<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------
FORM 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
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.)
11450 TECHNOLOGY CIRCLE
DULUTH, GA 30097
(678) 473-2000
(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, 1999, there were 36,714,617 shares of Common Stock,
$0.01 par value, of the registrant outstanding.
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<PAGE> 2
ANTEC CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
a) Consolidated Balance Sheets
as of September 30, 1999 and December 31, 1998 3
b) Consolidated Statements of Operations
for the Three and Nine Months Ended September 30, 1999 and 1998 4
c) Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1999 and 1998 5
d) Notes to the Consolidated Financial Statements 6 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 19
Item 3. Quantitative and Qualitative Disclosures on Market Risk 20
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANTEC CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- --------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,972 $ 4,436
Accounts receivable (net of allowance for doubtful accounts of $7,566 in 1999
and $4,609 in 1998) 180,343 123,959
Inventories 180,423 150,988
Other current assets 9,907 6,089
------------- --------------
Total current assets 378,645 285,472
Property, plant and equipment, net of accumulated depreciation 48,434 41,612
Goodwill (net of accumulated amortization of $45,404 in 1999 and $41,695 in
1998) 151,073 154,782
Deferred income taxes, net of deferred income tax liabilities -- 22,591
Investments 71,369 11,743
Other assets 23,478 16,445
------------- --------------
$ 672,999 $ 532,645
============= ==============
LIABILITIES AND STOCK HOLDERS' EQUITY
Current liabilities:
Accounts payable $ 112,171 $ 57,383
Accrued compensation, benefits and related taxes 19,623 19,804
Other current liabilities 29,837 24,680
------------- --------------
Total current liabilities 161,631 101,867
Long-term debt 188,500 181,000
Deferred income taxes, net of deferred income tax assets 3,209 --
------------- --------------
Total liabilities 353,340 282,867
Stockholders' equity:
Preferred stock, par value $1.00 per share, 5.0 million
shares authorized, none issued and outstanding -- --
Common stock, par value $0.01 per share, 75.0 million and 50.0 million
shares authorized; 36.7 million and 35.8 million shares issued and
outstanding in 1999 and 1998, respectively
368 358
Capital in excess of par value 221,708 209,193
Retained earnings 97,583 40,190
Cumulative translation adjustments -- 37
------------- --------------
Total stockholders' equity 319,659 249,778
------------- --------------
$ 672,999 $ 532,645
============= ==============
</TABLE>
See accompanying notes to the consolidated financial statements
3
<PAGE> 4
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,
---------------------------------------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 237,216 $ 150,336 $ 578,806 $ 414,481
Cost of sales 187,191 111,555 450,586 306,105
--------- --------- --------- ---------
Gross profit 50,025 38,781 128,220 108,376
Operating expenses:
Selling, general and administrative,
and research and development 28,477 25,904 80,453 79,150
Amortization of goodwill 1,236 1,230 3,709 3,683
Restructuring charge -- -- -- 10,000
--------- --------- --------- ---------
Total operating expenses 29,713 27,134 84,162 92,833
--------- --------- --------- ---------
Operating income 20,312 11,647 44,058 15,543
Gain on LANcity transaction -- -- (60,000) --
Interest expense 3,340 3,422 9,383 6,529
Other (income) expense, net (387) (702) (3,259) (531)
--------- --------- --------- ---------
Income before income taxes 17,359 8,927 97,934 9,545
Income tax expense 6,583 3,948 40,541 5,535
========= ========= ========= =========
Net income $ 10,776 $ 4,979 $ 57,393 $ 4,010
========= ========= ========= =========
Net income per
weighted average common
and common equivalent share:
Basic $ 0.29 $ 0.14 $ 1.58 $ 0.11
========= ========= ========= =========
Diluted $ 0.27 $ 0.13 $ 1.38 $ 0.10
========= ========= ========= =========
Weighted average common and
common equivalent shares:
Basic 36,603 35,513 36,370 37,699
========= ========= ========= =========
Diluted 43,907 38,477 43,401 40,439
========= ========= ========= =========
</TABLE>
4
See accompanying notes to the consolidated financial statements.
<PAGE> 5
ANTEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
Operating activities:
Net income $ 57,393 $ 4,010
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 12,069 11,303
Deferred income taxes 25,800 (2,961)
LANcity transaction (60,000) --
Changes in operating assets and liabilities:
(Increase) in accounts receivable (56,384) (51,882)
(Increase) in inventories (29,435) (29,067)
(Increase) in other assets, net (7,713) (2,502)
Increase in accounts payable and
accrued liabilities 56,997 38,061
Increase in other liabilities, net 105 35
--------- ---------
Net cash (used in) operating activities (1,168) (33,003)
Investing activities:
Purchases of property, plant and equipment (15,182) (11,789)
Investments in/advances to joint ventures -- (5,800)
Other -- 584
--------- ---------
Net cash (used in) investing activities (15,182) (17,005)
Financing activities:
Borrowings under credit facilities 159,000 107,000
Reductions in borrowings under credit facilities (151,500) (116,839)
Issuance of 4.5% convertible subordinated notes -- 115,000
Purchase and retirement of common stock -- (63,459)
Deferred financing costs paid (139) (5,111)
Proceeds from issuance of common stock 12,525 8,574
--------- ---------
Net cash provided by financing activities 19,886 45,165
--------- ---------
Net increase (decrease) in cash and cash equivalents 3,536 (4,843)
Cash and cash equivalents at beginning of period 4,436 7,244
--------- ---------
Cash and cash equivalents at end of period $ 7,972 $ 2,401
========= =========
Supplemental cash flow information:
Interest paid during the period $ 7,167 $ 3,344
========= =========
Income taxes paid during the period $ 3,038 $ 5,530
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE> 6
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 Duluth, Georgia, with major offices in Englewood,
Colorado and Tinton Falls, New Jersey. 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 in conformity with generally accepted
accounting principles. Additionally, certain prior year amounts have been
reclassified to conform to the 1999 financial statement presentation. Interim
results of operations are not necessarily indicative of results to be expected
from a twelve-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, 1998.
The Company operates in one business segment, communications,
providing a range of customers with network and system products and services,
primarily hybrid fiber / coax ("HFC") networks and systems for the communication
industry. This segment accounts for 100% of the consolidated sales, operating
profit and identifiable assets of the Company. ANTEC provides a broad range of
products and services to cable system operators and telecommunication providers.
ANTEC is a leading developer, manufacturer and supplier of telephony, optical
transmission, construction, rebuild and maintenance equipment for the broadband
communications industry. ANTEC supplies most of the products required in a
broadband communication system, including headend, distribution, drop and
in-home subscriber products.
NOTE 2. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities.
FASB Statement No. 133 was originally to go into effect for fiscal years
beginning June 15, 1999. However, on May 19, 1999 the Financial Accounting
Standards Board voted to delay its effective date for one year, to fiscal years
beginning after June 15, 2000. The Statement will require the Company to
disclose certain information regarding derivative financial instruments. The
Company is in the process of reviewing the effects that the adoption of FASB
Statement No. 133 will have on the results of operations.
NOTE 3. RESTRUCTURING AND OTHER CHARGES
In January 1998, ANTEC announced a consolidation plan to be
implemented concurrently with the creation of the new President and Chief
Operating Officer organization in Georgia. The Company is in the final stages of
consolidating all of its Rolling Meadows, Illinois corporate and administrative
functions to either the Duluth, Georgia or the Englewood, Colorado locations. As
part of this consolidation, the two principal facilities located in Georgia have
been consolidated and certain international operating and administrative
functions previously located in Miami and Chicago have also been consolidated in
Georgia. In connection with these consolidations, ANTEC recorded a charge of
approximately $10.0 million in the first quarter of 1998. The components of the
restructuring charge included approximately $7.6 million related to personnel
costs and approximately $2.4 million related to lease termination and other
costs. Subsequently, during the fourth quarter of 1998, this charge was reduced
by $0.9 million as a result of the ongoing evaluation of the estimated costs
associated with these actions. The personnel-related costs included termination
expenses related to the involuntary termination of approximately 177 employees,
primarily engaged in finance and management information systems activities as
well as international
6
<PAGE> 7
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
operational 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, 1999, 136 of the
estimated 177 employees had been terminated. As of September 30, 1999,
approximately $0.2 million of the cash costs related to personnel costs and
approximately $0.9 million of cash costs related to lease termination payments
and other costs had yet to be expended. The Company anticipates these costs will
be incurred during the remainder of the current year. It has been determined
that approximately 38 employees originally estimated, as part of the 177 to be
terminated, will remain as employees of the Company. Additionally, the actual
cost of terminating or sub-letting real estate obligations in Georgia and
Chicago are slightly higher than anticipated. The Company has realigned its
restructuring balance to reflect the current estimate of final costs required
for both the employee and lease obligations.
NOTE 4. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
Raw material $ 53,366 $ 37,437
Work in process 7,852 10,496
Finished goods 119,205 103,055
------------- -------------
Total inventories $ 180,423 $ 150,988
============= =============
</TABLE>
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consists of the following
(in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
Land $ 2,549 $ 2,549
Buildings and leasehold improvements 15,148 14,548
Machinery and equipment 72,349 60,448
------------- -------------
90,046 77,545
Less: Accumulated depreciation (41,612) (35,933)
------------- -------------
Total property, plant and equipment, net $ 48,434 $ 41,612
============= =============
</TABLE>
NOTE 6. LONG TERM DEBT
Long term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
Revolving Credit Facility $ 73,500 $ 66,000
4.5% Convertible Subordinated Notes 115,000 115,000
------------- -------------
Total long term debt $ 188,500 $ 181,000
============= =============
</TABLE>
7
<PAGE> 8
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
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. If the Notes are redeemed during the twelve-month period
commencing May 15, 2001, ANTEC will pay a premium of 1.8% of the principal
amount or approximately $2.1 million. If the Notes are redeemed in 2002 or
thereafter, ANTEC will pay a premium of 0.9% of the principal amount or
approximately $1.0 million.
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 7.05% at September 30,
1999. 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. All borrowings
under the New Credit Facility are secured by substantially all of the Company's
assets.
In April 1999, the Company amended the New Credit Facility. This
amendment increased the existing line from $85.0 million to $120.0 million. The
New Credit Facility has also been amended to increase the assets eligible for
borrowings to be advanced against. None of the other significant terms,
including pricing, were changed with the amendment. As of September 30, 1999,
the Company had approximately $46.5 million of available borrowings under the
New Credit Facility.
NOTE 7. COMPREHENSIVE INCOME
Total comprehensive income for the three and nine-month periods
ended September 30, 1999 was $10.8 million and $57.4 million, respectively.
Total comprehensive income for the three and nine-month periods ended September
30, 1998 was $5.0 million and $4.0 million, respectively. Comprehensive income
decreased approximately $2 thousand during the third quarter of 1999 and
decreased $37 thousand through the nine months ended September 30, 1999.
Comprehensive income increased approximately $11 thousand during the third
quarter of 1998 and increased by approximately $41 thousand through nine months
of 1998.
NOTE 8. SALES INFORMATION
As of September 30, 1999, Liberty Media Corporation, which is part
of the Liberty Media Group of AT&T whose financial performance is "tracked" by a
separate class of AT&T stock, was the beneficial owner of approximately 21.0% of
the outstanding ANTEC common stock. This beneficial ownership includes options
to acquire an additional 854,341 shares. A significant portion of the Company's
revenue was derived from sales to AT&T aggregating approximately $105.8 million
and $43.2 million for the quarters ended September 30, 1999 and 1998,
respectively. Through nine months of 1999, revenue generated by sales to AT&T
was approximately $212.5 million as compared to the same period in 1998 where
sales to AT&T totaled $104.4 million.
The Company sells its products primarily in the United States.
International revenue is being generated primarily from Asia Pacific, Europe,
Latin America and Canada. The Asia Pacific market includes Australia, New
Zealand, China, Hong Kong, Taiwan, India, Indonesia, Japan, Korea, Malaysia,
Philippines, Sampan, Singapore and Thailand. The European market includes the
United Kingdom, Ireland,
8
<PAGE> 9
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
France, Italy, Portugal and Spain. International sales for the three and nine
month periods ended September 30, 1999 and 1998, respectively, are as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INTERNATIONAL REGION
Asia Pacific $ 2,897 $ 8,083 $ 9,907 $ 18,409
Europe 5,556 3,617 13,055 9,464
Latin America 3,399 6,478 16,298 20,209
Canada 542 753 1,993 2,166
--------- --------- --------- ---------
Total international sales $ 12,394 $ 18,931 $ 41,253 $ 50,248
========= ========= ========= =========
</TABLE>
Total identifiable international assets were immaterial.
NOTE 9. LANcity TRANSACTION
During the first quarter of 1999, the Company completed the
combination of the Broadband Technology Division of Nortel Networks (LANcity)
with Arris Interactive, LLC, a joint venture between ANTEC and Nortel Networks.
This combination was effected by the contribution of the LANcity assets and
business into Arris Interactive. ANTEC's interest in the joint venture was
reduced by 6.25% from 25% to 18.75%, while Nortel's interest was increased from
75.0% to 81.25%. In addition, based on the achievement of certain revenue goals
for LANcity products, up to an additional 6.25% of dilution in ANTEC's interest
(to 12.5%) may occur. Nortel, however, has the option to take up to 2,747,252
shares of ANTEC stock, in lieu of the additional interest in Arris. In order to
achieve the full amount of ANTEC shares or the full additional 6.25% ownership
interest in Arris Interactive, sales of LANcity products from January 1, 1999 to
June 30, 2000 must reach or exceed $300.0 million during such period. The amount
of additional Arris interest or ANTEC stock will be prorated on a straight-line
basis for sales between $180.0 million and $300.0 million. No additional
interest or stock ownership will occur if sales of LANcity products during the
eighteen-month period are less than $180.0 million. Through the nine months
ended September 30, 1999, consolidated LANcity product sales, through all sales
channels, totaled approximately $98.5 million.
During the first quarter of 1999, the Company recorded a pretax gain
of $60.0 million, net of related expenses, based on an independent valuation of
LANcity. The transaction was accounted for, in effect, as if it were a gain on
the sale of ANTEC's 6.25% interest in Arris Interactive to Nortel in exchange
for 12.5% of LANcity. The Company has elected to recognize gains or losses on
the sale of previously unissued stock of a subsidiary or investee based on the
difference between the carrying amount of the equity interest in the investee
immediately before and after the transaction.
9
<PAGE> 10
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 10. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators
of the basic and diluted earnings per share ("EPS") computations for the periods
indicated (in thousands except per share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic:
Net income $ 10,776 $ 4,979 $ 57,393 $ 4,010
--------- --------- --------- ---------
Weighted average shares outstanding 36,603 35,513 36,370 37,699
--------- --------- --------- ---------
Basic earnings per share $ 0.29 $ 0.14 $ 1.58 $ 0.11
--------- --------- --------- ---------
Diluted:
Net income $ 10,776 $ 4,979 $ 57,393 $ 4,010
Add: 4.5% convertible subordinated notes
interest and fees, net of federal income tax
effect 887 -- 2,661 --
--------- --------- --------- ---------
Total $ 11,663 $ 4,979 $ 60,054 $ 4,010
========= ========= ========= =========
Weighted average shares outstanding 36,603 35,513 36,370 37,699
Net effect of dilutive securities:
Add: options / warrants, net of tax benefit 2,512 2,964 2,239 2,740
: assumed conversion of 4.5%
convertible subordinated notes 4,792 -- 4,792 --
--------- --------- --------- ---------
Total 43,907 38,477 43,401 40,439
========= ========= ========= =========
Diluted earnings per share $ 0.27 $ 0.13 $ 1.38 $ 0.10
========= ========= ========= =========
</TABLE>
The 4.5% Convertible Subordinated Notes were antidilutive for the three and nine
month periods ended September 30, 1998.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISON OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
AND 1998
Net Sales. Net sales for the three and nine-month periods ended
September 30, 1999 were $237.2 million and $578.8 million, respectively, as
compared to $150.3 million and $414.5 million for the same periods in 1998.
ANTEC continued its record-setting pace as revenue for the third quarter of 1999
established a new high for the Company and marked an increase of approximately
57.8% over the third quarter of 1998 and was up sequentially 20.8% as compared
to the second quarter of 1999. The Company experienced a rapid rise in revenue,
during the current year, resulting from the large increase in capital spending
by communication providers, particularly the multiple system operators
("MSO's"), as they rebuild their plants in an effort to provide additional
services, such as telephony. Several of the Company's product lines, voice and
data in particular, benefited from the substantial growth in spending. The
Company's Cornerstone voice and data product sales continued their outstanding
performance, growing from $9.4 million in the third quarter of 1998 to a record
$77.2 million during the third quarter of 1999. Through nine months,
Cornerstone's voice and data sales have increased approximately 550% from $22.1
million recorded through September 30, 1998 to $143.6 million through September
30, 1999. Cornerstone's volume growth continued to be pushed by the strength of
Host Digital Terminal ("HDT") sales. The HDT product provides an interface
between the hybrid fiber / coax ("HFC") system and digital telephone switches.
Additionally, the introduction of revenue from LANcity cable product sales,
Cornerstone "data", was included in the results for the second and third
quarters of 1999.
The remaining balance of the revenue increase for the three and nine
months ended September 30, 1999, as compared to the same periods during the
prior year, stems from substantial revenue growth across most of the Company's
other product offerings. Exclusive of the Cornerstone voice and data revenue
growth, combined sales for the remaining product lines increased approximately
$19.1 million and $42.8 million for the three and nine month periods,
respectively. The Company's optronics product offerings, particularly the
headend and node product lines, increased revenues approximately $3.8 million
and $14.1 million for the three and nine month periods ended September 30, 1999
as compared to the prior year's periods. The Company's Telewire distributed
products also experienced an increase of approximately $10.9 million and $24.2
million over the three and nine month periods as compared to the same periods
during the prior year. The other major area of growth included the Company's
repeater and fiber product lines, which set a revenue record for the third
quarter of 1999 with increased volume of approximately $4.2 million and $7.6
million over the three and nine month periods ended September 30, 1999 as
compared to the same periods during the prior year.
Sales to ANTEC's largest customer, AT&T, reached approximately
$105.8 million during the third quarter of 1999 or 44.6% of the quarterly volume
as compared to the same period last year when sales to AT&T were $43.2 million
or 28.7% of the volume for the quarter. With the third quarter results, year to
date sales to AT&T almost doubled to $212.5 million in 1999 as compared to
$104.4 million recorded for the same period last year. Sales to AT&T have grown
approximately 103.5% when comparing the nine months of 1999 to the nine months
of 1998.
Gross Profit. Gross profit for the three and nine-month periods
ended September 30, 1999 was $50.0 million and $128.2 million, respectively, as
compared to $38.8 million and $108.4 million for the same periods in 1998. Gross
profit, as a percentage of sales, for the three and nine-month periods ended
September 30, 1999 was 21.1% and 22.2%, respectively, as compared to 25.8% and
26.1% for the same periods in 1998. Although sales volume increased, the
Company's gross margin percentage slipped during the current year. The decreased
gross profit percentage for the three and nine-month periods is largely a result
of the increase in Cornerstone voice and data sales, which carry a lower than
average gross margin. ANTEC has exclusive domestic distribution rights for both
the Cornerstone voice and data products to the cable multiple system operators.
This agreement affords ANTEC distribution type margins traditionally in the 15%
range. As Cornerstone voice and data product sales become a larger percentage of
the Company's overall volume, the Company's consolidated gross profit percentage
is expected to decrease toward that lower margin range.
Additionally, manufacturing inefficiencies associated with new
product introductions during 1999 had an adverse effect on the Company's margin
performance. As the factories become more efficient
11
<PAGE> 12
in the manufacturing of these new products, this trend is expected to reverse
and the respective gross profit margins on these products are expected to
improve. Also contributing to the lower manufacturing margin performance during
the third quarter of 1999 were temporary supply shortages, primarily in metal
castings, which impeded production and delivery of certain manufactured products
and caused additional unabsorbed overhead expense. Steps have been taken to
resolve these parts shortages during the fourth quarter of 1999.
For the nine month period ended September 30, 1999, the Company
recognized $2.1 million in previously deferred gross margin related to
intercompany profit in inventory pertaining to sales of the Company's products
to the Tanco joint venture. This venture provided turnkey construction or
upgrading of broadband distribution services. ANTEC deferred its ownership
portion of this profit on sales to Tanco until Tanco effectively transferred the
inventory to the ultimate customer. The Tanco joint venture is in the final
stages of dissolution as all remaining contracts relating to the venture have
been terminated by AT&T/TCI. Consequently, there was no deferral of intercompany
profit pertaining to transactions with the venture during the third quarter
ended September 30, 1999. The termination of these contracts and the dissolution
of the venture are not expected to have a material adverse effect on the Company
or its product sales to AT&T/TCI.
Selling, General and Administrative ("SG&A") Expenses. SG&A expenses
for the three and nine-month periods ended September 30, 1999 were $28.5 million
and $80.5 million, respectively, as compared to $25.9 million and $79.2 million
for the same periods in 1998. SG&A expenses increased during the second and
third quarters of 1999 as compared to the prior year primarily as a result of
the increased spending for the Cornerstone products sales marketing and support.
Additional resources also were allocated to research and development and
technical services during 1999, which, in turn, increased those expenses during
the current year. These additional costs were somewhat offset with the reversal
of approximately $1.8 million in over-accrued expenses during the first quarter
of 1999 due to a change in estimated bonuses and a reduction in self-insurance
reserves from year end.
Restructuring. In the first quarter of 1998, ANTEC recorded a
restructuring charge of approximately $10.0 million, which was subsequently
reduced to $9.1 million in the fourth quarter of 1998 based on the continuing
evaluation of these expenses. This charge included the severance, relocation and
real estate costs associated with: the consolidation of the Company's Rolling
Meadows, Illinois corporate and administrative functions into either the Duluth,
Georgia or the Englewood, Colorado locations; the consolidation of the Company's
two principal facilities in Georgia into one; and the consolidation of certain
international operating and administrative functions located in Miami and
Chicago into Georgia. (See Note 3 of the Notes to the Consolidated Financial
Statements.)
Other Charges. The costs incurred to make modifications to
previously sold TSX products have been charged against a reserve created in
December 1996, initially $1.6 million, when TSX agreed to make these
modifications. These charges amounted to $0.4 million through the nine months
ended September 30, 1999. These modifications have now been completed.
Gain on LANcity Transaction. The transaction was accounted for, in
effect, as if it were a gain on the sale of a 6.25% interest in Arris
Interactive to Nortel in exchange for 12.5% of LANcity. As a result, a pre-tax
gain of approximately $60.0 million was recognized during the quarter ended
March 31, 1999. Additionally, ANTEC became the exclusive distributor of
LANcity products to domestic cable operators. (See Note 9 of the Notes to the
Consolidated Financial Statements.)
Interest Expense. Interest expense for the three and nine-month
periods ended September 30, 1999 was $3.3 million and $9.4 million,
respectively, as compared to $3.4 million and $6.5 million recorded for the same
periods during 1998. Interest expense for 1999 reflects the impact of the
issuance of $115.0 million of 4.5% Convertible Subordinated Notes completed
during the second quarter of 1998.
The nine-month period ended September 30, 1998 also includes the
impact of the repurchase of 4.4 million shares of the Company's common stock
from Anixter International, Inc. for $63.5 million.
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<PAGE> 13
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.
Other Income and Expense. The results for the nine-month period
ended September 30, 1999 include the impact of approximately $2.2 million of
channel fees recorded related to LANcity's first quarter sales to domestic cable
companies. Beginning in April, all LANcity revenue, pertaining to cable modem
and headend products sold into the Company's market, were recorded by ANTEC. Due
to the timing of the completion of this transaction, a channel fee of 15% was
earned by ANTEC for sales of LANcity products sold in the first quarter of 1999.
Income Tax Expense. Income tax expense for the three and nine-month
periods ended September 30, 1999 was $6.6 million and $40.5 million,
respectively, as compared to $3.9 million and $5.5 million for the same periods
during 1998. During 1999, the Company has shifted its focus towards a more
aggressive tax saving and planning strategy. In line with this strategy, the
Company has been able to record benefits from filing amended foreign sales
corporation ("FSC") returns as well as research and development ("R&D") credits
from previous years. Going forward, with this tax strategy in place, the Company
should be able to reduce its effective tax rate from that of prior years.
Net Income. Net income for the three and nine-month periods ended
September 30, 1999 was $10.8 million and $57.4 million, respectively, as
compared to $5.0 million and $4.0 million for the same periods during 1998. The
results for 1999 include the pretax gain recorded on the LANcity transaction of
approximately $60.0 million, whereas, included in the 1998 results, was a pretax
restructuring charge of approximately $10.0 million. Apart from these factors,
net income increased primarily as a result of the dramatic revenue growth
during the current year.
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
REORGANIZATION
In January 1998, ANTEC announced a consolidation plan to be
implemented concurrently with the creation of the new President and Chief
Operating Officer organization in Georgia. The Company is in the final stages of
consolidating all of its Rolling Meadows, Illinois corporate and administrative
functions into either the Duluth, Georgia or the Englewood, Colorado locations.
As part of this consolidation, the two principal facilities located in Georgia
have been consolidated and certain international operating and administrative
functions located in Miami and Chicago have also been consolidated in Georgia.
In connection with these consolidations, ANTEC 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 facilities and other costs.
Subsequently, during the fourth quarter of 1998 this charge was reduced by $0.9
million as a result of the ongoing evaluation of the estimated costs associated
with these actions. The personnel-related costs included termination costs
related to the involuntary termination of approximately 177 employees, primarily
related to 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, 1999, 136 of the
estimated 177 employees had been terminated. As of September 30, 1999,
approximately $0.2 million of the cash costs related to personnel costs and
approximately $0.9 million of cash costs related to lease termination payments
and other costs had yet to be expended. The Company anticipates these costs will
be charged during the remainder of the current year. It has been determined that
approximately 38 employees originally estimated, as part of the 177 to be
terminated, will remain as employees of the Company. Additionally, the actual
cost of terminating or sub-letting real estate obligations in Georgia and
Chicago are slightly higher than anticipated. The Company has realigned its
restructuring balance to reflect the current estimate of final costs required
for both the employee and lease obligations.
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<PAGE> 14
FINANCING
As of September 30, 1999, the Company had a balance of $73.5 million
outstanding under its New Credit Facility, down from $95.0 million outstanding
during the second quarter of 1999, and had $46.5 million of available
borrowings. The average interest rate on its outstanding borrowings was 7.05% at
September 30, 1999. The commitment fee on unused borrowings is approximately
0.5%. In April 1999, the Company, with its banks, amended its line of credit.
This amendment increased the existing line from $85.0 million to $120.0 million.
The line has also been amended to increase the assets eligible for borrowings to
be advanced against. None of the other significant terms, including pricing,
were changed in the amendment.
CAPITAL EXPENDITURES
The Company's capital expenditures were $15.2 million and $11.8
million for the nine months ended September 30, 1999 and 1998, respectively.
Except for the Year 2000 project discussed in a separate section of this
document, the Company had no significant commitments for capital expenditures at
September 30, 1999.
CASH FLOW
Cash levels increased by approximately $3.5 million for the nine
months of 1999 and decreased by $4.8 million for the same period last year.
Through the nine months ended September 30, 1999 cash used in operating
activities was $1.2 million while the Company spent $15.2 million in capital
expenditures. Positive cash flows of $19.9 million were provided through
financing activities during the first nine months of 1999. Cash used in
operating activities was $33.0 million during the nine months ended September
30, 1998. During 1998, the Company recorded capital expenditures of $11.8
million while $5.8 million was invested in / advanced to joint ventures. These
cash outlays during 1998 were partially offset by the positive cash flows of
$45.2 million generated through financing activities at that time as well as an
additional $0.6 million being provided from miscellaneous investing activity.
Operating activities utilized cash of $1.2 million during the period
ended September 30, 1999. In the first quarter of 1999, the Company recorded a
pretax gain of $60.0 million in its Arris joint venture based on the joint
venture's estimated value at the time of the transaction (See Note 9 of the
Notes to the Consolidated Financial Statements). Additionally, increases in
accounts receivable and inventories during the period ended September 30, 1999
utilized cash of approximately $56.4 million and $29.4 million, respectively.
The increase in other assets, which utilized $7.7 million in cash, relates to
several factors. Of this amount, approximately $3.5 million relates to an
increase in prepaid expenses related to the supply chain contract which has been
employed to aid the Company in cost reduction efforts. These contract fees are
based on a percentage of actual costs saved and payment is contingent on the
achievement of those savings. An additional $1.9 million relates to the purchase
of a product licensing agreement during the third quarter of 1999. An increase
in accounts payable and accrued liabilities provided approximately $57.0 million
through September 30, 1999. Cash flows used by operating activities were $33.0
million for the nine months ended September 30, 1998. Increases in receivables
and inventories utilized cash of approximately $51.9 million and $29.1 million,
respectively. An increase in other assets related to various account activity
utilized approximately $2.5 million in cash while an increase in accounts
payable and accrued liabilities during this same period in 1998 provided
positive cash flow of $38.1 million.
Days sales outstanding have decreased to approximately 63 days for
the quarter ended September 30, 1999 as compared to approximately 79 days at the
end of the third quarter of 1998. This marked decrease in days sales outstanding
is consistent with the surge in sales volume during 1999 and specifically during
the third quarter of 1999 with a corresponding increase in payments on
receivable balances.
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<PAGE> 15
The increase in current inventory levels during the nine months of
1999 is reflective of the increased revenue and product demands during that
period. Additionally, part of this increase is being driven by contractual
obligations with certain suppliers combined with temporary softness in sales of
those same supplied products. During the third quarter, as expected, this trend
began to reverse and inventory levels of these supplied products began to fall
as volume began to increase. Despite the respective increases in inventory
levels, inventory turns have increased to 4.1 times for the quarter ended
September 30, 1999 as compared to 3.3 times for the quarter ended September 30,
1998.
Cash flows used in investing activities were $15.2 million and $17.0
million for the nine months ended September 30, 1999 and 1998, respectively. The
$15.2 million relates to expenditures for capital assets during 1999. The 1998
investing activities consisted of $11.8 million spent on capital assets and $5.8
million invested in / advanced to joint ventures net of $0.6 million provided
from miscellaneous investing activity.
Cash flows provided by financing activities were $19.9 million and
$45.2 million for the nine months ended September 30, 1999 and 1998,
respectively. Both periods reflect their respective trends in operating and
investing activities. The results for 1999 were affected by the exercise of
stock options that provided positive cash flows of approximately $12.5 million
as compared to $8.6 million provided through September 30, 1998. Net borrowings
under the credit facility were $7.5 million for the nine months ended September
30, 1999 as compared to net payments of approximately $9.8 million during the
same period last year. The most significant financing activities which occurred
during the nine months ended September 30, 1998 included the impact of the
issuance of $115.0 million of 4.5% Convertible Subordinated Notes and the
repurchase of 4.4 million shares of the Company's common stock from Anixter
International, Inc. for approximately $63.5 million.
Based upon current levels of operations and anticipated growth, the
Company expects that sufficient cash flow will be generated from operations, so
that, combined with other financing alternatives available, including bank
credit facilities, the Company will be able to meet all of its debt service,
capital expenditure and working capital requirements for the immediately
foreseeable future.
YEAR 2000 DISCLOSURE
IMPACT OF YEAR 2000:
As the millenium approaches, ANTEC, like most other companies, has
been preparing for the impact of its arrival on the Company's business, as well
as on the businesses of its customers, suppliers, and business partners. The
Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. With regard to dates
after December 31, 1999, computer programs that have time-sensitive software may
interpret a date using "00" as the year 1900 rather than the year 2000. The Year
2000 Issue creates potential risks for the Company. The Company has numerous
operating components consisting of hardware, software, operating systems,
telecommunications applications and database software that, if failure were to
occur, would jeopardize the operations of the Company and its ability to conduct
normal business activities. The Company may also be exposed to risks from third
parties with whom the Company conducts business who fail to adequately address
their own Year 2000 Issues.
STATE OF READINESS:
The Company has been addressing the Year 2000 Issue since the
beginning of 1997 starting with the review of its internal Information
Technology ("IT") and non-IT systems and assessing potential exposures. In 1998,
the Company began concentrating on a more centralized approach to the Year 2000
Issue and subsequently created a Year 2000 Committee. This Committee is
comprised of a cross-functional team from various disciplines throughout the
Company. The Committee meets regularly to set milestones, review the process to
date, formulate contingency plans and evaluate cost summaries as they relate to
the
15
<PAGE> 16
Year 2000 Issue. These periodic reviews are summarized and the results are
communicated to the Company's management and to the Board of Directors upon
their request.
The Year 2000 Committee outlined and defined the Company's strategy
for identifying and managing exposure to mission critical applications due to
the change in the millenium. This strategy delineates scope and responsibility,
defines a methodology and approach for identifying and assessing risk, develops
contingency plans where required, and provides a structure for maintaining the
oversight and accountability of the Year 2000 project.
Based on its assessments, the Company determined that it would be
required to modify or replace significant portions of its software and certain
hardware to enable those systems to properly utilize and recognize dates beyond
December 31, 1999. The Company presently believes that with modifications or
replacements of existing software and certain hardware, and conversions to new
software, the Year 2000 Issue will not pose significant operational problems for
its computer systems. These modifications, replacements and conversions have
been made and timely completed thus minimizing the assumed impact the Year 2000
Issue could have on the internal IT environment of the Company.
The Company's plan regarding the Year 2000 Issue evolves through
four phases: assessment, remediation, testing and implementation. The Company
had completed its assessment of all mission critical systems that could be
significantly affected by the Year 2000 Issue by the end of the first quarter of
1999. As previously mentioned, based on the review conducted during 1997, it was
concluded that a significant portion of the Company's information technology
software and certain hardware as they pertain to the Company's distribution
efforts, were to be replaced. The Company's assessment further indicated that
the software and hardware used in its production and manufacturing systems had
limited risk and would require module upgrades to attain compliance. In
addition, the Company has reviewed its product lines and has determined that it
has no exposure to contingencies related to the Year 2000 Issue for the products
it has sold. Also, the Company has gathered information about Year 2000
compliance status of its significant suppliers, subcontractors, and customers
and continues to monitor their compliance.
For its information technology exposures, the Company was 100%
complete on the remediation phase pertaining to the replacement, reprogramming
and modifications to its software and certain hardware by the close of the first
quarter of 1999. The testing and implementation phases ran concurrently for
different systems. Testing on the information technology software related to the
Company's distribution efforts was completed during the second quarter of 1999.
Implementation of this software took place on July 6, 1999. As with any new
implementation, the Company continues to monitor the performance and success of
the new system through the testing and generation of reports using live data.
The Company is confident that, with regard to the Year 2000 Issue, the new
system is compliant and the Company will focus its current efforts and resources
on enhancing the performance and utilization of this new computer system. At the
close of the first quarter of 1999, the implementation and testing of software
and hardware modifications used in the Company's production and manufacturing
systems had been completed. The Company had a final intensive review of its
production and manufacturing system completed during the third quarter of 1999.
Additionally, the majority of the Company's implementation of system upgrades,
as they pertain to the Company's telecommunications application, was completed
during the second quarter of 1999.
The Company's primary information technology systems used for
manufacturing, production and distribution do not interface directly with any
suppliers, customers, subcontractors or business partners. The Company has
queried its significant suppliers, subcontractors, customers and business
partners as to their state of readiness and compliance to the Year 2000 Issue.
To date, the Company is not aware of any external agent with a Year 2000 Issue
that could materially impact the Company's results of operations, liquidity, or
capital resources. However, there can be no guarantee that the systems of other
companies on which the Company's systems rely will be converted timely and would
not have an adverse effect on the Company's operations. 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 major suppliers and
customers will be prepared for the Year 2000 Issue. There can, however, be no
assurance that this will be so. The Company
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<PAGE> 17
continues to solicit written assurances from its major suppliers, customers, and
service providers, however, these assurances, if given, may not be enforceable.
COSTS:
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. The Company utilized
both internal and external resources to reprogram, replace, implement and test
the software for the system improvements and Year 2000 modifications. The
Company's final system improvements and testing related to its distribution
efforts were completed during the second quarter of 1999 and the implementation
took place in July 1999. The Company plans to closely monitor and test the
performance of the new system. The total cost of the system improvement and the
Year 2000 project was originally estimated at approximately $6.0 million to be
funded through operating cash flows and available credit facilities. Of the
total $6.0 million estimated for the project cost, approximately $3.8 million
was attributable to the purchase of new software and hardware to be capitalized.
The remaining $2.2 million was to be expensed as incurred.
To date, the Company has actually incurred approximately $7.1
million ($5.2 million capitalized for new systems and $1.9 million expensed as
incurred) related to its system improvement and the Year 2000 project related to
the Company's distribution efforts. During the second quarter of 1999, the
Company estimated that approximately $0.5 million additional dollars would be
spent on consulting efforts through the month of August 1999, to be added to the
$6.2 million already then accumulated regarding this implementation. However,
the actual additional costs related to the consulting efforts were approximately
$0.9 million as opposed to the $0.5 estimated and their efforts were kept
through the end of September 1999. This project is now complete with regard to
the Year 2000 Issue.
Approximately $0.3 million has been expended on modifying all other
mission critical information applications. Another $0.1 million is expected to
be incurred by the close of the fourth quarter of 1999 related to the compliance
efforts regarding the telecommunications applications. As a result, the
Company's current estimate of the aggregate cost expenditure is $7.5 million.
RISKS:
The Management of the Company believes it has an effective program
in place to resolve the Year 2000 Issue in a timely manner. As previously noted,
the Company is in the final stages of compliance on all its mission critical
information technology systems. 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 have a significant adverse effect on the Company's operations to
the point of ceasing all normal business activities.
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 down turn in economic activity
caused by the possible ripple effect throughout the entire economy that could be
caused by the problems of others with the Year 2000 Issue.
17
<PAGE> 18
CONTINGENCY PLANS:
Through the Company's evaluation of the need for contingency plans
for the Year 2000 Issue, it has been determined that the area posing the
greatest risk revolves around its supplier base. For vendors that have either
responded negatively or have not responded to our Year 2000 inquiries, the
Company has taken a two-fold approach to this issue by lining up second sources
or building up safety stock for those products without a sufficient second
source base. The Company believes that these actions should minimize the risk of
potential business interruption due to the Year 2000 related issues.
YEAR 2000 FORWARD LOOKING STATEMENTS:
The foregoing Year 2000 discussion contains "forward looking
statements" within the meaning defined by the Private Securities Litigation
Reform Act of 1995. Such statements, including without limitation, anticipated
costs and the dates by which the Company expects to complete certain actions,
are based on management's best current estimates, which were derived utilizing
numerous assumptions about future events, including the continued availability
of certain resources, representations received from third parties and other
factors. However, there can be no guarantee that these estimates will be
achieved and that actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to,
- the ability to identify and remediate all relevant IT and
non-IT systems,
- results of Year 2000 testing,
- adequate resolution of Year 2000 Issues by businesses and
other third parties who are service providers, suppliers
or customers of the Company,
- unanticipated system costs,
- the adequacy of and ability to develop and implement
contingency plans and similar uncertainties.
The "forward looking statements" made in the foregoing Year 2000 discussion
speak only as of the date on which such statements are made, and the Company
undertakes no obligation to update any forward looking statement to reflect
events or circumstances after the date on which such statement is made or to
reflect the occurrence of unanticipated events.
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," "should," "expect,"
"anticipate," "intend," "estimate," "believe," "continue," "could be," 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;
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<PAGE> 19
- 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.
19
<PAGE> 20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
The following discussion of the Company's risk-management activities
includes "forward looking statements" that involve risks and uncertainties.
Actual results could differ materially from those projected in the forward
looking statements.
ANTEC is exposed to various market risks, including interest rates
and foreign currency rates. Changes in these rates may adversely affect its
results of operations and financial condition. To manage the volatility relating
to these typical business exposures, ANTEC may enter into various derivative
transactions, when appropriate. ANTEC does not hold or issue derivative
instruments for trading or other speculative purposes.
ANTEC uses an interest rate swap agreement, with large creditworthy
financial institutions, to manage its exposure to interest rate changes. The
swap involves the exchange of fixed and variable interest rate payments without
exchanging the notional principal amount. Payments or receipts on the agreement
are recorded as adjustments to interest expense. At September 30, 1999 the
Company had an outstanding interest rate swap agreement denominated in dollars,
maturing in 2001, with an aggregate notional principal amount of $50.0 million.
Under this agreement, the Company receives a floating rate marked to LIBOR and
pays a fixed interest rate. The swap effectively changes the Company's payment
of interest on $50.0 million of variable rate debt to fixed rate debt.
The fair value of the interest rate swap agreement represents the
estimated receipts or payments that would be made to terminate the agreement. At
September 30, 1999, the Company would have paid $0.4 million to terminate the
agreement. A 1% decrease in short-term borrowing rates would increase the amount
paid to terminate the agreement by approximately $0.8 million.
The Company is exposed to foreign currency exchange rate risk as a
result of sales of its products in various foreign countries and manufacturing
operations conducted in Juarez, Mexico. In order to minimize the risks
associated with foreign currency fluctuations most sales contracts are issued in
U.S. dollars. The Company has, from time to time, used foreign currency
contracts to hedge the risks associated from foreign currency fluctuations for
significant sales contracts. The Company constantly monitors the exchange rate
between the U.S. dollar and Mexican peso to determine if any adverse exposure
exists relative to its costs of manufacturing. The Company funds the Mexican
operations on an as required basis and does not maintain Mexican peso currency.
U.S. dollars are exchanged for pesos at the time of payment or funding, thereby
mitigating any peso exposure. As a result of current market conditions there are
currently no material contracts denominated in foreign currencies.
20
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedules (for SEC use only)
(b) Reports on Form 8-K
None
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements 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
/s/ LAWRENCE A. MARGOLIS
--------------------------------------
Lawrence A. Margolis
Executive Vice President
(Principal Financial Officer, duly
authorized to sign on behalf of
the registrant)
Dated: November 15, 1999
22
<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 CORP. FOR THE NINE MOS. ENDED SEPT. 30, 1999 & IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND RELATED
NOTES IN ANTEC CORP'S FORM 10-Q FOR THE QRTLY PERIOD ENDED SEPT. 30, 1999.
</LEGEND>
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