<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, 2000
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, 2000 there were 38,113,381 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, 2000
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
a) Consolidated Balance Sheets
as of September 30, 2000 and December 31, 1999 3
b) Consolidated Statements of Operations
for the Three and Nine Months Ended September 30, 2000 and 1999 4
c) Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 2000 and 1999 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 19
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
</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,
2000 1999
------------- ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 19,548 $ 2,971
Accounts receivable (net of allowance for doubtful accounts of $6,918 in 2000
and $7,505 in 1999) 247,950 197,350
Inventories 209,705 215,216
Income taxes recoverable 4,260 10,403
Deferred income taxes 17,592 16,442
Investments held for resale 3,531 --
Other current assets 20,509 15,989
--------- ---------
Total current assets
523,095 458,371
Property, plant and equipment (net of accumulated depreciation of $52,165 in 2000
and $43,195 in 1999) 54,230 51,406
Goodwill (net of accumulated amortization of $50,329 in 2000 and $46,641 in 1999) 146,148 149,836
Deferred income taxes 5,918 5,918
Investments 105,787 70,968
Other assets 25,931 23,573
--------- ---------
$ 861,109 $ 760,072
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 175,545 $ 153,596
Accrued compensation, benefits and related taxes 16,620 20,539
Other accrued liabilities 31,223 31,402
--------- ---------
Total current liabilities 223,388 205,537
Long-term debt 201,000 183,500
Deferred income taxes 36,600 23,700
--------- ---------
Total liabilities 460,988 412,737
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, 150 million & 75 million shares
authorized; 38.1 million and 37.6 million shares issued and
outstanding in 2000 and 1999, respectively 383 378
Capital in excess of par value 259,341 252,245
Retained earnings 140,520 94,713
Cumulative translation adjustments (123) (1)
--------- ---------
Total stockholders' equity 400,121 347,335
--------- ---------
$ 861,109 $ 760,072
========= =========
</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,
----------------------- -------------------------
2000 1999 2000 1999
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $274,553 $ 237,216 $ 801,000 $ 578,806
Cost of sales 222,236 187,191 644,575 450,586
-------- --------- --------- ---------
Gross profit 52,317 50,025 156,425 128,220
Operating expenses:
Selling, general and administrative
and development 34,772 28,477 99,411 80,453
Amortization of goodwill 1,230 1,236 3,688 3,709
-------- --------- --------- ---------
Total operating expenses 36,002 29,713 103,099 84,162
-------- --------- --------- ---------
Operating income 16,315 20,312 53,326 44,058
(Gain) on LANcity transaction -- -- (30,000) (60,000)
(Gain)/loss on Chromatis investment 3,414 -- (2,486) --
Interest expense 2,821 3,340 7,960 9,383
Other (income) expense, net 170 (387) 635 (3,259)
-------- --------- --------- ---------
Income before income taxes 9,910 17,359 77,217 97,934
Income tax expense 3,741 6,583 31,410 40,541
-------- --------- --------- ---------
Net income $ 6,169 $ 10,776 $ 45,807 $ 57,393
======== ========= ========= =========
Net income per common share:
Basic $ 0.16 $ 0.29 $ 1.21 $ 1.58
======== ========= ========= =========
Diluted $ 0.15 $ 0.27 $ 1.09 $ 1.38
======== ========= ========= =========
Weighted average common shares:
Basic 38,100 36,603 37,886 36,370
======== ========= ========= =========
Diluted 39,849 43,907 44,629 43,401
======== ========= ========= =========
</TABLE>
Supplemental Income Statement Information: results net of the third quarter mark
to market adjustment of the Chromatis investment resulting in a $3.4
million write down; the LANcity and Chromatis gains of $30.0 and $5.9
million, respectively, and $3.5 million restructuring charge in the second
quarter 2000; the $2.1 million pension curtailment gain in the first
quarter 2000; and the initial $60.0 million gain on the LANcity
transaction in the first quarter 1999:
<TABLE>
<S> <C> <C> <C> <C>
Gross profit $ 52,317 $ 50,025 $ 159,925 $ 128,220
======== ========= ========= =========
Operating income $ 16,315 $ 20,312 $ 54,718 $ 44,058
======== ========= ========= =========
Income before income taxes $ 13,324 $ 17,359 $ 46,123 $ 37,934
======== ========= ========= =========
Net income $ 8,115 $ 10,776 $ 28,019 $ 23,293
======== ========= ========= =========
Net income per common share:
Diluted $ 0.20 $ 0.27 $ 0.69 $ 0.60
======== ========= ========= =========
Weighted average diluted shares 44,641 43,907 44,629 43,401
======== ========= ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE> 5
ANTEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
2000 1999
--------- ---------
<S> <C> <C>
Operating activities:
Net income $ 45,807 $ 57,393
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 14,601 12,069
Provision for doubtful accounts 980 5,322
Deferred income taxes 11,750 25,800
LANcity transaction (30,000) (60,000)
Gain on Chromatis investment (2,486) --
Changes in operating assets and liabilities:
(Increase) in accounts receivable (51,580) (61,706)
(Increase) decrease in inventories 5,511 (29,435)
Increase in accounts payable and
accrued liabilities 24,060 56,997
(Increase) in other, net (8,360) (7,608)
--------- ---------
Net cash provided by (used in) operating activities 10,283 (1,168)
Investing activities:
Purchases of property, plant and equipment (12,867) (15,182)
Other investments (4,570) --
--------- ---------
Net cash (used in) investing activities (17,437) (15,182)
Financing activities:
Borrowings under credit facilities 267,000 159,000
Reductions in borrowings under credit facilities (249,500) (151,500)
Deferred financing costs paid (870) (139)
Proceeds from issuance of common stock 7,101 12,525
--------- ---------
Net cash provided by financing activities 23,731 19,886
--------- ---------
Net increase in cash and cash equivalents 16,577 3,536
Cash and cash equivalents at beginning of period 2,971 4,436
--------- ---------
Cash and cash equivalents at end of period $ 19,548 $ 7,972
========= =========
Supplemental cash flow information:
Interest paid during the period $ 3,600 $ 7,167
========= =========
Income taxes paid during the period $ 15,197 $ 3,038
========= =========
</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 (together with its consolidated subsidiaries "ANTEC"
or the "Company") is an international communications technology company,
headquartered in Duluth, Georgia. ANTEC is a designer, developer, manufacturer
and supplier of products and transmission equipment for the construction,
rebuilding and maintenance of broadband communications systems. ANTEC supplies
equipment and services for these systems primarily to broadband communication
providers, earning a reputation as a high-quality, one-stop provider of
substantially all of the equipment needed for hybrid fiber-coax ("HFC") networks
between the headend and the home. The Company has developed, for example, a full
line of technologically advanced fiber optic products to capitalize on the
current upgrades of HFC cable systems that enable reliable, high-speed, two-way
transmission of video, telephony, and data. The Company's expansive product
offerings position it well to meet the dynamic industry challenges, offering a
full range of end-to-end solutions for its customers. 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. Additionally, certain prior year amounts have
been reclassified to conform to the 2000 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, 1999.
The Company operates in one business segment, Communications, providing
a range of customers with network and system products and services, primarily
HFC networks and systems, for the communication industry. This segment accounts
for 100% of consolidated sales, operating profit and identifiable assets of the
Company.
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 effective for fiscal years beginning June
15, 1999. However, on May 19, 1999, the FASB voted to delay the effective date
for one year, to fiscal years beginning after June 15, 2000 by issuing FASB
Statement No. 137. The Statement will require the Company to disclose certain
information regarding derivative financial instruments. The Company, although
still in the process of reviewing the effects that the adoption of FASB
Statement No. 133 might have on the results of operations and financial
position, believes those effects to be minimal given the Company's current
experience with hedging activities.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101 providing guidance on the recognition,
presentation and disclosure of revenue in financial statements of publicly held
companies. In March 2000, the SEC issued SAB 101A that delayed the original
effective date of SAB 101 until the second quarter of 2000 for calendar year
companies. In June 2000, the SEC issued SAB 101B that further delayed the
effective date of SAB 101 until no later than the fourth fiscal quarter of
fiscal years beginning after December 15, 1999. The Company does not expect that
the adoption of SAB 101 will have a material impact on its financial statements.
ANTEC recognizes sales and related cost of sales as products are shipped and
services are rendered. Any software related revenue is generally recognized when
shipment is made, no significant vendor obligations remain and collection is
considered probable.
6
<PAGE> 7
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 3. RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of 1999, in conjunction with the consolidation of
the New Jersey facility to Georgia and the Southwest, coupled with the
discontinuance of certain product offerings, the Company recorded a charge of
approximately $16.0 million. Included in the charge was approximately $2.6
million related to personnel costs and approximately $3.0 million related to
lease termination and other facility shutdown charges. Also included in the
restructuring was the elimination of certain product lines resulting in an
inventory write-off totaling approximately $10.4 million, which was reflected in
cost of sales during the fourth quarter of 1999. During the second quarter of
2000, the Company, in further evaluating its powering UCF and certain RF
products, recorded an additional charge of $3.5 million to cost of goods sold,
bringing the total reorganization related charge to $19.5 million. The
personnel-related costs included termination expenses for the involuntary
dismissal of 87 employees, primarily engaged in engineering, inside sales and
warehouse functions performed at the New Jersey facility, of which 13 employees
remain as of the third quarter, agreeing to stay through the first quarter of
2001 to smooth the transition of key responsibilities. Terminated employees were
offered separation amounts in accordance with the Company's severance policy and
were provided specific separation dates. In addition to the charges totaling
$19.5 million, it was anticipated that approximately $1.6 million of relocation
and fixed asset depreciation expenses would be incurred in connection with the
New Jersey facility closure, of which approximately $0.7 million has been
recognized through the third quarter of 2000. As of September 30, 2000, $0.9
million related to personnel costs and approximately $1.4 million related to
lease termination and other facility shutdown expenses remain to be paid. It is
anticipated that the majority of the personnel costs remaining will be expended
at the close of the first quarter of 2001 while the remaining lease termination
and facility shutdown charges will be fully recognized through the first half of
2001.
NOTE 4. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
Raw material $ 57,897 $ 57,538
Work in process 11,453 9,938
Finished goods 140,355 147,740
-------- --------
Total inventories $209,705 $215,216
======== ========
</TABLE>
NOTE 5. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, at cost, consists of the following (in
thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
Land $ 2,549 $ 2,549
Building and leasehold improvements 15,249 15,485
Machinery and equipment 88,597 76,567
-------- --------
106,395 94,601
Less: Accumulated depreciation (52,165) (43,195)
-------- --------
Total property, plant and equipment, net $ 54,230 $ 51,406
======== ========
</TABLE>
7
<PAGE> 8
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 6. LONG TERM DEBT
Long term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
Revolving Credit Facility $ 86,000 $ 68,500
4.5% Convertible Subordinated Notes 115,000 115,000
-------- --------
Total long term debt $201,000 $183,500
======== ========
</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.
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. The estimated fair market value of the Notes, based upon the
closing market price of the Company's Common Stock was approximately $141
million and $175 million at September 30, 2000 and December 31, 1999,
respectively.
In April 1999, the Company amended its secured four-year credit
facility ("Credit Facility") to increase the existing line from $85.0 million to
$120.0 million. The amended Credit Facility increased the assets eligible for
borrowings to be advanced against. None of the other significant terms,
including pricing, were changed with the amendment. The average annual interest
rate on borrowings was approximately 8.22% at September 30, 2000. The commitment
fee on unused borrowings is approximately 0.5%. The Credit Facility contains
various restrictions and covenants, including limits on payments to
stockholders, interest coverage, and net worth tests. As of September 30, 2000,
the Company had approximately $34.0 million of available borrowings under the
Credit Facility.
NOTE 7. COMPREHENSIVE INCOME
Total comprehensive income for the three and nine-month periods ended
September 30, 2000 was $6.2 million and $45.8 million, respectively. Total
comprehensive income for the three and nine-month periods ended September 30,
1999 was $10.8 million and $57.4 million, respectively. Comprehensive income
decreased approximately $12 thousand during the third quarter of 2000 and
decreased approximately $122 thousand through the nine months ended September
30, 2000. Comprehensive income decreased approximately $2 thousand during the
third quarter of 1999 and decreased $37 thousand through nine months of 1999.
NOTE 8. SALES INFORMATION
As of September 30, 2000, 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 20.2% of
the outstanding ANTEC common stock. This beneficial ownership includes options
to acquire an additional 854,341 shares. On October 25, 2000, AT&T announced
that it planned to split into four companies, including separate cable and
telephone companies. The impact of such a split is not yet known, however, the
Company does not anticipate any material adverse effect arising from the split.
A significant portion of the Company's revenue was derived from sales to AT&T
aggregating approximately $122.8 million and $109.6 million for the quarters
ended September 30, 2000 and 1999,
8
<PAGE> 9
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
respectively. Through nine months of 2000, revenue generated by sales to AT&T
were approximately $363.4 million as compared to the same nine months of 1999
when sales to AT&T totaled $216.2 million.
The Company sells its products primarily in the United States with its
international revenue being generated 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, France, Italy, Portugal and Spain. International sales for the three
and nine months ended September 30, 2000 and 1999 are as follows (in thousands):
(Total identifiable international assets were immaterial.)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
INTERNATIONAL REGION
Asia Pacific ....................... $ 3,632 $ 2,897 $11,481 $ 9,907
Europe ............................. 8,242 5,556 25,894 13,055
Latin America ...................... 11,594 3,399 24,534 16,298
Canada ............................. 1,158 542 3,351 1,993
------- ------- ------- -------
Total international sales $24,626 $12,394 $65,260 $41,253
======= ======= ======= =======
</TABLE>
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, ("Arris"), a joint venture between ANTEC and Nortel Networks.
This combination was effected by the contribution of the LANcity assets and
business into Arris. 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 connection with the transaction, the Company recorded a pre-tax gain
of $60.0 million, net of related expenses, based upon an independent valuation
of LANcity. The transaction was accounted for, in effect, as if it were a gain
on the sale of a 12.50% interest in Arris to Nortel in exchange for 12.50% 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 and deferred income taxes are provided on such
gain.
The Company's interest in Arris was subject to further dilution based
upon its performance over the eighteen-month period ended June 30, 2000. At the
expiration of the eighteen-month period, no further dilution of ANTEC's share
occurred, and, based upon the initial independent valuation, ANTEC recorded an
additional gain of $30.0 million to reflect the Company's final ownership
percentage in the joint venture of 18.75%.
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,
-------------------- --------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic:
Net income $ 6,169 $10,776 $45,807 $57,393
======= ======= ======= =======
Weighted average shares outstanding 38,100 36,603 37,886 36,370
======= ======= ======= =======
Basic earnings per share $ 0.16 $ 0.29 $ 1.21 $ 1.58
======= ======= ======= =======
Diluted:
Net income $ 6,169 $10,776 $45,807 $57,393
Add:
4.5% convertible subordinated notes
interest and fees, net of federal
income tax effect -- 887 2,661 2,661
------- ------- ------- -------
Total $ 6,169 $11,663 $48,468 $60,054
======= ======= ======= =======
Weighted average shares outstanding 38,100 36,603 37,886 36,370
Dilutive securities net of income tax benefit:
Add options / warrants 1,749 2,512 1,951 2,239
Add assumed conversion of
4.5 % convertible subordinated notes -- 4,792 4,792 4,792
------- ------- ------- -------
Total 39,849 43,907 44,629 43,401
======= ======= ======= =======
Diluted earnings per share $ 0.15 $ 0.27 $ 1.09 $ 1.38
======= ======= ======= =======
</TABLE>
NOTE 11. SUBSEQUENT EVENT
On October 18, 2000, ANTEC Corporation and Nortel Networks, Inc.
announced that they had agreed to a transaction in which, among other things,
ANTEC will acquire Nortel Networks' ownership interest in Arris Interactive
L.L.C., the joint venture between the two companies. Nortel Networks will
transfer its 81.25% stake in Arris Interactive in return for approximately 33
million new shares of common stock of a newly-formed holding company and $325
million in cash, including the repayment of certain indebtedness of Arris
Interactive to Nortel Networks. ANTEC's stockholders will own approximately
53.5% of the new holding company and Nortel Networks will own approximately
46.5%. The consummation of the transaction, which is subject to the approval of
ANTEC's stockholders, other customary closing conditions and certain regulatory
approvals, is expected to occur in the first quarter of 2001. ANTEC has secured
a commitment for a new $550 million credit facility that will be used to finance
the cash portion of the acquisition as well as to replace the Company's current
$120 million credit facility.
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, 2000
AND 1999
In order to provide a clearer understanding of ANTEC's product mix,
although it operates in only one segment, the Company is providing financial
information broken down into four major product categories: Optical & Broadband
Transmission, Cable Telephony & Internet Access, Outside Plant & Powering and
Supplies & Services.
Net Sales. ANTEC's revenue for the third quarter 2000 increased 15.7%
to $274.6 million as compared to the third quarter last year, and was relatively
flat from the revenue record set during the second quarter of 2000 of $276.1
million. For the nine-month periods ended September 30, 2000 and 1999, net sales
were $801.0 million and $578.8 million, respectfully, an increase of 38.4%
year-over-year. The Company benefited from the strong capital spending by
communication providers during the current year, especially the multiple system
operators ("MSOs"), as they rebuild their plants in an effort to provide
additional services, such as cable telephony.
Through the three and nine months ended September 30, 2000, revenue
growth was strong across all product categories as compared to the same periods
last year, with the exception of a modest third quarter decrease in the Optical
& Broadband Transmission product category.
- Optical & Broadband Transmission revenues decreased by
approximately 5.2% to $66.9 million during the third quarter
2000 as compared to the same quarter of the prior year.
Revenues for the first nine months increased approximately
26.0% to $214.2 million as compared to the first nine months
of the prior year. The third quarter of 2000 experienced a
shift in sales from optical transmission, RF and fiber
management product lines, for which sales were lower as
compared to the same period last year. These revenue declines
were somewhat offset by increased tap and repeater sales
during the current year. AT&T sales within this product
category dropped approximately $10.5 million from the second
quarter 2000 to the third quarter. Year-over-year, almost all
product lines within this category experienced increased sales
for the nine-month period. In particular, despite the third
quarter decline, optical transmission product revenue
experienced year-over-year growth of approximately 20.8%. Taps
and line passive products also experienced strong growth as
sales increased approximately 51.1% on a year-over-year
comparison.
- Cable Telephony & Internet Access revenues increased
approximately 13.6% to $86.9 million during the third quarter
2000 as compared to the same quarter of the prior year.
Revenues for the first nine months increased 80.5% to $255.1
million as compared to the first nine months of the prior
year. Increased voice port and Host Digital Terminal ("HDT")
shipments throughout the current year as compared to the prior
year generated this revenue growth. Additionally, during the
third quarter 2000, there appeared to be a shift of capital
expenditures from basic network infrastructure to revenue
generating equipment such as cable telephony. Cornerstone data
sales were approximately $1.3 million for the quarter as
compared to $16.2 million during the third quarter 1999.
- Outside Plant & Powering revenues increased approximately
43.6% to $49.7 million during the third quarter 2000 as
compared to the same quarter of the prior year. Revenues for
the first nine months increased 27.9% to $129.8 million as
compared to the first nine months of the prior year. The
year-over-year quarterly growth was generated by increased
sales of powering products, which increased by approximately
205.6%. On the year to date comparison, in addition to the
above-mentioned powering products with an increase of
approximately 91%, Monarch brand drop passives sales rose
approximately 60%.
- ANTEC's Supplies & Services revenue increased approximately
27.9% to $71.1 million during the third quarter 2000 as
compared to the same quarter of the prior year. Revenues for
11
<PAGE> 12
the first nine months increased 21.6% to $201.8 million as
compared to the first nine months of the prior year. These
increases result from strong fiber optic cable sales as well
as installation materials and tools sales, which grew over 92%
and 12%, respectively, for the quarter, and 52% and 24%,
respectively, year to date, as compared to the results of the
prior year.
Sales to AT&T reached approximately $122.8 million during the third
quarter of 2000, or 44.7% of the quarterly volume, as compared to the same
period last year when sales to AT&T were $109.6 million or 46.2% of the
quarterly volume. Year to date, sales to AT&T increased 68.1% to $363.4 million
in 2000, as compared to $216.2 million in 1999. Year-to-date revenue generated
from AT&T has been positively affected by their continued upgrade of plant
infrastructure and movement into the local loop access market during 2000. Sales
to domestic non-AT&T customers increased 10.3% over the comparable quarter last
year and approximately 15.9% year-over-year.
International sales for the quarter increased to $24.6 million, or
98.7%, as compared to the third quarter 1999, and increased 58.2% year to date.
International sales of $24.6 million and $65.3 million for the three and
nine-months ended September 30, 2000 represented approximately 13.7% and 12.2%
of sales, respectively, exclusive of the Cornerstone products that are included
as part of the Cable Telephony & Internet Access product offerings, which the
Company does not sell internationally. This compares to international revenue
achieving 7.7% and 9.5% of sales for the same periods during 1999, also net of
the Cornerstone product sales.
Gross Profit. Gross profit for the three and nine months ended
September 30, 2000 were $52.3 million and $156.4 million, respectively, as
compared to $50.0 million and $128.2 million for the comparable periods of 1999,
generating a $2.3 million improvement for the quarter and a $28.2 million
improvement year to date. During the second quarter of 2000, the Company
recorded an additional $3.5 million charge for product discontinuation costs, as
an increase to cost of goods sold, related to the reorganization that occurred
in the fourth quarter of 1999. Excluding this charge, gross profit for the
nine-month period ended September 30, 2000 would have been $159.9 million. (See
Note 3 of the Notes to the Consolidated Financial Statements.)
- Optical & Broadband Transmission gross margin decreased
approximately 1.7 percentage points to 25.1% or $16.8 million
for the third quarter 2000 as compared to the same quarter of
the prior year. Gross margin for the first nine months
decreased approximately 0.2 percentage points to 27.5% or
$58.9 million as compared to the first nine months of the
prior year. This year-over-year quarterly decline in margin
dollars is directly related to the revenue decline during the
third quarter of 2000. Year-over-year margin dollars increased
$11.8 million with the 0.2 percentage point decrease in the
blended margin percentage, as the revenue increased during
2000 as compared to the prior year.
- Cable Telephony & Internet Access gross margin decreased 1.4
percentage points to 14.7% or $12.7 million for the third
quarter 2000 as compared to the same quarter of the prior
year. Gross margin for the first nine months decreased
approximately 0.8 percentage points to 14.7% or $37.5 million
as compared to the first nine months of the prior year. The
product mix of sales within this category during the current
quarter pulled the margin percentage down from its previous
levels. Year to date, the $15.6 million in additional margin,
as compared to the prior year, is reflective of the
year-over-year revenue growth.
- Outside Plant & Powering gross margin increased approximately
1.6 percentage points to 23.6% or $11.7 million for the third
quarter 2000 as compared to the same quarter of the prior
year. Gross margin for the first nine months decreased
approximately 0.1 percentage points to 23.9% or $31.1 million
as compared to the first nine months of the prior year.
Overall, margins in this category have been affected by
absorption issues, pricing pressure, and an increase in volume
of lower margin performing products, such as power supplies.
These factors are eroding the positive effects of the
increased revenue within this category.
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- Supplies & Services gross margin decreased approximately 3.1
percentage points to 15.5% or $11.0 million as compared to the
same quarter of the prior year. Gross margin for the first
nine months decreased approximately 3.2 percentage points to
16.1% or $32.5 million as compared to the first nine months of
the prior year. There is an increase in sales of products
within this category, particularly fiber optic cable, that are
experiencing strong margin pressure. Increased business with
several customers has come at the cost of being very
competitive with pricing. Certain suppliers of products within
this category have also passed on pricing increases at the
beginning of the third quarter. These combined factors have
resulted in the gross profit shortfall for the nine months of
2000.
When comparing 2000 results to 1999 results, although sales volume
increased, generating a higher gross margin dollar amount, the Company's
consolidated gross margin percentage, excluding the additional charge for
product discontinuation costs during the second quarter, slipped to 19.1% and
20.0% for the third quarter and year to date 2000, down 2.0 and 2.2 percentage
points from the comparable periods last year. This decrease in the gross margin
percentage is the result of several factors:
- Cornerstone sales, part of the Cable Telephony & Internet
Access product offerings, which carry distribution type gross
margins in the 15% range, accounted for approximately 34.6% of
the total sales volume during the third quarter 2000 and 33.3%
of the year to date volume as compared to 32.5% and 24.8% for
the comparable periods last year. Cornerstone revenue
increased 23.0% and 85.8% for the quarter and year to date as
compared to the same periods last year.
- A portion of the increased revenue from certain customers
during 2000 required aggressive pricing with products already
experiencing strong margin pressure.
- The third quarter of 2000 experienced a shift of capital
expenditures, by our customers, from higher margin, basic
network infrastructure type products towards more revenue
generating investments such as cable telephony, which carry
lower margins.
- The Company recognized approximately $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 for the nine month period
ended September 30, 1999. 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 joint venture is currently inactive
and moving through the process of dissolution.
Selling, General Administrative, and Development ("SGA&D") Expenses.
SGA&D expenses for the three and nine-month periods ended September 30, 2000
were $34.8 million and $99.4 million, respectively as compared to $28.5 million
and $80.5 million for the same periods last year. Research and development
expenses related to new product introductions accounted for $1.6 million and
$5.9 million of this quarterly and year to date increase, respectively. Selling
expenses accounted for $3.9 million of the quarterly increases and $10.0 million
of the year to date increase as ANTEC added personnel resources in support of
the top line growth. SGA&D expenses are expected to maintain a quarterly level
between $33.0 million and $35.0 million for the fourth quarter of 2000.
It should be noted that the 2000 results included a one-time pre-tax
gain of $2.1 million realized as a result of employee elections associated with
a new and enhanced benefit plan and the resultant effect on the Company's
defined benefit pension plan. Additionally, approximately $0.7 million has been
charged to expense during 2000 incurred in connection with the New Jersey
facility closure. (See Note 3 of the Notes to the Consolidated Financial
Statements.) This year-over-year difference between SGA&D expenses also includes
the reversal of approximately $1.8 million in over-accrued expenses made during
1999 due to a change in estimated bonuses and a reduction in self-insurance
reserves from the year ended 1998. This decrease in 1999 expenses increased the
change in spending levels as compared to expenses for 2000.
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Gain on LANcity Transaction. The transaction was accounted for, in
effect, as if it were a gain on the sale of ANTEC's 18.75% interest in Arris
Interactive to Nortel in exchange for 18.75% of LANcity. As a result, a pre-tax
gain of approximately $60.0 million was recognized during the quarter ended
March 31, 1999 (the equivalent of ANTEC's 12.5% interest in Arris) with an
additional pre-tax gain of $30.0 million being recorded during the second
quarter of 2000 as further dilution of ANTEC's interest was not realized (the
equivalent of ANTEC's 6.25% interest in the venture). (See Note 9 of the Notes
to the Consolidated Financial Statements.)
Gain on Chromatis Investment. During the second quarter of 2000, the
Company made a $1.0 million strategic investment in Chromatis Networks, Inc.,
receiving 56,882 shares of the company's preferred stock. On June 28, 2000,
Lucent Technologies announced it had completed an acquisition of Chromatis,
making it part of Lucent's Optical Networking Group. The conversion of Chromatis
shares to Lucent shares resulted in the Company receiving 108,729 shares of
Lucent's stock. Lucent's stock price on the date of the completed acquisition
was $57.48, valuing ANTEC's investment at approximately $6.9 million, thus
producing a pre-tax gain of $5.9 million.
Because these shares of Lucent stock are considered trading securities
held for resale, they are required to be carried at their fair market value with
any gains or losses being included in earnings. Additionally, as a result of
Lucent's spin off of Avaya Inc., the Company was issued 9,060 shares of Avaya
stock on September 19, 2000. These securities are also being held for resale.
By the end of the third quarter, the stock price of Lucent dropped
significantly. In calculating the fair market value of the investments as of
September 30, 2000, the Company recognized a $3.4 million write down of the
investments in Lucent and Avaya.
Interest Expense. Interest expense for the quarters ended September 30,
2000 and 1999 was $2.8 and $3.3 million, respectively. Interest expense for the
first nine months of 2000 was $8.0 million as compared to $9.4 million for 1999.
Interest expense for all periods reflects the cost of borrowings on the
Company's revolving line of credit and interest on $115.0 million of 4.5%
Convertible Subordinated Notes issued during 1998. As of September 30, 2000, the
Company had a balance of $86.0 million outstanding under its Credit Facility in
floating debt. As of September 30, 2000, the average interest rate on its
outstanding line of credit borrowings was 8.22% with an overall blended rate of
approximately 6.1% when considering the subordinated debt. This compares to
$73.5 million outstanding in the third quarter 1999 hedged with $50.0 million in
swaps at a fixed rate and $23.5 million in floating debt. As of September 30,
1999, the average interest rate on the Company's outstanding line of credit
borrowings was 7.05%, with an overall blended rate of approximately 5.5%
including the subordinated debt. The low levels of floating debt mitigated the
increase of 117 basis points during the third quarter 2000 as compared to the
same period last year.
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 related to LANcity's first quarter sales to domestic cable companies. 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.
Beginning April 1999, all LANcity revenue, pertaining to cable modem and headend
products sold into ANTEC's market, was recorded by ANTEC.
Net Income. Net income of $6.2 million was recorded for the third
quarter of 2000, as compared to net income of $10.8 million for the same period
last year. Third quarter results for 2000 included a $3.4 million pre-tax write
down on the Company's investment in Chromatis. Excluding this mark to market
adjustment, net income for the third quarter of 2000 would have been $8.1
million. Net income for the nine-month period ended September 30, 2000 was $45.8
million as compared to $57.4 million for the same period last year. In addition
to the above mentioned item, included in the net income for 2000, was a pre-tax
gain on the LANcity transaction of $30.0 million, a pre-tax gain of $5.9 million
related to the Company's investment in Chromatis, an additional charge of $3.5
million in connection with product discontinuation costs reflected as an
increase in cost of goods sold all recorded in the second quarter and a pre-tax
curtailment gain on the Company's defined benefit pension plan of approximately
$2.1 million recorded during the first quarter of 2000. Exclusive of the above
transactions, net income for 2000, as compared to the same period last year,
excluding the pre-tax gain of $60.0 million related to the LANcity transaction
recorded during 1999, surged 20.3% to $28.0 million or $0.69 per diluted share.
Exclusive of the
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LANcity gain recorded during 1999, net income was $23.3 million or $0.60 per
diluted share through nine months in 1999.
Reorganization. In December 1999, ANTEC announced the consolidation of
its New Jersey facility into either its Duluth, Georgia office or down to the
Southwest, as well as the discontinuance of certain product offerings. Related
to this announcement, ANTEC booked a charge of $16.0 million. During the second
quarter of 2000, the Company, in further evaluating its powering UCF and certain
RF products, recorded an additional charge of $3.5 million to cost of goods
sold, bringing the total reorganization related charge to $19.5 million.
Included in the charge was approximately $2.6 million related to personnel costs
and approximately $3.0 million related to lease termination and other facility
shutdown charges. With the exception of saving approximately $1.5 million in
lease obligation and SGA&D costs, the remaining costs related to the New Jersey
facility will shift to Georgia and the Southwest. As of September 30, 2000, $0.9
million related to personnel costs and approximately $1.4 million related to
lease termination and other facility shutdown expenses remained to be paid. It
is now anticipated that the remaining actions will be fully recognized during
the first half of 2001.
In January 1998, ANTEC announced a consolidation plan implemented
concurrently with the creation of the new President and Chief Operating Officer
organization in Atlanta. Charges related to this reorganization for the three
and nine-month periods ended September 30, 1999 were $1.4 million and $3.4
million, respectively. The balance of expenditures related to this
reorganization was charged throughout the remainder of 1999 and completed
during the first quarter of 2000.
Acquisition of Arris. On October 18, 2000, ANTEC Corporation and Nortel
Networks, Inc. announced that they had agreed to a transaction in which, among
other things, ANTEC will acquire Nortel Networks' ownership interest in Arris
Interactive L.L.C., the joint venture between the two companies. Nortel Networks
will transfer its 81.25% stake in Arris Interactive in return for approximately
33 million new shares of common stock of a newly-formed holding company and $325
million in cash, including the repayment of certain indebtedness of Arris
Interactive to Nortel Networks. ANTEC's stockholders will own approximately
53.5% of the new holding company and Nortel Networks will own approximately
46.5%. The consummation of the transaction, which is subject to the approval of
ANTEC's stockholders, other customary closing conditions and certain regulatory
approvals, is expected to occur in the first quarter of 2001.
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
FINANCING
As of September 30, 2000, the Company had a balance of $86.0 million
outstanding under its Credit Facility and $34.0 million of available borrowings.
The average interest rate on these outstanding borrowings was 8.22% at September
30, 2000. The commitment fee on unused borrowings is approximately 0.5%.
CAPITAL EXPENDITURES
The Company's capital expenditures were $3.8 million and $4.0 million
in the three months ended September 30, 2000 and 1999, respectively. Capital
expenditures were $12.9 million for the nine months of 2000 as compared to $15.2
million during 1999. The Company had no significant commitments for capital
expenditures at September 30, 2000.
CASH FLOW
Cash levels increased approximately $16.6 million in the first nine
months of 2000 and increased $3.5 million during the same period of the prior
year. Through the nine months ended September 30, 2000, net cash provided by
operating activities was $10.3 million. The Company also spent approximately
$12.9 million on capital purchases and recorded $4.5 million in additional
investments during the first nine months of the year. Financing activities
provided approximately $23.7 million in cash during 2000. During
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the nine months ended September 30, 1999, cash used in operating activities was
$1.2 million related to increases in accounts receivable and inventory levels.
Investment activity during 1999 consumed approximately $15.2 million. These cash
outlays during 1999 were fully offset by $19.9 million of positive cash flows
from financing activities.
Operating activities provided cash of $10.3 million during the
nine-month period ended September 30, 2000. Inventory levels have decreased,
providing $5.5 million in positive cash flow. An increase in accounts payable
and accrued liabilities provided approximately $24.1 million in cash. Positive
cash flow was provided by the net income for the nine-month period of $45.8
million while depreciation and deferred income taxes provided $14.6 million and
$11.8 million, respectively. Reflective of the revenue levels achieved during
2000, increased receivable levels utilized $51.6 million of cash during the
current year. Additionally, during the second quarter of 2000, the Company
recorded a pre-tax gain of $30.0 million in their Arris joint venture based on
the Company's final ownership percentage in the transaction. (See Note 9 of the
Notes to the Consolidated Financial Statements.) The Company also recorded an
initial $5.9 million pre-tax gain related to its investment in Chromatis during
the second quarter of 2000, which was written down $3.4 million during the third
quarter to reflect the fair value of the investment. Operating activities
utilized cash of $1.2 million during the period ended September 30, 1999. In
1999, the Company recorded the initial pre-tax gain of $60.0 million in the
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 $61.7
million and $29.4 million, respectively. An increase in accounts payable and
accrued liabilities provided approximately $57.0 million through September 30,
1999. Positive cash flow was provided by the net income for the nine-month
period of $57.4 million while depreciation and deferred income taxes provided
$12.1 million and $25.8 million, respectively.
Days sales outstanding were approximately 77 days at September 30, 2000
as compared to approximately 63 days for the same period of 1999. Two factors
that contributed to this increase in days sales outstanding include, first, the
growth in the international business during 2000, which carry significantly
longer terms than the domestic business, and second, a shift in our revenue
stream weighted more heavily toward the later part of the quarter as opposed to
being spread evenly throughout the quarter. Both of these factors combined added
approximately 10 days to the calculation for the period ended September 30,
2000. Additionally, domestic collections were slightly slower in the third
quarter of 2000, as compared to the third quarter of the prior year due
primarily to the timing of larger payments from significant customers.
Cash flows used in investing activities were $17.4 million and $15.2
million for the nine months ended September 30, 2000 and 1999, respectively.
These investment amounts reflect $12.9 million and $15.2 million in purchases of
capital assets during the respective periods. Additionally, the Company funded
approximately $4.5 million in strategic investments during 2000.
Cash provided by financing activities was $23.7 million during the
period ended September 30, 2000. Borrowings under the Company's credit
facilities exceeded payments by $17.5 million. This cash was supplemented by the
exercise of stock options during 2000 that provided positive cash flows of
approximately $7.1 million. Cash provided by financing activities during 1999
was $19.9 million driven by net borrowings of $7.5 million and the exercise of
stock options that provided an additional $12.5 million in positive cash flows
during 1999. Financing activities during both periods reflect their respective
trends in operating and investing activities.
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 expenditures and working capital requirements for the immediately
foreseeable future. Currently, the Company has secured a commitment for a new
$550 million credit facility that will be used to finance the cash portion of
the acquisition of Arris Interactive from Nortel Networks. This new facility
will also replace the Company's current $120 million credit facility. (See Note
11 of the Notes to the Consolidated Financial Statements.)
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YEAR 2000 DISCLOSURE
ANTEC transitioned through January 1, 2000 and experienced no
significant date related processing issues. ANTEC does not anticipate incurring
any material direct costs related to the Year 2000 Issue going forward. As of
September 30, 2000, the Company is not aware of any material problems resulting
from Year 2000 issues, either with its products, its internal systems, or the
products, services and systems of its major suppliers, customers or third
parties. The Company will continue to monitor its mission critical computer
applications and those of its suppliers and vendors throughout 2000 to ensure
that any latent Year 2000 matters that may arise are addressed promptly.
FORWARD LOOKING STATEMENTS
Certain information and statements contained in this Management
Discussion and Analysis of Financial Condition and Results of Operations and
other sections of this report, including statements using terms such as "may,"
"expect," "anticipate," "intend," "estimate," "believe," "plan," "continue,"
"could be," or similar variations or the negative thereof, constitute forward
looking statements with respect to the financial condition, results of
operations, and business of ANTEC, including statements that are based on
current expectations, estimates, forecasts, and projections about the markets in
which the Company operates, the margins it expects from its products and its
expectations regarding SGA&D expenses, as well as management's beliefs and
assumptions regarding these markets. Any statements that are not statements
about historical facts also are forward looking statements. The Private
Securities Litigation Reform Act of 1995 (the "Act") provides a "safe harbor"
for forward looking statements. These Cautionary Statements are being made
pursuant to the provisions of the Act and with the intention of obtaining the
benefits of the terms of the "safe harbor" provisions of the Act. In order to
comply with the terms of the "safe harbor," the Company cautions investors that
any forward looking statements made by the Company are not guarantees of future
performance and that a variety of factors could cause the Company's actual
results to differ materially from the anticipated results or other expectations
expressed in the Company's forward looking statements. Several factors that
could cause results or events to differ from current expectations are discussed
below. These factors are not intended to be an all-encompassing list of risks
and uncertainties that may affect the operations, performance, development and
results of the Company's business. 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.
Gross profit for the product category disclosures. Gross profit for the
product category disclosures within Management's Discussion and Analysis of
Financial Condition and Results of Operations section of this report was derived
from estimates using standard product margins and an allocation of manufacturing
variances based on a percentage of product category sales.
Rapid technological change and voice and data convergence. ANTEC
expects that data communications traffic will grow substantially in the future
compared to the modest growth expected for voice traffic. The growth of data
traffic is expected to have a significant impact on traditional voice networks
and create market discontinuities that should drive the convergence of data and
telephony. Many of the Company's traditional customers have already been
investing in data networking and that trend is expected to continue. Due to the
evolving nature of the communications industry and the technologies involved,
there can be no assurance as to the rate of such convergence.
Rapidly changing technologies, evolving industry standards, frequent
new product introductions, and relatively short product life cycles characterize
the markets for ANTEC's products. The Company's success is expected to depend,
in substantial part, on the timely and successful introduction of new products
and upgrades of current products to comply with emerging industry standards and
to address competing technological and product developments achieved by its
competitors. The success of new or enhanced products is dependent on a number of
factors including the timely introduction of such products, market acceptance of
new technologies and industry standards, and the pricing and marketing of such
products. An unanticipated change in one or more of the technologies affecting
telecommunications and data networking, or in market demand for products based
on specific technology could have a material adverse
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effect on the business, results of operations, and financial condition of the
Company if it fails to respond in a timely and effective manner to such changes.
Competition. The Company competes with national, regional and local
manufacturers, distributors and wholesalers including some companies larger than
ANTEC. The Company's competitors include General Instrument Corporation, now a
part of Motorola, Inc., Scientific-Atlanta, Inc., Philips, Harmonic Inc., and
C-COR.net Corporation. Since the markets in which the Company competes are
characterized by rapid growth and, in certain cases, low barriers to entry and
rapid technological changes, smaller niche market companies and start-up
ventures may become principal competitors in the future.
ANTEC expects that it will face additional competition from existing
competitors and from a number of companies that may enter ANTEC's existing and
future markets. Some of the Company's current and potential competitors have
greater financial, marketing and technical resources. A majority of ANTEC's
current and potential competitors also have established relationships with the
Company's current and potential customers. Increased competition could result in
price reductions, reduced profit margins, and loss of market share, each of
which could have a material adverse effect on the business, results of
operations, and financial condition of the Company.
International growth, foreign exchange, and interest rates. ANTEC
intends to continue to pursue growth opportunities in international markets. In
many international markets, long-standing relationships, including local content
requirements and type approvals, create barriers to entry. In addition, pursuit
of such international growth opportunities may require significant investments
for an extended period before returns on such investments, if any, are realized.
Such projects and investments could be adversely affected by reversals or delays
in the opening of foreign markets to new competitors, exchange controls,
currency fluctuations, investment policies, repatriation of cash,
naturalization, social and political risks, taxation and other factors,
depending on the country in which such opportunities arise. Difficulties in
foreign financial markets and economies, and of foreign financial institutions,
could adversely affect demand from customers in the affected countries.
In order to grow internationally, it is expected that the Company will
be required to provide significant amounts of customer financing in connection
with the sale of products and services.
Capital spending of key customers. Changes in spending patterns of
ANTEC's key customers will have a direct effect on the results of the Company's
operations and financial condition. In particular, sales to AT&T, ANTEC's
largest customer has accounted for over 40% of the Company's revenue. A future
decision by AT&T to reduce purchases could have a material adverse effect on the
Company's business, results of operations, and financial condition. On October
25, 2000, AT&T announced that it planned to split into four companies, including
separate cable and telephone companies. The impact of such a split is not yet
known, however, the Company does not anticipate any material adverse effect
arising from the split.
General industry and market conditions and growth rates. ANTEC's future
operating results may be affected by various trends and factors that must be
managed in order to achieve desired operating results. In addition, there are
trends and factors beyond the Company's control, which affect its operations.
Such trends and factors include general domestic or global economic conditions
as well as competitive, technological, and regulatory developments and trends
specific to the Company's industry, customers and markets. 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.
ANTEC competes in a highly volatile and rapidly growing industry that
is characterized by vigorous competition for market share and rapid
technological development carried out amidst uncertainty over adoption of
industry standards and protection of intellectual property rights. These factors
could result in aggressive pricing practices and growing competition both from
start-up companies and from well-capitalized communications companies.
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Consolidations in the telecommunications industry. The
telecommunications industry has experienced the consolidation of many industry
participants and this trend is expected to continue. ANTEC and one or more of
its competitors may each supply products to the corporations that have merged or
will merge. This consolidation could result in delays in purchasing decisions by
the merged corporations with the Company playing a greater or lesser role in
supplying the communications products to the merged entity. These purchasing
decisions of the merged companies could have a material adverse effect on the
Company's business, results of operations, and financial condition.
Mergers among the supplier base have recently increased and this trend
is also expected to continue. The larger combined companies with pooled capital
resources may be able to provide solution alternatives with which the Company
would be put at a disadvantage to compete. The larger breath of product
offerings these consolidated suppliers could provide could result in customers
electing to trim their supplier base for the advantages of one-stop shopping
solutions for all their product needs. These consolidated supplier companies
could have a material adverse effect on the Company's business, results of
operations, and financial conditions. Current and future strategic alliances and
acquisitions will play a strong role in the Company's ability to compete within
this changing landscape.
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. As of September 30, 2000,
the Company had no material contracts denominated in foreign currencies.
In the past, ANTEC has used interest rate swap agreements, with large
creditworthy financial institutions, to manage its exposure to interest rate
changes. These swaps would involve the exchange of fixed and variable interest
rate payments without exchanging the notional principal amount. At September 30,
2000 the Company did not have any outstanding interest rate swap agreements.
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 previously used foreign currency contracts to
hedge the risks associated with foreign currency fluctuations for significant
sales contracts, however, no such contracts were in place at September 30, 2000.
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 does not maintain Mexican peso-denominated
currency. Instead, U.S. dollars are exchanged for pesos at the time of payments.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.0 Financial Data Schedules (for SEC use only)
(b) Reports on Form 8-K
On October 25, 2000, ANTEC filed a report on Form 8-K
relating to Item 5, Other Events, to describe the
Company's agreement with Nortel Networks, Inc. to a
transaction in which ANTEC will acquire Nortel's
ownership interest in Arris Interactive L.L.C., the
joint venture between the two companies.
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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 9, 2000
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