The TCI Venture Group, an affiliate of the Company,
acquired the remaining 500,000 shares of Common Stock owned by Anixter for
approximately $7.3 million. (See Notes 5 and 6 of the Notes to the Consolidated
Financial Statements.)
On May 21, 1998, the Company entered into a new secured four-year credit
facility ("New Credit Facility") with a group of banks aggregating $85.0
million. The New Credit Facility permits the Company to borrow, on a revolving
basis, an amount contingent upon the level of certain eligible assets. The New
Credit Facility provides for various interest rate alternatives. The average
annual interest rate on borrowings was approximately 8.1% at June 30, 1998. The
commitment fee on unused borrowings is approximately 0.5%. The New Credit
Facility contains various restrictions including covenants, limits on payments
to stockholders and interest coverage and net worth tests. As of June 30, 1998,
the Company is in compliance with all such covenants.
CAPITAL EXPENDITURES
The Company's capital expenditures were $6.9 million and $6.2 million for
the six months ended June 30, 1998 and 1997, respectively. Except for the impact
of the Year 2000 Issue discussed below, the Company had no significant
commitments for capital expenditures at June 30, 1998.
CASH FLOWS
Cash levels have decreased by approximately $6.4 million during the first
six months of 1998 as compared to year end December 31, 1997. Cash used in
operating activities was $20.0 million while the Company spent $6.9 million in
capital expenditures and $3.3 million in additional investments in its joint
ventures. These cash outlays were partially offset by net positive cash flows of
$23.6 million provided through financing activities and $0.2 million provided
through other investing activities.
Operating activities utilized cash of $20.0 million, which is reflective of
the increased working capital levels required by increased sales volume during
the period ended June 30, 1998. For the same period in 1997, operating
activities provided $0.8 million. Most significant to this negative cash flow
was an increase in accounts receivable levels of approximately $31.6 million
since year-end 1997 to $119.4 million. The increase is primarily related to the
increase in sales and does not represent a significant change in aging.
Also related to operating activities was an increase in inventories of
approximately $20.0 million since year-end December 1997 to $131.7 million. This
increase is primarily within finished goods which is reflective of the higher
revenues and product demands. Despite the increased inventory levels during the
first six months of 1998, inventory turns have remained fairly stable at 3.3
times.
These negative operating cash flows were partially offset by increased
levels of accounts payable. This increase provided $30.2 million of positive
operating cash flows and is indicative of the increased purchasing necessary to
meet product demand volumes.
Cash flows used by investing activities were $10.1 million for the six
months ended June 30, 1998 as compared to $7.1 million for the same period in
1997. The investments during 1998 include $6.9 million spent on capital assets
and $3.3 million invested in or advanced to the Company's joint ventures. During
the first six months of 1997 the Company had capital expenditures of $6.2
million and investments in or advances to its joint ventures of $0.8 million.
Cash flows provided by financing activities were $23.6 million for the six
months ended June 30, 1998 as compared to negative cash flows of $15.4 million
for the same period in 1997. The most significant financing
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ANTEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
CASH FLOWS -- (CONTINUED)
activities which occurred during the six months ended June 1998 include the
impact of the issuance of $115.0 million of 4.5% Notes and the repurchase of 4.4
million shares of Common Stock from Anixter for approximately $63.5 million.
(See Notes 5 and 6 of the Notes to the Consolidated Financial Statements.)
The Company believes that funds generated from operations, existing cash
balances and its available senior credit facility will be sufficient to support
the Company's future growth.
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
Based on a recent assessment, and the Company's ongoing evaluation of its
computer processing systems, the Company determined that it would be required to
modify or replace significant portions of its software to improve those systems.
It is anticipated that these modifications and improvements will enable its
computer processing systems to function properly with respect to dates in the
year 2000 and thereafter. The Company presently believes that with modifications
to existing software and conversions to new software, the Year 2000 Issue will
not pose significant operational problems for its computer systems. However, if
such modifications and conversions are not made, or are not completed timely,
the Year 2000 Issue could have a material impact on the operations of the
Company.
The Company's total Year 2000 project cost and estimates to complete
include the estimated costs and time associated with the impact of third party
Year 2000 Issues based on presently available information. However, there can be
no guarantee that the systems of other companies on which ANTEC's systems rely
will be timely converted and would not have an adverse effect on the Company's
operations. The Company has determined that it has no exposure to contingencies
related to the Year 2000 Issue for the products sold.
If any of the Company's suppliers or customers do not, or if the Company
itself does not, successfully deal with the Year 2000 Issue, the Company could
experience delays in receiving or sending goods that would increase its costs
and that could cause the Company to lose business and even customers and could
subject the Company to claims for damages. Problems with the Year 2000 Issue
could also result in delays in the Company invoicing its customers or in the
Company receiving payments from them that would affect the Company's liquidity.
Problems with the Year 2000 Issue could affect the activities of the Company's
customers to the point that their demand for the Company's products is reduced.
The severity of these possible problems would depend on the nature of the
problem and how quickly it could be corrected or an alternative implemented,
which is unknown at this time. In the extreme such problems could bring the
Company to a standstill.
The Company, based on its normal interaction with its customers and
suppliers and the wide attention the Year 2000 Issue has received, believes that
its suppliers and customers will be prepared for the Year 2000 Issue. There can,
however, be no assurance that this will be so. The Company has not sought any
written assurances from its suppliers or customers because it does not believe
that any such assurances would be meaningful. The Company has not yet seen any
need for contingency plans for the Year 2000 Issue, but this need will be
continuously monitored as the Company acquires more information about the
preparations of its suppliers and customers. Some risks of the Year 2000 Issue
are beyond the control of the Company and its suppliers and customers. For
example no preparations or contingency plan will protect the Company from a
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ANTEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
IMPACT OF YEAR 2000 -- (CONTINUED)
downturn in economic activity caused by the possible ripple effect throughout
the entire economy that could be caused by problems of others with the Year 2000
Issue.
The Company will utilize both internal and external resources to reprogram,
or replace, and test the software for the system improvements and Year 2000
modifications. The Company anticipates completing the system improvements and
the Year 2000 project within one year but no later than March 31, 1999, which is
prior to any anticipated impact on its operating systems. The total cost of the
system improvements and the Year 2000 project is estimated at approximately $5.0
million and is being funded through operating cash flows.
Of the total project cost, approximately $3.8 million is attributable to
the purchase of new software and hardware, in addition to consulting fees, which
will be capitalized. The remaining $1.2 million, which will be expensed as
incurred, is not expected to have a material effect on the results of
operations. To date, the Company has incurred approximately $2.9 million ($1.0
million expensed and $1.9 million capitalized for new systems) related to its
system improvements and the Year 2000 project.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates.
These estimates were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved, and actual results could differ materially
from those anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, and similar uncertainties.
FORWARD LOOKING STATEMENTS
Any of the above statements that are not statements about historical facts
are forward looking statements. The forward looking statements, as outlined in
the Private Securities Litigation Reform Act of 1995 ("the Act"), can be
identified by the use of terms such as "may," "expect," "anticipate," "intend,"
"estimate," "believe," "continue," or similar variations or the negative
thereof. Such forward looking statements are based on current expectations but
involve risks and uncertainties. The Company's business is dependent upon
general economic conditions as well as competitive, technological, and
regulatory developments and trends specific to the Company's industry and
customers. These conditions and events could be substantially different than
believed or expected and these differences may cause actual results to vary
materially from the forward looking statements made or the results which could
be expected to accompany such statements. Specific factors which could cause
such material differences include the following: Design or manufacturing defects
in the Company's products which could curtail sales and subject the Company to
substantial costs for removal, replacement and reinstallation of such products;
manufacturing or product development problems that the Company does not
anticipate because of the Company's relative experience with these activities;
an inability to absorb or adjust costs in response to lower than anticipated
sales volumes; unanticipated costs or inefficiencies from the ongoing
consolidation of certain activities; loss of key management, sales or technical
employees; decisions, by the Company's larger customers, to cancel contracts or
orders as they are entitled to do or not enter into new contracts or orders with
the Company because of dissatisfaction, technological or competitive changes,
changes in control or other reasons; and the Company's inability, as a result of
the Company's relative experience, to deliver construction services within
anticipated costs and time frames which could cause loss of business, operating
losses and damage claims. The above list is representative of the factors which
could affect the Company's forward looking statements and is not intended as an
all encompassing list of such factors. In providing forward looking statements,
the Company is not undertaking any obligation to update publicly or otherwise
these statements, whether as a result of new information, future events or
otherwise.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Credit Agreement (Incorporated by reference from ANTEC
Corporation's Registration Statement on Form S-3, Registration
Number 333-58437, Exhibit 10.1)
*27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None
------------------------------
*Previously filed
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ANTEC CORPORATION
By: /s/ LAWRENCE A. MARGOLIS
-----------------------------------
Lawrence A. Margolis
Executive Vice President
(Principal Financial Officer, duly
authorized to sign on behalf of
the registrant)
Dated: October , 1998
15
