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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
Commission file number 0-22336
ANTEC CORPORATION
(Exact name of Registrant as specified in its charter)
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DELAWARE 36-3892082
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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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)
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $0.01 par value NASDAQ National Market System
4.5% Convertible Subordinated Notes NASDAQ National Market System
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Securities registered pursuant to Section 12(b) of the Act: None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the shares of Registrant's common stock,
$0.01 par value, held by nonaffiliates of Registrant was approximately
$1,393,011,149 as of March 10, 2000.
At March 10, 2000, 37,638,570 shares of Registrant's common stock, $0.01
par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's Proxy Statement for the 2000 Annual
Meeting of Stockholders of ANTEC Corporation are incorporated by reference into
Part III. This document consists of 59 pages. Exhibit List is on page 57.
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TABLE OF CONTENTS
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PAGE
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PART I
ITEM 1. Business.................................................... 1
- General................................................... 1
- Industry.................................................. 2
- Principal Products........................................ 3
- Developmental Products.................................... 4
- Sales and Marketing....................................... 4
- Research and Development.................................. 5
- Patents................................................... 5
- Manufacturing............................................. 6
- Materials and Supplies.................................... 6
- Backlog................................................... 6
- International Opportunities............................... 7
- Seasonality............................................... 7
- Significant Customers..................................... 7
- Turnkey Construction Contracts............................ 7
- Competition............................................... 7
- Employees................................................. 8
ITEM 2. Properties.................................................. 8
ITEM 3. Legal Proceedings........................................... 8
ITEM 4. Submission of Matters to a Vote of Security Holders......... 9
PART II
ITEM 5. Market for the Registrant's Common Stock and Related
Stockholder Matters....................................... 11
ITEM 6. Selected Consolidated Historical Financial Data............. 12
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 13
ITEM 7A Quantitative and Qualitative Disclosures About Market
Risk...................................................... 27
ITEM 8. Consolidated Financial Statements and Supplementary Data.... 28
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 28
PART III
ITEM 10. Directors and Executive Officers of the Registrant.......... 54
ITEM 11. Executive Compensation...................................... 54
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 54
ITEM 13. Certain Relationships and Related Transactions.............. 54
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 55
ITEM 14(a). Index to Consolidated Financial Statements and Financial
Statement Schedules....................................... 55
Signatures............................................................... 59
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PART I
ITEM 1. BUSINESS
GENERAL
ANTEC Corporation (together with its consolidated subsidiaries, except as
the context otherwise indicates, "ANTEC" or the "Company") is a developer,
manufacturer and supplier of optical and radio frequency ("RF") 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 a full line of technologically advanced fiber optic products to
capitalize on current and future upgrades of HFC cable systems capable of
providing state-of-the-art video, voice and data services. ANTEC has strong
long-term relationships with its customers, serving major domestic HFC cable
operators. To capitalize on the growing worldwide telecommunications industry,
the Company has developed important relationships with domestic telephone and
international broadband communications providers. From its inception in 1969
until its initial public offering in 1993, ANTEC was primarily a distributor of
cable television equipment and was owned and operated by Anixter International,
Inc. ("Anixter"). Since that time, the Company has completed several important
strategic acquisitions and formed joint ventures designed to expand
significantly the Company's product offerings and provide state-of-the-art
manufacturing capabilities. Currently, the Company believes that it is the
provider with the broadest offering of products and services in its industry. As
a result of these acquisitions, a substantial component of the Company's sales
consist of manufactured products, which typically carry higher gross margins
than distributed products. The Company manufactures products in the United
States and Mexico in ISO certified facilities and through relationships with
third party manufacturers in China, Malaysia and Taiwan. In addition, through
its distribution channels the Company supplies products manufactured by others.
The Company serves its customers through an efficient delivery network
consisting of 25 sales and stocking locations in the United States, Argentina,
Brazil, Canada, China, Italy, Spain and the United Kingdom. For most customer
needs, the Company maintains complete inventories and is able to provide
overnight as well as staged delivery of products.
A synopsis of ANTEC's evolution:
- 1969 -- Anixter entered the cable industry
- 1986 -- Anixter was acquired by Itel Corporation
- 1987 -- Anixter acquired TeleWire Supply
- 1988 -- Anixter and AT&T developed the first analog video laser
transmitter for the cable industry (Laser Link 1)
- 1991 -- ANTEC was established
- 1993 -- ANTEC's initial public offering
- 1994 -- ANTEC acquisitions that significantly expanded its product
development and manufacturing capabilities:
1. Electronic System Products, Inc., ("ESP") an engineering consulting
firm with core capabilities in digital design, RF design and
application specific integrated circuit development for the broadband
communications industry
2. Power Guard, Inc., a leading manufacturer of power supplies and high
security enclosures for broadband communications networks
3. Keptel, Inc., a designer, manufacturer and marketer of outside plant
telecommunications and transmission equipment for both residential
and commercial use, primarily by telephone companies
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- 1995 -- ANTEC and Nortel Networks ("Nortel") formed a joint venture
company, called Arris Interactive, L.L.C. ("Arris"), focused on the
development, manufacture and sale of products that enable the
provision of a broad range of telephone and data services over HFC
architectures; ANTEC owned 25% and Nortel Networks owned 75% of the
Arris joint venture
- 1997 -- ANTEC acquired TSX Corporation, which provided electronic
manufacturing capabilities and expanded the Company's product lines
to include amplifiers and line extenders and enhanced laser
transmitters and receivers and optical node product lines
- 1998 -- ANTEC introduced the industry's first 1550 nm Narrowcast
Transmitter and dense wavelength division multiplexing ("DWDM")
optical transmission system
- 1999 -- ANTEC completed the combination of the Broadband Technology
Division of Nortel ("LANcity") with the Arris joint venture resulting
in an increase in Nortel's interest in the joint venture to 81.25%
while ANTEC's interest was reduced to 18.75%. Depending on the
achievement of certain sales levels, additional dilution of up to
12.50% of ANTEC's interest could occur (See Note 11 to the Notes of
the Consolidated Financial Statements.)
- 1999 -- ANTEC introduced the industry's first 18 band block converter
and combined that with the DWDM allowing 144 bands on a single fiber
INDUSTRY
A broadband communications system consists of three principal segments. The
first is the headend where the cable system operator receives television signals
via satellite and other sources. The headend facility organizes, processes and
retransmits those signals through the second component, the distribution
network, to the subscriber. The headend facility is also the location for the
equipment supporting high-speed Internet access and data services and where the
equipment interfacing the public-switched network in support of telephone
service resides. The distribution network consists of fiber optic and coaxial
cables and associated optical and electronic equipment that take the original
signal from the headend and transmit it throughout the cable system. The third
component is the "drop" which extends from the distribution network to the
subscriber's home and connects either directly to the subscriber's television
set or to a converter box. The converter box may be addressable (a converter
that permits the delivery of premium cable services, including pay-per-view
programming, by enabling the cable operator to control the subscriber services
through the headend) or non-addressable (where premium channels are activated or
eliminated by traps installed in the drop system outside the home). The drop and
home network also include voice port devices in support of cable telephone
services and data modems linked to personal computers for high-speed Internet
access.
Historically, a cable system offered one-way only video service. Advanced
by the technological achievements not only within the cable industry, but also
within all areas of the communications industry, these systems have gone through
dramatic changes. These changes, in part were driven by:
- deregulation allowing competition among communications companies,
including wireline and wireless telephone companies and cable operators,
for communication services;
- demand by customers for two-way, high-speed broadband communications to
accommodate video, telephony, data and other new information services;
and
- multiple technologies that attempt to address the need for high-speed
local loop connections, such as fiber optic transmission technology
including dense wavelength division multiplexing (DWDM), digital
subscriber lines ("DSL") and local multipoint distribution service
("LMDS").
The technological advancements, growth and demand within the industry have
resulted in:
- the continuing upgrade of existing HFC networks to two-way, interactive
broadband networks in order to provide new and improved services and to
compete against other communications technologies including DSL, LMDS and
direct broadcast satellite ("DBS");
- increased and deeper utilization of fiber optic technology, including the
DWDM into the network;
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- consolidations among cable operators as a result of the increased needs
of the system upgrades;
- investments in cable operators by non-cable operators in an effort to
compete for both new and existing services and provide a full range of
communication services; and
- increased demand for more reliable cable networks due to the new services
being offered.
The Company's expansive product offerings position it well to meet the
growing needs of the industry, offering end-to-end solutions to meet the demands
of the three principal segments of the cable industry. Product innovation will
remain a critical focus for ANTEC as the ever-increasing drive for bandwidth
pushes the customers' needs for a full suite of equipment solutions throughout
their networks.
PRINCIPAL PRODUCTS
ANTEC has been a major supplier of products to the cable industry since
1969 and provides a broad range of products and services to cable system
operators. The Company supplies the most complete set of products required in a
cable system including headend, distribution, drop and in-home subscriber
products. ANTEC's vast product offerings can be classified into four distinct
product categories: Cable Telephony and Internet Access, Optical and Broadband
Transmission, Outside Plant and Powering, and Supply.
Cable Telephony and Internet Access. The Company supplies products for
this explosive cable telephony and high-speed data access business under the
brand name Cornerstone. These products are designed and manufactured by Arris,
the Company's joint venture with Nortel. These products, sold to
telecommunications operators by ANTEC, include Host Digital Terminals ("HDTs")
and cable modem termination system ("CMTS") devices for the headend, as well as
voice ports and cable modems at the home. The HDT provides an interface between
the HFC system and digital telephone switches. Located at headends or hubs, it
works by converting telephony signals into RF signals for transmission over the
HFC network to voice ports, which are located at the customer's premises. The
CMTS allows for two-way traffic between the customer's premises and the cable
provider of data transferred over high-speed Internet access. Voice over
Internet Protocol ("VoIP") telephony and data products, including the Packet
Port and Advanced Internet Protocol Module ("AIPM") are planned for introduction
and deployment during the latter part of 2000. Additionally, the Company
provides training, technical support, engineering and installation services for
these products. Sales of these combined product lines were approximately 28%, 6%
and 5% of the consolidated net sales of the Company for the years ended December
31, 1999, 1998 and 1997, respectively.
Optical and Broadband Transmission. ANTEC is one of the leading suppliers
of fiber optic related transmission products to the cable industry.
Traditionally, cable systems were designed using coaxial cable and a series of
amplifiers throughout the distribution network. Today, almost every substantial
upgrade or rebuild replaces elements of the traditional system with fiber optic
technology. The use of a fiber optic system enables the operator to send its
signals greater distances and with less signal degradation than the traditional
coaxial system. In addition, fiber optic cable's capacity to transmit a wider
bandwidth greater distances than coaxial cable allows for the transmission of
more video, high-speed data and telephony services to the subscriber's home. The
use of fiber optic technology reduces the need for overall maintenance costs
associated with active electronic components. ANTEC supplies the key product
components for the fast growing fiber optic rebuild or upgrade markets: 1310 and
1550 optical laser transmitters, DWDM products, laser receivers, optical nodes,
RF distribution amplifiers, and taps and line passives. In a fiber optic
network, optical signals are transmitted throughout the distribution system
along a fiber optic cable from the headend to the node, where the signal is
received optically, converted to RF electronic signals, and transferred via
coaxial cable to the home. Nodes provide the interface between the fiber optic
network and the coaxial distribution system. Distribution amplifiers strengthen
the signal either on its way to the node or from the node. Taps and line
passives split the signal for transmission along various branches of the
distribution system. Laser transmitters convert incoming electronic video
signals at the headend to an optical signal that can be transmitted over the
fiber optic cable. The laser receiver is able to detect the light coming out of
the cable and convert it back into electronic signals for further transport to
the home via coaxial cable. In addition to the key components of a fiber optic
network, ANTEC sells a variety of ancillary fiber optic products, including the
shelf assemblies in which lasers are
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mounted. The Company also manufactures certain other telecommunications
products, including T-1 and XDSL components, for signal broadband in traditional
telephony architectures.
Sales of the aforementioned products related to the Company's broadband and
optical products offerings were 29%, 34% and 23%, respectively, of the
consolidated net sales of the Company for the years ended December 31, 1999,
1998 and 1997.
Outside Plant and Powering. The transmission and drop systems of the HFC
networks require, and the Company's product offerings include, drop passives
that are sold under the Regal and Monarch brand names, customized wire
assemblies and transition cable, connectors for both field and at-the-home use,
outside plant apparatus and enclosures, and power supplies. Power supplies
provide uninterruptible stand-by power using batteries or generator back-up
supply. These products can be configured for centralized or distributed power
architectures and have been newly designed and introduced for advanced
HFC/telephony architectures. Also included in this product family are network
interface devices ("NIDs"). The Company manufactures NIDs, for both the
traditional telephony and the HFC architectures, which serve as the demarcation
point where the signal from the service provider meets the wiring of the
subscribers' premises. Sales of outside plant and powering products accounted
for approximately 17%, 22% and 23% of consolidated net sales of the Company for
the years ended December 31, 1999, 1998 and 1997, respectively.
Supply. Distribution networks, whether fiber optic or coaxial, can be
constructed either above or below ground. In an aerial system, the transmission
cable is supported by galvanized steel cables, or "strand", which run from pole
to pole. ANTEC supplies, in addition to the fiber optic and coaxial cable
itself, strand as well as the support and attachment hardware needed throughout
the system. In an underground system, buried transmission cable requires
protection and is frequently encased in conduit that the Company also supplies.
In addition, to meet its customers' need for ancillary products, the Company
supplies various test equipment, installation materials, tools and other safety
equipment used in HFC cable systems. The Company is also a value-added
distributor of circular connectors for the original equipment manufacturer
("OEM") and military markets. Sales of these combined products were
approximately 26%, 38% and 46% of the consolidated sales of the Company for the
years ended December 31, 1999, 1998 and 1997, respectively.
ANTEC, through ESP, provides engineering consulting services primarily for
developers of HFC cable systems products. These services provided less than 5%
of the combined sales of the Company for the years ended December 31, 1999,
1998, and 1997, respectively.
DEVELOPMENTAL PRODUCTS
ANTEC is committed to being a technology integrator and product development
specialist in the evolving broadband communications market. The Company strives
to develop new products and technology applications, both through its own
engineering resources and by forging strategic alliances with other companies.
The Company is currently involved in the development of several new products.
There can be no assurance that the technology applications under development by
ANTEC will be successfully developed or, if successfully developed that they
will be widely used or that the Company will otherwise be able to successfully
exploit these technology applications. Furthermore, the Company's competitors
may develop similar or alternative new technology applications that, if
successful, could have a material adverse effect on ANTEC. The Company's
strategic alliances are based on business relationships and generally are not
the subject of written agreements expressly providing for the alliance to
continue for a significant period of time. The loss of a strategic partner could
have a material adverse effect on the development of new products under
development with that partner.
SALES AND MARKETING
Rapid industry consolidation has resulted in an increasingly smaller
customer group. This dynamic demands a highly focused sales approach, which
ANTEC enhanced with its 1999 sales force reorganization. The new structure of
the organization is designed to meet the challenges that these consolidations
have brought head-on, in focusing on the top seven multiple system operators
("MSOs"), major Telcos, overbuilders, competitive local exchange carriers
("CLECs") and other business opportunities. It is antici-
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pated that the customer base will continue the trend of system swaps, mergers
and acquisitions during the new year. ANTEC's ability to respond quickly to
these changes and deploy its resources in a highly focused manner will be key to
future success.
The reorganization of the sales force is structured around the customer,
where the Company will manage the sales and positioning of all of ANTEC's
product offers, providing the customer with optimized system solutions. The
individuals heading these National Accounts focus exclusively on specific
accounts and have the responsibility for serving their respective customers,
increasing ANTEC's market share in each account and ensuring ANTEC's business
growth across all product lines.
In order to serve these account leaders in the field and effectively manage
the regional challenges of all customers, ANTEC has established a Regional Sales
and Support level, divided geographically with the responsibility for deploying
resources where required.
Ensuring that ANTEC continues to secure the best of customer relationships
will be the focus of the senior executive sales team. These individuals will
continue to focus on the growth of these accounts at all levels, leveraging
their years of service and technological experience to insure account plans are
achieved.
ANTEC also maintains strong customer relationships through an inside sales
group that is responsible for regular phone contact, prompt order entry, timely
and accurate delivery and effective sales administration for the many changes
frequently required in any substantial rebuild or upgrade activity. In addition,
the sales structure includes sales engineers and technicians that can assist
customers in system design and specification and can promptly be on site to
"trouble shoot" any problems as they arise during a project. An important
element of the Company's sales strategy is to maintain optimal inventory levels
of a wide variety of products to enable prompt delivery to customers.
The Company also employs an experienced marketing and product management
team that focuses on each of the various product categories and works with the
Company's engineers and various technology partners on new products and product
improvements. This group is responsible for inventory levels and pricing,
delivery requirements, market demand and product positioning and advertising.
Product management works closely with the sales team and executive management to
assure that customers are getting the benefits of the newest technologies and
that the Company is abreast of market trends in the industry.
The Company utilizes sophisticated computer systems. These systems are
on-line, real time, and fully integrated, providing the user with cost, product
location and availability, credit history, order tracking and material
management information, daily sales and profitability information, customer
profile information, product inquiry information and the capacity to permit
paperless transactions with customers.
RESEARCH AND DEVELOPMENT
ANTEC conducts an active research and development program to strengthen and
broaden its existing products and systems and to develop new products and
systems. The Company's strategy behind its research and development efforts is
to identify the products and systems which are, or are reasonably expected to
be, needed by a substantial number of customers in the Company's markets. Upon
further assessment of these products and systems and their potential
marketability, the Company allocates its resources to areas with the highest
potential for future benefits to the Company. The Company's research and
development expenditures for the years ended December 31, 1999, 1998 and 1997
were approximately $16.6 million, $14.4 million and $13.4 million, respectively.
Additionally, the Company strives to develop new products and technology
applications, both through its own engineering resources and by forging
strategic alliances with other companies such as Nortel with our Arris joint
venture. Arris spends a significant amount of its resources in research and
development of the Company's Cable Telephony and Internet Access products.
PATENTS
The Company holds various patents with respect to certain of its products
and actively seeks to obtain patent protection for significant inventions and
developments. ANTEC's patents are used to enhance to Company's competitiveness
within the industry.
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MANUFACTURING
The Company develops, manufactures, assembles or acquires all of its
products. The Company maintains a vertically integrated structure that ensures
quick response from the design phase through the manufacturing process. This
capability is a critical factor in shortening product development time and
permits ANTEC to react quickly to the needs of its customers. Manufacturing
operations range from electro/mechanical, labor-intensive assembly to
sophisticated electronic surface mount automated assembly lines. The typical
production cycle for the Company's products, from the purchasing of raw
components to manufacturing and shipping products, is three months or less. A
significant element of the Company's manufacturing strategy is to subcontract
production where the scale and capacity of other manufacturers make it
economical to do so.
ANTEC operates five major manufacturing facilities which produce its
products, all of which are ISO certified. The Company also utilizes various
contract manufacturers to supplement its manufacturing needs. In addition, the
Company acquires products for resale from other domestic and foreign
manufacturers.
The Company operates two facilities in Juarez, Mexico. The first, a 135,000
square foot electronic design and assembly facility used in prototyping,
manufacturing and testing the majority of all optronics, RF amplifier lines and
nodes. This facility houses sophisticated electronic surface mount and thru-hole
automated assembly lines. The entire operation is moving rapidly into more
sophisticated and efficient supply chain processes. The second, a 60,000 square
foot electro/mechanical assembly plant, produces various fiber optic closures
and apparatus as well as intermediate and final assemblies for powering and
demarcation products.
Plastic injection molded parts are manufactured in a 50,000 square foot
facility in El Paso, Texas. The Company produces its own molding tools in Tinton
Falls, New Jersey using state-of-the-art computer design software and machining
systems. With the consolidation plan announced during the fourth quarter of
1999, this function will be transitioned to the El Paso plastics facility. All
metal housings are manufactured in a metal fabricating facility also located in
El Paso, Texas. This 120,000 square foot plant supplies enclosures for various
powering, demarcation and outside plant products.
The Company also operates a 130,000 square foot facility in Rock Falls,
Illinois. This facility manufactures various outside plant equipment including
T-1 repeater cases and transition cable.
The Company's Cable Telephony and Internet Access products are manufactured
by Arris through a series of strategic manufacturing partnerships in the United
States and the Far East. The Company holds an 18.75% interest in Arris.
All of the manufacturing facilities, with the exception of the electronic
assembly facility, are leased. The remaining lease terms vary from one to nine
years. The lease rates are very competitive for the geographic areas in which
they are located and ANTEC enjoys outstanding relationships with all of its
landlords.
MATERIALS AND SUPPLIES
ANTEC makes significant purchases of electronic components, metals, OEM
products, and other materials and components from various domestic and some
foreign sources. The Company has been able to obtain sufficient materials and
components to meet its needs. In a continual effort to hedge against potential
part shortages, the Company may occasionally maintain special inventories of
certain components. Additionally, the Company actively develops and maintains
alternative sources for essential materials and components.
BACKLOG
The Company's backlog consists of unfilled customer orders believed to be
firm and long-term contracts that have not been completed. The Company's backlog
for the years ended December 31, 1999, 1998 and 1997 was approximately $105.4
million, $37.4 million and $44.7 million, respectively.
The Company believes that substantially all of the backlog existing at
December 31, 1999 will be shipped within the succeeding year. With respect to
long-term contracts, the Company includes in its backlog only amounts
representing orders currently released for production. The amount contained in
backlog for any
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contract or order may not be the total amount of the contract or order. The
amount of the Company's backlog at any given time does not reflect expected
revenues for any fiscal period.
INTERNATIONAL OPPORTUNITIES
The international market remains an upside opportunity for ANTEC. The
Company continues to believe that international opportunities exist and
continues to invest in worldwide marketing efforts, which have yielded some
promising results in several regions during 1999. Increased use of our products
in Central Europe, Scandinavia and Spain significantly grew our European
bookings. ANTEC remains a major supplier of HFC products to United Pan Europe
Communications ("UPC"), which is Europe's largest cable operator. In South
America, the Company continued to hold major market share in Argentina, Chile
and Peru, and business improved in these countries during 1999. In Asia, ANTEC
secured a contract for optical networking gear with Shanghai Bell, China's
largest provider of telecommunications services. This contract should open the
door to the world's second largest installed cable television population,
representing a huge upgrade market for ANTEC. The Company maintains sales
offices in Argentina, Australia, Brazil, China, Hong Kong, Italy, Mexico,
Singapore, Spain and the United Kingdom.
SEASONALITY
Although the Company's business is not highly seasonal, the Company's sales
in the second and third quarters have generally been the strongest as cold
weather and the holiday season negatively impact construction and purchasing
patterns in the fourth quarter and, to a lesser extent, the first quarter of the
year.
SIGNIFICANT CUSTOMERS
ANTEC's two largest customers for 1999 were AT&T and Cox Communications.
Traditionally, a significant portion of the Company's revenue is derived from
sales to AT&T aggregating $347.4 million, $142.7 million and $46.6 million for
1999, 1998 and 1997, respectively. Sales to Cox Communications almost doubled
during the year to $57.2 million from $28.9 million in 1998 and $13.7 million in
1997. Sales to AT&T for 1999 accounted for approximately 42.0% of ANTEC's total
sales while Cox Communications accounted for approximately 6.9%. No other
customer provided more than 5% of the Company's total revenues for 1999.
ANTEC is currently Cox Communication's exclusive provider of cable
telephony network solutions in eight of their key markets across the country
while striving to increase the array of products to meet Cox's future needs.
ANTEC is also AT&T's primary supplier of cable telephony products. During 1999,
AT&T concentrated on setting up headends for cable telephony service, deploying
approximately 1,200 of ANTEC's headends in eight metro markets. During the first
quarter of 2000, ANTEC and AT&T announced that ANTEC will be AT&T's exclusive
provider of constant bit rate cable telephony products through 2003 within these
eight markets. With its infrastructure in place and the capacity to provide more
than four million lines of service to customers, AT&T is set to begin
aggressively marketing cable telephony as it re-enters the local telephone
service business.
TURNKEY CONSTRUCTION CONTRACTS
In response to AT&T's request for turnkey services, the Company formed a
joint venture to provide turnkey construction solutions and services. The actual
performance of the services was subcontracted by the joint venture to the
Company's partner, which is a limited liability company with limited resources.
During 1999, AT&T exercised its right to terminate, for convenience, its
contracts with the joint venture and to take over the management of these
projects directly. The joint venture was not designed as a profit-generating
vehicle and the termination of the contracts did not have a material adverse
effect on the Company or its product sales to AT&T.
COMPETITION
All aspects of the Company's business are highly competitive. The broadband
communication industry itself is dynamic, requiring the companies that compete
in these markets to react quickly and capitalize on
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change. This requires the Company to retain skilled and experienced personnel as
well as deploy substantial resources toward meeting the ever-changing demands of
the industry. 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. Various manufacturers who are suppliers to the Company
sell directly, as well as through distributors, into the cable marketplace. In
addition, because of the convergence of the cable, telecommunications and
computer industries and rapid technological development, new competitors are
entering the cable market. Many of the Company's competitors or potential
competitors are substantially larger and have greater resources than the
Company.
ANTEC's products are marketed with emphasis on quality and are
competitively priced. Product reliability and performance, superior and
responsive technical and administrative support, and breadth of product
offerings are key criteria for competition. Technological innovations and speed
to market are an additional basis for competition.
EMPLOYEES
As of December 31, 1999, the Company had approximately 3,500 full-time
employees of which approximately 64 were members of a union. The Company
believes that its relationship with its employees is excellent. The future
success of the Company depends in part on its ability to attract and retain key
executive, marketing, engineering and sales personnel. Competition for qualified
personnel in the cable industry is intense, and the loss of certain key
personnel could have a material adverse effect on the Company. The Company has
entered into employment contracts with its key executive officers. The Company
also has a stock option program that is intended to provide substantial
incentives for its key employees to remain with the Company.
ITEM 2. PROPERTIES
The Company currently conducts its operations from 25 different locations;
two of which are owned and the remainder are leased. These facilities consist of
sales and administrative offices, warehouses and manufacturing facilities
totaling approximately 1,200,000 square feet. The Company's long-term leases
expire at various dates through 2009. Two of these leases expired prior to
December 31, 1999, and the Company expects to renew these leases, or to obtain
alternative space, in the ordinary course of its business. The principal
properties are located in Ontario, California; Tinton Falls, New Jersey; Duluth,
Georgia; Denver, Colorado; El Paso, Texas; Cary, North Carolina; Rock Falls,
Illinois; Juarez, Mexico and Chesham, England. The Company believes that its
current properties are adequate for its operations, although the Company is in
the process of consolidating its Tinton Falls, New Jersey operations into the
corporate facility in Duluth, Georgia and down to the Southwest facilities.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently engaged in any litigation that it believes
would have a material adverse effect on its financial condition or results of
operations.
8
<PAGE> 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1999, no matters were submitted to a vote of
the Company's security holders.
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
John M. Egan............................... 52 Chairman, Chief Executive Officer and
Director
Robert J. Stanzione........................ 52 President, Chief Operating Officer and
Director
Lawrence A. Margolis....................... 52 Executive Vice President and Chief
Financial Officer
Gordon E. Halverson........................ 57 Executive Vice President and Chief
Executive Officer, TeleWire Supply
Mark J. Scagliuso.......................... 41 Vice President and Chief Accounting and
Information Officer
James E. Knox.............................. 62 General Counsel and Assistant Secretary
Michael Graziano........................... 39 Treasurer
</TABLE>
John M. Egan joined the Company in 1973 and has been President and Chief
Executive Officer of ANTEC and its predecessors since 1980. On January 1, 2000,
Mr. Egan stepped down from his role as Chief Executive Officer of ANTEC. He
remains the Chairman of the Board and is continuing as a full-time employee. He
became Chairman of ANTEC in 1997. Mr. Egan is on the Board of Directors of the
National Cable Television Association ("NCTA"), the Walter Kaitz Foundation (an
association seeking to help the cable industry diversify its management
workforce to include minorities), and has been actively involved with the
Society of Cable Television Engineers and Cable Labs, Inc. Mr. Egan received the
NCTA's 1990 Vanguard Award for Associates.
Robert J. Stanzione has been President, Chief Operating Officer and
Director since January 1998. On January 1, 2000, Mr. Stanzione assumed the role
of Chief Executive Officer of ANTEC. From October 1995 to December 1997, he was
President and Chief Executive Officer of Arris Interactive, L.L.C., a joint
venture company of ANTEC and Nortel. From 1969 to 1995, he held various
positions with AT&T Corporation.
Lawrence A. Margolis has been Executive Vice President, Chief Financial
Officer and Secretary of ANTEC since 1992 and was Vice President, General
Counsel and Secretary of Anixter from 1986-1992 and General Counsel and
Secretary of Anixter from 1984-1986. Prior to 1984, he was a partner at the law
firm of Schiff Hardin & Waite.
Gordon E. Halverson has been Executive Vice President and Chief Executive
Officer, TeleWire Supply since April 1997. From 1990 to April 1997, he was
Executive Vice President, Sales of ANTEC. During the period 1969-1990, he held
various executive positions with predecessors of ANTEC. He received the NCTA's
1993 Vanguard Award for Associates. Mr. Halverson is a member of the NCTA,
Society of Cable Television Engineers, Illinois Cable Association, Cable
Television Administration and Marketing Society.
Mark J. Scagliuso has been Vice President and Chief Accounting and
Information Officer of ANTEC since June 1998 and Chief Financial Officer of the
manufacturing arm of the Company since 1994. From 1989 to 1994, he was Executive
Vice President, Chief Operating and Financial Officer and Corporate Secretary of
Keptel, Inc., a designer, manufacturer and marketer of outside plant
telecommunications and transmission equipment for both residential and
commercial use, primarily by telephone companies, acquired by ANTEC in 1994.
Prior to 1989 he was a Senior Manager with the auditing and consulting practice
at Ernst & Young LLP (then Ernst & Whinney).
James E. Knox has been General Counsel and Assistant Secretary since
February 1996. He has been Senior Vice President and Secretary of Anixter
International Inc. since 1986 and was a partner of Mayer, Brown & Platt from
1992 to 1996.
9
<PAGE> 12
Michael Graziano has been Treasurer since June 1998 and Director of Finance
of the Company since 1997. From 1995 to 1997 he was the Chief Financial Officer
of DVMI, Inc., a manufacturer of retail fixtures and design elements. During the
period of 1990 to 1995 he was the Director of Finance for Keptel, Inc., a
designer, manufacturer and marketer of outside plant telecommunications and
transmission equipment for both residential and commercial use, primarily by
telephone companies, acquired by ANTEC in 1994. Prior to 1990 he was a Senior
Auditor with Ernst & Young LLP (then Ernst & Whinney).
10
<PAGE> 13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
ANTEC Corporation's common stock trades on the NASDAQ National Market
System under the symbol "ANTC". The following table sets forth the high and low
sales prices for the Company's common stock on the NASDAQ.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C> <C> <C>
1998
First Quarter............................................... $17 15/16 $10 3/8
Second Quarter.............................................. 24 1/4 14 1/2
Third Quarter............................................... 25 12 3/4
Fourth Quarter.............................................. 21 11 1/2
1999
First Quarter............................................... $29 11/16 $18
Second Quarter.............................................. 34 3/16 19
Third Quarter............................................... 55 1/4 29 5/8
Fourth Quarter.............................................. 60 1/4 23 1/4
2000
First Quarter (through March 10, 2000)...................... $61 1/4 $28 15/16
</TABLE>
The Company has not paid dividends on its Common Stock since its inception.
The Credit Facility, the Company's primary loan agreement at December 31, 1999,
contains covenants which limit the Company's ability to pay dividends. (See Note
8 of the Notes to the Consolidated Financial Statements.) The Company does not
anticipate paying any cash dividends in the foreseeable future, and in 1999,
such covenants precluded the Company from declaring any dividends on its Common
Stock.
As of March 10, 2000, there were approximately 313 holders of record of
ANTEC common stock.
11
<PAGE> 14
ITEM 6. SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The selected consolidated financial data as of December 31, 1999 and 1998
and for each of the three years in the period ended December 31, 1999 set forth
below are derived from the accompanying audited consolidated financial
statements of the Company and should be read in conjunction with such statements
and related notes thereto. The selected consolidated financial data as of
December 31, 1996 and 1995 and for the year ended December 31, 1995 are derived
from audited consolidated financial statements that have not been included in
this filing. On February 6, 1997, shareholders of ANTEC Corporation and TSX
Corporation ("TSX") approved the Plan of Merger ("Merger") dated as of October
28, 1996 among ANTEC Corporation, TSX Corporation and TSX Acquisition
Corporation, and the Merger resulting in TSX becoming a wholly-owned subsidiary
of ANTEC effective on that date. Prior to the combination, TSX's fiscal year
ended April 30, and ANTEC's fiscal year ended December 31. TSX's historical
financial statements for the periods prior to December 31, 1996 had to be
adjusted to within 93 days of ANTEC's year-end. Therefore, the statements of
operations for the twelve months ended December 31, 1996, and 1995 represent
ANTEC's fiscal period ended on those dates combined with TSX's twelve months
ended the last Saturday in October 1996, and 1995, respectively. All
intercompany sales between TSX and ANTEC were eliminated. The historical
consolidated financial information is not necessarily indicative of the results
of future operations and should be read in conjunction with the historical
consolidated financial statements of the Company and the related notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Report.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATING DATA:
Net sales................................. $826,556 $546,767 $480,078 $690,877 $738,235
Cost of sales(1)(4)....................... 661,574 404,999 365,860 511,646 546,591
-------- -------- -------- -------- --------
Gross profit.............................. 164,982 141,768 114,218 179,231 191,644
Selling, general, administrative and
development expenses................... 111,937 105,643 110,803 125,997 135,046
Amortization of goodwill.................. 4,946 4,910 4,927 4,981 4,817
Restructuring and other(1)(3)(4)(5)(6).... 5,647 9,119 21,550 2,109 21,681
-------- -------- -------- -------- --------
Operating income (loss)................... 42,452 22,096 (23,062) 46,144 30,100
Interest expense.......................... 12,406 9,337 6,264 8,037 10,801
Other (income) expense, net............... (2,970) (977) (348) (501) --
Gain on LANcity transaction(2)............ (60,000) -- -- -- --
Gain on sale of Canadian business(7)...... -- -- -- (3,835) --
-------- -------- -------- -------- --------
Income (loss) before income tax expense... 93,016 13,736 (28,978) 42,443 19,299
Income tax expense (benefit).............. 38,493 7,911 (7,534) 16,083 10,497
-------- -------- -------- -------- --------
Net income (loss)......................... $ 54,523 $ 5,825 $(21,444) $ 26,360 $ 8,802
======== ======== ======== ======== ========
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................... $252,834 $200,194 $133,302 $185,288 $165,202
Total assets.............................. 760,072 532,645 443,883 510,249 509,821
Long-term debt............................ 183,500 181,000 72,339 102,658 117,920
Stockholders' equity...................... 347,335 249,778 295,785 310,388 282,010
NET INCOME (LOSS) PER COMMON SHARE:
Basic..................................... $ 1.49 $ .16 $ (.55) $ .69 $ .24
======== ======== ======== ======== ========
Diluted................................... $ 1.33 $ .15 $ (.55) $ .67 $ .23
======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) 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 charges. Included
12
<PAGE> 15
in the charge was an elimination of certain product lines resulting in an
inventory obsolescence charge totaling approximately $10.4 million, which
has been reflected in cost of sales. (See Note 5 of the Notes to the
Consolidated Financial Statements.)
(2) In the first quarter of 1999, the Company completed the combination of the
Broadband Technology Division of Nortel Networks ("LANcity") with Arris
Interactive, L.L.C. ("Arris"), a joint venture between ANTEC and Nortel
Networks ("Nortel"). The Company recorded a pre-tax gain of $60.0 million,
net of related expenses, based on an independent valuation of LANcity. The
transaction was accounted for as if it were a gain on the sale by ANTEC of a
12.50% interest in Arris to Nortel in exchange for 12.5% of LANcity and
deferred income taxes were provided on the gain. (See Note 11 of the Notes
to the Consolidated Financial Statements.)
(3) In the first quarter of 1998, in connection with the consolidation plan of
the Company's corporate and administrative functions, the Company recorded a
charge of approximately $10.0 million. Included in the charge was
approximately $7.6 million related to personnel costs and approximately $2.4
million related to lease termination and other costs. During the fourth
quarter of 1998, the restructuring charge was reduced by $0.9 million as a
result of the ongoing evaluation of the estimated costs associated with
these actions. (See Note 5 of the Notes to the Consolidated Financial
Statements.)
(4) In the first quarter of 1997, in connection with the Merger, the Company
recorded merger/integration costs aggregating approximately $28.0 million.
Included in the merger/integration charge was a write-off of redundant
inventories totaling approximately $6.5 million that has been reflected in
cost of sales. (See Note 5 of the Notes to the Consolidated Financial
Statements.)
(5) In the fourth quarter of 1996, the Company recorded a charge to affect the
downsizing of the Company's advertising insertion business. Included in the
charge was a write-down of inventories related to the advertising insertion
business of approximately $1.5 million that has been reflected in cost of
sales.
(6) In the third quarter of 1995, the restructuring charge resulted from the
Company's decision to reorganize, streamline and consolidate its existing
businesses in order to reduce costs of operations and to refocus its product
and market development activities.
(7) In the third quarter of 1996, the Company sold its Canadian distribution
business to Cabletel Communications Corporation ("Cabletel").
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following should be read in conjunction with the Company's consolidated
financial statements and the related notes thereto and the description of the
Company's business included elsewhere in this Report.
INDUSTRY CONDITIONS
The Company's performance is largely dependent on capital spending for
constructing, rebuilding, maintaining or upgrading broadband communications
systems. Capital spending in the telecommunications industry is cyclical. The
amount of capital spending and, therefore, the Company's sales and profits, are
affected by a variety of factors, including general economic conditions,
availability and cost of capital, other demands and opportunities for capital
(such as acquisitions), regulations, demand for network services, competition
and technology, and real or perceived trends or uncertainties in these factors.
Over the past few years, capital spending in the industry has been
significantly higher as a result of the Telecommunications Act of 1996 (the
"Act") and recent technological advances. Under the Act, traditional
long-distance carriers, local phone companies and cable companies now are
permitted to compete more directly with each other. As the traditional cable
companies have upgraded their equipment in order to offer more services -- by,
for instance, offering data and voice communications -- and to effectively
compete with new market entrants, demand for the Company's products has
increased significantly. In addition, competition from satellite and other
systems has forced many cable systems to update their equipment with recently
developed technology in order to offer more channels and more features.
The Company expects these trends to continue for the foreseeable future and
for demand of the Company's products to continue to grow. Its largest clients
are aggressively updating and expanding their networks, and these efforts will
take at least several years to complete. However, wireless technologies may be
13
<PAGE> 16
developed that facilitate bypassing existing distribution systems. In addition,
new market entrants may elect to purchase their equipment through other
distribution channels or from competitors of the Company and, similarly, as
consolidation in the industry continues, the Company may gain or lose customers
to others. Also, capital spending will remain subject to the factors discussed
above, which are difficult to predict with any accuracy.
The demand for broadband access has increased significantly in recent years
due to the powerful growth of the Internet facilitated by the widespread use of
the World Wide Web for communicating and accessing information. Rapid growth in
the number of Internet users and the demand for high-speed, high-volume
interactive services has strained the existing communications networks.
Increasingly, the value of high-speed Internet access experienced at work, is
being demanded at similar levels of access from the home. The broadband pipe is
the network that carries video, voice and data from the system providers to the
consumers. Employing the combination of fiber optic and coaxial cable, the
broadband pipe is larger than the traditional networks designed to carry only
voice and data signals. Because the technologies are evolving and the signals
are growing in complexity, solutions are needed to provide the broadband system
operators with the flexibility to invest in the capacity needed to carry more
high-volume interactive services to more customers. There is a need to customize
these networks to allow for different types and combinations of services. ANTEC
is focused on meeting the needs of the network service providers as well as
meeting the increasing demand along the "last mile" of the infrastructure where
the home connects to the local network. The Company's expansive product
offerings position it well to meet these industry challenges, offering a full
range of end-to-end solutions. Product innovation will remain a critical focus
for ANTEC as the ever-increasing drive for bandwidth pushes technologies and
solutions forward.
RESULTS OF OPERATIONS
During 1999, ANTEC experienced a record year for both revenues and earnings
despite a slip in the Company's overall gross margin performance related to a
shift in the consolidated product mix. The reader of this material should
carefully consider the financial statements and related notes contained
elsewhere in this report.
The following table sets forth relevant financial data as a percentage of
net sales:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 80.0 74.1 76.2
----- ----- -----
Gross profit................................................ 20.0 25.9 23.8
Selling, general, administrative and development expenses... 13.5 19.3 23.1
Amortization of goodwill.................................... 0.6 0.9 1.0
Restructuring and other..................................... 0.7 1.7 4.5
----- ----- -----
Operating income (loss)..................................... 5.1 4.0 (4.8)
Interest expense and other, net............................. 1.5 1.7 1.3
Other (income) expense, net................................. (0.4) (0.2) (0.1)
Gain on LANcity transaction................................. (7.3) -- --
----- ----- -----
Income (loss) before income tax expense (benefit)........... 11.3 2.5 (6.0)
Income tax expense (benefit)................................ 4.7 1.4 (1.5)
----- ----- -----
Net income (loss)........................................... 6.6% 1.1% (4.5)%
===== ===== =====
</TABLE>
SIGNIFICANT CUSTOMERS
ANTEC's two largest customers for 1999 were AT&T and Cox Communications.
Traditionally, a significant portion of the Company's revenue is derived from
sales to AT&T aggregating $347.4 million, $142.7 million and $46.6 million for
1999, 1998 and 1997, respectively. Sales to Cox Communications almost doubled
during the year to $57.2 million from $28.9 million in 1998 and $13.7 million in
1997. Sales to AT&T
14
<PAGE> 17
for 1999 accounted for approximately 42.0% of ANTEC's total sales while Cox
Communications accounted for approximately 6.9%. No other customer provided more
than 5% of the Company's total revenues for 1999.
ANTEC is currently Cox Communication's exclusive provider of cable
telephony network solutions in eight of their key markets across the country
while striving to increase the array of products to meet Cox's future needs.
ANTEC is also AT&T's primary supplier of cable telephony products. During 1999,
AT&T concentrated on setting up headends for cable telephony service, deploying
approximately 1,200 of ANTEC's headends in eight metro markets. During the first
quarter of 2000, ANTEC and AT&T announced that ANTEC will be AT&T's exclusive
provider of cable telephony products through 2003 within these eight markets.
With its infrastructure in place and the capacity to provide more than four
million lines of service to customers, AT&T is set to begin aggressively
marketing cable telephony as it re-enters the local telephone service business.
TURNKEY CONSTRUCTION CONTRACTS
In response to AT&T request for turnkey services, the Company formed a
joint venture to provide turnkey construction solutions and services. The actual
performance of the services was subcontracted by the joint venture to the
Company's partner, which is a limited liability company with limited resources.
During 1999, AT&T exercised its right to terminate, for convenience, its
contracts with the joint venture and to take over the management of these
projects directly. The joint venture was not designed as a profit-generating
vehicle and the termination of the contracts did not have a material adverse
effect on the Company or its product sales to AT&T.
COMPARISON OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Net Sales. ANTEC's revenue for 1999 increased by 51.2% to $826.6 million
as compared to 1998 revenues of $546.8 million. The Company experienced a rapid
rise in revenue during the year resulting from the large increase in capital
spending by communication providers, particularly the multiple system operators
("MSOs"), as they rebuild their plants in an effort to provide additional
services, such as telephony. Several of the Company's product lines, Cable
Telephony and Internet Access products in particular, benefited from the
substantial growth in spending. The Company's Cornerstone voice and data product
sales grew from approximately $31.0 million in 1998 to approximately $232.3
million in 1999, an increase of more than 649%. Cornerstone's growth focused on
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 final three
quarters of 1999. These cable modems and cable modem termination systems
("CMTS") have an open scaleable architecture ideal for small to large networks,
allowing end users to work at speeds hundreds of times faster than conventional
dial-up connections. Sales of these data products amounted to approximately
$37.4 million for 1999. In addition, during the fourth quarter of 1999, the
Company recorded revenue of approximately $28.7 million in connection with the
sale of RF Concentration software to AT&T. This software is used in conjunction
with the HDT and AT&T purchased licenses equivalent to the number of HDTs they
purchased during 1999. Effective January 1, 2000 the price of the software is
now being packaged with the sale of the HDT.
The balance of the revenue increase for 1999, as compared to the prior
year, was from substantial revenue growth across most of the Company's other
product offerings. Exclusive of the Cornerstone voice and data growth, combined
sales for the remaining product lines increased approximately $78.8 million:
- The Company's Optical and Broadband Transmission product offerings
experienced revenue growth of approximately $54.3 million for the year
ended December 31, 1999 as compared to last year. This growth was across
all product lines within this area, particularly the optronics and node
products.
- The Outside Plant and Powering product offerings increased revenue by
approximately $17.4 million during 1999 as compared to last year. Sales
of Monarch brand products, including drop, aerial, ground and underground
products, lead the increase within this product offering followed by
increased sales of Network Interface Devices ("NIDs").
15
<PAGE> 18
- Within the Supply area of products, revenue grew from approximately
$207.5 million in 1998 to $213.0 million in 1999. Sales of fiber optic
cable and installation tools drove this increase.
Sales to ANTEC's largest customer, AT&T, reached approximately $347.4
million during 1999, or approximately 42.0% of the annual volume as compared to
last year when sales to AT&T were $142.7 million or 26.1% of the volume for the
year. This marks a $204.7 million increase in revenue from AT&T; an increase of
approximately 143% for the year ended December 31, 1999. It is anticipated that
AT&T's purchasing levels for 2000 could exceed the levels achieved in 1999.
Gross Profit. Gross profit in 1999 was $165.0 million as compared to
$141.8 million in 1998. Gross profit margins for 1999 slipped 5.9 percentage
points to 20.0% versus 25.9% for the prior year. This decrease is attributable
to a number of factors, including:
- Cost of sales for 1999 includes a $10.4 million charge related to the
elimination of certain product lines and the resulting inventory
obsolescence charge. The Company is discontinuing certain older product
lines that are not consistent with the Company's focus on two-way,
high-speed Internet, voice and video communications equipment. This
discontinuance affects the uninterruptible common ferroresonant ("UCF")
and security lock ("SL") powering products and includes a narrowing of
the Company's radio frequency ("RF") and optical products.
- Cornerstone voice and data sales grew tremendously during 1999 and
accounted for approximately 28.1% of the consolidated sales for the year.
ANTEC has exclusive domestic distribution rights for the Cornerstone
voice and data products to cable MSOs. 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 be impacted by the relatively lower gross margin percentage
achieved on these sales.
- ANTEC's traditional infrastructure products experienced a late year
volume fall off coupled with an adverse product mix within the group,
favoring lower margin products, principally fiber optic cable.
- Margins for certain products were lower than anticipated, due, in part,
to increased manufacturing costs associated with a number of new product
introductions completed during 1999. This included the ramp-up associated
with the Total System Powering ("TSP") family of power supplies,
enclosures and generators, the new modular Pedestal amplifier and node,
the new 870MHz minibridgers and line extenders and the Proteus Scaleable
Optical Node and Micro Node products. In line with the trimming of
certain product offerings, customers rapidly shifted demand from ANTEC's
traditional UCF and SL power supplies and limited bandwidth, RF and
Optical products to newer products. This caused temporary part shortages
on buy components and resulted in higher than planned unabsorbed
overhead, material costs and factory inefficiencies, which negatively
impacted margins. Action has been taken to correct this situation and we
believe the margin on these products will improve in the coming year.
- Gross margins were also adversely impacted by the cost of resolving field
reliability issues for customers that had purchased the products
previously designed and sold by acquired companies. The Company believes
these reliability issues were largely resolved in 1999 and should not
significantly impact results going forward.
- Partially offsetting some of the unfavorable gross margin issues, 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. 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. The termination of these contracts and the dissolution of this
venture are not expected to have any material adverse effect on the
Company or its product sales to AT&T.
16
<PAGE> 19
Selling, General, Administrative and Development ("SGA&D") Expenses. SGA&D
expenses in 1999 were $111.9 million as compared to $105.6 million in 1998. As a
percentage of sales, SGA&D was 13.5% in 1999 as compared with 19.3% in 1998.
SGA&D expenses increased during 1999 as a result of the increased spending for
Cornerstone product sales, marketing and support. Additional resources were also
allocated to research and development and technical services during 1999, which,
in turn, increased those expenses during the year. These additional costs were
somewhat offset by the reversal of approximately $1.8 million in over-accrued
expenses made early in 1999 due to change in estimated bonuses and a reduction
in self-insurance reserves from year end 1998.
Restructuring. In the fourth quarter of 1999, in conjunction with the
announced 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.
Included in the restructuring, related to the elimination of certain product
lines, is an inventory obsolescence charge totaling approximately $10.4 million,
which has been reflected in the cost of sales. 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. Terminated employees were offered separation amounts
in accordance with the Company's severance policy and were provided specific
separation dates. In connection with customer demand shifting to the Company's
newer product offerings, such as the new Total System Power ("TSP") and the
Scaleable and Micro Node products, the Company is discontinuing certain older
product lines that are not consistent with ANTEC's focus on two-way, high-speed
Internet, voice and video communications equipment. This discontinuance affects
the UCF and SL powering products and included the narrowing of the Company's RF
and optical products. It is anticipated that, in addition to the recorded charge
of $16.0 million, approximately $1.6 million of relocation and fixed asset
depreciation expenses, to be incurred in connection with the New Jersey facility
closure, will be recognized and expensed during 2000. It is anticipated that all
of these actions will be fully implemented during the first two quarters of
2000. These steps are being taken to structure the Company into a more efficient
organization and to further integrate ANTEC's speed-to-market philosophy. The
Company's manufacturing operations located in New Jersey are being realigned in
order to accelerate the production transition from in-house design and tooling
functions into the manufacturing process. With the exception of saving
approximately $1.5 million in lease obligation and SGA&D costs, it is
anticipated the remaining costs related to the New Jersey facility will shift to
Georgia and the Southwest. (See Financial Liquidity and Capital Resources.)
In the first quarter of 1998, in connection with the consolidation plan of
the Company's corporate and administrative functions, the Company recorded a
charge of approximately $10.0 million. Included in the charge was approximately
$7.6 million related to personnel costs and approximately $2.4 million related
to lease termination and other costs. During the fourth quarter of 1998, the
restructuring charge was reduced by $0.9 million as a result of the ongoing
evaluation of the estimated costs associated with these actions. Substantially
all of the costs have been incurred. (See Financial Liquidity and Capital
Resources.)
Other Charges. The costs incurred to make modifications to previously sold
TSX products have been charged against a reserve created in December 1996,
initially $2.6 million, when TSX agreed to make these modifications. These
charges amounted to $0.5 million during 1999 and these modifications were
completed as of September 30, 1999. During 1998 the charges against the reserve
pertaining to the modifications were approximately $1.1 million.
Gain on LANcity Transaction. The transaction was accounted for, in effect,
as if it were a gain on the sale of a 12.50% interest in Arris Interactive,
L.L.C., to Nortel Networks in exchange for 12.5% interest in 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 11 of the
Notes to the Consolidated Financial Statements.)
Interest Expense. Interest expense for 1999 was approximately $12.4
million as compared to $9.3 million in 1998. This increase primarily relates to
the full year impact of the issuance of $115.0 million of 4.5%
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<PAGE> 20
Convertible Subordinated Notes completed during the second quarter of 1998.
During 1999, the average outstanding balance on the Company's revolving line of
credit was approximately $60.0 million higher, on average, than the 1998 levels.
In 1999, the average effective interest rate was approximately 0.6% lower than
in 1998 as the Company achieved more favorable pricing levels on its revolving
line of credit.
The year ended December 31, 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. Additionally, interest expense for 1998 includes the
write-off of the remaining deferred financing fees related to the Company's
previous credit facility paid down in May 1998. (See Financial Liquidity and
Capital Resources.)
Other Income and Expenses. The results for 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 1999, all LANcity
revenue pertaining to cable modem and headend products sold into the Company's
market was 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 year ended December 31,
1999 was approximately $38.5 million as compared to the 1998 income tax expense
of $7.9 million. The increase in pre-tax earnings for 1999 as compared to 1998
resulted in this substantial increase in the tax expenses recorded in 1999.
Additionally, during 1999, the Company shifted its focus towards a more
aggressive tax savings 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 in 1999 was $54.5 million as compared to a net
income of $5.8 million recorded in 1998. The results for 1999 include the
pre-tax gain recorded on the LANcity transaction of approximately $60.0 million,
which was somewhat offset by the fourth quarter restructuring charge of
approximately $16.0 million. Included in the 1998 results was a pre-tax
restructuring charge of approximately $9.1 million. (See Financial Liquidity and
Capital Resources.)
Eliminating the gain transactions and the respective charges for 1999 and
1998, net income for the year ended December 31, 1999 was approximately $29.5
million or $.76 per diluted share as compared to the 1998 results of
approximately $11.3 million or $.29 per diluted share. Stripping away these
factors, net income increased primarily as a result of the dramatic revenue
growth during 1999.
COMPARISON OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Net Sales. Net sales increased approximately 13.9% to $546.8 million in
1998 as compared to $480.1 million in 1997. This increase was achieved despite a
44% decrease in international revenues to $63.5 million in 1998 from $112.8
million in 1997. Sales to TCI, the Company's largest customer, increased
approximately 300% to $142.7 million in 1998 from $46.6 million in 1997.
Traditionally, a significant portion of the Company's revenue is derived from
sales to TCI. The October 1996 decision by TCI to cease accepting shipments of
the products the Company and its competitors traditionally sold to it had a
material adverse effect on the Company's financial performance in 1997. A future
decision by AT&T, TCI or other large cable companies to reduce purchases could
have a material adverse effect on the Company's business in the future. The
majority of the international shortfall was attributable to the Latin American
market. Sales to Latin America were approximately $24.2 million during 1998 as
compared to $66.3 million in 1997. Regulatory uncertainties and volatile
economic conditions plagued the Company's efforts in Latin America, specifically
Brazil, during 1998. Although resolution to some regulatory and licensing issues
within Brazil became effective in late December 1998, the devaluation of the
currency in January 1999 is expected to continue to depress the market for the
Company's products.
Gross Profit. Gross profit in 1998 was $141.8 million as compared to
$114.2 million in 1997. Gross profit margins for 1998 improved 2.1 percentage
points to 25.9% versus 23.8% for the prior year. Gross profit for 1997 includes
a $6.5 million write-off of redundant inventories relating to overlapping
product lines in
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<PAGE> 21
connection with the Merger. (See Financial Liquidity and Capital Resources.)
Excluding these charges, gross profit percentages increased to 25.9% in 1998
from 25.1% in 1997.
Gross profit for the period ended December 31, 1998 does not reflect the
$1.1 million that was incurred to make modifications to previously sold TSX
products. These costs were charged against a reserve created in December 1996
when TSX agreed to make these modifications. (See the discussion below.) As of
December 31, 1998 this reserve stood at $0.5 million, the current estimated cost
for the completion of the modifications. It is currently estimated that these
modifications will be substantially completed by March 31, 1999 with the final
expenses related to this reserve being taken during the second quarter of 1999.
Gross profit for 1997 includes $1.0 million for the partial reversal of a
charge taken in December 1996 by TSX for modifications it had agreed to make to
products previously sold by TSX. The partial reversal of this charge in the
second quarter of 1997 was due to the agreement of the customer during the
second quarter to permit products to be modified in the Company's factory
instead of in the field as originally contemplated and the determination as the
result of testing that was completed during the second quarter that a smaller
number of units needed to be modified than originally contemplated. The initial
charge for $2.6 million was taken in December 1996 primarily because TSX agreed
at that time to replace the lids on 3,447 gate keepers, to install new covers on
58,950 minibridgers, and to replace the plugs and gaskets on 10,771 amplifiers
and line extenders for a customer who had purchased these products from TSX over
the period 1993 to 1994. The customer in November and December 1996 pressed TSX
to agree to make these modifications because of the customer's concern that
these products might prematurely fail. TSX believed that the customer's concern
was not justified and that it was not obligated to make these modifications
under its warranties covering these products. Nevertheless, in order to maintain
good relations with a major customer, TSX agreed in December 1996 at the
insistence of the customer to make these modifications. Having agreed to make
these modifications, TSX believed it was legally obligated to make the
modifications without further consideration from the customer other than its
forbearance. Although the agreement was not in writing, TSX's understanding was
that it was obligated to make the requested modifications to the customer's
reasonable satisfaction as soon as practicable at no significant cost or
inconvenience to the customer. The Company initially estimated the cost of
making the modifications by multiplying the estimated labor and material costs
for modifying each unit times the number of units then believed to be involved
based upon the number of units that had been sold to the customer. The Company
determined that it would cost approximately $2.4 million to complete the
modifications for this customer. (This estimate was subsequently revised as
described above.) It was contemplated that these modifications would begin
promptly and be completed in a few months. However because of a general hold on
construction imposed by the customer, only $8 thousand was incurred for the
modifications in 1997. It currently is contemplated that the modifications,
which were substantially completed in 1998, will be finally completed by March
31, 1999.
Selling, General, Administrative and Development ("SGA&D") Expenses. SGA&D
expenses in 1998 were $105.6 million as compared to $110.8 million in 1997. As a
percentage of sales, SGA&D was 19.3% in 1998 as compared with 23.1% in 1997. The
$5.2 million or 4.7% reduction in SGA&D expenses reflects the Company's
continued effort to control expenses.
Restructuring and Other. In the first quarter of 1998, in connection with
the consolidation plan of the Company's corporate and administrative functions,
the Company recorded a charge of approximately $10.0 million. Included in the
charge was approximately $7.6 million related to personnel costs and
approximately $2.4 million related to lease termination and other costs. During
the fourth quarter of 1998, the restructuring charge was reduced by $0.9 million
as a result of the ongoing evaluation of the estimated costs associated with
these actions. (See Financial Liquidity and Capital Resources.)
In the first quarter of 1997, the Company recorded merger/integration costs
aggregating approximately $28.0 million. The non-recurring charge included
investment banking, legal, accounting and contractual change of control payments
associated with the Merger; facility and operational consolidation and
reorganization costs due to the combining of various manufacturing operations;
and severance costs resulting from the elimination of positions duplicated by
the Merger and integration. Also included in the total merger/integration charge
was a write-off of redundant inventories totaling approximately $6.5 million
that
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<PAGE> 22
has been reflected in cost of sales for the year ended December 31, 1997. (See
Financial Liquidity and Capital Resources.)
Interest Expense and Other, Net. Interest expense and other, net was $8.4
million in 1998 as compared to $5.9 million in 1997. This increase primarily
related to the 1998 impact of the issuance of $115.0 million of 4.5% Convertible
Subordinated Notes and the related deferred financing fees. Additionally,
interest expense in 1998 includes the write-off of the remaining deferred
financing fees related to the Company's previous credit facility paid down
during the year. (See Financial Liquidity and Capital Resources.)
Net Income (Loss). Net income in 1998 was $5.8 million as compared to a
net loss of ($21.4) million in 1997. This increase is due to the factors above.
Included in the net income (loss) for the years ended December 31, 1998 and 1997
were restructuring and other charges of approximately $9.1 million and $28.0
million, respectively. (See Financial Liquidity and Capital Resources.)
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
Reorganization/Merger Costs
In the fourth quarter of 1999, in conjunction with the announced
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. Included in the
restructuring was the elimination of certain product lines resulting in an
inventory obsolescence charge totaling approximately $10.4 million, which has
been reflected in the cost of sales. 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. Terminated employees were offered separation amounts in
accordance with the Company's severance policy and were provided specific
separation dates. In connection with customer demand shifting to the Company's
newer product offerings, such as the new Total System Power ("TSP") and the
Scaleable and Micro Node products, the Company is discontinuing certain older
product lines that are not consistent with ANTEC's focus on two-way, high-speed
Internet, voice and video communications equipment. This discontinuance affects
the UCF and SL powering products and included the narrowing of the Company's RF
and optical products. It is anticipated that, in addition to the recorded charge
of $16.0 million, approximately $1.6 million of relocation and fixed asset
depreciation expenses, to be incurred in connection with the New Jersey facility
closure, will be recognized and expensed during 2000. It is anticipated that all
of these actions will be fully implemented during the first two quarters of
2000. These steps are being taken to structure the Company into a more efficient
organization and to further integrate ANTEC's speed-to-market philosophy. The
Company's manufacturing operations located in New Jersey are being realigned in
order to accelerate the production transition from in-house design and tooling
functions into the manufacturing process. With the exception of saving
approximately $1.5 million in lease obligation and SGA&D costs, it is
anticipated the remaining costs related to the New Jersey facility will shift to
Georgia and the Southwest.
In January 1998, ANTEC announced a consolidation plan being implemented
concurrently with the creation of the new President and Chief Operating Officer
organization in Georgia. The Company has completed the consolidation of its
Rolling Meadows, Illinois corporate and administrative functions into either the
Duluth, Georgia or the Englewood, Colorado locations during 1999. As part of
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 be consolidated in Georgia. In connection
with these consolidations, the Company recorded a charge of approximately $10.0
million in the first quarter of 1998. The components of the restructuring charge
included approximately $7.6 million related to personnel costs and approximately
$2.4 million related to lease termination payments 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 177 employees, primarily related to
the finance, management information systems activities as well as international
operational functions located in Chicago and
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<PAGE> 23
Miami. Terminated employees were offered separation amounts in accordance with
the Company's severance policy and were provided specific separation dates. As
of December 31, 1999, 139 of the 177 employees had been terminated and it was
determined that 38 employees originally estimated, as part of the 177 employees
to be terminated, would remain as employees of the Company. Additionally, the
actual cost of terminating or sub-letting real estate obligations in Georgia and
Illinois were slightly higher than anticipated. As of December 31, 1999,
approximately $0.6 million of accrued costs related to the obligations resulting
from this restructuring remain. This remaining balance is expected to be charged
during the first quarter of 2000.
In the first quarter of 1997, in connection with the Merger discussed
above, the Company recorded merger/integration costs aggregating approximately
$28.0 million. The components of this charge included $6.9 million related to
the investment banking, legal, accounting and contractual change of control
payments associated with the Merger; $11.2 million related to facility and
operational consolidation and reorganization due to the combining of various
manufacturing operations; and $3.4 million related to severance costs resulting
from the elimination of positions duplicated by the Merger and integration. The
personnel-related costs included charges related to the termination of
approximately 200 employees primarily resulting from the factors described
above. Also included in the total merger/integration charge was a write-off of
redundant inventories totaling approximately $6.5 million that has been
reflected in cost of sales for the year ended December 31, 1997. The costs
related to the facility and operational consolidation and reorganization were
comprised of costs associated with the shutdown of several of the Company's
operating locations. These costs consisted of lease termination payments, losses
on sale and disposal of building and equipment and other related fixed assets.
All of the planned facility closings were completed and related cash costs were
expended by the end of 1997. In 1997, the Company paid approximately $2.4
million relating to personnel-related costs that represented the termination of
approximately 175 employees. As of December 31, 1997, approximately $2.1 million
of cash costs had yet to be expended which consisted of contractual obligations
resulting from the Merger and other personnel-related costs. The Company
expended the remainder of these costs during 1998.
Financing
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 at a
conversion price of $24.00 per share. The Notes are redeemable, in whole or in
part, at the Company's option, at any time on or after May 15, 2001. The net
proceeds from the Offering were used to repay all outstanding amounts under the
Company's existing credit facility, and the remainder of the net proceeds were
invested in government securities, certificates of deposits or similar
investment grade securities until June 1998 when the Company completed the
repurchase and retirement of approximately 4.4 million shares of Common Stock
owned by Anixter International for approximately $63.5 million. (See Note 8 and
Note 9 of the Notes to the Consolidated Financial Statements.)
In May 1998, the Company entered into a new secured four-year credit
facility ("Credit Facility") with a group of banks aggregating $85.0 million.
The Credit Facility permits the Company to borrow, on a revolving basis, an
amount contingent upon the level of certain eligible assets. The Credit Facility
provides for various interest rate alternatives. The commitment fee on unused
borrowings was approximately 0.5%. The Credit Facility contained various
restrictions and covenants, including limits on payments to stockholders,
interest coverage, and net worth tests. In April 1999, the Company amended the
Credit Facility to increase the existing line from $85.0 million to $120.0
million. The Credit Facility was also amended to increase the assets eligible
for borrowings to be advanced against. As of December 31, 1999, the Company had
approximately $51.5 million of available borrowings under the Credit Facility
and was in compliance with all covenants related to the Credit Facility. The
average annual interest rate on borrowings outstanding was approximately 7.615%
at December 31, 1999, as compared to 7.50% at December 31, 1998.
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<PAGE> 24
Interest Rates
As of December 31, 1999, the Company had approximately $68.5 million in
floating rate indebtedness. In June 1995 the Company entered into interest rate
swap agreements that effectively fix the interest rate on a portion of its
floating rate obligation. The interest rate swap agreements include a basic
transaction for a notional amount of $50.0 million under which the Company pays
a fixed rate of 6.0175% and receives an interest rate based on the three-month
London Interbank Offered Rate (LIBOR). These agreements expire in June 2000. The
banks may exercise an option to extend the term by one year. A net settlement is
calculated and paid on a quarterly basis and is recognized as an adjustment to
interest expense. The fair value of the interest rate swap agreements was
estimated using a quote from an outside source and represents the cash
requirement as if the agreements had been settled at year-end. The fair value of
the interest rate swap agreements, which is not reflected in the financial
statements, was an asset of less than $10,000 at December 31, 1999.
Foreign Currency
A significant portion of the Company's products is manufactured or
assembled in Mexico and other countries outside the United States. The Company's
sales of its equipment into international markets have been and are expected in
the future to be an important part of the Company's business. These foreign
operations are subject to the usual risks inherent in conducting business
abroad, including risks with respect to currency exchange rates, economic and
political destabilization, restrictive actions and taxation by foreign
governments, nationalization, the laws and policies of the United States
affecting trade, foreign investment and loans, and foreign tax laws. Even though
most of the Company's international sales have been dollar denominated, the
Company's business could be adversely affected if relevant currencies fluctuate
relative to the United States dollar.
Liquidity Table
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Working capital............................................. $252.8 $200.2 $133.3
Current ratio............................................... 2.2 3.0 2.8
Cash provided by (used in) operations....................... $ (4.6) $(29.0) $ 26.8
Proceeds from issuance of common stock...................... $ 21.6 $ 9.1 $ 3.9
Capital expenditures........................................ $ 20.8 $ 16.8 $ 12.8
A/R collection period (days)................................ 70.9 70.7 73.9
Inventory turnover.......................................... 3.5 3.0 3.1
</TABLE>
Capital Expenditures
Capital expenditures are made at a sufficient level to support the
strategic and operating needs of the business. The Company's capital
expenditures were $20.8 million in 1999 as compared to $16.8 million in 1998 and
$12.8 million in 1997. Except for the impact of the Year 2000 discussed below,
the Company had no significant commitments for capital expenditures at December
31, 1999. Management expects to invest approximately $18.2 million in capital
expenditures for the year 2000.
Cash Flow
Cash levels decreased by approximately $1.5 million, $2.8 million and $20.2
million during 1999, 1998 and 1997, respectively. During 1999, net cash used in
operating activities was $4.6 million, primarily due to increases in accounts
receivable and inventory levels in support of the Company's dramatic growth,
while the Company spent $20.8 million in capital expenditures. These cash
outlays during 1999 were partially offset by positive cash flows of $24.0
million provided through financing activities. Cash used by operating activities
during 1998 was $29.0 million primarily driven by increases in accounts
receivable and inventories from the
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<PAGE> 25
low levels at year end 1997. Investment activity in 1998 consumed $23.0 million.
These 1998 outlays were partially offset by $49.2 million of positive cash flows
from financing activities. During 1997, operating activities provided cash of
$26.8 million. Due to substantially decreased sales levels in 1997, the Company
was able to dramatically reduce its accounts receivable and inventory levels
producing cash. In 1997, the Company's investing activities consumed $20.5
million and was able to reduce its revolving debt by approximately $30.3 million
from the previous year.
Operating activities utilized cash of $4.6 million during 1999. In the
first quarter of 1999, the Company recorded a pre-tax 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 11 of the Notes to the Consolidated Financial
Statements.) Additionally, increases in accounts receivable and inventories
during 1999 utilized cash of approximately $73.4 million and $64.2 million,
respectively. The increase in other, net, which utilized approximately $14.5
million in cash, relates to several factors. Of this amount, approximately $4.1
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/expense 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 $112.0 million through December 31, 1999.
Days sales outstanding ("DSO") was approximately 71 days at December 31,
1999 as compared to the same amount of days outstanding at year end 1998. The
fourth quarter of 1999 experienced a surge in receivable levels, primarily due
to the record revenue recorded during the fourth quarter, which kept the 1999
DSO within the range of 1998. December sales included approximately $28.7
million in revenue pertaining to RF Concentration software licensing as it
relates to AT&T. Approximately $21.9 million in receivables was collected during
the first week of January 2000.
The increase in current inventory levels, as compared to December 31, 1998,
is comprised of approximately $20.1 million in raw material and $51.1 million in
finished goods, offset by the $10.4 million inventory write-off as previously
discussed and by a $0.6 million decrease in work in process. This inventory
increase is reflective of the higher revenues and product demands during 1999. A
portion of this increase is within the Cornerstone voice and data product
offerings. Also, as ANTEC prepared for the forecasted AT&T ramp up, AT&T's
demand for HDTs and, to some extent, voice ports, although strong during the
fourth quarter of 1999 was not at their previous purchasing levels. ANTEC was
unable to alter their contractual purchasing obligations for these products,
resulting in this inventory growth. The Company believes this to be a temporary
condition as the demand for the Cornerstone product offerings is expected to
substantially increase in 2000. Additional growth in inventory is related to the
purchase of safety stock on products supplied by vendors who were not or were
deemed not to be Year 2000 compliant and where there were no satisfactory second
sources available for these products. Despite this increase in inventory levels,
inventory turns have improved to 3.5 times in 1999 as compared to 3.0 times
recorded in 1998 and 3.1 times recorded in 1997.
An increase in accounts payable and accrued liabilities of $112.0 million
helped to offset these negative cash flows during 1999. This increase in the
level of payables and accrued expenses is indicative of the increased purchasing
necessary to meet product demand volumes.
Cash flows used by investing activities were approximately $20.8 million
for 1999 as compared to $23.0 million and $20.5 million used during 1998 and
1997, respectively. The investments made during 1999 pertained to the purchase
of capital assets. The investments during 1998 included $16.8 million spent on
capital assets and $6.8 million invested in/advanced to the Company's joint
ventures. During 1997 the Company spent $12.8 million on capital assets and
invested in/advanced to its joint ventures approximately $7.8 million.
Cash flows provided by financing activities were $24.0 million for 1999 as
compared to positive cash flows of $49.2 million in 1998 and the negative cash
flows of $26.4 million in 1997. All periods presented reflect their respective
trends in operating and investing activities. The results for 1999 were affected
by the exercise of stock options that provided a positive cash flow of
approximately $21.6 million as compared to $9.1 million in 1998 and $3.9 million
in 1997. Net borrowings under the Company's credit facility provided
approximately
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<PAGE> 26
$2.5 million during 1999 while net reductions in debt levels used approximately
$6.3 million and $30.3 million during 1998 and 1997, respectively. The most
significant financing activity occurred during 1998 resulting from the impact of
the issuance of $115.0 million of 4.5% Notes and the repurchase of approximately
4.4 million shares of Common Stock from Anixter International for approximately
$63.5 million. (See Notes 8 and 9 of the Notes to the Consolidated Financial
Statements.)
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 cash on hand and
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.
NOL Carryforwards
As of December 31, 1999, the Company had net operating loss carryforwards
("NOL") for domestic and foreign income tax purposes of approximately $11.0
million and $6.9 million, respectively. The Company established a valuation
allowance in accordance with the provisions of SFAS No. 109, Accounting for
Income Taxes. The Company continually reviews the adequacy of the valuation
allowance and recognizes the benefits only as reassessment indicates that it is
more likely than not that the benefits will be realized. As of December 31,
1999, the valuation allowance on deferred tax assets was approximately $4.9
million.
The availability of tax benefits of NOL carryforwards to reduce the
Company's Federal and state income tax liability is subject to various
limitations under the Internal Revenue Code. The availability of tax benefits of
NOL carryforwards to reduce the Company's foreign income tax liability is
subject to the various tax provisions of the respective countries.
As of December 31, 1999, tax benefits arising from NOL carryforwards of
approximately $5.5 million originating prior to TSX's quasi-reorganization would
be credited directly to additional paid-in capital if and when realized.
Year 2000 Disclosure
Impact of Year 2000. ANTEC transitioned through January 1, 2000 and
experienced no significant date related processing issues. The Year 2000 Issue
was addressed as a critical business issue. In that context, ANTEC prepared
extensively to ensure system continuity over the transition throughout its
internal Information Technology ("IT") and non-IT environments.
The Year 2000 Issue arose from the past practice 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 with time-sensitive
software may have interpreted a date using "00" as the year 1900 rather than the
year 2000. If uncorrected, this could have resulted in computational errors as
dates are compared across the century boundary. Based on information available
to date, ANTEC has not experienced any significant events attributable to Year
2000 Issues.
State of Readiness. The Company, like other businesses, made substantial
preparations for the Year 2000 and had been addressing it since the beginning of
1997. In 1998, the Company began concentrating on a more centralized approach to
the Year 2000 Issue and subsequently created a Year 2000 Committee comprised of
cross-functional teams from various disciplines throughout the Company. 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's plan regarding the Year 2000 Issue evolved through four
phases: assessment, remediation, testing and implementation. During 1999, all
phases of the Company's plan were completed including the implementation of the
new information technology software related to the Company's distribution
efforts during July 1999. As with any new implementation, the Company continues
to monitor the performance and success of the new system and increase the
training and user base knowledge of the new IT environment.
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<PAGE> 27
Costs. 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 incurred approximately $7.5 million
($5.7 million capitalized for new systems and $1.8 million expensed as incurred)
related to its overall system improvements and the Year 2000 project. ANTEC does
not anticipate to incurring any material direct costs related to the Year 2000
issue in the future.
Risks. 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 the year 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 and management's beliefs and assumptions regarding these markets. Any
statements that are not statements about historical facts 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.
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 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.
25
<PAGE> 28
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.
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.
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
26
<PAGE> 29
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.
Year 2000 Issues. ANTEC transitioned through January 1, 2000 and
experienced no date related processing issues. The Year 2000 Issue was addressed
as a critical business issue. Based on currently available information, 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 the year 2000 to ensure that any latent Year
2000 matters that may arise are addressed promptly. However, should any latent
Year 2000 issues arise, there can be no guarantee that the affects can be
contained, addressed and resolved in a manner quick enough to prevent any
adverse effects on the Company's business. The Company believes the actions
taken with regards to the Year 2000 should minimize the risk of potential
business interruption due to latent Year 2000 issues.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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 December 31, 1999,
the Company had no material contracts denominated in foreign currencies.
ANTEC uses interest rate swap agreements, with large creditworthy financial
institutions, to manage its exposure to interest rate changes. The swaps involve
the exchange of fixed and variable interest rate payments without exchanging the
notional principal amount. Payments or receipts on these agreements are recorded
as adjustments to interest expense. At December 31, 1999 the Company had
outstanding interest rate swap agreements denominated in dollars, maturing in
2001, with an aggregate notional principal amount of $50.0 million. Under these
agreements, the Company receives a floating rate marked to LIBOR and pays a
fixed interest rate. The swaps effectively change 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 agreements represents the
estimated receipts or payments that would be made to terminate the agreements.
At December 31, 1999, the Company would have received approximately $2,000 upon
termination of the agreements. A 1% decrease in short-term borrowing rates would
increase the amount paid to terminate the agreements by approximately $0.7
million. See Note 2 and Note 8 of Notes to the Consolidated Financial Statements
for a discussion of the accounting policies for interest rate swaps and
financial instruments, respectively.
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 from foreign currency fluctuations for significant
sales contracts, however, no such contracts were in place at December 31, 1999.
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 payment.
27
<PAGE> 30
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and consolidated financial statements
and notes thereto for the Company are included in this Report and are listed in
the Index to Consolidated Financial Statements which appears on page 29.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
28
<PAGE> 31
ANTEC CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... 30
Consolidated Balance Sheets at December 31, 1999 and 1998... 31
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.......................... 32
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... 33
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997............. 34
Notes to the Consolidated Financial Statements.............. 35
</TABLE>
29
<PAGE> 32
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
ANTEC Corporation
We have audited the accompanying consolidated balance sheets of ANTEC
Corporation as of December 31, 1999 and 1998 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of ANTEC's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of ANTEC Corporation at December 31, 1999 and 1998, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
February 9, 2000
30
<PAGE> 33
ANTEC CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,971 $ 4,436
Accounts receivable (net of allowances for doubtful
accounts of $7,505 in 1999 and $4,609 in 1998)......... 197,350 123,959
Inventories............................................... 215,216 150,988
Income taxes recoverable.................................. 10,403 --
Deferred income taxes..................................... 16,442 16,589
Other current assets...................................... 15,989 6,089
-------- --------
Total current assets.............................. 458,371 302,061
Property, plant and equipment (net of accumulated
depreciation of $43,195 in 1999 and $35,933 in 1998)...... 51,406 41,612
Goodwill (net of accumulated amortization of $46,641 in 1999
and $41,695 in 1998)...................................... 149,836 154,782
Investments................................................. 70,968 11,743
Deferred income taxes....................................... 5,918 6,002
Other assets................................................ 23,573 16,445
-------- --------
$760,072 $532,645
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $153,596 $ 57,383
Accrued compensation, benefits and related taxes.......... 20,539 19,804
Other accrued liabilities................................. 31,402 24,680
-------- --------
Total current liabilities......................... 205,537 101,867
Long-term debt.............................................. 183,500 181,000
Deferred income taxes....................................... 23,700 --
-------- --------
Total liabilities................................. 412,737 282,867
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; 37.6 million and 35.8
million shares issued and outstanding in 1999 and 1998,
respectively........................................... 378 358
Capital in excess of par value............................ 252,245 209,193
Retained earnings......................................... 94,713 40,190
Cumulative translation adjustments........................ (1) 37
-------- --------
Total stockholders' equity........................ 347,335 249,778
-------- --------
$760,072 $532,645
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
31
<PAGE> 34
ANTEC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales................................................... $826,556 $546,767 $480,078
Cost of sales............................................... 661,574 404,999 365,860
-------- -------- --------
Gross profit.............................................. 164,982 141,768 114,218
Operating expenses:
Selling, general, administrative and development
expenses............................................... 111,937 105,643 110,803
Amortization of goodwill.................................. 4,946 4,910 4,927
Restructuring and other charges........................... 5,647 9,119 21,550
-------- -------- --------
122,530 119,672 137,280
-------- -------- --------
Operating income (loss)..................................... 42,452 22,096 (23,062)
Other expense (income):
Interest expense.......................................... 12,406 9,337 6,264
Other (income) expense, net............................... (2,970) (977) (348)
Gain on LANcity transaction............................... (60,000) -- --
-------- -------- --------
Income (loss) before income tax expense (benefit)........... 93,016 13,736 (28,978)
Income tax expense (benefit)................................ 38,493 7,911 (7,534)
-------- -------- --------
Net income (loss)........................................... $ 54,523 $ 5,825 $(21,444)
======== ======== ========
Net income (loss) per common share:
Basic.................................................. $ 1.49 $ .16 $ (.55)
======== ======== ========
Diluted................................................ $ 1.33 $ .15 $ (.55)
======== ======== ========
Weighted average common shares:
Basic.................................................. 36,600 37,195 38,751
======== ======== ========
Diluted................................................ 43,696 38,751 38,751
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
32
<PAGE> 35
ANTEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
--------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net income (loss)......................................... $ 54,523 $ 5,825 $(21,444)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 17,075 16,163 15,234
Provision for doubtful accounts........................ 5,859 1,971 2,642
Deferred income taxes.................................. 24,282 (3,310) (7,750)
Gain on LANcity transaction............................ (60,000) -- --
Changes in operating assets and liabilities, net of
effects of acquisitions:
(Increase) decrease in accounts receivable........... (79,250) (38,130) 16,160
(Increase) decrease in inventories................... (64,228) (39,290) 27,087
Increase (decrease) in accounts payable and accrued
liabilities....................................... 111,606 28,904 (6,868)
(Increase) decrease in other, net.................... (14,505) (1,147) 1,748
--------- --------- --------
Net cash (used in) provided by operating activities......... (4,638) (29,014) 26,809
Investing activities:
Purchases of property, plant and equipment................ (20,802) (16,757) (12,841)
Investments in/advances to joint ventures................. -- (6,800) (7,780)
Other..................................................... -- 584 72
--------- --------- --------
Net cash (used in) investing activities..................... (20,802) (22,973) (20,549)
--------- --------- --------
Net cash (used) provided before financing activities........ (25,440) (51,987) 6,260
Financing activities:
Borrowings under credit facilities........................ 251,500 151,000 119,500
Reductions in borrowings under credit facilities.......... (249,000) (157,339) (149,819)
Issuance of 4.5% convertible subordinated notes........... -- 115,000 --
Purchase and retirement of common stock................... -- (63,459) --
Deferred financing costs paid............................. (166) (5,142) --
Proceeds from issuance of common stock.................... 21,641 9,119 3,905
--------- --------- --------
Net cash provided by (used in) financing activities......... 23,975 49,179 (26,414)
Net (decrease) in cash and cash equivalents................. (1,465) (2,808) (20,154)
Cash and cash equivalents at beginning of year.............. 4,436 7,244 27,398
--------- --------- --------
Cash and cash equivalents at end of year.................... $ 2,971 $ 4,436 $ 7,244
========= ========= ========
Supplemental cash flow information:
Interest paid during the year............................. $ 10,893 $ 7,119 $ 6,277
========= ========= ========
Income taxes paid during the year......................... $ 5,690 $ 9,384 $ 948
========= ========= ========
</TABLE>
See accompanying notes to the consolidated financial statements.
33
<PAGE> 36
ANTEC CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL IN CUMULATIVE
COMMON EXCESS OF RETAINED TRANSLATION
STOCK PAR VALUE EARNINGS ADJUSTMENTS TOTAL
-------- ---------- -------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996.................. $ 384 $254,181 $56,008 $(185) $310,388
Comprehensive income:
Net loss.................................. -- -- (21,444) -- (21,444)
Translation adjustment.................... -- -- -- 131 131
--------
Comprehensive income...................... (21,313)
Issuance of common stock and other........ 9 3,896 (199) -- 3,706
Tax benefit related to exercise of stock
options/warrants....................... -- 3,004 -- -- 3,004
-------- -------- ------- ----- --------
Balance, December 31, 1997.................. 393 261,081 34,365 (54) 295,785
Comprehensive income:
Net income................................ -- -- 5,825 -- 5,825
Translation adjustment.................... -- -- -- 91 91
--------
Comprehensive income...................... 5,916
Issuance of common stock and other........ 8 9,111 -- -- 9,119
Tax benefit related to exercise of stock
options/warrants....................... -- 2,417 -- -- 2,417
Repurchase of common stock................ (43) (63,416) -- -- (63,459)
-------- -------- ------- ----- --------
Balance, December 31, 1998.................. 358 209,193 40,190 37 249,778
Comprehensive income:
Net income................................ -- -- 54,523 -- 54,523
Translation adjustment.................... (38) (38)
--------
Comprehensive income...................... 54,485
Issuance of common stock and other........ 20 21,621 -- -- 21,641
Tax benefit related to exercise of stock
options/warrants....................... -- 21,431 -- -- 21,431
-------- -------- ------- ----- --------
Balance, December 31, 1999.................. $ 378 $252,245 $94,713 $ (1) $347,335
======== ======== ======= ===== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
34
<PAGE> 37
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
ANTEC Corporation (together with its consolidated subsidiaries, except as
the context otherwise indicates, "ANTEC" or the "Company") is an international
communications technology company, headquartered in Duluth, Georgia, with a
major office in Englewood, Colorado. ANTEC specializes in the design and
engineering of hybrid fiber-coax ("HFC") architectures and the development and
distribution of products for these broadband networks. The Company provides its
customers with products and services that enable reliable, high-speed, two-way
broadband transmission of video, telephony, and data.
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. 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.
As of December 31, 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, effectively controlled approximately 20% of the
outstanding ANTEC common stock on a fully diluted basis. The effective ownership
includes options to acquire an additional 854,341 shares. A significant portion
of the Company's revenue is derived from sales to AT&T aggregating $347.4
million, $142.7 million and $46.6 million for the years ended December 31, 1999,
1998 and 1997, respectively. The Company had accounts receivable from AT&T of
approximately $90.4 million, $25.0 million and $9.2 million at December 31,
1999, 1998 and 1997, respectively.
On February 6, 1997, shareholders of ANTEC Corporation and TSX Corporation
approved the Plan of Merger ("Merger") dated as of October 28, 1996 among ANTEC
Corporation, TSX Corporation ("TSX") and TSX Acquisition Corporation, and the
Merger resulting in TSX becoming a wholly-owned subsidiary of ANTEC effective on
that date. Under the terms of the transaction, TSX shareholders received one
share of ANTEC common stock for each share of TSX common stock that they owned,
while ANTEC shareholders continued to own their existing shares. As a result of
the Merger, ANTEC issued approximately 15.4 million shares of Common Stock. The
transaction was tax-free for TSX shareholders and was accounted for as a pooling
of interests. As a result, all amounts from the prior years have been restated
to reflect the Merger.
Prior to its initial public offering in 1993, the ANTEC business was
operated as several divisions or business units of Anixter Inc. ("Anixter"), a
subsidiary of Anixter International.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
after elimination of intercompany transactions.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
35
<PAGE> 38
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BASIS OF PRESENTATION
Certain prior year amounts have been reclassified to conform to the current
year's financial statement presentation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents. The carrying amount reported in the
consolidated balance sheets for cash and cash equivalents approximates fair
value.
INVENTORIES
Inventories are stated at the lower of average, approximating first-in,
first-out, cost or market. The cost of finished goods and work in process
comprises material, labor, and manufacturing overhead.
EQUITY INVESTMENTS
The Company owns a 50% interest in Tanco, L.L.C. ("Tanco"), a joint venture
accounted for under the equity method. Tanco provided turnkey construction
solutions and services, primarily to AT&T. During 1999, AT&T exercised its right
to terminate, for convenience, its contracts with the joint venture and take
over the management of these projects directly. The joint venture was not
designed as a profit-generating vehicle and the termination of these contracts
did not have a material adverse effect on the Company or its product sales to
AT&T.
The Tanco joint venture is moving through the process of dissolution and
its carrying value at December 31, 1999 was $0 as compared to $3.1 million at
the end of 1998. Net sales to Tanco were approximately $5.8 million, $29.0
million and $0 for the years ended December 31, 1999, 1998 and 1997,
respectively. The Company had accounts receivable from Tanco of less than $0.1
million and approximately $19.9 million at December 31, 1999 and 1998,
respectively.
Prior to March 1999, the Company owned a 25% interest in Arris Interactive,
L.L.C. ("Arris"), a joint venture with Nortel Networks ("Nortel") that was
accounted for under the equity method. Arris is focused on the development,
manufacture and sale of products that enable the provision of a broad range of
telephone and data services over HFC architectures typically used for video
distribution.
During the first quarter of 1999, the Company completed the combination of
the Broadband Technology Division of Nortel ("LANcity") with the Arris joint
venture. This transaction reduced ANTEC's interest in Arris to 18.75%. Depending
upon the achievement of certain sales levels, an additional dilution of 6.25% of
ANTEC's interest could occur. Due to this change in ownership percentage,
effective March 31, 1999, the Company accounts for this investment under the
cost method. (See Note 11 of the Notes to the Consolidated Financial
Statements.)
The carrying value of the Arris investment was $60.0 million at December
31, 1999 and $0 at the close of 1998. Purchases from Arris were approximately
$210.0 million, $31.3 million and $25.2 million for 1999, 1998 and 1997,
respectively. The Company had accounts payable to Arris of approximately $80.0
million and $4.0 million, and net accounts receivable from Arris of $10.1
million and $2.7 million at December 31, 1999 and 1998, respectively. The
Company also holds a participation in a note receivable from Arris of
approximately $11.8 million and $10.7 million for 1999 and 1998, respectively.
This note bears interest indexed to LIBOR earning varying rates of interest
between 7% and 8% annually. Included in the note receivable balance is $0.1
million and $0.6 million in accrued interest at December 31, 1999 and 1998,
respectively, net of payments made during the periods disclosed.
36
<PAGE> 39
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
Sales and related cost of sales are recognized as products are shipped and
services are rendered. Software revenue is generally recognized when shipment is
made, no significant vendor obligations remain and collection is considered
probable.
DEPRECIATION OF PLANT AND EQUIPMENT
The Company provides for depreciation of plant and equipment principally on
the straight-line basis over the estimated useful lives of 25 to 40 years for
buildings and improvements, 3 to 10 years for machinery and equipment, and the
term of the lease for leasehold improvements. Depreciation expense for the three
years ended December 31, 1999, 1998 and 1997 was approximately $11.0 million,
$11.3 million and $11.2 million, respectively.
GOODWILL AND LONG-LIVED ASSETS
Goodwill relates to the excess of cost over net assets resulting
principally from the acquisition of Anixter by Anixter International in 1986
which has been allocated to the Company, and from subsequent acquisitions by
ANTEC and by Anixter of businesses now owned by ANTEC. Goodwill resulting from
the acquisition of Anixter by Anixter International was allocated to the Company
based on the Company's proportionate share of total operating earnings of
Anixter for the period subsequent to the acquisition by Anixter International.
The Company assesses the recoverability of goodwill and other long-lived assets
whenever events or changes in circumstances indicate that expected future
undiscounted cash flows might not be sufficient to support the carrying amount
of an asset. If expected future undiscounted cash flows from operations are less
than their carrying amounts, an asset is determined to be impaired, and a loss
is recorded for the amount by which the carrying value of the asset exceeds its
fair value. Fair value is based on discounting estimated future cash flows or
using other valuation methods as appropriate. Non-cash amortization expense is
being recognized as a result of amortization of goodwill on a straight-line
basis over a period of 40 years from the respective dates of acquisition.
ADVERTISING AND SALES PROMOTION
Advertising and sales promotion costs are expensed as incurred. Advertising
expense was approximately $2.8 million, $2.1 million and $2.2 million for the
years ended December 31, 1999, 1998 and 1997, respectively.
RESEARCH AND DEVELOPMENT
Research and development ("R&D") costs are expensed as incurred. The
Company's research and development expenditures for the years ended December 31,
1999, 1998 and 1997 were approximately $16.6 million, $14.4 million and $13.4
million, respectively.
WARRANTY
The Company provides, by a current charge to income in the period in which
the related revenue is recognized, an amount it estimates will be needed to
cover future warranty obligations.
INCOME TAXES
The Company uses the liability method of accounting for income taxes which
requires recognition of temporary differences between financial statement and
income tax bases of assets and liabilities, measured by enacted tax rates.
37
<PAGE> 40
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOREIGN CURRENCY
The financial position and operating results of the Company's foreign
operations are consolidated using the local currency as the functional currency.
All balance sheet accounts of foreign subsidiaries are translated at the current
exchange rate at the end of the accounting period with the exception of fixed
assets, which are translated at historical cost. Income statement items are
translated at average currency exchange rates. The resulting translation
adjustment is recorded as a separate component of stockholders' equity.
STOCK-BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly, does
not recognize compensation expense for the stock option grants. As required by
Financial Accounting Standards Board ("FASB") Statement No. 123, Accounting for
Stock-Based Compensation, the Company presents supplemental information
disclosing pro forma net income (loss) and net income (loss) per common share as
if the Company had recognized compensation expense on stock options granted
subsequent to December 31, 1994 under the fair value method of that statement.
(See Note 14 of Notes to the Consolidated Financial Statements.)
INTEREST RATE AGREEMENTS
As of December 31, 1999, the Company had approximately $68.5 million in
floating rate indebtedness. In June 1995 the Company entered into interest rate
swap agreements that effectively fix the interest rate on a portion of its
floating rate obligation. The interest rate swap agreements include a basic
transaction for a notional amount of $50.0 million under which the Company pays
a fixed rate of 6.0175% and receives an interest rate based on the three-month
London Interbank Offered Rate (LIBOR). These agreements expire in June 2000. The
banks may exercise an option to extend the term by one year. A net settlement is
calculated and paid on a quarterly basis and is recognized as an adjustment to
interest expense. The fair value of the interest rate swap agreements was
estimated using a quote from an outside source and represents the cash
requirement as if the agreements had been settled at year-end. The fair value of
the interest rate swap agreements, which is not reflected in the financial
statements, was an asset of less than $10,000 at December 31, 1999.
CONCENTRATIONS OF CREDIT
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and accounts receivable. The Company places its temporary cash investments with
high credit quality financial institutions in accordance with debt agreements.
Concentrations with respect to accounts receivable occur as the Company sells
primarily to large, well established companies, however, the credit quality of
these customers significantly diminish the risk of loss from extension of
credit. The Company closely monitors extensions of credit to other parties and,
where necessary, utilizes common financial instruments to mitigate risk or
requires cash on delivery terms.
The Company is exposed to credit risk to the extent of potential
non-performance by the counterparties to the interest rate swap agreements. In
the event of non-performance by the counterparties to the Company's interest
rate swap agreements, the effective interest rate on the underlying transaction
would revert to the respective contractual rate. The counterparties to the
Company's interest rate swap agreements are major financial institutions with an
investment grade rating, thus the Company believes the risk of incurring losses
due to credit risk is remote.
38
<PAGE> 41
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Exposure to market risk on financial instruments results from fluctuations
in interest rates during the period in which the contract is outstanding. The
market-to-market valuations of the interest rate swap agreements and of
associated underlying exposures are closely monitored. Overall financial
strategies and the effect of using a hedge is reviewed periodically.
NOTE 3. RESTATEMENT
The Company has revised previously filed financial statements for the
quarters ended March 31, 1998 and June 30, 1998. These restatements have been
made primarily to eliminate a portion of a restructuring charge, included in the
quarter ended March 31, 1998 results, relating to the impairment of equipment
and leasehold improvements directly resulting from the Company's plan to
consolidate several facilities. The estimated impairment of fixed assets, as it
relates to this plan, is now being written off over the remaining estimated
useful lives of the fixed assets. These changes are reflected in the
twelve-month period ended December 31, 1998. The amended Form 10-Qs for the
periods ended March 31, 1998 and June 30, 1998 have been filed.
The effect of these adjustments on the quarter ended March 31, 1998 was an
increase in net income of $0.9 million from a loss of $(5.5) million to a loss
of $(4.6) million or an increase of $.02 per common share. The effect of these
adjustments in the quarter ended June 30, 1998 decreased net income by $0.3
million from $4.0 million to approximately $3.7 million or a decrease of
approximately $.01 per share.
NOTE 4. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB 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 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 is in the process of reviewing the
effects that the adoption of FASB Statement No. 133 will have on the results of
operations or financial position.
Effective December 31, 1998, the Company adopted FASB Statement No. 132,
Employers' Disclosures about Pensions and Other Postretirement Benefits. The
provisions of FASB Statement No. 132 revise employers' disclosures about
pensions and other postretirement benefit plans. It does not change the
measurement or recognition of these plans. It standardizes the disclosure
requirements for pensions and postretirement benefits to the extent practicable.
(See Note 15 of Notes to the Consolidated Financial Statements.)
In the first quarter of 1998, the Company adopted FASB Statement No. 130,
Reporting of Comprehensive Income, which establishes standards for the financial
presentation of comprehensive income and its components. Adoption of FASB
Statement No. 130 had no effect on the Company's financial position or operating
results.
In June 1997, the Financial Accounting Standards Board issued FASB
Statement No. 131, Disclosures about Segments of an Enterprise and Related
Information, which establishes standards for the way that public business
enterprises report information about operating segments and related disclosures
about products and services, geographic areas, and major customers. FASB
Statement No. 131 was effective for financial statements for fiscal years
beginning after December 15, 1997, and therefore the Company adopted the new
requirements retroactively in its 1998 annual financial statements. The Company
evaluates and manages the business on a consolidated basis. The adoption of FASB
Statement No. 131 did not affect results of operations or financial position,
but did affect the disclosure of segment information. (See Note 1 and Note 16 of
Notes to the Consolidated Financial Statements.)
39
<PAGE> 42
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of 1999, in conjunction with the announced
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 obsolesence charge totaling approximately $10.4 million, which has
been reflected in cost of sales. 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. Terminated employees were offered separation amounts in
accordance with the Company's severance policy and were provided specific
separation dates. In connection with customer demand shifting to the Company's
newer product offerings, such as the new Total System Power ("TSP") and the
Scaleable and Micro Node products, the Company is discontinuing certain older
product lines that are not consistent with ANTEC's focus on two-way, high-speed
Internet, voice and video communications equipment. This discontinuance affects
the uninterruptible common ferroresonant ("UCF") and security lock ("SL")
powering products and included the narrowing of the Company's radio frequency
("RF") and optical products. It is anticipated that, in addition to the recorded
charge of $16.0 million, approximately $1.6 million of relocation and fixed
asset depreciation expenses, to be incurred in connection with the New Jersey
facility closure, will be recognized and expensed during 2000. It is anticipated
that all of these actions will be fully implemented during the first two
quarters of 2000. These steps are being taken to structure the Company into a
more efficient organization and to further integrate ANTEC's speed-to-market
philosophy. The Company's manufacturing operations located in New Jersey are
being realigned in order to accelerate the production transition from in-house
design and tooling functions into the manufacturing process. With the exception
of saving approximately $1.5 million in lease obligations and SGA&D costs, it is
anticipated the remaining costs related to the New Jersey facility will shift to
Georgia and the Southwest.
In January 1998, ANTEC announced a consolidation plan implemented
concurrently with the creation of the new President and Chief Operating Officer
organization in Georgia. The Company has completed the consolidation of its
Rolling Meadows, Illinois corporate and administrative functions into either the
Duluth, Georgia or the Englewood, Colorado location during 1999. 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, the Company 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 payments 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 177 employees,
primarily related to the finance, management information systems activities as
well as international 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
December 31, 1999, 139 of the 177 employees had been terminated and it was
determined that 38 employees originally estimated, as part of the 177 employees
to be terminated, would remain as employees of the Company. Additionally, the
actual cost of terminating or sub-letting real estate obligations in Georgia and
Illinois were higher than anticipated. As of December 31, 1999, approximately
$0.6 million of accrued costs related to the obligations resulting from this
restructuring remain. This remaining balance is expected to be charged during
the first quarter of 2000.
In the first quarter of 1997, in connection with the Merger discussed in
Note 1, the Company recorded merger/integration costs aggregating approximately
$28.0 million. The components of the merger/integration charge included $6.9
million related to the investment banking, legal, accounting and contractual
change of
40
<PAGE> 43
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
control payments associated with the Merger; $11.2 million related to facility
and operational consolidation and reorganization due to the combining of various
manufacturing operations; and $3.4 million related to severance costs resulting
from the elimination of positions duplicated by the Merger and integration. The
personnel-related costs included charges related to the termination of
approximately 200 employees primarily resulting from the factors described
above. Also included in the total merger/integration charge was a write-off of
redundant inventories totaling approximately $6.5 million that was reflected in
cost of sales for the year ended December 31, 1997. The costs related to the
facility and operational consolidation and reorganization were comprised of
costs associated with the shutdown of several of the Company's operating
locations. These costs consisted of lease termination payments, losses on the
sale and disposal of building and equipment and other related fixed assets. All
of the planned facility closings were completed and related cash costs were
expended by the end of 1997. In 1997, the Company also paid approximately $2.4
million relating to personnel-related costs that represented the termination of
approximately 175 employees. As of December 31, 1998, all of the cash costs
related to the contractual obligations resulting from the Merger and other
personnel-related costs had been expended.
NOTE 6. INVENTORIES
Inventories are stated at the lower of average, approximating first-in,
first-out, cost or market. The components of inventory are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Raw material................................................ $ 57,538 $ 37,437
Work in process............................................. 9,938 10,496
Finished goods.............................................. 147,740 103,055
-------- --------
Total inventories................................. $215,216 $150,988
======== ========
</TABLE>
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Land........................................................ $ 2,549 $ 2,549
Buildings and leasehold improvements........................ 15,485 14,548
Machinery and equipment..................................... 76,567 60,448
-------- --------
94,601 77,545
Less: Accumulated depreciation.............................. (43,195) (35,933)
-------- --------
Total property, plant and equipment, net.......... $ 51,406 $ 41,612
======== ========
</TABLE>
NOTE 8. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Revolving Credit Facility................................... $ 68,500 $ 66,000
4.5% Convertible Subordinated Notes......................... 115,000 115,000
-------- --------
$183,500 $181,000
======== ========
</TABLE>
41
<PAGE> 44
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. At December 31, 1999, the estimated fair market value of the
Notes, based upon the closing market price of the Company's Common Stock at that
date was approximately $175 million.
The net proceeds from the Offering were used to repay all outstanding
amounts under the Company's existing credit facility, and the remainder of the
net proceeds were invested in government securities, certificates of deposits or
similar investment grade securities until June 1998 when the Company completed
the repurchase and retirement of approximately 4.4 million shares of Common
Stock owned by Anixter International Inc. for approximately $63.5 million. (See
Note 9 of the Notes to the Consolidated Financial Statements.)
On May 21, 1998, the Company entered into a new secured four-year credit
facility ("Credit Facility") with a group of banks aggregating $85.0 million.
The Credit Facility permits the Company to borrow, on a revolving basis, an
amount contingent upon the level of certain eligible assets. The Credit Facility
provides for various interest rate alternatives. The average annual interest
rate on borrowings was approximately 7.615% at December 31, 1999. 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. All borrowings under the
Credit Facility are secured by substantially all of the Company's assets.
In April 1999, the Company amended the Credit Facility. This amendment
increased the existing line from $85.0 million to $120.0 million. The Credit
Facility was also 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 December 31, 1999, the Company had
approximately $51.5 million of available borrowings under the Credit Facility.
NOTE 9. COMMON STOCK
In June 1998, the Company repurchased and retired approximately 4.4 million
shares of ANTEC Common Stock owned by Anixter International Inc. for
approximately $63.5 million.
The following shares of Common Stock have been reserved for future
issuance:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1999 1998 1997
---------- ---------- ---------
<S> <C> <C> <C>
Convertible subordinated notes...................... 4,791,667 4,791,667 --
Stock options....................................... 4,742,112 6,612,469 7,289,518
Warrants............................................ -- -- 4,200
Director stock units................................ 36,900 35,900 20,500
Employee stock purchase plan........................ 466,907 11,358 59,018
TCI options......................................... 854,341 854,341 854,341
Nortel Networks..................................... 2,747,252 -- --
---------- ---------- ---------
Total..................................... 13,639,179 12,305,735 8,227,577
========== ========== =========
</TABLE>
42
<PAGE> 45
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- --------- -----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Basic:
Net income (loss)................................. $54,523 $5,825 $(21,444)
======= ====== ========
Weighted average shares outstanding............... 36,600 37,195 38,751
======= ====== ========
Basic earnings (loss) per share................... $ 1.49 $ 0.16 $ (0.55)
======= ====== ========
Diluted:
Net income (loss)................................. $54,523 $5,825 $(21,444)
Add: 4.5% convertible subordinated notes,
interest and fees, net of federal income tax
effect....................................... 3,548 -- --
------- ------ --------
Total..................................... $58,071 $5,825 $(21,444)
======= ====== ========
Weighted average shares outstanding............... 36,600 37,195 38,751
Net effect of dilutive securities:
Add: options/warrants, net of tax benefit...... 2,304 1,556 --
: assumed conversion of 4.5% convertible
subordinated notes........................ 4,792 -- --
------- ------ --------
Total............................................. 43,696 38,751 38,751
======= ====== ========
Diluted earnings (loss) per share................. $ 1.33 $ 0.15 $ (0.55)
======= ====== ========
</TABLE>
The 4.5% Convertible Subordinated Notes issued in May 1998, were
antidilutive for the year ended December 31, 1998. The effects of the options
and warrants, approximately 1.6 million common stock equivalents, were not
presented for the year ended December 31, 1997 as the Company incurred a net
loss and inclusion of these securities would be antidilutive.
NOTE 11. 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, L.L.C. ("Arris"), a joint venture between ANTEC and Nortel Networks
("Nortel"). 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 addition, based upon 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, 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 twelve months
ended December 31, 1999, consolidated LANcity product sales, through all sales
channels, totaled approximately $122.8 million.
During the first quarter of 1999, 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
43
<PAGE> 46
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
it were a gain on the sale of ANTEC's 12.50% interest in Arris 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 and deferred income
taxes are provided on such gain.
At the expiration of the eighteen-month period discussed above, a second
independent valuation of LANcity will be performed in order to determine the
value of any additional interest to be given to Nortel if Nortel elects to
further dilute ANTEC's interest. In addition, upon the expiration of the
measurement period on June 30, 2000, and, based upon the second independent
valuation, ANTEC will record a gain or loss equal to their final ownership
percentage less the previously recorded amount of $60.0 million from the initial
valuation.
NOTE 12. INCOME TAXES
Income (loss) before income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Domestic (U.S.).......................................... $93,016 $13,736 $(28,978)
Foreign.................................................. -- -- --
------- ------- --------
$93,016 $13,736 $(28,978)
======= ======= ========
</TABLE>
Income tax expense (benefit) consisted of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Current -- Federal....................................... $11,698 $ 9,268 $ 313
State......................................... 2,513 1,953 (97)
Foreign....................................... -- -- --
------- ------- --------
14,211 11,221 216
------- ------- --------
Deferred -- Federal...................................... 19,980 (2,661) (6,384)
State........................................ 4,302 (649) (1,366)
Foreign...................................... -- -- --
------- ------- --------
24,282 (3,310) (7,750)
------- ------- --------
$38,493 $ 7,911 $ (7,534)
======= ======= ========
</TABLE>
44
<PAGE> 47
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of income tax expense (benefit) to the Statutory Federal
tax rate of 35% was as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997
--------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Statutory Federal income tax
expense (benefit)................ $32,556 35.00% $4,807 35.00% $(10,142) 35.00%
Effects of:
Amortization of goodwill......... 1,531 1.64 1,531 11.14 1,531 (5.28)
State income taxes, net of
Federal benefit............... 3,839 4.13 848 6.17 (951) 3.28
Acquisition fees................. -- -- -- -- 998 (3.44)
Meals and entertainment.......... 390 0.42 361 2.63 279 (0.96)
Other, net....................... 177 0.19 364 2.65 751 (2.60)
------- ----- ------ ----- -------- -----
$38,493 41.38% $7,911 57.59% $ (7,534) 26.00%
======= ===== ====== ===== ======== =====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the Company's net deferred tax assets
(liabilities) were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
-------- -------
<S> <C> <C>
Current deferred tax assets:
Inventory costs........................................... $ 5,933 $10,544
Merger/restructuring related reserves..................... 6,656 3,013
Other, principally operating expenses..................... 3,853 3,032
-------- -------
Total current deferred tax assets................. 16,442 16,589
Long-term deferred tax assets:
Federal/state net operating loss carryforwards............ 3,569 5,195
Foreign net operating loss carryforwards.................. 2,358 2,358
Plant and equipment, depreciation differences............. 4,102 3,330
-------- -------
Total long-term deferred tax assets............... 10,029 10,883
-------- -------
Long-term deferred tax liabilities:
LANcity transaction....................................... (23,700) --
-------- -------
Total deferred tax assets................................... 2,771 27,472
Valuation allowance on deferred tax assets................ (4,111) (4,881)
-------- -------
Net deferred tax assets (liability)............... $ (1,340) $22,591
======== =======
</TABLE>
As of December 31, 1999, the Company has estimated federal and foreign tax
loss carryforwards of $11.0 million and $6.9 million, respectively. The federal
and foreign tax loss carryforwards expire through 2008 and 2005, respectively.
In addition, the Company has alternative minimum tax loss carryforwards of
approximately $11.0 million that expire through 2008. As of December 31, 1999,
tax benefits arising from loss carryforwards of approximately $5.5 million
originating prior to TSX's quasi-reorganization on November 22, 1985 would be
credited directly to additional paid in capital if and when realized.
The Company established a valuation allowance in accordance with the
provisions of FASB Statement No. 109, Accounting for Income Taxes. The Company
continually reviews the adequacy of the valuation
45
<PAGE> 48
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
allowance and recognizes the benefits of deferred tax assets only as
reassessment indicates that it is more likely than not that the deferred tax
assets will be realized.
The Company had U.S. and foreign net operating loss carryforwards at
December 31, 1999 expiring as follows (in thousands):
<TABLE>
<CAPTION>
U.S. FOREIGN
EXPIRATION IN CALENDAR YEAR AMOUNT AMOUNT
- --------------------------- -------- -------
<S> <C> <C>
2002........................................................ $ 4,166 $ --
2003........................................................ -- --
2004........................................................ 501 --
2005........................................................ 1,967 6,935
2006........................................................ -- --
2007........................................................ 2,745 --
2008........................................................ 1,605 --
-------- -------
$ 10,984 $ 6,935
======== =======
</TABLE>
NOTE 13. COMMITMENTS
The Company leases certain office, distribution, and manufacturing
facilities and equipment under long-term operating leases expiring at various
dates through 2009. Future minimum lease payments under non-cancelable operating
leases (excluding operating leases related to closed facilities -- See Note 5)
at December 31, 1999 were as follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $ 4,909
2001........................................................ 3,971
2002........................................................ 3,069
2003........................................................ 1,755
2004........................................................ 747
Thereafter.................................................. 4,893
-------
Total minimum lease payments...................... $19,344
=======
</TABLE>
Total rental expense for all operating leases amounted to approximately
$7.6 million, $9.5 million and $9.4 million for the years ended December 31,
1999, 1998 and 1997, respectively.
NOTE 14. STOCK-BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees
and directors with an exercise price equal to the market price of the shares at
the date of grant. The Company accounts for stock option grants in accordance
with APB Opinion No. 25, Accounting for Stock Issued to Employees and,
accordingly, does not recognize compensation expense for the stock option
grants. The Company has elected to follow APB Opinion No. 25 because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, Accounting for Stock-Based Compensation, requires use of
option valuation models that were not developed for use in valuing employee
stock options.
The Company grants stock options under its 1997 Stock Incentive Plan
("SIP"), its 1993 Employee Stock Incentive Plan ("ESIP"), and Director Stock
Option Plan ("DSOP") and issues stock purchase rights under its Employee Stock
Purchase Plan ("ESPP"). Additionally, TSX issued options under its Long-Term
Incentive Plan ("LTIP"). These plans are described below.
As required by FASB Statement No. 123, the Company presents below
supplemental information disclosing pro forma net income (loss) and net income
(loss) per common share as if the Company had
46
<PAGE> 49
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recognized compensation expense on stock options granted subsequent to December
31, 1994 under the fair value method of that statement. The fair value for these
options was estimated using a Black-Scholes option-pricing model. The weighted
average assumptions used in this model to estimate the fair value of options
granted under the SIP, ESIP, DSOP and LTIP for 1999, 1998 and 1997 were as
follows: risk-free interest rates of 5.41%, 5.21% and 5.81%, respectively; a
dividend yield of 0%; volatility factor of the expected market price of the
Company's common stock of .56, .54 and .54, respectively; and a weighted average
expected life of 9, 5, and 6 years, respectively. The assumptions used for the
ESPP for 1999, 1998 and 1997 were as follows: risk-free rate of 5.66%, 4.57% and
4.96%, respectively; a dividend yield of 0%; volatility factor of the expected
market price of the Company's common stock of .56, .54 and .54, respectively;
and an expected life of one year.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ --------
<S> <C> <C> <C>
Pro forma net income (loss)............................... $50,673 $3,204 $(23,980)
======= ====== ========
Pro forma net income (loss) per common share:
Basic................................................... $ 1.38 $ .09 $ (.62)
======= ====== ========
Diluted................................................. $ 1.24 $ .08 $ (.62)
======= ====== ========
</TABLE>
Compensation expense recognized for pro forma purposes was approximately
$6.6 million, $4.4 million and $4.2 million for 1999, 1998 and 1997,
respectively. FASB Statement No. 123 is applicable only to options granted
subsequent to December 31, 1994.
In 1997, the Board of Directors approved the SIP to facilitate the hiring,
retention and continued motivation of key employees, consultants and directors
and to align more closely their interests with those of the Company and its
stockholders. Awards under the SIP may be in the form of incentive stock
options, non-qualified stock options, stock grants, stock units, restricted
stock, stock appreciation rights, performance shares and units, dividend
equivalent rights and reload options. A total of 3,750,000 shares of the
Company's common stock may be issued pursuant to this plan. Vesting requirements
for issuances under the SIP may vary as may the related date of termination.
Approximately three-fourths of the SIP options granted were tied to a
vesting schedule that would accelerate if the Company's stock closes above
specified prices ($15, $20 and $25) for 20 consecutive days and the Company's
diluted earnings per common share (before non-recurring items) over a period of
four consecutive quarters exceed $1.00 per common share. As of March 31, 1999
the $1.00 per diluted share trigger for the vesting of these grants was met. The
$15 and $20 stock value targets had already been met. Accordingly two-thirds of
these options were vested. Further, on May 26, 1999, the final third was vested
upon meeting the $25 per share value target. Under the terms of the options, one
half of the vested options became exercisable when the target was reached and
the remaining options become exercisable one year later. A portion of all other
options granted under this plan vest each year on the anniversary of the date of
grant beginning with the second anniversary and terminate seven years from the
date of grant. The remaining
47
<PAGE> 50
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
portion of options granted under the SIP plan vest in fourths on the anniversary
of the date of grant beginning with the first anniversary and have an extended
life of ten years from the date of grant.
In 1993, the Board of Directors approved the ESIP that provides for
granting key employees and consultants options to purchase up to 1,925,000
shares of ANTEC common stock. In 1996, an amendment to the ESIP was approved
increasing the number of shares of ANTEC common stock that may be issued
pursuant to that plan from 1,925,000 shares to 3,225,000 shares. One-third of
these options vest each year on the anniversary of the date of grant beginning
with the second anniversary. The options terminate seven years from the date of
grant.
In 1993, the Board of Directors also approved the DSOP that provides for
the granting, to each director of the Company who has not been granted any
options under the ESIP each January 1, commencing January 1, 1994, an option to
purchase 2,500 shares of ANTEC common stock for the average closing price for
the ten trading days preceding the date of grant. A total of 75,000 shares of
ANTEC common stock have been allocated to this plan. These options vest six
months from the date of grant and terminate seven years from the date of grant.
Pursuant to the Merger, an option to purchase TSX common stock under the
LTIP was converted to a fully vested option to purchase ANTEC common stock. A
total of 883,900 shares of ANTEC common stock have been allocated to this plan.
The options under the LTIP terminate ten years from the original grant date.
A summary of activity of the Company's options granted under its SIP, ESIP,
DSOP, and LTIP is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------- ---------------------------- ---------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
----------- -------------- ----------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance.... 5,450,903 $11.55 6,187,250 $11.02 3,406,657 $11.11
Grants............... 774,500 $23.86 1,006,450 $14.68 4,027,000 $ 9.67
Exercises............ (1,870,357) $10.83 (677,049) $12.05 (817,339) $ 3.80
Terminations......... (403,496) $11.07 (1,040,831) $10.93 (360,100) $12.51
Expirations.......... (10,833) $20.48 (24,917) $17.71 (68,968) $14.09
----------- ----------- ----------
Ending balance....... 3,940,717 $14.34 5,450,903 $11.55 6,187,250 $11.02
=========== =========== ==========
Vested at period
end................ 965,275 $12.49 1,284,952 $12.54 1,668,582 $11.76
=========== =========== ==========
Weighted average fair
value of options
granted during
year............... $ 14.67 $ 7.84 $ 5.46
=========== =========== ==========
</TABLE>
48
<PAGE> 51
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about SIP, ESIP, DSOP, and LTIP
options outstanding at December 31, 1999.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
RANGE OF EXERCISE PRICES AT 12/31/99 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/99 EXERCISE PRICE
- ------------------------ ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 2.00................ 20,000 3.25 years $ 2.00 20,000 $ 2.00
$ 5.00................ 1,200 4.58 years $ 5.00 1,200 $ 5.00
$ 8.88 to $10.00................. 1,247,333 4.33 years $ 8.88 278,333 $ 8.88
$10.50 to $15.88................. 1,383,734 4.20 years $12.92 520,242 $12.83
$16.60 to $19.75................. 515,450 4.95 years $17.63 143,000 $19.58
$22.88 to $53.13................. 773,000 9.15 years $23.83 2,500 $25.09
--------- -------
$ 2.00 to $53.13................. 3,940,717 5.31 years $14.34 965,275 $12.49
========= =======
</TABLE>
Pursuant to the Merger Agreement between ANTEC and Keptel, on November 17,
1994 under the ANTEC/Keptel Exchange Option Plan ("EOP"), each Keptel stock
option, whether or not then exercisable, was canceled and substituted with an
ANTEC/Keptel exchange option to acquire shares of ANTEC common stock. Each
ANTEC/Keptel exchange option provides the option holder with rights and benefits
that are no less favorable than were provided under the former Keptel stock
option plan. A total of 360,850 shares of ANTEC common stock have been allocated
to this plan. There were no options granted under the EOP during the years ended
December 31, 1999, 1998, and 1997. Additionally, as of December 31, 1999 no
options issued under this plan remain outstanding.
Additionally, ANTEC has an ESPP that initially enabled its employees to
purchase a total of 300,000 shares of ANTEC common stock over a period of time.
In 1999, an amendment to the ESPP was approved increasing the number of shares
of ANTEC common stock that may be issued pursuant to that plan to 800,000
shares. The Company accounts for the ESPP in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees, and accordingly recognizes no
compensation expense. Participants can request that up to 10% of their base
compensation be applied toward the purchase of ANTEC common stock under ANTEC's
ESPP. Purchases by any one participant are limited to $25,000 in any one year.
The exercise price is the lower of 85% of the fair market value of the ANTEC
common stock at the date of grant or at the later exercise date (currently one
year). Under the ESPP, employees of the Company purchased 44,451, 47,660 and
48,377 shares of ANTEC common stock in 1999, 1998 and 1997, respectively. At
December 31, 1999, approximately 24,967 shares are subject to purchase under the
ESPP at a price of no more than $45.16 per share.
Pursuant to the Merger Agreement between ANTEC and Keptel, on November 17,
1994, each Keptel warrant, whether or not then exercisable, was canceled and
substituted with a warrant to acquire shares of ANTEC common stock. Each warrant
provides the warrant holder with rights and benefits that are no less favorable
than were provided under the former Keptel warrant plan. At December 31, 1999,
all warrants had been exercised.
In 1999, 1998 and 1997, the Company paid its non-employee directors annual
retainer fees of $50,000 in the form of stock units. These stock units convert
to Common Stock of the Company at the prearranged time selected by each
director. The Company amortizes the compensation expense related to these stock
units on a straight-line basis over a period of one year. At the years ended
December 31, 1999, 1998 and 1997 there were 36,700 units, 35,900 units and
20,500 units issued and outstanding, respectively.
49
<PAGE> 52
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15. EMPLOYEE BENEFIT PLANS
The Company sponsors two non-contributory defined benefit pension plans
that cover the majority of the Company's U.S. employees.
The U.S. pension plan benefit formulas generally provide for payments to
retired employees based upon their length of service and compensation as defined
in the plans. The Company's policy is to fund the plans as required by the
Employee Retirement Income Security Act of 1974 ("ERISA") and to the extent that
such contributions are tax deductible.
<TABLE>
<CAPTION>
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Change in Benefit Obligation:
Benefit obligation at the beginning of year............... $21,357 $16,686
Service cost.............................................. 1,629 1,559
Interest cost............................................. 1,446 1,202
Plan amendment............................................ 2,347 --
Actuarial (gain) loss..................................... (8,659) 2,067
Benefit payments.......................................... (329) (157)
------- -------
Benefit obligation at year end............................ $17,791 $21,357
======= =======
Change in Plan Assets:
Fair value of plan assets at beginning of year............ $11,517 $10,300
Actual return on plan assets.............................. 281 369
Company contributions..................................... -- 1,005
Benefits paid from plan assets............................ (330) (157)
------- -------
Fair value of plan assets at year end..................... $11,468 $11,517
======= =======
Funded Status:
Funded status of plan..................................... $(6,323) $(9,840)
Unrecognized actuarial (gain) loss........................ (4,281) 3,823
Unrecognized prior service cost........................... 2,290 70
------- -------
(Accrued) benefit cost.................................... $(8,314) $(5,947)
======= =======
</TABLE>
The plans' assets consist of corporate and government debt securities and
equity securities. Net periodic pension cost for 1999, 1998 and 1997 for pension
and supplemental benefit plans includes the following components (dollars in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Service cost................................................ $1,629 $1,559 $1,487
Interest cost............................................... 1,446 1,202 1,091
Return on assets (expected)................................. (940) (836) (704)
Recognized net actuarial loss............................... 104 36 107
Amortization of prior service cost.......................... 128 7 6
------ ------ ------
Net periodic pension cost................................... $2,367 $1,968 $1,987
====== ====== ======
</TABLE>
50
<PAGE> 53
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The assumptions used in accounting for the Company's defined benefit plans
for the three years presented are set forth below:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Assumed discount rate....................................... 7.5% 6.5% 7.5%
Rates of compensation increase.............................. 6.0% 6.0% 6.0%
Expected long-term rate of return on plan assets............ 8.0% 8.0% 8.0%
</TABLE>
Additionally, the Company has established defined contribution plans
pursuant to the Internal Revenue Code Section 401(a) that cover all eligible
U.S. employees. The Company contributes to these plans based upon the dollar
amount of each participant's contribution. The Company made contributions to
these plans of approximately $0.7 million, $0.7 million and $0.6 million in
1999, 1998, and 1997, respectively.
As of January 1, 2000, the Company froze the defined pension plan benefits
for 569 participants. These participants elected to participate in the Company's
enhanced 401(k) plan. Due to the cessation of plan accruals for such a large
group of participants, a curtailment is considered to have occurred. As a result
of this curtailment, as outlined under FASB Statement No. 87, Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits, the Company is expected to record a gain on the
curtailment during the first quarter 2000. The Company is in the process of
obtaining an actuarial valuation to determine the amount of the gain. It is
anticipated this will be completed by the end of the first quarter 2000.
NOTE 16. SALES INFORMATION
As of December 31, 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 20.0% of
the outstanding ANTEC common stock. This beneficial ownership includes options
to acquire an additional 854,341 shares that are fully vested. These options
expire at various times beginning in 2004 and ending in 2006. A significant
portion of the Company's revenue is derived from sales to AT&T aggregating
$347.4 million, $142.7 million and $46.6 million for the years ended December
31, 1999, 1998 and 1997, respectively.
Export sales accounted for approximately 4.0%, 6.0% and 17.1% of total
sales for the years ended December 31, 1999, 1998 and 1997, respectively. Sales
to international customers (including export sales) were approximately 6.4%,
11.4% and 23.8% of total sales for 1999, 1998 and 1997, respectively.
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
years ended December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
International region
Asia Pacific.................................... $12,177 $24,691 $ 30,101
Europe.......................................... 18,625 12,020 14,184
Latin America................................... 19,124 24,233 66,321
Canada.......................................... 3,275 2,559 2,192
------- ------- --------
Total international sales............... $53,201 $63,503 $112,798
======= ======= ========
</TABLE>
Total identifiable international assets were immaterial.
51
<PAGE> 54
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17. SUMMARY QUARTERLY CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The following table summarizes the Company's quarterly consolidated
financial information (in thousands, except share data).
<TABLE>
<CAPTION>
QUARTERS IN 1999 ENDED
-------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net sales............................................. $145,256 $196,334 $237,216 $247,750
Gross profit(1)....................................... 34,211 43,984 50,025 36,762
Operating income (loss)(1)............................ 8,080 15,666 20,312 (1,607)
Income (loss) before income taxes(2).................. 67,525 13,050 17,359 (4,919)
Net income (loss)..................................... $ 38,615 $ 8,002 $ 10,776 $ (2,871)
======== ======== ======== ========
Net income (loss) per common share:
Basic............................................... $ 1.07 $ .22 $ .29 $ (.08)
======== ======== ======== ========
Diluted............................................. $ .92 $ .21 $ .27 $ (.08)
======== ======== ======== ========
Supplemental financial information (excluding the effects of the LANcity transaction, the
restructuring charge and the related inventory write-off):
Gross profit(1)....................................... $ 34,211 $ 47,115
======== ========
Income (loss) before income taxes (2)................. $ 7,525 $ 11,081
======== ========
Net income (loss)..................................... $ 4,515 $ 6,295
======== ========
Net income (loss) per common share:
Diluted............................................. $ .13 $ .16
======== ========
</TABLE>
<TABLE>
<CAPTION>
QUARTERS IN 1999 ENDED
-------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net sales............................................. $123,441 $140,704 $150,336 $132,286
Gross profit.......................................... 32,827 36,768 38,781 33,392
Operating income (loss)(3)............................ (5,168) 9,064 11,647 6,553
Income (loss) before income taxes..................... (6,523) 7,141 8,927 4,191
Net income (loss)..................................... $ (4,618) $ 3,649 $ 4,979 $ 1,815
======== ======== ======== ========
Net income (loss) per common share:
Basic............................................... $ (.12) $ .10 $ .14 $ .05
======== ======== ======== ========
Diluted............................................. $ (.12) $ .09 $ .13 $ .05
======== ======== ======== ========
Supplemental financial information (excluding the
effects of the restructuring charge):
Gross profit(1)....................................... $ 32,827 $ 33,392
======== ========
Income (loss) before income taxes(2).................. $ 3,477 $ 3,310
======== ========
Net income (loss)..................................... $ 1,432 $ 1,286
======== ========
Net income (loss) per common share:
Diluted............................................. $ .04 $ .03
======== ========
</TABLE>
- ---------------
(1) 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
52
<PAGE> 55
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
charge of approximately $16.0 million. Also included in the charge was
approximately $2.6 million related to personnel costs and approximately $3.0
million related to lease termination and other charges. Included in the
restructuring was an elimination of certain product lines resulting in an
inventory obsolescence charge totaling approximately $10.4 million, which
has been reflected in cost of sales. (See Note 5 of the Notes to the
Consolidated Financial Statements.)
(2) In the first quarter of 1999, the Company completed the combination of the
Broadband Technology Division of Nortel Networks ("LANcity") with Arris
Interactive, L.L.C. ("Arris"), a joint venture between ANTEC and Nortel. The
Company recorded a pre-tax gain of $60.0 million, net of related expenses,
based on an independent valuation of LANcity. The transaction was accounted
for as if it were a gain on the sale of ANTEC's 12.50% interest in Arris to
Nortel in exchange for 12.5% of LANcity. (See Note 11 of the Notes to the
Consolidated Financial Statements.)
(3) First quarter 1998 includes $10.0 million of restructuring costs related to
the consolidation of certain functions and facilities to Atlanta, Georgia.
The fourth quarter 1998 includes a partial reversal of $0.9 million of this
charge as a result of the ongoing evaluation of the estimated costs related
to these actions. (See Note 5 of Notes to the Consolidated Financial
Statements.)
53
<PAGE> 56
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to directors of the Company is set forth under the
caption entitled "Election of Directors" in the Company's Proxy Statement for
the 2000 Annual Meeting of Stockholders and is incorporated herein by reference.
Certain information concerning the executive officers of the Company is set
forth in Part I of this Report on Form 10-K under the caption entitled
"Executive Officers of the Company."
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of officers and directors of the Company
is set forth under the captions entitled "Executive Compensation," "Compensation
of Directors," and "Employment Contracts and Termination of Employment and
Change-In-Control Arrangements" in the Proxy Statement and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding ownership of the Company's common stock is set forth
under the captions entitled "Security Ownership of Management" and "Security
Ownership of Principal Stockholders" in the Proxy Statement and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions with
the Company is set forth under the captions entitled "Compensation of Directors"
and "Certain Relationships and Related Transactions" in the Proxy Statement and
is incorporated herein by reference.
54
<PAGE> 57
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) EXHIBITS.
The exhibits listed below in Item 14(a)1, 2 and 3 are filed as part of this
Report. Each management contract or compensatory plan required to be filed as an
exhibit is identified by an asterisk(*).
(B) REPORTS ON FORM 8-K.
None
ITEM 14(A) 1 & 2. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES
FINANCIAL STATEMENTS
The following Consolidated Financial Statements of ANTEC Corporation and
Report of Independent Auditors are filed as part of this Report.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. 30
Consolidated Balance Sheets at December 31, 1999 and 1998... 31
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.......................... 32
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... 33
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997.............. 34
Notes to the Consolidated Financial Statements.............. 35
</TABLE>
FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedule of ANTEC
Corporation is included in Item 14(a) 2 pursuant to paragraph (d) of Item 14:
Schedule II -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are not applicable, and therefore have been
omitted.
55
<PAGE> 58
SCHEDULE II
ANTEC CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGE TO BALANCE AT
DESCRIPTION BEGINNING OF PERIOD EXPENSES DEDUCTIONS END OF PERIOD
- ----------- ------------------- --------- ---------- -------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Reserves and allowances deducted from asset
accounts:
Allowance for uncollectible accounts..... $4,609 $5,859 $ 2,963(1) $7,505
YEAR ENDED DECEMBER 31, 1998
Reserves and allowances deducted from asset
accounts:
Allowance for uncollectible accounts..... $4,289 $1,971 $ 1,651(1) $4,609
YEAR ENDED DECEMBER 31, 1997
Reserves and allowances deducted from asset
accounts:
Allowance for uncollectible accounts..... $3,539 $2,642 $ 1,892(1) $4,289
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries
56
<PAGE> 59
ITEM 14(A)3. EXHIBIT LIST
Each management contract or compensation plan required to be filed as an
exhibit is identified by an asterisk(*).
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE FROM
EXHIBIT ANTEC'S SEC FILINGS UNLESS
NUMBER DESCRIPTION OF EXHIBIT OTHERWISE INDICATED:
--------- ---------------------- ------------------------------
<C> <S> <C>
3.1(a) -- Restated Certificate of Incorporation Form S-1, Registration #33-65488,
Exhibit 3.1(a).
3.1(b) -- Amendment of June 16, 1999 to Restated June 30, 1999, Form 10-Q, Exhibit
Certificate of Incorporation 3.1(b).
3.2 -- By-laws Form S-1, Registration #33-65488,
Exhibit 3.2.
4.1 -- Form of Certificate for Common Stock Form S-1 Registration #33-65488,
Exhibit 4.1.
4.2 -- 4 1/2% Convertible Subordinated Notes due March 31, 1998, Form 10-Q, Exhibit
2003 dated May 5, 1998 10.28.
10.1(a) -- Credit Agreement Form S-3, Registration #333-58437,
Exhibit 10.1.
10.1(b) -- Amendment to Credit and Guarantee March 31, 1999, Form 10-Q, Exhibit
Agreement, dated April 28, 1999 10.4.
10.2(a) -- Amended and Restated Limited Liability March 31, 1999, Form 10-Q, Exhibit
Company Agreement of Arris Interactive, 10.1.
L.L.C. dated March 31, 1999
10.2(b) -- Earnout Share Agreement between Nortel March 31, 1999, Form 10-Q, Exhibit
Networks, L.L.C. and ANTEC Corporation, 10.2.
dated March 31, 1999
10.2(c) -- Products Distribution Agreement between December 31, 1995, Form 10-K,
Products Venture L.L.C. and ANTEC Exhibit 10.20.
Corporation
10.2(d) -- Amendment to Products Distribution March 31, 1999, Form 10-Q, Exhibit
Agreement between Arris Interactive, L.L.C. 10.3.
and ANTEC Corporation, dated March 31, 1999
10.3 -- Evolve Products, Inc. Agreement December 31, 1998, Form 10-K,
Exhibit 10.30.
10.4(a)* -- Amended and Restated Employee Stock Form S-1, Registration #33-65488,
Incentive Plan Exhibit 10.1(a).
10.4(b)* -- Form of Stock Option Grant Form S-1, Registration #33-65488,
Exhibit 10.1(b).
10.4(c)* -- Amendment Increasing Number of Shares Form S-8, Registration #33-12131,
Covered by Amended and Restated Employee Exhibit 4.
Stock Incentive Plan
10.4(d)* -- Amended Form of Stock Option Grant December 31, 1996, Form 10-K,
Exhibit 10.1(d).
10.4(e)* -- Amended Form of Stock Option December 31, 1997, Form 10-K,
Exhibit 10.1(e).
10.5* -- 1997 Stock Incentive Plan Schedule 14A, Filed 3/28/97
10.6* -- Form of agreement for receipt of stock Filed herewith.
units in lieu of cash bonus
</TABLE>
57
<PAGE> 60
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE FROM
EXHIBIT ANTEC'S SEC FILINGS UNLESS
NUMBER DESCRIPTION OF EXHIBIT OTHERWISE INDICATED:
--------- ---------------------- ------------------------------
<C> <S> <C>
10.7* -- Form of Director Stock Option Plan Form S-1, Registration #33-65488,
Exhibit 10.3.
10.8* -- Form of Supplemental Retirement Benefits Form S-1, Registration #33-65488,
Plan Exhibit 10.4.
10.9* -- Form of Supplemental Savings Plan Filed herewith.
10.10(a)* -- Amended and Restated Employment Agreement, June 30, 1999, Form 10-Q, Exhibit
dated April 29, 1999, with Robert J. 10.32.
Stanzione
10.10(b)* -- Agreement with Robert J. Stanzione for the Filed herewith.
conversion of special 2001 bonus to stock
units
10.11(a)* -- Amended and Restated Employment Agreement June 30, 1999, Form 10-Q, Exhibit
dated April 29, 1999, with John M. Egan 10.31(a).
10.11(b)* -- Consulting Agreement, dated April 27, 1999 June 30, 1999, Form 10-Q, Exhibit
with John M. Egan 10.31(b).
10.11(c)* -- Supplemental Executive Retirement Plan for June 30, 1999, Form 10-Q, Exhibit
John M. Egan 10.31(c).
10.12* -- Amended and Restated Employment Agreement, June 30, 1999, Form 10-Q, Exhibit
dated April 29, 1999, with Lawrence A. 10.33.
Margolis
10.13(a)* -- Form of Employment Agreement for Gordon E. Form S-1, Registration #33-65488,
Halverson Exhibit 10.13.
10.13(b)* -- Amendments to Employment Agreement for Mr. December 31, 1995, Form 10-K,
Halverson Exhibit 10.18.
10.14* -- Employment Agreement with Mark J. Scagliuso Filed herewith.
10.15* -- Retainer Agreement with James E. Knox December 31, 1996, Form 10-K,
Exhibit 10.17.
10.16* -- Consulting Agreement dated February 1, 1998 December 31, 1998, Form 10-K,
for James L. Faust Exhibit 10.14.
10.17* -- Stock Option Agreement with William H. April 30, 1994, TSX Corporation
Lambert dated March 14, 1994 Form 10-K, Exhibit 10(A)(1)(3).
21 -- Subsidiaries of the Registrant Form S-1, Registration #33-65488,
Exhibit 3.1(a).
23 -- Consent of Ernst & Young LLP Filed herewith.
24 -- Powers of Attorney Filed herewith.
27 -- Financial Data Schedule (for SEC use only) Filed herewith.
</TABLE>
58
<PAGE> 61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ANTEC CORPORATION
By: /s/ LAWRENCE A. MARGOLIS
------------------------------------
Lawrence A. Margolis
Executive Vice President
Dated: March 29, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN M. EGAN Chairman, and Director March 29, 2000
- ---------------------------------------------------
John M. Egan
/s/ ROBERT J. STANZIONE President, Chief Executive March 29, 2000
- --------------------------------------------------- Officer and Director
Robert J. Stanzione
/s/ LAWRENCE A. MARGOLIS Executive Vice President, Chief March 29, 2000
- --------------------------------------------------- Financial Officer
Lawrence A. Margolis
/s/ MARK J. SCAGLIUSO Vice President, Chief Accounting March 29, 2000
- --------------------------------------------------- and Information Officer
Mark J. Scagliuso
/s/ ROD F. DAMMEYER* Director March 29, 2000
- ---------------------------------------------------
Rod F. Dammeyer
/s/ JOHN R. PETTY* Director March 29, 2000
- ---------------------------------------------------
John R. Petty
/s/ BRUCE VAN WAGNER* Director March 29, 2000
- ---------------------------------------------------
Bruce Van Wagner
Director
- ---------------------------------------------------
Samuel K. Skinner
/s/ JAMES L. FAUST* Director March 29, 2000
- ---------------------------------------------------
James L. Faust
Director
- ---------------------------------------------------
J.A. Ian Craig
/s/ WILLIAM T. SCHLEYER* Director March 29, 2000
- ---------------------------------------------------
William T. Schleyer
/s/ WILLIAM H. LAMBERT* Director March 29, 2000
- ---------------------------------------------------
William H. Lambert
By: /s/ LAWRENCE A. MARGOLIS
----------------------------------------------
Lawrence A. Margolis
(as attorney in fact for each person indicated)
</TABLE>
59
<PAGE> 1
EXHIBIT 10.6
This document constitutes part of a prospectus covering
securities that have been registered under the
Securities Act of 1933
ELECTION TO RECEIVE STOCK UNITS IN LIEU OF BONUS
The undersigned employee hereby elects to have $__________ of the bonus
earned by the undersigned for 1999 performance (the "Bonus Amount") paid in the
form of _________ Stock Units. The Stock Units will convert on a one for one
basis to shares of Common Stock of the Company on ___________________ or the
earlier termination of the undersigned's employment with the Company.
Any distribution on the Common Stock shall either be distributed to the
undersigned or the number of Stock Units shall be equitably adjusted. The number
of Stock Units shall also be equitably adjusted for stock splits and similar
events. These and all other matters relating to the Stock Units shall be
determined by the Board of Directors of the Company or the Compensation
Committee of that board. All determinations by the board or the committee shall
be final and binding on all persons.
Twenty percent of the Stock Units and any distributions on these units
will be forfeited if the undersigned terminates the undersigned's employment
with the Company without Good Reason prior to December 31, 2002. Good Reason
shall be defined as it is defined in the undersigned's employment contract with
the Company if there is such a contract. If there is not such a contract, Good
Reason shall be a substantial reduction in the undersigned's compensation or
general level of responsibilities or the undersigned's death or permanent full
disability.
The undersigned understands that the Bonus Amount is current taxable
ordinary income and that the then value of the Common Shares issued upon the
conversion of the Stock Units in excess of the Bonus Amount will be taxable
ordinary income at the time of such conversion.
This election is made as of this 31st day of January, 2000. It will not
be effective until accepted by the Company.
----------------------------
employee
This election is hereby accepted by Company as authorized by the
Compensation Committee of the Board of Directors.
-----------------------------
<PAGE> 1
EXHIBIT 10.9
ANTEC CORPORATION
Deferred Compensation Plan
Effective January 1, 2000
1
<PAGE> 2
ANTEC CORPORATION
Deferred Compensation Plan
I. PURPOSE
II. DEFINITIONS
III. ELIGIBILITY; PARTICIPATION LIMITS
IV. ACCOUNT DETERMINATION AND VALUATION
V. BENEFITS
VI. CLAIM FOR BENEFITS PROCEDURE
VII. ADMINISTRATION
VIII. AMENDMENT AND TERMINATION
IX. MISCELLANEOUS
2
<PAGE> 3
ANTEC CORPORATION
Deferred Compensation Plan
I. PURPOSE
The purpose of the ANTEC Corporation Deferred Compensation Plan is to provide a
means whereby ANTEC Corporation may permit Participants who also participate in
the ANTEC Corporation Employee Savings Plan the ("401(k) Plan") to defer
amounts in excess of the dollar limitation of IRC ss.402(g) applicable to the
401(k) Plan, and to defer additional Salary and Bonus amounts. The Company will
also credit a Participant's Deferred Benefit Account with an amount equivalent
to the amount which would have been contributed to the 401(k) Plan for a
Participant but for IRC limitations on Company matching contributions to the
401(k) Plan.
This plan is intended to be an unfunded, deferred compensation plan for a
select group of management or highly compensated employees, as described in
sections 201(2), 301(a)(3), and 401(a)(1) of the Employee Retirement Income
Security Act of 1974 ("ERISA").
Deferrals of Salary and Bonus, together with Company Allocations made pursuant
to the Plan, will be credited with Investment Results based on Investment
Results which mirror 401(k) Plan investment results. The resulting balance will
be paid to the Participant (or his or her Beneficiary) as described herein. By
providing a means whereby Salary and Bonus may be deferred into the future, and
by restoring contributions to the 401(k) Plan otherwise foregone because of the
operation of IRC limitations, the Plan will aid in attracting and retaining
managers of exceptional ability, provide them with additional financial
security at the time of Retirement, and supplement other Company-sponsored
benefits in the event of a Participant's death or Disability.
II. DEFINITIONS AND ADDITIONAL PROVISIONS
2.1 "Administrative Committee" and "Committee" mean the Plan Committee
appointed pursuant to Article VII to manage and administer the Plan.
2.2 "Agreement" means the ANTEC Corporation Deferred Compensation Election
Agreement, executed between a Participant and the Company, whereby a
Participant agrees to participate in the Plan and may defer a portion of his or
her Salary and Bonus (as the case may be), as well as the total amount of the
Repaid Before-Tax Contributions that would otherwise be paid in cash, pursuant
to the provisions of the Plan, and the Company agrees to pay benefits in
accordance with the provisions of the Plan and Agreement. A Participant shall
file an Agreement for each Plan Year in accordance with Section 3.2.
2.3 "Beneficiary" means the person, persons, or trust designated
Beneficiary pursuant to Section 5.10.
3
<PAGE> 4
2.4 "Bonus" means the gross annual bonus amount(s) payable to a
Participant from the ANTEC Bonus Plan or successor plan(s), if any, in effect
for the Company fiscal year ending within the Plan Year (but payable after the
end of the Plan Year) otherwise payable in cash, and considered "wages" for
FICA and federal income tax withholding, and including any Bonus amounts
deferred under this or any other plan maintained by the Company.
2.5 "Change of Control" means the occurrence of any of the following
events:
(a) would be required to be reported in response to Item 1(a) of
the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 ("Exchange Act"), even if the Company is not then subject to
the Exchange Act; or-
(b) without limitation, such a Change of Control shall be deemed
to have occurred at such time as
(1) any "person" (as the term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company
representing more than fifty percent (50%) of the Company's
outstanding securities, except for any securities of the
Company purchased by any tax qualified plan trust
established by the Company; or
(2) a plan of reorganization, merger, consolidation, sale of
all or substantially all of the assets of the Company, or
similar transaction occurs in which the Company is not the
resulting surviving entity.
2.6 "Company" means ANTEC Corporation, a Delaware corporation, its
successors and assigns, and any subsidiary company which grants participation
hereunder to an employee with the Company's consent.
2.7 "Company Allocation" means an amount added to a Participant's Deferred
Benefit Account, pursuant to Section 3.6.
2.8 "Deferred Benefit Account" and "Account" mean the separate bookkeeping
accounting record(s) maintained by the Company for each Participant, pursuant
to Articles IV and V. Each Participant's Deferred Benefit Account shall consist
of the sum of as many subaccounts as shall be necessary to establish for
recordkeeping purposes to reflect the Participant's Subaccount Investment
Election(s) with respect to the Investment Results to be applied to amounts
deferred under the Plan. The total amount of each Participant's Deferred
Benefit Account shall consist of the amounts described in Article IV. Deferred
Benefit Account(s), Deferred Benefit Account subaccounts, and Subaccount
Investment Results shall be utilized solely as a set of bookkeeping devices for
the measurement and determination of the amounts to be paid to the Participant
pursuant to this Plan, and shall be subject to Section 9.2 hereof.
Notwithstanding the provisions of Section 9.8, a Participant's Deferred Benefit
Account shall not constitute or be treated as a trust fund or escrow
arrangement of any kind.
4
<PAGE> 5
2.9 "Determination Date" means the date on which the amount of a
Participant's Deferred Benefit Account is determined as provided in Articles IV
and V. The last day of each calendar month shall be a Determination Date.
2.10 "Disability" shall have the same meaning and be determined in the
same manner as in the ANTEC Corporation Group Long-Term Disability Income Plan,
as in effect from time to time. In the absence of such a plan, "Disability" or
"Disabled" shall mean a permanent impairment of the physical or mental
condition of a Participant, determined in the sole discretion of the Committee,
which prevents the Participant from the performance of the usual duties of
employment attendant to the Participant's function with the Company. The
determination as to a Disability shall be made on the basis of such medical and
other competent evidence as the Committee shall deem relevant, and shall be
binding on Participant.
2.11 "ERISA Funded" means that the Plan does not meet the "unfunded"
criterion of the exceptions to the application of Parts 2 through 4 of Subtitle
B of Title I of the Employee Retirement Income Security Act of 1974 (ERISA).
2.12 "401(k) Plan" means the ANTEC Corporation Employee Savings Plan, as
amended from time to time. Unless the context requires otherwise, definitions
as used herein shall have the same meaning as in the Employee Savings Plan when
applied to said Plan.
2.13 "IRC" means the Internal Revenue Code of 1986, as amended.
2.14 "Participant" means an employee of the Company who is eligible to
participate in the Plan pursuant to Section 3.1, and who enters into an
Agreement with the Company.
2.15 "Plan" means the ANTEC Corporation Deferred Compensation Plan, as
amended from time to time.
2.16 "Plan Effective Date" means January 1, 2000.
2.17 "Plan Year" means the Company's fiscal year, which, unless and until
changed, is the calendar year.
2.18 "Repaid Before-Tax Contributions" means the Before-Tax Contributions
(as defined in the 401(k) Plan) required to be returned to a Participant in
order to comply with the limitations set forth in IRC ss.402(g), ss.401(k)(3),
and ss.401(m).
2.19 "Retirement Date" and "Retirement" mean the date of termination of
service of a Participant for reasons other than death or Disability after he or
she (i) attains age fifty-five (55) and has ten (10) Years of Service; (ii) has
attained age 65; or (iii) terminates under circumstances which the Company, in
its sole discretion, elects to treat as a Retirement for purposes of the Plan.
2.20 "Salary" for purposes of the Plan shall be the total of the
Participant's base
5
<PAGE> 6
salary paid during a Plan Year, and considered "wages" for FICA and federal
income tax withholding, but before any deferral made pursuant to this or any
other plan. Notwithstanding the foregoing, Salary shall not include
reimbursements or other expense allowances (whether or not includable in gross
income, and including but not limited to car allowances), (cash or noncash)
fringe benefits (including but not limited to contest prizes), moving expenses,
welfare benefits (including but not limited to imputed income on life insurance
coverage, unused and/or accrued vacation pay and severance pay), any
distribution of stock, proceeds from the exercise of any stock options, stock
appreciation rights, or any other stock or equity based annual incentive plan,
tax equalization packages or imputed income attributed to the forgiveness of
loans). Salary amounts considered shall include any amounts by which the
Participant's Salary is reduced by a salary reduction or similar arrangement
under any qualified plan described in IRC ss.401(a) or any cafeteria plan (as
described in IRC ss.125) maintained by the Company.
2.21 "Subaccount Investment Election" means the Participant's advance
notice request of future Investment Results to be applied to (the subaccounts
of) his or her Deferred Benefit Account, in such form as the Committee may
establish or accept. Such Subaccount Investment Election shall specify any
combination of whole percentage increments of one or any number of Subaccount
Investment Results from time to time offered under the Plan. The election shall
specify whether it applies to amounts not yet deferred, to amounts previously
credited to the Deferred Benefit Account, which, together with Investment
Results, represent the current Deferred Benefit Account balance, or both.
2.22 "Subaccount Investment Results" and "Investment Results" means the
investment results, expressed as a percentage rate, achieved by each of the
respective "Investment Fund" under the 401(k) Plan as of the most recent
Determination Date, and which represents each Investment Fund's investment
results attributable to interest, dividends, changes in market value, expenses,
and gains and losses, and which is to be used, for purposes of the Plan, as a
hypothetical investment earnings rate to be applied as Investment Results of
the respective subaccounts maintained under this Plan.
2.23 "Tax Funded" means that the interest of a Participant in the Plan
will be includable in the gross income of the Participant for federal income
tax purposes prior to actual receipt of Plan benefits by the Participant.
2.24 "Termination of Service" means the Participant's ceasing his or her
employment with the Company for any reason whatsoever, whether voluntarily or
involuntarily.
2.25 "Years of Service" means years of service credited to a Participant
in the 401(k) Plan.
III. ELIGIBILITY; PARTICIPATION LIMITS
3.1 Eligibility and Participation. Eligibility to participate in the Plan
for any Plan Year shall be limited to a select group of management and highly
compensated employees of the Company who meet all of the following conditions:
1. each employee must be designated as eligible by the Administrative
Committee
6
<PAGE> 7
of the Company;
2. each employee must not be accruing benefits under the ANTEC
Corporation Pension Plan;
3. each employee must have a Salary of at least $90,000, or a greater
amount as may be determined, from time to time, by the Company, at the
beginning of each Plan Year;
4. each employee must be eligible to participate in the 401(k) Plan,
and be a Participant, or have elected to become a Participant in the
401(k) Plan (in accordance with its rules of eligibility and
participation); and
5. each employee must file an Agreement with the Company in accordance
with Section 3.2 in order to become a Participant in the Plan.
If the Committee determines that participation in the Plan by any one or more
Participants shall cause the Plan to be subject to Parts 2, 3, or 4 of ERISA,
the entire interest of such Participant or Participants under the Plan shall be
immediately paid to such Participant by the Company, or shall otherwise be
segregated from the Plan in the discretion of the Committee, and such
Participant or Participants shall cease to have any interest under the Plan.
An employee who meets all of the requirements of this Section shall become a
Participant in the Plan effective as of the January 1 coincident with or next
following the Participant's date of hire. Except as otherwise provided in
Section 3.4, once an employee becomes a Participant in the Plan, he or she
shall remain a Participant with respect to contributions made thereunder on his
or her behalf until all benefit payments, if any, to the Participant (or his or
her Beneficiary) have been made.
3.2 Deferral of Salary, Repaid Before-Tax Contributions, and Bonus.
Eligible employees of the Company who elect to participate in the Plan must
file an Agreement with the Company in order to participate in the Plan.
(a) A Participant must file an Agreement to defer Salary thirty (30)
days prior to the beginning of the Plan Year in which the Salary is to be
earned, except for the first Plan Year a Participant must file an
Agreement by December 15, 1999.
(b) A Participant must file an Agreement to defer Repaid Before-Tax
Contributions thirty (30) days prior to the beginning of the Plan Year in
which the Before-Tax Contributions would be made under the 401(k) Plan,
except that with respect to the Repaid Before-Tax Contributions
attributable to Before-Tax Contributions made under the 401(k) Plan during
1998, 1999, and 2000, a Participant must file an Agreement by December 15,
1999.
(c) A Participant must file an Agreement to defer his or her Bonus
thirty (30) days prior to the end of the Plan Year in which the Bonus, if
any, is to be earned, and which Bonus, if any, is
7
<PAGE> 8
determined and paid in the following Plan Year, except for the first Plan
Year a Participant must file an Agreement by December 15, 1999.
Provided that Section 3.4 is not applicable, an eligible employee who fails to
file an Agreement to defer Salary, Repaid Before-Tax Contributions, and Bonus
with respect to a Plan Year may file an Agreement to defer Salary, Repaid
Before-Tax Contributions, and Bonus with respect to a subsequent Plan Year. A
Participant's Agreement shall be subject to all of the limitations of Section
3.3.
3.3 Deferral Limitations. A Participant's Agreement to participate in the
Plan and to defer Salary, Repaid Before-Tax Contributions and Bonus shall be
subject to the following limitations:
(a) a Participant may elect to defer no less than five percent (5%)
and no more than fifteen percent (15%) of Salary, in increments of one
percentage point (1%); and
(b) a Participant's may elect to defer either 0% or 100% of Repaid
Before-Tax Contributions; and
(c) a Participant's Agreement to defer up to one hundred percent
(100%) of Bonus shall be in increments of ten percentage points (10%); and
(d) the Agreement shall be irrevocable upon acceptance by the
Company.
3.4 Suspension of Agreement to Defer. A Participant's Agreement to defer
Salary and Bonus shall be suspended in the event that the Company, in its sole
discretion, reasonably determines that a Participant ceases to meet the
eligibility requirements of the Plan. A Participant whose Agreement has been
suspended pursuant to this Section shall not be deemed to have incurred a
Termination of Service, and his or her Deferred Benefit Account shall continue
to be maintained under the terms of the Plan.
3.5 Timing of Deferral Credits. The amount of Salary, Repaid Before-Tax
Contributions and Bonus that a Participant elects to defer in the Agreement
shall cause an equivalent reduction in his or her Salary, Repaid Before-Tax
Contributions and Bonus payment and shall be credited to the Participant's
Deferred Benefit Account throughout the Plan Year as the Participant is paid
(or would have been paid) the non-deferred portion of his or her Salary, Repaid
Before-Tax Contributions, and Bonus in each Plan Year. Any Company Allocation
to be made to a Participant's Deferred Benefit Account in accordance with
Section 3.6 shall be credited to his or her Deferred Benefit Account at the
same time the Company's contributions are made (or would have been made) to the
401(k) Plan, or at such other time as may be reasonably determined.
3.6 Company Allocation. The Company shall credit a Company Allocation to a
Participant's Deferred Benefit Account. The amount of the Company Allocation,
if any, shall be equal to the amount of the reduction, if any, in Company
Matching Contributions on behalf of the Participant (as that term is defined in
the 401(k) Plan) caused by the limitations of IRC ss.ss.401(a)(17), 401(k)(3),
401(m), 402(g), and 415.
8
<PAGE> 9
In order to qualify for a Company Allocation to be credited in accordance with
this Section, a Participant must elect (or have elected):
(a) to defer at least seven percent (7%) of Salary and Bonus as
an aggregate contribution to both the 401(k) Plan and the Deferred
Compensation Plan, and
(b) to defer the maximum elective contributions permitted under
the 401(k) Plan which would result (but for the limits of IRC
ss.402(g)) in a deferral amount which exceeds the maximum dollar
amount permitted under IRC ss.402(g).
The Company may credit, from time to time, a Participant's Deferred Benefit
Amount with a discretionary contribution as the Company determines. Such amount
shall vest in accordance with Section 3.8.
Any Company allocation made to a Participant's Deferred Benefit Account in
accordance with this Section shall be credited to his or her Deferred Benefit
Account at the same time as Company Matching Contributions are made (or would
have been made) to the 401(k) Plan.
3.7 No Constructive Receipt. The operation of Sections 3.6 shall not
permit the Participant to receive any amount credited to the Account of a
Participant as a Company Allocation in accordance with Section 3.6 prior to the
date such amount is actually paid to a Participant pursuant to Article V of
this Plan.
3.8 Vesting. A Participant shall at all times be one hundred percent
(100%) vested in the amount of his or her Deferred Benefit Account.
IV. DETERMINATION AND VALUATION OF ACCOUNT
4.1 Deferred Benefit Account. The Company shall establish each
Participant's Deferred Benefit Account in accordance with the Plan, and shall
maintain such number of subaccounts as may be necessary as a recordkeeping
device to reflect the Participant's Subaccount Investment Election(s). Each
Participant's Deferred Benefit Account as of each Determination Date shall
consist of:
1. the value of the Participant's Salary, Repaid Before-Tax
Contributions, and Bonus deferred pursuant to Section 3.2, and the value
of any Company Allocation made pursuant to Section 3.6, both amounts, if
any, credited to a Participant's Account since the immediately preceding
Determination Date, and held to be allocated to one or more subaccounts in
accordance with Section 4.2, and
2. the value of each subaccount established and maintained in
subaccount units under the Plan, after deduction of any subaccount units
converted to cash and paid as a benefit under Article V. The value of each
subaccount shall be determined in accordance with Section 4.4.
9
<PAGE> 10
4.2 Subaccount Investment Election. Investment Results shall be applied to
the respective subaccounts of a Participant's Account. Investment Results shall
be determined as follows:
(a) As of the Plan Effective Date, and at such other times as the
Committee shall permit, the Participant shall file and deliver to the
Company his or her Subaccount Investment Election. Such form may specify,
in whole percentage amounts, the percentage allocation to be applied
a. to the subaccount(s) to which amounts deferred thereafter in
accordance with Section 3.2 may be credited,
b. between or among subaccounts, for purposes of determining the
Subaccount Investment Results applicable to amounts previously
deferred, or
c. to any Company Allocation credited to his or her Account in
accordance with Section 3.6,
in such manner as approved or accepted by the Committee;
(b) A Participant's election shall remain in effect until changed by
the Participant. The Committee may limit the percentage amounts, number of
times a Participant may change the Subaccount Investment Results to be
applied to a Participant's Account Limitations, and establish such other
rules as it deems reasonable with respect to the Participant's Subaccount
Investment Election(s).
4.3 Reallocation of Subaccounts. In effecting a reallocation requested by
the Participant, units in a subaccount shall be converted to dollar amounts
prior to redistribution between or among subaccounts, and reconverted to
subaccount units as necessary to effect the Participant's reallocation request,
both conversions to be as of the most recent Determination Date. A
Participant's reallocation request shall be in the form of a Subaccount
Investment Election, which shall be filed and delivered to the Company at such
times and within such other limitations as the Committee may establish. In the
absence of any Subaccount Investment Election(s) as may be required by the
Participant (or his or her Beneficiary) in order to designate one hundred
percent (100%) of his or her Deferred Benefit Account, the portion of the
Account not designated shall be allocated to a subaccount selected by the
Committee.
4.4 Determination of Subaccount Value. A Participant's subaccounts shall
be valued in dollars, based on the dollar value of each unit credited to a
subaccount. The dollar value of each subaccount unit shall be based on the net
asset value of such unit as of the close of the business day coincident with or
immediately preceding a Determination Date.
3. Each subaccount shall be credited with the number of full and partial
units which the dollar value of any amount credited to the subaccount of a
Participant in accordance with Section 4.1 would purchase at the closing
net asset value of each unit on the Determination Date.
10
<PAGE> 11
(b) On the date a dividend or other distribution would have been paid
based on a subaccount unit, each subaccount shall be credited with the
number of additional full and partial subaccount units which would have
been purchased if the subaccount units then credited to the subaccount had
been held as shares. In the case of a dividend or other distribution paid
in property other than cash or shares, the Committee shall determine the
fair value of such property for purposes of the computation immediately
above.
V. BENEFITS
5.1 Retirement Benefit. Upon a Participant's Retirement Date, the Company
shall pay to the Participant a benefit equal to the value of his or her
Deferred Benefit Account determined under Article IV. The form of benefit
payment shall be provided in Section 5.7. Upon and after such Retirement Date,
the Participant shall immediately cease to be eligible for any benefit provided
under Section 5.2, 5.3, 5.4, 5.5, or 5.6 of the Plan.
5.2 Termination Benefit. Upon Termination of Service of the Participant
before his or her Retirement Date for reasons other than his or her death or
Disability, the Company shall pay to the Participant a benefit equal to the
value of his or her Deferred Benefit Account determined under Article IV as of
the Determination Date coincident with or next following the date of
Termination of Service. The value of the Participant's Deferred Benefit Account
paid as a Termination Benefit shall be paid in a lump sum, and shall cause a
reduction in the number of units in a Participant's subaccounts equivalent to
the value of the lump sum amount paid. The lump sum shall be paid as soon as
practicable but no later than 120 days following the Participant's Termination
of Service. Upon a Termination of Service, the Participant shall immediately
cease to be eligible for any benefit provided under Section 5.1, 5.3, 5.4, 5.5,
or 5.6 of the Plan.
5.3 Death Benefit. Upon the death of the Participant prior to his or her
Termination of Service, the Company shall pay to the Beneficiary of the
deceased Participant a benefit equal to the value of the Participant's Deferred
Benefit Account determined under Article IV as of the Determination Date
coincident with or next following the Participant's date of death. The value of
the Participant's Deferred Benefit Account paid as a death benefit shall be
paid in a lump sum, and shall cause a reduction in the number of units in a
Participant's subaccounts equivalent to the value of the lump sum amount paid.
The lump sum shall be paid as soon as practicable but no later than 120 days
following the Participant's death. Upon a Termination of Service, the
Participant shall immediately cease to be eligible for any benefit provided
under Section 5.1, 5.2, 5.4, 5.5, or 5.6 of the Plan.
5.4 Disability Benefit. In the event of Disability prior to his or her
Retirement Date, the Company shall pay to the Disabled Participant, a benefit
equal to the value of his Deferred Benefit Account determined under Article IV.
The value of the Participant's Deferred Benefit Account paid as a disability
benefit shall be paid in annual installments as provided in Section 5.7, until
the earliest of the following events:
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<PAGE> 12
1. The Participant ceases to be Disabled and resumes employment with
the Company;
2. The Participant ceases to be Disabled and does not resume
employment with the Company. If the Participant has attained his
Retirement Date, he shall be entitled to the benefits provided for in
Section 5.1. If the Participant has not attained his Retirement Date, his
Deferred Benefit Account shall be paid in a lump sum as a Termination
Benefit in the manner provided in Section 5.2;
3. The Participant dies, in which case the Deferred Benefit Account
balance remaining shall be paid in a lump sum as provided in Section 5.3;
or
4. The value of the Participant's Deferred Benefit Account balance
reaches zero.
If a Disability occurs during the period elected in the Agreement, the Disabled
Participant's Agreement shall be suspended, and further deferrals shall not be
required during the period of Disability. Upon a written request by a
Participant filed with the Committee, the Committee may, in its sole
discretion, pay a Disability benefit equal to the value of the Disabled
Participant's Deferred Benefit Account in a single lump sum payment.
5.5 Interim Distribution Benefit. A Participant may elect in his or her
Agreement to have a portion his or her Deferred Benefit Account paid to him or
her at the time specified in such Agreement. If the Participant so elects, the
Company shall pay to the Participant a lump sum benefit equal to the amount so
elected in the Agreement, subject to all of the following:
(a) The date selected for the interim distribution is a January 1
occurring on or after the fifth (5th) anniversary of the first day of the
Plan Year the Agreement became effective;
(b) The amount to be distributed pursuant to such Agreement will be
equal to the amount by which his or her Salary, Repaid Before-Tax
Contributions, and Bonus were reduced pursuant to such Agreement;
(c) A Participant's Agreement may not provide for more than one date
on which a benefit shall be paid in accordance with this Section. The date
specified in the Agreement shall be disregarded if the Participant's
Termination of Service occurs prior to such date. An election to receive
an interim distribution benefit at a date specified in the Agreement shall
be irrevocable, unless the Administrative Committee, in its sole
discretion, grants a Participant's request to revoke his or her election.
Any such request to revoke his or her election must be filed with and
approved by the Committee at least one year prior to the January 1 that
the interim distribution would otherwise be made. If the request is
granted by the Committee, the value of such benefit shall remain as a
credit to the balance of the Participant's Deferred Benefit Account, to be
maintained in the manner provided in Section 4.1, and paid instead in the
manner provided in Sections 5.1, 5.2, 5.3, 5.4, or 5.6; and
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<PAGE> 13
(d) The amount to be distributed in accordance with this Section shall
be distributed without Committee approval required, and shall cause a
reduction in the number of units in a Participant's subaccounts equivalent
to the value of the lump sum amount paid.
5.6 Emergency Benefit. In the event that the Committee, upon written
petition of the Participant, determines, in its sole discretion, that the
Participant has suffered a severe financial hardship, the Company shall pay to
the Participant, as soon as practicable following such determination, as
Compensation earned prior to the severe financial hardship, a benefit equal to
the amount necessary to meet the severe financial hardship not in excess of the
value of the portion of the Participant's Deferred Benefit Account, including
Investment Results. Any such payment shall cause a reduction in the number of
units in a Participant's subaccounts equivalent to the value of the amount
paid. For purposes of this Section, a severe financial hardship is an
unexpected need for cash arising from an illness, casualty loss, sudden
financial reversal, or other such unforeseeable occurrence. Cash needs arising
from events such as the purchase of a house or education expenses for children,
shall not be considered to be the result of a severe financial hardship. For
purposes of this Section, the criteria for establishing and determining a
severe financial hardship shall be made in accordance with IRC ss.457(d)(1)(A),
and Internal Revenue Service Regulation 1.457-2(h)(4).
5.7 Form of Benefit Payment. Upon a participant's Termination of Service,
the Company shall pay to the Participant (or his or her Beneficiary) the amount
calculated in accordance with this Section in substantially equal annual
installments. All payments made hereunder shall cause a reduction in the number
of units in a Participant's subaccounts equivalent to the value of the
installment amount paid, and shall be calculated and determined as follows:
(a) An annual installment payment shall be determined for the
Participant's Deferred Benefit Account. The initial and each subsequent
installment shall be paid each January following the year of Retirement or
Disability. The amount of the installment payment shall be a determined
using factors selected by the Committee to amortize the unpaid balance of
the Deferred Benefit Account balance in fifteen (15) substantially equal
annual installments, and may be based on the Investment Results available
for the most recent Plan Year ended at the time payments commence, or upon
such Investment Results as the Committee, in its sole discretion,
determines as the rate of Investment Results to be applied prospectively
to determine installment payments. The Committee may recompute the amount
of the installment each year to reflect actual Subaccount Investment
Results, and based on current or projected Investment Results and on
subaccount balances of the Participant's Deferred Benefit Account and on
his or her Subaccount Investment Election(s) then in effect. The amount of
each installment payment shall be equal to the balance remaining in the
Participant's deferred compensation account immediately prior to each such
payment, multiplied by a fraction, the numerator of which is one (1), and
the denominator of which is the number of installments remaining, with the
last installment consisting of the balance of the Participant's account.
Installment benefit payments shall cease
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<PAGE> 14
when the Deferred Benefit Account balance reaches zero, or with the final
payment determined hereunder.
(b) Unless an annual payment is the final annual installment payment,
each annual installment payment shall be at least equal to $5,000.
Notwithstanding the amortization method described in subsection (a)
immediately above, in the event an installment payment determined under
subsection (a) is less than $5,000, the annual installment payment shall
be $5,000. Annual installment payments in the amount of $5,000 shall
continue until the amount of the installment is recomputed, in accordance
with subsection (a), or until the remaining Account balance is less than
$5,000. Once the Account balance is less than $5,000, the subsequent
annual payment, which shall be the final payment, shall equal the
remaining Deferred Benefit Account balance.
Upon the death of a Participant after the commencement of payment of benefits
pursuant to Section 5.1, the Deferred Benefit Account remaining shall be paid
to the Beneficiary in annual installments over the remaining number of years
determined above. The Committee may, in its sole discretion, pay the value of a
Disabled or deceased Participant's Deferred Benefit Account in a lump sum.
Prior to the commencement of benefits under this Plan, the Committee may, in
its sole discretion, elect to pay the value of a Participant's Deferred Benefit
Account in a lump sum or in fewer than fifteen (15) annual installments.
5.8 Withholding; Employment Taxes. To the extent required by the law in
effect at the time payments are made, the Company shall withhold any taxes
required to be withheld by the federal, or any state or local, government.
5.9 Commencement of Payments. Unless otherwise provided, payments under
this Plan shall commence as soon as practicable following the Participant's
Termination of Service, but in no event later than one hundred twenty (120)
days following receipt of notice by the Committee of an event which entitles a
Participant (or a Beneficiary) to payments under this Plan. The date of each
subsequent annual installment shall be on the same Determination Date each
year, as determined by the Committee in its sole discretion.
5.10 Recipients of Payments; Designation of Beneficiary. All payments to
be made by the Company under the Plan shall be made to the Participant during
his or her lifetime, provided that if the Participant dies prior to the
commencement or completion of such payments, then all subsequent payments under
the Plan shall be made by the Company to the Beneficiary or Beneficiaries
determined in accordance with this Section 5.10. The Participant shall
designate a Beneficiary by filing a written notice of such designation with the
Committee in such form as the Committee requires and may change such
designation without the consent of such Beneficiary or Beneficiaries by filing
a new designation in writing with the Committee. (In community property states,
the spouse of a married Participant shall join in any designation of a
Beneficiary other than the spouse.) If no designation shall be in effect at the
time when any benefits payable under this Plan shall become due, the
Beneficiary shall be the Beneficiary designated by the Participant in the
401(k) Plan, and otherwise shall be the executor(s) or administrator(s) of the
deceased
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<PAGE> 15
Participant's estate.
5.11 Facility of Payment. Any benefit payable hereunder to any person
under a legal disability, or to any person who, in the judgment of the
Committee, is unable to properly administer his or her financial affairs, may
be paid to the legal representative of such person, or may be applied for the
benefit of such person in a manner which the Committee may select.
5.12 Loans to Participants. No loan, advancement, or other transaction in
the nature of an anticipatory assignment of income shall be permitted under the
Plan.
5.13 Court Order. The Company is authorized to make any payments directed
by court order in any action in which the Plan, Company, or the Administrative
Committee has been named as a party. In addition, if a court determines that a
spouse or former spouse of a Participant has an interest in the Participant's
Deferred Benefit Account under the Plan in connection with a property
settlement or otherwise, the Company, in its sole discretion, shall have the
right, notwithstanding any election made by a Participant, to immediately
distribute the spouse's or former spouse's interest in the Participant's
Deferred Benefit Account under the Plan to that spouse or former spouse.
VI. CLAIM FOR BENEFITS PROCEDURE
6.1 Claim for Benefits. Any claim for benefits under the Plan shall be
made in writing to the Committee. If such claim for benefits is wholly or
partially denied by the Committee, the Committee shall, within a reasonable
period of time, but not later than ninety (90) days after receipt of the claim,
notify the claimant of the denial of the claim. Such notice of denial shall be
in writing and shall contain:
1. the specific reason or reasons for the denial of the claim;
2. a reference to the relevant Plan provisions upon which the denial
is based;
3. a description of any additional material or information necessary
for the claimant to perfect the claim, together with an explanation of why
such material or information is necessary; and
4. an explanation of the Plan's claim review procedure.
6.2 Request for Review of a Denial of a Claim for Benefits. Upon the
receipt by the claimant of written notice of denial of the claim, the claimant
may within sixty (60) days file a written request to the Committee, requesting
a review of the denial of the claim, which review shall include a hearing if
deemed necessary by the Committee. In connection with the claimant's appeal of
the denial of his or her claim, he or she may review relevant documents and may
submit issues and comments in writing.
6.3 Decision Upon Review of Denial of Claim for Benefits. The Committee
shall render a decision on the claim review promptly, but no more than ninety
(90) days after the receipt
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<PAGE> 16
of the claimant's request for review, unless special circumstances (such as the
need to hold a hearing) require an extension of time, in which case the ninety
(90) day period shall be extended to one hundred-eighty (180) days. Such
decision shall:
(a) include specific reasons for the decision;
(b) be written in a manner calculated to be understood by the
claimant; and
(c) contain specific references to the relevant Plan provisions upon
which the decision is based.
The decision of the Committee shall be final and binding in all respects on
both the Company and the claimant.
VII. ADMINISTRATION
7.1 Plan Administrative Committee. The Plan shall be administered by the
President, Chief Financial Officer, and Vice President-Employee Services of the
Company, which shall be the Administrative Committee of the Plan. The
Administrative Committee may assign duties to an officer or other employees of
the Company, and delegate such duties as it sees fit.
7.2 General Rights, Powers and Duties of Administrative Committee. The
Administrative Committee shall be responsible for the management, operation and
administration of the Plan. In addition to any powers, rights, and duties set
forth elsewhere in the Plan, it shall have the following powers and duties to:
1. adopt such rules and regulations consistent with the provisions of
the Plan as it deems necessary for the proper and efficient administration
of the Plan;
2. administer the Plan in accordance with its terms and any rules and
regulations it establishes;
3. maintain records concerning the Plan sufficient to prepare reports,
returns, and other information required by the Plan or by law;
4. construe and interpret the Plan, and to resolve all questions
arising under the Plan;
5. direct the Company to pay benefits under the Plan, and to give such
other directions and instructions as may be necessary for the proper
administration of the Plan;
6. employ or retain agents, attorneys, actuaries, accountants or other
persons who may also be employed by or represent the Company; and
7. be responsible for the preparation, filing, and disclosure on
behalf of the Plan of such documents and reports as are required by any
applicable federal or state law.
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<PAGE> 17
7.3 Information to be Furnished to Committee. The records of the Company
shall be determinative of each Participant's period of employment, age,
Termination of Service and the reason therefor, Disability, leave of absence,
reemployment, personal data, and Salary and Bonus. Participants and their
Beneficiaries shall furnish to the Committee such evidence, data or
information, and execute such documents as the Committee requests.
7.4 Responsibility. No member of the Committee shall be liable to any
person for any action taken or omitted in connection with the administration of
this Plan unless attributable to his or her own fraud or willful misconduct;
nor shall the Company be liable to any person for any such action unless
attributable to fraud or willful misconduct on the part of a director, officer
or employee of the Company. Further, the Company shall hold harmless and defend
any individual in the employment of the Company and any Director of the Company
against any claim, action, or liability asserted against him or her in
connection with any action or failure to act regarding the Plan, except as and
to the extent such liability may be based upon the individual's own willful
misconduct or fraud. This indemnification shall not duplicate, but may
supplement, any coverage available under any applicable insurance coverage.
VIII. AMENDMENT AND TERMINATION
8.1 Amendment. The Plan may be amended in whole or in part by the Company
at any time. Notice of any material amendment shall be given in writing to the
Committee and to each Participant and to each Beneficiary of a deceased
Participant. No amendment shall retroactively decrease the balance of a
Participant's Deferred Benefit Account or retroactively decrease the Subaccount
Investment Results obtained prior to the date of the amendment.
8.2 Company's Right to Terminate. The Company reserves the sole right to
terminate the Plan. The Company also reserves the sole right to terminate the
Agreement pertaining to a Participant at any time prior to the commencement of
payment of his or her benefits. In the event of any such termination, the
Company shall continue to be obligated to pay benefits accrued prior to the
date of such termination in accordance with the Plan. The Participant shall be
deemed to have incurred a Termination of Service, and his or her Deferred
Benefit Account shall be paid in the manner provided in Section 5.2.
8.3 Special Termination. Any other provision of the Plan to the contrary
notwithstanding, the Plan shall terminate if the Plan is held to be ERISA
Funded or Tax Funded by a federal court, and appeals from that holding are no
longer timely or have been exhausted. The Company may terminate the Plan if it
determines, based on legal advice which is satisfactory to the Company, that
either judicial authority or the opinion of the U.S. Department of Labor,
Treasury Department or Internal Revenue Service (as expressed in proposed or
final regulations, advisory opinions or rulings, or similar administrative
announcements) creates a significant risk that the Plan will be held to be
ERISA Funded or Tax Funded, and failure to so terminate the Plan could subject
the Company or the Participants to material penalties. Upon any such
termination, the Company may:
1. transfer the rights and obligations of the Participants and the
Company to a new plan established by the Company, which is not deemed to
be ERISA Funded or
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<PAGE> 18
Tax Funded, but which is similar in all other respect to this Plan, if the
Company determines that it is possible to establish such a Plan;
2. if the Company, in its sole discretion, determines that it is not
possible to establish the Plan in (a) above, each Participant shall be
paid a lump sum benefit equal to the value of the vested portion of his or
her Deferred Benefit Account;
3. pay a lump sum benefit equal to the value of the vested portion of
the Participant's Deferred Benefit Account to the extent that a federal
court has held that the interest of the Participant in the Plan is
includable in the gross income of the Participant for federal income tax
purposes prior to actual payment of Plan benefits. The value of any amount
remaining in the Participant's Deferred Benefit Account shall remain as an
obligation of the Company, to be paid to the Participant as provided in
the Plan;
4. pay to a Participant a lump sum benefit equal to the vested portion
of a Participant's Deferred Benefit Account if, based on legal advice
satisfactory to the Company, there is a significant risk that such
Participant will be determined not to be part of a "select group of
management or highly compensated employees" for purposes of ERISA.
Any benefit payable under this Section shall be payable as soon as practicable
following the Company's determination that the Plan is ERISA Funded or Tax
Funded, but in no event later than ninety (90) days following receipt of notice
by the Committee that the Plan is ERISA Funded or Tax Funded, or at such other
date as may be determined by the Committee in its sole discretion.
A lump sum payment to be made in accordance with this Section shall be paid in
cash and shall be subject to the provisions of Section 5.2. As determined by
the Committee in its sole discretion, the termination benefit shall cause a
reduction in the number of units in a Participant's subaccounts equivalent to
the value of the lump sum amount paid.
8.4 Special Distribution. Any other provision of the Plan to the
contrary notwithstanding, in the event that the Internal Revenue Service
prevails in its claims that amounts contributed to the Plan, and/or earnings
thereon, constitute taxable income to the Participant or his or her Beneficiary
for any taxable year of him or her, prior to the taxable year in which such
contributions and/or earnings are distributed to the Participant or
Beneficiary, or in the event that legal counsel satisfactory to the Company,
the trustee and the applicable Participant or Beneficiary renders an opinion
that the Internal Revenue Service would likely prevail in such a claim, the
amount subject to such tax shall be immediately distributed to the Participant
or Beneficiary.
IX. MISCELLANEOUS
9.1 Separation of Plan; No Implied Rights. The Plan shall not operate to
increase any benefit payable to or on behalf of a Participant (or his or her
Beneficiary) from any other Plan maintained by the Company. Neither the
establishment of the Plan nor any amendment thereof shall be construed as
giving any Participant, Beneficiary, or any other
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<PAGE> 19
person any legal or equitable right unless such right shall be specifically
provided for in the Plan or conferred by specific action of the Company in
accordance with the terms and provisions of the Plan. Except as expressly
provided in this Plan, the Company shall not be required or be liable to make
any payment under this Plan.
9.2 No Right to Company Assets. Neither the Participant nor any other
person shall acquire by reason of the Plan any right in or title to any assets,
funds or property of the Company whatsoever, including, without limiting the
generality of the foregoing, any specific funds, assets or other property which
the Company, in its sole discretion, may set aside in anticipation of a
liability hereunder. Any benefits which become payable hereunder shall be paid
from the general assets of the Company. The Participant shall have only a
contractual right to the amounts, if any, payable hereunder, unsecured by any
asset of the Company or by a Trust pursuant to Section 9.8. Nothing contained in
the Plan constitutes a guarantee by the Company that the assets of the Company
shall be sufficient to pay any benefits to any person.
9.3 No Employment Rights. Nothing herein shall constitute a contract of
employment or of continuing service or in any manner obligate the Company to
continue the services of the Participant, or obligate the Participant to
continue in the service of the Company, or as a limitation of the right of the
Company to discharge any of its employees, with or without cause. Nothing herein
shall be construed as fixing or regulating the Salary, Bonus, or other
remuneration payable to the Participant.
9.4 Offset. If, at the time payments or installments of payments are to be
made hereunder, the Participant or the Beneficiary or both are indebted or
obligated to the Company, then the payments remaining to be made to the
Participant or the Beneficiary or both may, at the discretion of the Company, be
reduced by the amount of such indebtedness or obligation, provided, however,
that an election by the Company not to reduce any such payment or payments shall
not constitute a waiver of its claim, or prohibit or otherwise impair the
Company's right to offset future payments for such indebtedness or obligation.
9.5 Non-assignability. Except as provided in Section 5.13,
(a) Neither the Participant nor any other person shall have any
voluntary or involuntary right to commute, sell, assign, pledge,
anticipate, mortgage or otherwise encumber, transfer, hypothecate, or
convey in advance of actual receipt the amounts, if any, payable
hereunder, or any part thereof, which are expressly declared to be
unassignable and non-transferrable except by will or in accordance with
the laws of descent and distribution:
(b) No part of the amounts payable shall be, prior to actual payment,
subject to seizure or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by the Participant or any
other person, or be transferrable by operation of law in the event of the
Participant's or any other person's bankruptcy or insolvency.
9.6 Notice. Any notice required or permitted to be given under the Plan
shall be
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<PAGE> 20
sufficient if in writing and hand delivered, or sent by registered or certified
mail to the last known address of the Participant if to the Participant, or, if
given to the Company, to the principal office of the Company, directed to the
attention of the Plan Committee. Such notice shall be deemed given as of the
date of delivery, or, if delivery is made by mail, as of the date shown on the
postmark or the receipt for registration or certification.
9.7 Governing Laws. The Plan shall be construed and administered according
to the laws of the State of Georgia.
9.8 Deferred Compensation Plan Trust. The Company may establish a Trust or
Trusts with (an) independent trustee(s), and shall comply with the terms of the
Trust(s). The Company shall transfer to the trustee(s) an amount of cash,
marketable securities, or other property acceptable to the trustee(s) ("Trust
Property") equal in value to the amount necessary, calculated on an actuarial
basis in accordance with the terms of the Trust(s), to pay the Company's
obligations under the Plan (the "Funding Amount"), and may make additional
transfers to the trustee(s) as may be necessary in order to maintain the
Funding Amount. Trust Property so transferred shall be held, managed, and
disbursed by the Trustee(s) in accordance with the terms of the Trust(s). To
the extent that Trust Property shall be used to pay the Company's obligations
under the Plan, such payments shall discharge obligations of the Company;
however, the Company shall continue to be liable for amounts not paid by the
Trust(s). In the event of a Change of Control, the amount and timing of the
payment of benefits shall be as determined under any provisions of the Trust
agreement relating thereto, which shall replace the payment provisions of
Article V herein. Trust Property will nevertheless be subject to claims of the
Company's creditors in the event of bankruptcy or insolvency, and the
Participant's rights under the Plan and Trust(s) shall at all times be subject
to the provisions of Section 9.2.
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IN WITNESS WHEREOF, the Company has adopted the ANTEC Corporation Deferred
Compensation Plan as of the Plan Effective Date.
ANTEC CORPORATION
By:
----------------------------------
Lawrence A. Margolis
Executive Vice President and
Its: Chief Financial Officer
----------------------------------
Date:
----------------------------------
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<PAGE> 1
EXHIBIT 10.10(b)
AMENDMENT
Robert Stanzione ("Executive") and ANTEC Corporation ("Company") hereby agree
to amend their agreement of April 29, 1999 (the "Agreement") as follows:
In lieu of the obligation to pay Executive a special bonus of $750,000 as
provided by Section 6 of the Agreement, Company hereby grants Executive 24,077
stock units. Except as provided below, each stock unit will convert to one
share of common stock of Company on June 30, 2004 or such earlier date
Executive is not employed by the Company.
Any distribution on the common stock prior to the conversion of the stock units
will either be distributed to Executive or will result in an equitable
adjustment to the number of stock units. The number of stock units will also be
equitably adjusted for stock splits and similar events.
The stock units and any distributions on the stock units will be forfeited if
prior to June 30 2001, Executive gives Company notice of termination of the
Agreement without Good Reason. 4,815 of the stock units and any distributions
on these units will be forfeited if prior to June 30, 2004, Executive gives
Company notice of termination of the Agreement without Good Reason.
Other than as charged above, the provisions of the Agreement shall continue in
full force and effect.
Dated as of the 31st day of January 2000.
ANTEC Corporation /s/ ROBERT J. STANZIONE
By /s/ LAWRENCE A. MARGOLIS
Its CFO
<PAGE> 1
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 17th day of August,1998 (the
"Effective Date"), by and between ANTEC CORPORATION, a Delaware corporation (the
"Company"), and Mark J. Scagliuso, an individual residing at
____________________________________ (the "Employee").
WHEREAS, the Company recognizes Employee's knowledge and
experience in the broadband communications industry and Employee's desire to
assure Employee's continued employment; and
WHEREAS, Employee is desirous of serving the Company on the
terms herein provided, including those restricting Employee's ability to compete
in the future;
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties herein contained, the parties
hereto agree as follows:
1. EMPLOYMENT AND TERM. The Company hereby agrees to employ Employee in an
executive capacity, and Employee hereby agrees to serve the Company in
such capacity subject to the terms and conditions hereof for the period
commencing on the Effective Date of this Agreement and continuing until
Employee reaches age 65 or as sooner terminated as provided in Section
4 (the "Termination Date"). Employee is engaged on a full-time basis by
the Company to perform services of an executive nature within
Employee's abilities.
2. COMPENSATION. The Company shall pay Employee for the performance of
Employee's duties under this Agreement during the term of Employee's
employment (a) a salary at the rate currently in effect ("Base
Compensation") plus (b) a bonus ("Bonus") for each fiscal year in an
amount determined by the Company using such criteria as it deems fair
and equitable, allowing up to 150% of planned Bonus for performance
above target goals. The amount of the planned Bonus shall have the same
relationship to Base Compensation as Employee's current planned Bonus
has to Employee's current Base Compensation. Employee's Base
Compensation shall be subject to annual or periodic review, in
accordance with the Company's customary practice for its other
executives and increased in the sole discretion of the Company. Once
Base Compensation has been increased, it shall not thereafter be
decreased. Employee's Base Compensation under this section shall be
payable semi-monthly, and the Bonus shall be payable as soon after the
end of each fiscal year as it can be determined, but in any event
within ninety (90) days thereafter. If the employment of Employee is
terminated at other than year-end, the Bonus will be prorated to
reflect the period during the year Employee was employed.
3. ADDITIONAL BENEFITS. Employee shall be entitled to participate in and
receive benefits under any retirement plan, health plan, disability
plan and life insurance plan or other similar employee benefit plan or
arrangement (collectively "Benefit Plans") generally made available by
the Company from time to time to its executives at the same level as
Employee. It is understood, however, that Employee will continue to
participate in
<PAGE> 2
Employee's current Benefit Plans until such time as the Company shall
replace such plans with Benefit Plans in which other executives of the
Company participate. Employee shall be entitled to such other benefits,
including vacation, fringe benefits and expense reimbursement as are
currently in effect for executives at Employee's level as the same may
from time to time be amended.
4. TERMINATION
(a) This Agreement may be terminated by the Company by written
notice to Employee. The termination will not be effective
until one year after written notice of termination is given
Employee unless the termination is for "Good Cause." Good
Cause shall mean (i) Employee's conviction of any embezzlement
or any felony involving fraud or breach of trust relating to
the performance of Employee's duties for the Company, (ii)
Employee's material failure to perform the material executive
duties to which he is assigned, (iii) Employee's willful
engagement in gross misconduct in the performance of
employee's duties, (iv) Employee's death, or (v) permanent
disability which materially impairs Employee's performance of
his duties.
(b) Employee may terminate this Agreement by giving the Company
written notice of termination. The termination will not be
effective until one year after written notice of termination
is given the Company, unless the termination is for "Good
Reason." Good Reason shall exist if (i) the Company continues
in material breach of this Agreement for more than thirty (30)
days after being notified in writing by Employee of such
breach, provided Employee has given such notice to the Company
within thirty (30) days of first becoming aware of the facts
constituting such breach, (ii) the Company gives Employee a
notice of termination without Good Cause as specified above,
provided Employee terminates this Agreement within thirty (30)
days of receiving such notice, or (iii) a "Change of Control"
occurs, and Employee's employment hereunder is terminated by
Employee for any reason within ninety (9) days of the
occurrence of the Change of Control. A "Change of Control"
shall mean any person (as such term is used in section 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") is or becomes the "beneficial owner" (as
defined in Rule 13(d)-3 under the Exchange Act) of securities
of the Company representing more than 30% of the combined
voting power of the Company's then outstanding voting
securities.
(c) If Employee terminates this Agreement and simultaneously
therewith Employee's employment by the Company for Good
Reason, all of Employee's stock options outstanding and
unexercised at the Termination Date, other than the special
options granted on May 7, 1997, shall become immediately and
fully exercisable as of the Termination Date, and the Company,
for a period of one year from such termination (the "Severance
Period"), shall continue to provide to Employee (a) Employee's
Base Compensation, at the rate most recently determined, (b) a
Bonus for each fiscal year (and a pro rata amount for each
partial year) in an amount equal to the most recent annual
Bonus paid or payable to Employee prior to the Termination
Date, and (c) the Benefit Plans as provided by Section 3
(subject in the case of long-term disability to the
availability of such coverage under the Company's insurance
policy).
2
<PAGE> 3
(d) The parties agree that the payments and benefits provided for
in Subsection (c) of this section shall be deemed to
constitute liquidated damages for the Company's breach or
constructive breach of this Agreement and payment for the
non-competition provisions of this Agreement, and the Company
agrees that (i) Employee shall not be required to mitigate
employee's damages by seeking other employment or otherwise,
and (ii) the Company's payments and other obligations under
this Agreement shall not be reduced in any way by reason of
any compensation received by Employee from sources other than
the Company after the Termination Date, except as otherwise
expressly provided herein.
5. NON-COMPETITION COVENANT. Employee agrees that throughout Employee's
employment hereunder and during the Severance Period, he will not
directly or indirectly, alone or as a member of partnership,
association or joint venture or as an employee, officer, director or
stockholder of any corporation or in any other capacity:
(a) Engage in any activity which is competitive with the business
of the Company in the United States or in any foreign country
in which the Company is carrying on such business, provided
that the foregoing provision shall not be deemed to prohibit
Employee from purchasing for investment any securities or
interest in any publicly-owned organization which is
competitive with the business of ANTEC so long as Employee's
investment in any such organization does not exceed one
percent of its total equity investment; or
(b) Solicit in connection with any activity which is competitive
with the Company, any customers or suppliers which he
solicited on behalf of the Company or on behalf of the
business of the Company.
6. ENTIRE AGREEMENT. The terms and provisions of this Agreement constitute
the entire Agreement between the parties and supersede any previous
oral or written communications, representations or agreements with
respect to the subject matter hereof. Without limiting the generality
of the foregoing, this Agreement replaces and supersedes any
arrangement or right Employee may have for compensation or damages for
termination of Employee's employment with the Company.
7. NOTICE. Any Notices given hereunder shall be in writing and shall be
given by personal delivery or by certified or registered mail, return
receipt requested, addressed to:
If to the Company: If to Employee:
ANTEC Corporation Current address in
5720 Peachtree Parkway, NW the records of the
Norcross, GA 30092 Company
Attn: Larry Margolis
or such other address as shall be furnished in writing by one party to
the other.
3
<PAGE> 4
8. SEVERABILITY. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if the
invalid or unenforceable provision has been omitted.
9. ASSIGNMENT. The Company's obligations hereunder shall be binding legal
obligations of any successor to all or substantially all of the
Company's business by purchase, merger, consolidation or otherwise. The
Company may not sell or otherwise dispose of all or substantially all
of its assets or merge or consolidate with any other entity without
making adequate provision for its obligations hereunder. Employee may
not assign this Agreement during Employee's life and upon Employee's
death, this Agreement shall be binding upon and inure to the benefit of
Employee's heirs, legatees and the legal representative of each.
10. APPLICABLE LAW. This Agreement shall be construed and interpreted
pursuant to the laws of Georgia.
11. AMENDMENT. This Agreement may be amended only by a written document
signed by both parties.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement effective as of the day and year first above written.
ANTEC CORPORATION
By: /s/ LAWRENCE A. MARGOLIS /s/ MARK J. SCAGLIUSO
Mark J. Scagliuso
Its: CFO
4
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related prospectus of ANTEC Corporation
for the registration of $115,000,000 of its 4 1/2% Convertible Subordinated
Notes due 2003 and to the incorporation by reference therein of our report
dated February 9, 2000, with respect to the consolidated financial statements
and schedule of ANTEC Corporation included in this Annual Report (Form 10-K)
for the year ended December 31, 1999, filed with the Securities and Exchange
Commission.
We also consent to the incorporation by reference in the Registration
Statements and in the related prospectuses of ANTEC Corporation listed below of
our report dated February 9, 2000, with respect to the consolidated financial
statements and schedule of ANTEC Corporation included in this Annual Report
(Form 10-K) for the year ended December 31, 1999:
Registration Statement No. 33-71384 on Form S-8 (Amended and
Restated Employee Stock Incentive Plan)
Registration Statement No. 3371386 on Form S-8 (ANTEC Corporation
Director Stock Option Plan)
Registration Statement No. 3371388 on Form S-8 (ANTEC Corporation
Employee Stock Purchase Plan)
Registration Statement No. 3389704 on Form S-8 (ANTEC/Keptel
Exchange Options)
Registration Statement No. 333-11921 on Form S-8 (ESP Stock Plan)
Registration Statement No. 333-12131 on Form S-8 (ANTEC Corporation
Amended and Restated Employee Stock Incentive Plan)
Registration Statement No. 333-19129 on Form S-8 (TSX Corporation
1996 Second Amended and Restated Long-Term Incentive
Compensation Program; TSX Corporation 1993 Amended and
Restated Directors Stock Option Plan, As Amended; TSX
Corporation 1994 W.H. Lambert Stock Option Agreement)
Registration Statement No. 333-90559 on Form S-8 (Amended and
Restated Employee Stock Purchase Plan)
Registration Statement No. 333-90561 on Form S-8 (ANTEC Corporation
1997 Stock Incentive Plan)
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
March 22, 2000
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director and/or
officer of ANTEC Corporation, a Delaware corporation (the "Corporation"), which
is about to file an annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, on Form 10-K, hereby constitutes
and appoints Robert J. Stanzione, Lawrence A Margolis and Mark J. Scagliuso and
each of them his or her true and lawful attorney-in-fact and agent, with full
power and all capacities, to sign the Corporation's Form 10-K and any and all
amendments thereto, and any other documents in connection therewith, to be filed
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as she or he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact agents
or their substitutes may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand
and seal as of the 29th day of February, 2000.
/s/ JOHN EGAN /s/ ROBERT J. STANZIONE
- ------------------------ --------------------------
/s/ BRUCE VAN WAGNER /s/ JOHN PETTY
- ------------------------ --------------------------
/s/ WILLIAM SCHLEYER
- ------------------------ --------------------------
/s/ ROD DAMMEYER
- ------------------------ --------------------------
/s/ WILLIAM LAMBERT
- ------------------------ --------------------------
/s/ JAMES L. FAUST
- ------------------------ --------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS OF ANTEC CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS AND RELATED NOTES IN ANTEC CORPORATION'S
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,971
<SECURITIES> 0
<RECEIVABLES> 197,350
<ALLOWANCES> 7,505
<INVENTORY> 215,216
<CURRENT-ASSETS> 458,371
<PP&E> 94,601
<DEPRECIATION> 43,195
<TOTAL-ASSETS> 760,072
<CURRENT-LIABILITIES> 205,537
<BONDS> 183,500
0
0
<COMMON> 378
<OTHER-SE> 346,957
<TOTAL-LIABILITY-AND-EQUITY> 760,072
<SALES> 826,556
<TOTAL-REVENUES> 826,556
<CGS> 661,574
<TOTAL-COSTS> 661,574
<OTHER-EXPENSES> 122,530
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,406
<INCOME-PRETAX> 93,016
<INCOME-TAX> 38,493
<INCOME-CONTINUING> 54,523
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,523
<EPS-BASIC> 1.49
<EPS-DILUTED> 1.33
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