-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TMIbrw+X+OxErA9vInGpGVJz8YN6/8Ovq00KLdVsX+faPANw2sBBOka1zLbmgoxF xIFekVL4BBqZZtkFctlvUg== 0000950144-00-003938.txt : 20000411 0000950144-00-003938.hdr.sgml : 20000411 ACCESSION NUMBER: 0000950144-00-003938 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANTEC CORP CENTRAL INDEX KEY: 0000908610 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 363892082 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-22336 FILM NUMBER: 582348 BUSINESS ADDRESS: STREET 1: 2850 W GOLF RD STREET 2: SUITE 600 CITY: ROLLING MEADOWS STATE: IL ZIP: 60008 BUSINESS PHONE: 8474394444 MAIL ADDRESS: STREET 1: 2850 W GOLF ROAD CITY: ROLLING MEADOWS STATE: IL ZIP: 60008 10-K405 1 ANTEC CORPORATION 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K --------------------- (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) DELAWARE 36-3892082 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number)
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:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, $0.01 par value NASDAQ National Market System 4.5% Convertible Subordinated Notes NASDAQ National Market System
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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE ---- 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
i 3 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 1 4 - 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; 2 5 - 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 3 6 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- 4 7 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. 5 8 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 6 9 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 7 10 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 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
NAME AGE POSITION - ---- --- -------- 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
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 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 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.
HIGH LOW ---- --- 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
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 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.
1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 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 ======== ======== ======== ======== ========
- --------------- (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 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 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:
YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ------ ------ ------ 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)% ===== ===== =====
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 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 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 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% 17 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 18 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 19 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 20 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. 21 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
YEAR ENDED DECEMBER 31, -------------------------- 1999 1998 1997 ------ ------ ------ (DOLLARS IN THOUSANDS) 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
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 22 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 23 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. 24 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 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 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 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 31 ANTEC CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- 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
29 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 33 ANTEC CORPORATION CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ (IN THOUSANDS) 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 ======== ========
See accompanying notes to the consolidated financial statements. 31 34 ANTEC CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 1999 1998 1997 ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 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 ======== ======== ========
See accompanying notes to the consolidated financial statements. 32 35 ANTEC CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 --------- --------- -------- (IN THOUSANDS) 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 ========= ========= ========
See accompanying notes to the consolidated financial statements. 33 36 ANTEC CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CAPITAL IN CUMULATIVE COMMON EXCESS OF RETAINED TRANSLATION STOCK PAR VALUE EARNINGS ADJUSTMENTS TOTAL -------- ---------- -------- ----------- -------- (IN THOUSANDS) 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 ======== ======== ======= ===== ========
See accompanying notes to the consolidated financial statements. 34 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 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 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 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 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 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 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):
DECEMBER 31, ------------------- 1999 1998 -------- -------- 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 ======== ========
NOTE 7. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, at cost, consisted of the following (in thousands):
DECEMBER 31, ------------------- 1999 1998 -------- -------- 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 ======== ========
NOTE 8. LONG-TERM DEBT Long-term debt consisted of the following (in thousands):
DECEMBER 31, ------------------- 1999 1998 -------- -------- Revolving Credit Facility................................... $ 68,500 $ 66,000 4.5% Convertible Subordinated Notes......................... 115,000 115,000 -------- -------- $183,500 $181,000 ======== ========
41 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:
DECEMBER 31, ----------------------------------- 1999 1998 1997 ---------- ---------- --------- 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 ========== ========== =========
42 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:
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------- 1999 1998 1997 ---------- --------- ----------- (IN THOUSANDS EXCEPT PER SHARE DATA) 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) ======= ====== ========
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 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):
YEARS ENDED DECEMBER 31, ---------------------------- 1999 1998 1997 ------- ------- -------- Domestic (U.S.).......................................... $93,016 $13,736 $(28,978) Foreign.................................................. -- -- -- ------- ------- -------- $93,016 $13,736 $(28,978) ======= ======= ========
Income tax expense (benefit) consisted of the following (in thousands):
YEARS ENDED DECEMBER 31, ---------------------------- 1999 1998 1997 ------- ------- -------- 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) ======= ======= ========
44 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):
YEARS ENDED DECEMBER 31, --------------------------------------------------- 1999 1998 1997 --------------- -------------- ---------------- 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% ======= ===== ====== ===== ======== =====
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):
DECEMBER 31, ------------------ 1999 1998 -------- ------- 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 ======== =======
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 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):
U.S. FOREIGN EXPIRATION IN CALENDAR YEAR AMOUNT AMOUNT - --------------------------- -------- ------- 2002........................................................ $ 4,166 $ -- 2003........................................................ -- -- 2004........................................................ 501 -- 2005........................................................ 1,967 6,935 2006........................................................ -- -- 2007........................................................ 2,745 -- 2008........................................................ 1,605 -- -------- ------- $ 10,984 $ 6,935 ======== =======
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): 2000........................................................ $ 4,909 2001........................................................ 3,971 2002........................................................ 3,069 2003........................................................ 1,755 2004........................................................ 747 Thereafter.................................................. 4,893 ------- Total minimum lease payments...................... $19,344 =======
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 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):
1999 1998 1997 ------- ------ -------- 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) ======= ====== ========
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 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:
1999 1998 1997 ---------------------------- ---------------------------- --------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE ----------- -------------- ----------- -------------- ---------- -------------- 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 =========== =========== ==========
48 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.
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 - ------------------------ ----------- ---------------- -------------- ----------- -------------- $ 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 ========= =======
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 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.
1999 1998 ------- ------- (IN THOUSANDS) 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) ======= =======
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):
1999 1998 1997 ------ ------ ------ 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 ====== ====== ======
50 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:
1999 1998 1997 ------ ------ ------ 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%
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:
DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ------------ ------------ ------------ (IN THOUSANDS) 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 ======= ======= ========
Total identifiable international assets were immaterial. 51 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).
QUARTERS IN 1999 ENDED ------------------------------------------- MARCH 31, JUNE 30, SEPT. 30, DEC. 31, --------- -------- --------- -------- 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 ======== ========
QUARTERS IN 1999 ENDED ------------------------------------------- MARCH 31, JUNE 30, SEPT. 30, DEC. 31, --------- -------- --------- -------- 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 ======== ========
- --------------- (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 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 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 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.
PAGE ---- 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
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 58 SCHEDULE II ANTEC CORPORATION VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGE TO BALANCE AT DESCRIPTION BEGINNING OF PERIOD EXPENSES DEDUCTIONS END OF PERIOD - ----------- ------------------- --------- ---------- ------------- 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
- --------------- (1) Uncollectible accounts written off, net of recoveries 56 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(*).
INCORPORATED BY REFERENCE FROM EXHIBIT ANTEC'S SEC FILINGS UNLESS NUMBER DESCRIPTION OF EXHIBIT OTHERWISE INDICATED: --------- ---------------------- ------------------------------ 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
57 60
INCORPORATED BY REFERENCE FROM EXHIBIT ANTEC'S SEC FILINGS UNLESS NUMBER DESCRIPTION OF EXHIBIT OTHERWISE INDICATED: --------- ---------------------- ------------------------------ 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.
58 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.
SIGNATURE TITLE DATE --------- ----- ---- /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)
59 EX-10.6 2 FORM OF AGREEMENT FOR RECEIPT OF STOCK UNITS 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. ----------------------------- EX-10.9 3 FORM OF SUPPLEMENTAL SAVINGS PLAN 1 EXHIBIT 10.9 ANTEC CORPORATION Deferred Compensation Plan Effective January 1, 2000 1 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 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 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 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 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 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 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 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 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 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: 11 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 12 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 13 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 14 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 15 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. 16 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 17 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 18 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 19 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. 20 21 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: ---------------------------------- 21 EX-10.10(B) 4 AGREEMENT WITH ROBERT J STANZIONE 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 EX-10.14 5 EMPLOYMENT AGREEMENT / MARK J. SCAGLIUSO 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 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 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 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 EX-23 6 CONSENT OF ERNST & YOUNG LLP 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 EX-24 7 POWERS OF ATTORNEY 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 - ------------------------ -------------------------- EX-27 8 FINANCIAL DATA SCHEDULE
5 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. 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 2,971 0 197,350 7,505 215,216 458,371 94,601 43,195 760,072 205,537 183,500 0 0 378 346,957 760,072 826,556 826,556 661,574 661,574 122,530 0 12,406 93,016 38,493 54,523 0 0 0 54,523 1.49 1.33
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