<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------
FORM 10 - Q
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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)
DELAWARE 36-3892082
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 October 31, 1998, there were 35,620,648 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
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,401 $ 7,244
Accounts receivable (net of allowance for doubtful accounts
of $3,863 in 1998 and $4,289 in 1997) 139,682 87,800
Inventories 140,765 111,698
Other current assets 6,929 2,319
--------- ---------
Total current assets 289,777 209,061
Property, plant and equipment, net 40,277 36,108
Goodwill (net of accumulated amortization of
$40,468 in 1998 and $36,785 in 1997) 156,010 159,692
Deferred income taxes, net 22,242 19,281
Other assets 27,591 19,741
--------- ---------
$ 535,897 $ 443,883
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 58,003 $ 38,404
Accrued compensation, benefits and related taxes 20,185 15,958
Other current liabilities 35,258 21,397
--------- ---------
Total current liabilities 113,446 75,759
Long-term debt 177,500 72,339
--------- ---------
Total liabilities 290,946 148,098
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; 35.6 million and 39.0 million shares issued
and outstanding in 1998 and 1997, respectively 356 393
Capital in excess of par value 206,233 261,081
Retained earnings 38,375 34,365
Cumulative translation adjustments (13) (54)
--------- ---------
Total stockholders' equity 244,951 295,785
--------- ---------
$ 535,897 $ 443,883
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE> 3
ANTEC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 150,336 $ 120,365 $ 414,481 $ 364,661
Cost of sales 111,555 91,049 306,105 275,624
--------- --------- --------- ---------
Gross profit 38,781 29,316 108,376 89,037
Operating expenses:
Selling, general and administrative 25,904 28,253 79,150 82,729
Amortization of goodwill 1,230 1,227 3,683 3,699
Non-recurring items - - 10,000 21,550
--------- --------- --------- ---------
27,134 29,480 92,833 107,978
--------- --------- --------- ---------
Operating income (loss) 11,647 (164) 15,543 (18,941)
Interest expense and other, net 2,720 1,505 5,998 4,546
--------- --------- --------- ---------
Income (loss) before income taxes 8,927 (1,669) 9,545 (23,487)
Income tax expense (benefit) 3,948 330 5,535 (6,347)
--------- --------- --------- ---------
Net income (loss) $ 4,979 $ (1,999) $ 4,010 $ (17,140)
========= ========= ========= =========
Net income (loss) per
Weighted average common
and common equivalent shares:
Basic $ 0.14 $ (0.05) $ 0.11 $ (0.44)
========= ========= ========= =========
Diluted $ 0.13 $ (0.05) $ 0.10 $ (0.44)
========= ========= ========= =========
Weighted average common and
Common equivalent shares:
Basic
35,513 38,828 37,699 38,570
========= ========= ========= =========
Diluted 38,477 38,828 40,439 38,570
========= ========= ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE> 4
ANTEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1998 1997
------------ -----------
<S> <C> <C>
Operating activities:
Net income (loss) $ 4,010 $ (17,140)
Adjustments to reconcile net income (loss) to net cash
Provided by (used in) operating activities:
Depreciation and amortization 11,303 10,893
Deferred income taxes (2,961) (3,482)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (51,882) 14,355
(Increase) decrease in inventories (29,067) 21,264
Increase (decrease) in accounts payable and accrued
liabilities 38,061 (29,113)
(Increase) decrease in other, net (2,497) 6,758
--------- ---------
Net cash provided by (used in) operating activities (33,033) 3,535
Investing activities:
Purchases of property, plant and equipment (11,789) (9,916)
Investments in / advances to joint ventures (5,800) (4,778)
Other 584 (108)
--------- ---------
Net cash used in investing activities (17,005) (14,802)
Financing activities:
Net borrowings under credit facilities 107,000 99,500
Net reductions in borrowings under credit facilities (116,839) (108,816)
Issuance of 4.5% convertible subordinated notes 115,000 -
Purchase and retirement of common stock (63,459) -
Deferred financing costs paid (5,111) -
Proceeds from issuance of common stock 8,574 1,997
--------- ---------
Net cash provided by (used in) financing activities 45,165 (7,319)
Effect of exchange rate changes on cash 30 (29)
--------- ---------
Net decrease in cash and cash equivalents (4,843) (18,615)
Cash and cash equivalents at beginning of period 7,244 27,398
--------- ---------
Cash and cash equivalents at end of period $ 2,401 $ 8,783
========= =========
Supplemental cash flow information:
Interest paid during the period $ 3,344 $ 4,807
========= =========
Income taxes paid during the period $ 5,530 $ 670
========= =========
</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. RESTATEMENT
The Company has revised previously filed financial statements for the
quarters ended March 31, 1998 and June 30, 1998. These restatements have been
made primarily to eliminate a portion of a non-recurring item, included in the
quarter ended March 31, 1998 results, 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 estimated
useful lives of the fixed assets. These changes are reflected in the nine-month
period ended September 30, 1998. It should be noted that the amended Form 10-Qs
for the periods ended March 31, 1998 and June 30, 1998 have been filed.
The effect of these adjustments on the quarter ended March 31, 1998
was an increase in net income of $0.9 million from a loss of $(5.5) million to a
loss of $(4.6) million or an increase of $.02 per common share. Conversely, the
effect of these adjustments in the quarter ended June 30, 1998 decreased net
income by $0.3 million from $4.0 million to approximately $3.7 million or a
decrease of $.01 per common share. The effect of these adjustments to the
previously announced results for the quarter ended September 30, 1998 was to
reduce net income by $0.3 million or $.01 per common share.
NOTE 3. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In the first quarter of 1998, the Company adopted FASB Statement No.
130, Reporting Comprehensive Income, which establishes standards for the
financial presentation of comprehensive income and its components. Adoption of
FASB Statement No. 130 had no effect on the Company's financial position or
operating results. The impact of reporting comprehensive income (loss) for the
nine months ended September 30, 1998 and 1997 was $30 thousand and ($29)
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.
5
<PAGE> 6
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 4. NON-RECURRING ITEMS
In January 1998, ANTEC announced a consolidation plan being
implemented concurrently with the creation of the new President and Chief
Operating Officer organization in Atlanta. The Company will consolidate all of
its Rolling Meadows, Illinois corporate 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 Chicago and Miami. Terminated employees were offered
separation amounts in accordance with the Company's severance policy and were
provided specific separation dates. As of September 30, 1998, 98 of the
estimated 177 employees have been terminated. As of September 30, 1998,
approximately $4.2 million of the cash costs related to personnel costs had yet
to be expended and 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 September 30,
1998, there have been no significant adjustments to the liability. The Company
anticipates that these consolidations will reduce annual operating costs (i.e.:
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, 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 nine months ended September 30, 1997. As
of September 30, 1998, approximately $0.6 million of the $28.0 million charge
had yet to be utilized.
NOTE 5. INVENTORIES
<TABLE>
<CAPTION>
Inventories consist of:
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
Raw material $ 39,086 $ 27,931
Work in process 11,189 6,343
Finished goods 90,490 77,424
-------- --------
Total inventories $140,765 $111,698
======== ========
</TABLE>
6
<PAGE> 7
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 6. LONG TERM DEBT
Long term debt consists of:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------------- ------------
(Unaudited)
<S> <C> <C>
Revolving Credit Facility $ 62,500 $ 70,000
4.5% Convertible Subordinated Notes 115,000 -
Other - 2,339
-------- --------
Total long term debt $177,500 $ 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 7 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 7.85% at September 30,
1998. The commitment fee on unused borrowings is approximately 0.5%. The New
Credit Facility contains various restrictions and covenants, including limits on
payments to stockholders, interest coverage, and net worth tests.
NOTE 7. 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.
7
<PAGE> 8
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 8. 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 Nine Months Ended
September 30, September 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 $ 4,979 $ (1,999) $ 4,010 $(17,140)
======== ======== ======== ========
Denominator:
Denominator for basic earnings per share -
Weighted-average shares 35,513 38,828 37,699 38,570
Effects of dilutive securities:
Options/warrants 2,964 - 2,740 -
-------- -------- -------- --------
Denominator for diluted earnings per share 38,477 38,828 40,439 38,570
======== ======== ======== ========
Basic earnings per share $ 0.14 $ (0.05) $ 0.11 $ (0.44)
======== ======== ======== ========
Diluted earnings per share $ 0.13 $ (0.05) $ 0.10 $ (0.44)
======== ======== ======== ========
</TABLE>
The 4.5% Convertible Subordinated Notes were antidilutive for the three and nine
month periods ended September 30, 1998. The effects of the options and warrants
were not presented for the three and nine-month periods ended September 30, 1997
as the Company incurred a net loss and inclusion of these securities would be
antidilutive.
8
<PAGE> 9
ANTEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
AND 1997
Net Sales. Net sales for the three and nine-month periods ended
September 30, 1998 were $150.3 million and $414.5 million, respectively, as
compared to $120.4 million and $364.7 million for the same periods in 1997. This
represents an increase of approximately 24.8% and 13.7% for the three and nine
month periods, respectively. These increases primarily reflect additional
capital spending by the Company's largest customer, Tele-Communications, Inc.
("TCI"). TCI sales for the nine months ended September 30, 1998 and 1997 were
$104.4 million and $30.7 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 nine-month periods ended
September 30, 1998 was $38.8 million and $108.4 million, respectively, as
compared to $29.3 million and $89.0 million for the same periods in 1997. The
nine-month period ended September 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 nine-month periods ended September 30,
1998 was 25.8% and 26.1%, respectively, as compared to 24.4% and 26.2% for the
same periods in 1997. The gross profit percentage for the three and nine month
periods ended September 30, 1998 have been affected by the completion of certain
material management contracts from the second quarter of 1998, as well as
manufacturing inefficiencies associated with new product introductions. Poor
international sales also contributed to the lower margin performance during the
three months ended September 30, 1998, as international sales generally carry
higher margin percentages. When comparing the gross profit percentage for the
three month period ended September 30, 1998 to the same period of the prior
year, the gross profit margin percentage for 1997 was adversely impacted by the
Company's decision to maintain and increase production capacity at that time to
meet the anticipated product demand for the 1998 year.
Gross profit for the three and nine-month periods ended September 30,
1998 does not reflect the $0.4 million and $0.6 million, respectively, which was
incurred to make modifications to previously sold TSX products. These costs were
charged against a reserve created in December 1996 when TSX agreed to make these
modifications. 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. Performance
of the agreed upon modifications was delayed by a general hold on construction
imposed by the customer during 1997, the effects of which continued into 1998.
Gross profit for the nine-month period ended September 30, 1998 does reflect,
however, a charge of $0.1 million in the first quarter to increase that reserve.
Gross profit for the nine-month period ended September 30, 1997 included $1.0
million for the reduction of this reserve due to changed circumstances. As of
September 30, 1998, this reserve stood at $1.0 million, the current estimated
cost for the completion of the modifications. It is currently 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 nine month periods ended September 30, 1998 were $25.9 million
and $79.2 million, respectively, as compared to $28.3 million and $82.7 million
for the same periods in 1997. These expenses decreased by 8.5% and 4.2% for the
three and nine-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 Officer organization in Atlanta. The Company will consolidate
all of its Rolling Meadows, Illinois corporate and administrative functions into
either the Atlanta Technology Center or the Englewood, Colorado Telewire Supply
division
9
<PAGE> 10
ANTEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
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 Chicago and Miami. Terminated employees were offered separation amounts in
accordance with the Company's severance policy and were provided specific
separation dates. As of September 30, 1998, 98 of the estimated 177 employees
have been terminated. As of September 30, 1998, approximately $4.2 million of
the cash costs related to personnel costs had yet to be expended and
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 September 30, 1998, there have been no
significant adjustments to the liability. The Company anticipates that these
consolidations will reduce annual operating costs (i.e.: 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 September 30, 1998, approximately $0.6 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 September 30, 1998, there have been no
significant adjustments to the liability. (See Note 4 of the Notes to the
Consolidated Financial Statements.)
Interest Expense and Other, Net. Interest expense and other, net for
the three and nine-month periods ended September 30, 1998 were $2.7 million and
$6.0 million, respectively, as compared to $1.5 million and $4.5 million for the
same periods in 1997. The three and nine-months ended September 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. In
connection with the issuance of the $115.0 million Notes, the Company used part
of the proceeds to repurchase 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 6 and 7 of the Notes to the Consolidated Financial
Statements.)
Net Income (Loss). Net income (loss) for the three and nine-month
periods ended September 30, 1998 was $5.0 million and $4.0 million,
respectively, as compared to $(2.0) million and $(17.1) million for the same
periods in 1997. Included in the net income (loss) for the nine month periods
ended September 30, 1998 and 1997 were non-recurring items of approximately
$10.0 and $28.0 million, respectively. (See Note 4 of the Notes to the
Consolidated Financial Statements.)
10
<PAGE> 11
ANTEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
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 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 6 and 7
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 7.85% at September 30,
1998. The commitment fee on unused borrowings is approximately 0.5%. The New
Credit Facility contains various restrictions and covenants, including limits on
payments to stockholders, interest coverage, and net worth tests. As of
September 30, 1998, the Company is in compliance with all such covenants.
CAPITAL EXPENDITURES
The Company's capital expenditures were $11.8 million and $9.9
million for the nine months ended September 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 September 30, 1998.
CASH FLOWS
Cash levels have decreased by approximately $4.8 million during the
nine months of 1998 as compared to year end December 31, 1997. Cash used in
operating activities was $33.0 million while the Company spent $11.8 million in
capital expenditures and $5.8 million in additional investments in / advances to
its joint ventures. These cash outlays were partially offset by net positive
cash flows of $45.2 million provided through financing activities and $0.6
million provided through other investing activities.
Operating activities utilized cash of $33.0 million, which is
reflective of the increased working capital levels required by increased sales
volume during the period ended September 30, 1998. For the same period in 1997,
operating activities provided $3.5 million. Most significant to this negative
cash flow was an increase in accounts receivable levels of approximately $51.9
million since year-end 1997 to $139.7 million.
Also related to operating activities was an increase in inventories
of approximately $29.1 million since year-end December 1997 to $140.8 million.
This increase in current inventory levels, as compared to December 1997, is
comprised of approximately $11.2 million in raw material, $4.8 million in work
in process, and $13.1 million in finished goods. This inventory increase is
reflective of the higher revenues and product demands during 1998. Despite the
increased inventory levels during the nine months of 1998, inventory turns have
remained fairly stable at 3.1 times.
11
<PAGE> 12
ANTEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
CASH FLOWS - (CONTINUED)
These negative operating cash flows were partially offset by
increased levels of accounts payable. This increase provided $38.1 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 $17.0 million for the
nine months ended September 30, 1998 as compared to $14.8 million for the same
period in 1997. The investments during 1998 include $11.8 million spent on
capital assets and $5.8 million invested in or advanced to the Company's joint
ventures. During the nine months of 1997 the Company had capital expenditures of
$9.9 million and investments in or advances to its joint ventures of $4.8
million.
Cash flows provided by financing activities were $45.2 million for
the nine months ended September 30, 1998 as compared to negative cash flows of
$7.3 million for the same period in 1997. The most significant financing
activities which occurred during 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 6 and 7 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
12
<PAGE> 13
ANTEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
IMPACT OF YEAR 2000 - (CONTINUED)
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 product 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 to the Year 2000 Issue. There can,
however, be no assurance that this will be so. The Company is in the process of
soliciting written assurances from its major suppliers, customers, and service
providers, however, these assurances, if given, may not be enforceable. 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 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 $3.3 million ($1.0
million expensed and $2.3 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
13
<PAGE> 14
ANTEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
FORWARD LOOKING STATEMENTS - (CONTINUED)
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 that 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.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None
15
<PAGE> 16
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: November 13, 1998
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS OF ANTEC CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS AND RELATED NOTES IN ANTEC CORPORATION'S
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,401
<SECURITIES> 0
<RECEIVABLES> 139,682
<ALLOWANCES> 3,863
<INVENTORY> 140,765
<CURRENT-ASSETS> 6,929
<PP&E> 40,277
<DEPRECIATION> 0
<TOTAL-ASSETS> 535,897
<CURRENT-LIABILITIES> 113,446
<BONDS> 177,500
0
0
<COMMON> 356
<OTHER-SE> 244,595
<TOTAL-LIABILITY-AND-EQUITY> 535,897
<SALES> 414,481
<TOTAL-REVENUES> 414,481
<CGS> 306,105
<TOTAL-COSTS> 306,105
<OTHER-EXPENSES> 92,833
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,998
<INCOME-PRETAX> 9,545
<INCOME-TAX> 5,535
<INCOME-CONTINUING> 4,010
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 4,010
<EPS-PRIMARY> .11
<EPS-DILUTED> .10
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