-----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, ITBrPrvIAb91N+mkm2Zva0stImUWitR2bGkQrTK/26YJOr83AubbiTGmxIyygMGf hB55Pi/3+V2fSa0PrEaN9Q== 0000950144-98-013021.txt : 19981123 0000950144-98-013021.hdr.sgml : 19981123 ACCESSION NUMBER: 0000950144-98-013021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 DATE AS OF CHANGE: 19981120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANTEC CORP CENTRAL INDEX KEY: 0000908610 STANDARD INDUSTRIAL CLASSIFICATION: 3663 IRS NUMBER: 363892082 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22336 FILM NUMBER: 98752853 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-Q 1 ANTEC CORPORATION 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 -------------- FORM 10 - Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-22336 ANTEC CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) DELAWARE 36-3892082 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5720 PEACHTREE PARKWAY, NW NORCROSS, GA 30092 (770) 441-0007 (Address, including zip code and telephone number, including area code, of registrant's principal executive offices) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO _ ---- ---- At October 31, 1998, there were 35,620,648 shares of Common Stock, $0.01 par value, of the registrant outstanding. ================================================================================ 2 PART I. OTHER INFORMATION ANTEC CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands)
September 30, December 31, 1998 1997 -------------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 2,401 $ 7,244 Accounts receivable (net of allowance for doubtful accounts of $3,863 in 1998 and $4,289 in 1997) 139,682 87,800 Inventories 140,765 111,698 Other current assets 6,929 2,319 --------- --------- Total current assets 289,777 209,061 Property, plant and equipment, net 40,277 36,108 Goodwill (net of accumulated amortization of $40,468 in 1998 and $36,785 in 1997) 156,010 159,692 Deferred income taxes, net 22,242 19,281 Other assets 27,591 19,741 --------- --------- $ 535,897 $ 443,883 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 58,003 $ 38,404 Accrued compensation, benefits and related taxes 20,185 15,958 Other current liabilities 35,258 21,397 --------- --------- Total current liabilities 113,446 75,759 Long-term debt 177,500 72,339 --------- --------- Total liabilities 290,946 148,098 Stockholders' equity: Preferred stock, par value $1.00 per share, 5 million shares authorized, none issued and outstanding - - Common stock, par value $0.01 per share, 50 million shares authorized; 35.6 million and 39.0 million shares issued and outstanding in 1998 and 1997, respectively 356 393 Capital in excess of par value 206,233 261,081 Retained earnings 38,375 34,365 Cumulative translation adjustments (13) (54) --------- --------- Total stockholders' equity 244,951 295,785 --------- --------- $ 535,897 $ 443,883 ========= =========
See accompanying notes to the consolidated financial statements. 2 3 ANTEC CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except per share data)
Three Months Ended Nine Months Ended September 30, September 30, --------------------------- --------------------------- 1998 1997 1998 1997 --------- --------- --------- --------- Net sales $ 150,336 $ 120,365 $ 414,481 $ 364,661 Cost of sales 111,555 91,049 306,105 275,624 --------- --------- --------- --------- Gross profit 38,781 29,316 108,376 89,037 Operating expenses: Selling, general and administrative 25,904 28,253 79,150 82,729 Amortization of goodwill 1,230 1,227 3,683 3,699 Non-recurring items - - 10,000 21,550 --------- --------- --------- --------- 27,134 29,480 92,833 107,978 --------- --------- --------- --------- Operating income (loss) 11,647 (164) 15,543 (18,941) Interest expense and other, net 2,720 1,505 5,998 4,546 --------- --------- --------- --------- Income (loss) before income taxes 8,927 (1,669) 9,545 (23,487) Income tax expense (benefit) 3,948 330 5,535 (6,347) --------- --------- --------- --------- Net income (loss) $ 4,979 $ (1,999) $ 4,010 $ (17,140) ========= ========= ========= ========= Net income (loss) per Weighted average common and common equivalent shares: Basic $ 0.14 $ (0.05) $ 0.11 $ (0.44) ========= ========= ========= ========= Diluted $ 0.13 $ (0.05) $ 0.10 $ (0.44) ========= ========= ========= ========= Weighted average common and Common equivalent shares: Basic 35,513 38,828 37,699 38,570 ========= ========= ========= ========= Diluted 38,477 38,828 40,439 38,570 ========= ========= ========= =========
See accompanying notes to the consolidated financial statements. 3 4 ANTEC CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
Nine Months Ended September 30, ----------------------------- 1998 1997 ------------ ----------- Operating activities: Net income (loss) $ 4,010 $ (17,140) Adjustments to reconcile net income (loss) to net cash Provided by (used in) operating activities: Depreciation and amortization 11,303 10,893 Deferred income taxes (2,961) (3,482) Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (51,882) 14,355 (Increase) decrease in inventories (29,067) 21,264 Increase (decrease) in accounts payable and accrued liabilities 38,061 (29,113) (Increase) decrease in other, net (2,497) 6,758 --------- --------- Net cash provided by (used in) operating activities (33,033) 3,535 Investing activities: Purchases of property, plant and equipment (11,789) (9,916) Investments in / advances to joint ventures (5,800) (4,778) Other 584 (108) --------- --------- Net cash used in investing activities (17,005) (14,802) Financing activities: Net borrowings under credit facilities 107,000 99,500 Net reductions in borrowings under credit facilities (116,839) (108,816) Issuance of 4.5% convertible subordinated notes 115,000 - Purchase and retirement of common stock (63,459) - Deferred financing costs paid (5,111) - Proceeds from issuance of common stock 8,574 1,997 --------- --------- Net cash provided by (used in) financing activities 45,165 (7,319) Effect of exchange rate changes on cash 30 (29) --------- --------- Net decrease in cash and cash equivalents (4,843) (18,615) Cash and cash equivalents at beginning of period 7,244 27,398 --------- --------- Cash and cash equivalents at end of period $ 2,401 $ 8,783 ========= ========= Supplemental cash flow information: Interest paid during the period $ 3,344 $ 4,807 ========= ========= Income taxes paid during the period $ 5,530 $ 670 ========= =========
See accompanying notes to the consolidated financial statements. 4 5 ANTEC CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. BASIS OF PRESENTATION Antec Corporation ("ANTEC" or herein together with its consolidated subsidiaries called the "Company") is an international communications technology company, headquartered in Atlanta, Georgia, with a major office in Englewood, Colorado. The consolidated financial statements include the accounts of the Company after elimination of intercompany transactions. The consolidated financial statements furnished herein reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the consolidated financial statements for the periods shown. Interim results of operations are not necessarily indicative of results to be expected for a 12-month period. These interim financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the Company's year ended December 31, 1997. NOTE 2. RESTATEMENT The Company has revised previously filed financial statements for the quarters ended March 31, 1998 and June 30, 1998. These restatements have been made primarily to eliminate a portion of a non-recurring item, included in the quarter ended March 31, 1998 results, relating to the impairment of equipment and leasehold improvements directly resulting from the Company's plan to consolidate several facilities. The estimated impairment of fixed assets, as it relates to this plan, is now being written off over the remaining estimated useful lives of the fixed assets. These changes are reflected in the nine-month period ended September 30, 1998. It should be noted that the amended Form 10-Qs for the periods ended March 31, 1998 and June 30, 1998 have been filed. The effect of these adjustments on the quarter ended March 31, 1998 was an increase in net income of $0.9 million from a loss of $(5.5) million to a loss of $(4.6) million or an increase of $.02 per common share. Conversely, the effect of these adjustments in the quarter ended June 30, 1998 decreased net income by $0.3 million from $4.0 million to approximately $3.7 million or a decrease of $.01 per common share. The effect of these adjustments to the previously announced results for the quarter ended September 30, 1998 was to reduce net income by $0.3 million or $.01 per common share. NOTE 3. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In the first quarter of 1998, the Company adopted FASB Statement No. 130, Reporting Comprehensive Income, which establishes standards for the financial presentation of comprehensive income and its components. Adoption of FASB Statement No. 130 had no effect on the Company's financial position or operating results. The impact of reporting comprehensive income (loss) for the nine months ended September 30, 1998 and 1997 was $30 thousand and ($29) thousand, respectively. In June 1997, the FASB issued Statement No. 131, Disclosures about Segments of an Enterprise and Related Information, which establishes standards for the way that the public business enterprises report information about operating segments and related disclosures about products and services, geographic areas, and major customers. Statement 131 is effective for the 1998 annual financial statements of the Company. Management has not completed its review of Statement 131, but does not anticipate that the adoption of this statement will have a significant effect on the Company's financial statements. 5 6 ANTEC CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) NOTE 4. NON-RECURRING ITEMS In January 1998, ANTEC announced a consolidation plan being implemented concurrently with the creation of the new President and Chief Operating Officer organization in Atlanta. The Company will consolidate all of its Rolling Meadows, Illinois corporate and administrative functions into either the Atlanta Technology Center or the Englewood, Colorado Telewire Supply division headquarters during 1998 and 1999. It is also anticipated as part of this plan that the two principal facilities located in Atlanta will be consolidated and that certain international operating and administrative functions located in Miami and Chicago will also be consolidated in Atlanta. In connection with these consolidations, the Company recorded a charge of approximately $10.0 million in the first quarter of 1998. The components of the non-recurring charge included approximately $7.6 million related to personnel costs; and approximately $2.4 million related to lease termination payments and other costs. The personnel-related costs included termination costs related to the involuntary termination of approximately 177 employees, primarily related to the finance, management information systems, and international operations functions located in Chicago and Miami. Terminated employees were offered separation amounts in accordance with the Company's severance policy and were provided specific separation dates. As of September 30, 1998, 98 of the estimated 177 employees have been terminated. As of September 30, 1998, approximately $4.2 million of the cash costs related to personnel costs had yet to be expended and approximately $1.4 million of cash costs related to lease termination payments and other costs had yet to be expended. The Company anticipates these costs will be expended in 1998 and 1999. As of September 30, 1998, there have been no significant adjustments to the liability. The Company anticipates that these consolidations will reduce annual operating costs (i.e.: personnel and facility related) by as much as $10.0 million, however, the impact of these savings is not expected to be realized in full until 1999. In the first quarter of 1997, in connection with the February 6, 1997 merger between Antec Corporation and TSX Corporation ("Merger"), the Company recorded merger/integration costs aggregating approximately $28.0 million. The components of the non-recurring charge included $6.9 million related to the investment banking, legal, accounting and contractual change of control payments associated with the Merger; $11.2 million related to facility and operational consolidation and reorganization due to the combining of various manufacturing operations; and $3.4 million related to severance costs resulting from the elimination of positions duplicated by the Merger and integration. The personnel-related costs included charges related to the termination of approximately 200 employees primarily resulting from the factors described above. Also included in the total merger/integration charge was a write-off of redundant inventories totaling approximately $6.5 million that has been reflected in the cost of sales for the nine months ended September 30, 1997. As of September 30, 1998, approximately $0.6 million of the $28.0 million charge had yet to be utilized. NOTE 5. INVENTORIES
Inventories consist of: September 30, December 31, 1998 1997 ------------- ------------ (Unaudited) Raw material $ 39,086 $ 27,931 Work in process 11,189 6,343 Finished goods 90,490 77,424 -------- -------- Total inventories $140,765 $111,698 ======== ========
6 7 ANTEC CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) NOTE 6. LONG TERM DEBT Long term debt consists of:
September 30, December 31, 1998 1997 --------------- ------------ (Unaudited) Revolving Credit Facility $ 62,500 $ 70,000 4.5% Convertible Subordinated Notes 115,000 - Other - 2,339 -------- -------- Total long term debt $177,500 $ 72,339 ======== ========
On May 8, 1998, the Company issued $115.0 million of 4.5% Convertible Subordinated Notes ("Notes") due May 15, 2003 (the "Offering"). The Notes are convertible, at the option of the holder, at any time prior to the close of business on the stated maturity date, into the Company's common stock ("Common Stock") at a conversion price of $24.00 per share. The Notes are redeemable, in whole or in part, at the Company's option, at any time on or after May 15, 2001. The net proceeds from the Offering were used to repay all outstanding amounts under the Company's existing credit facility, and the remainder of the net proceeds were invested in government securities, certificates of deposits or similar investment grade securities until June 1998 when the Company completed the repurchase of approximately 4.4 million shares of Common Stock owned by Anixter International Inc. ("Anixter") for approximately $63.5 million. (See Note 7 of the Notes to the Consolidated Financial Statements.) On May 21, 1998, the Company entered into a new secured four-year credit facility ("New Credit Facility") with a group of banks aggregating $85.0 million. The New Credit Facility permits the Company to borrow, on a revolving basis, an amount contingent upon the level of certain eligible assets. The New Credit Facility provides for various interest rate alternatives. The average annual interest rate on borrowings was approximately 7.85% at September 30, 1998. The commitment fee on unused borrowings is approximately 0.5%. The New Credit Facility contains various restrictions and covenants, including limits on payments to stockholders, interest coverage, and net worth tests. NOTE 7. COMMON STOCK In June 1998, the Company repurchased approximately 4.4 million shares of Common Stock owned by Anixter for approximately $63.5 million. The TCI Venture Group, an affiliate of the Company, acquired the remaining 500,000 shares of Common Stock owned by Anixter for approximately $7.3 million. 7 8 ANTEC CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) NOTE 8. EARNINGS PER SHARE The following is an illustration of the reconciliation of the numerators and denominators of the basic and diluted earnings per share ("EPS") computations and other related disclosures.
Three Months Ended Nine Months Ended September 30, September 30, ------------------------- ----------------------- 1998 1997 1998 1997 -------- ---------- -------- -------- Numerator: Net income (loss); numerator for basic and diluted earnings per share - income (loss) available to common stockholders $ 4,979 $ (1,999) $ 4,010 $(17,140) ======== ======== ======== ======== Denominator: Denominator for basic earnings per share - Weighted-average shares 35,513 38,828 37,699 38,570 Effects of dilutive securities: Options/warrants 2,964 - 2,740 - -------- -------- -------- -------- Denominator for diluted earnings per share 38,477 38,828 40,439 38,570 ======== ======== ======== ======== Basic earnings per share $ 0.14 $ (0.05) $ 0.11 $ (0.44) ======== ======== ======== ======== Diluted earnings per share $ 0.13 $ (0.05) $ 0.10 $ (0.44) ======== ======== ======== ========
The 4.5% Convertible Subordinated Notes were antidilutive for the three and nine month periods ended September 30, 1998. The effects of the options and warrants were not presented for the three and nine-month periods ended September 30, 1997 as the Company incurred a net loss and inclusion of these securities would be antidilutive. 8 9 ANTEC CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS COMPARISON OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 Net Sales. Net sales for the three and nine-month periods ended September 30, 1998 were $150.3 million and $414.5 million, respectively, as compared to $120.4 million and $364.7 million for the same periods in 1997. This represents an increase of approximately 24.8% and 13.7% for the three and nine month periods, respectively. These increases primarily reflect additional capital spending by the Company's largest customer, Tele-Communications, Inc. ("TCI"). TCI sales for the nine months ended September 30, 1998 and 1997 were $104.4 million and $30.7 million respectively. These gains were partially offset by lower international sales primarily in Latin America due to regulatory uncertainties and in the Pacific Rim resulting from currency issues. Gross Profit. Gross profit for the three and nine-month periods ended September 30, 1998 was $38.8 million and $108.4 million, respectively, as compared to $29.3 million and $89.0 million for the same periods in 1997. The nine-month period ended September 30, 1997 includes a $6.5 million write-off of redundant inventories in connection with the merger between Antec Corporation and TSX Corporation ("Merger"). Excluding the inventory charge, gross profit as a percentage of sales for the three and nine-month periods ended September 30, 1998 was 25.8% and 26.1%, respectively, as compared to 24.4% and 26.2% for the same periods in 1997. The gross profit percentage for the three and nine month periods ended September 30, 1998 have been affected by the completion of certain material management contracts from the second quarter of 1998, as well as manufacturing inefficiencies associated with new product introductions. Poor international sales also contributed to the lower margin performance during the three months ended September 30, 1998, as international sales generally carry higher margin percentages. When comparing the gross profit percentage for the three month period ended September 30, 1998 to the same period of the prior year, the gross profit margin percentage for 1997 was adversely impacted by the Company's decision to maintain and increase production capacity at that time to meet the anticipated product demand for the 1998 year. Gross profit for the three and nine-month periods ended September 30, 1998 does not reflect the $0.4 million and $0.6 million, respectively, which was incurred to make modifications to previously sold TSX products. These costs were charged against a reserve created in December 1996 when TSX agreed to make these modifications. See the discussion of gross profit for 1997 in Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Report on Form 10-K for the year ended December 31, 1997. Performance of the agreed upon modifications was delayed by a general hold on construction imposed by the customer during 1997, the effects of which continued into 1998. Gross profit for the nine-month period ended September 30, 1998 does reflect, however, a charge of $0.1 million in the first quarter to increase that reserve. Gross profit for the nine-month period ended September 30, 1997 included $1.0 million for the reduction of this reserve due to changed circumstances. As of September 30, 1998, this reserve stood at $1.0 million, the current estimated cost for the completion of the modifications. It is currently estimated that these modifications will be substantially completed in 1998 and fully completed by March 31, 1999. Selling, General and Administrative ("SG&A") Expenses. SG&A expenses for the three and nine month periods ended September 30, 1998 were $25.9 million and $79.2 million, respectively, as compared to $28.3 million and $82.7 million for the same periods in 1997. These expenses decreased by 8.5% and 4.2% for the three and nine-month periods, respectively, as a result of ongoing expense control. Non-Recurring Items. In January 1998, ANTEC announced a consolidation plan being implemented concurrently with the creation of the new President and Chief Operating Officer organization in Atlanta. The Company will consolidate all of its Rolling Meadows, Illinois corporate and administrative functions into either the Atlanta Technology Center or the Englewood, Colorado Telewire Supply division 9 10 ANTEC CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) headquarters during 1998 and 1999. It is also anticipated as part of this plan that the two principal facilities located in Atlanta will be consolidated and that certain international operating and administrative functions located in Miami and Chicago will also be consolidated in Atlanta. In connection with these consolidations, the Company recorded a charge of approximately $10.0 million in the first quarter of 1998. The components of the non-recurring charge included approximately $7.6 million related to personnel costs and approximately $2.4 million related to lease termination payments and other costs. The personnel-related costs included termination costs related to the involuntary termination of approximately 177 employees, primarily related to the finance, management information systems, and international operations functions located in Chicago and Miami. Terminated employees were offered separation amounts in accordance with the Company's severance policy and were provided specific separation dates. As of September 30, 1998, 98 of the estimated 177 employees have been terminated. As of September 30, 1998, approximately $4.2 million of the cash costs related to personnel costs had yet to be expended and approximately $1.4 million of cash costs related to lease termination payments and other costs had yet to be expended. The Company anticipates these costs will be expended in 1998 and 1999. As of September 30, 1998, there have been no significant adjustments to the liability. The Company anticipates that these consolidations will reduce annual operating costs (i.e.: personnel and facility related) by as much as $10.0 million, however, the impact of these savings is not expected to be realized in full until 1999. In the first quarter of 1997, the Company recorded merger / integration costs aggregating approximately $28.0 million. The non-recurring charge included investment banking, legal, accounting and contractual change of control payments associated with the Merger; facility and operational consolidation and reorganization costs due to the combining of various manufacturing operations; and severance costs resulting from the elimination of positions duplicated by the Merger and integration. Also included in the total merger / integration charge was a write-off of redundant inventories as noted in the gross profit narrative. The costs related to the facility and operational consolidation and reorganization were comprised of costs associated with the shutdown of several of the Company's operating locations. These costs consisted of lease termination payments, losses on sale and disposal of building and equipment and other related fixed assets. All of the planned facility closings were completed and related cash costs were expended by the end of 1997. In 1997 and 1998, the Company paid, in aggregate, approximately $2.5 million relating to personnel-related costs which represented the termination of approximately 175 employees. As of September 30, 1998, approximately $0.6 million of cash costs had yet to be expended which consisted of contractual obligations resulting from the Merger and other personnel-related costs. The Company anticipates these costs will be expended in 1998. As of September 30, 1998, there have been no significant adjustments to the liability. (See Note 4 of the Notes to the Consolidated Financial Statements.) Interest Expense and Other, Net. Interest expense and other, net for the three and nine-month periods ended September 30, 1998 were $2.7 million and $6.0 million, respectively, as compared to $1.5 million and $4.5 million for the same periods in 1997. The three and nine-months ended September 30, 1998 includes the impact of the issuance of $115.0 million of 4.5% Convertible Subordinated Notes ("Notes") and the related deferred financing fees. In connection with the issuance of the $115.0 million Notes, the Company used part of the proceeds to repurchase 4.4 million shares of the Company's common stock ("Common Stock") from Anixter International Inc. ("Anixter") for $63.5 million. Additionally, interest expense for 1998 includes the write-off of the remaining deferred financing fees related to the Company's previous credit facility paid down in May, 1998. (See Notes 6 and 7 of the Notes to the Consolidated Financial Statements.) Net Income (Loss). Net income (loss) for the three and nine-month periods ended September 30, 1998 was $5.0 million and $4.0 million, respectively, as compared to $(2.0) million and $(17.1) million for the same periods in 1997. Included in the net income (loss) for the nine month periods ended September 30, 1998 and 1997 were non-recurring items of approximately $10.0 and $28.0 million, respectively. (See Note 4 of the Notes to the Consolidated Financial Statements.) 10 11 ANTEC CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) FINANCIAL LIQUIDITY AND CAPITAL RESOURCES FINANCING On May 8, 1998, the Company issued $115.0 million of 4.5% Notes due May 15, 2003 (the "Offering"). The Notes are convertible, at the option of the holder, at any time prior to the close of business on the stated maturity date, into the Company's Common Stock at a conversion price of $24.00 per share. The Notes are redeemable, in whole or in part, at the Company's option, at any time on or after May 15, 2001. The net proceeds from the Offering were used to repay all outstanding amounts under the Company's existing credit facility, and the remainder of the net proceeds were invested in government securities, certificates of deposits or similar investment grade securities until June 1998 when the Company completed the repurchase of approximately 4.4 million shares of Common Stock owned by Anixter for approximately $63.5 million. The TCI Venture Group, an affiliate of the Company, acquired the remaining 500,000 shares of Common Stock owned by Anixter for approximately $7.3 million. (See Notes 6 and 7 of the Notes to the Consolidated Financial Statements.) On May 21, 1998, the Company entered into a new secured four-year credit facility ("New Credit Facility") with a group of banks aggregating $85.0 million. The New Credit Facility permits the Company to borrow, on a revolving basis, an amount contingent upon the level of certain eligible assets. The New Credit Facility provides for various interest rate alternatives. The average annual interest rate on borrowings was approximately 7.85% at September 30, 1998. The commitment fee on unused borrowings is approximately 0.5%. The New Credit Facility contains various restrictions and covenants, including limits on payments to stockholders, interest coverage, and net worth tests. As of September 30, 1998, the Company is in compliance with all such covenants. CAPITAL EXPENDITURES The Company's capital expenditures were $11.8 million and $9.9 million for the nine months ended September 30, 1998 and 1997, respectively. Except for the impact of the Year 2000 Issue discussed below, the Company had no significant commitments for capital expenditures at September 30, 1998. CASH FLOWS Cash levels have decreased by approximately $4.8 million during the nine months of 1998 as compared to year end December 31, 1997. Cash used in operating activities was $33.0 million while the Company spent $11.8 million in capital expenditures and $5.8 million in additional investments in / advances to its joint ventures. These cash outlays were partially offset by net positive cash flows of $45.2 million provided through financing activities and $0.6 million provided through other investing activities. Operating activities utilized cash of $33.0 million, which is reflective of the increased working capital levels required by increased sales volume during the period ended September 30, 1998. For the same period in 1997, operating activities provided $3.5 million. Most significant to this negative cash flow was an increase in accounts receivable levels of approximately $51.9 million since year-end 1997 to $139.7 million. Also related to operating activities was an increase in inventories of approximately $29.1 million since year-end December 1997 to $140.8 million. This increase in current inventory levels, as compared to December 1997, is comprised of approximately $11.2 million in raw material, $4.8 million in work in process, and $13.1 million in finished goods. This inventory increase is reflective of the higher revenues and product demands during 1998. Despite the increased inventory levels during the nine months of 1998, inventory turns have remained fairly stable at 3.1 times. 11 12 ANTEC CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) CASH FLOWS - (CONTINUED) These negative operating cash flows were partially offset by increased levels of accounts payable. This increase provided $38.1 million of positive operating cash flows and is indicative of the increased purchasing necessary to meet product demand volumes. Cash flows used by investing activities were $17.0 million for the nine months ended September 30, 1998 as compared to $14.8 million for the same period in 1997. The investments during 1998 include $11.8 million spent on capital assets and $5.8 million invested in or advanced to the Company's joint ventures. During the nine months of 1997 the Company had capital expenditures of $9.9 million and investments in or advances to its joint ventures of $4.8 million. Cash flows provided by financing activities were $45.2 million for the nine months ended September 30, 1998 as compared to negative cash flows of $7.3 million for the same period in 1997. The most significant financing activities which occurred during 1998 include the impact of the issuance of $115.0 million of 4.5% Notes and the repurchase of 4.4 million shares of Common Stock from Anixter for approximately $63.5 million. (See Notes 6 and 7 of the Notes to the Consolidated Financial Statements.) The Company believes that funds generated from operations, existing cash balances and its available senior credit facility will be sufficient to support the Company's future growth. IMPACT OF YEAR 2000 The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. Based on a recent assessment, and the Company's ongoing evaluation of its computer processing systems, the Company determined that it would be required to modify or replace significant portions of its software to improve those systems. It is anticipated that these modifications and improvements will enable its computer processing systems to function properly with respect to dates in the year 2000 and thereafter. The Company presently believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Company. The Company's total Year 2000 project cost and estimates to complete include the estimated costs and time associated with the impact of third party Year 2000 Issues based on presently available information. However, there can be no guarantee that the systems of other companies on which ANTEC's systems rely will be timely converted and would not have an adverse effect on the Company's operations. The Company has determined that it has no exposure to contingencies related to the Year 2000 Issue for the products sold. If any of the Company's suppliers or customers do not, or if the Company itself does not, successfully deal with the Year 2000 Issue, the Company could experience delays in receiving or sending goods that would increase its costs and that could cause the Company to lose business and even customers 12 13 ANTEC CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) IMPACT OF YEAR 2000 - (CONTINUED) and could subject the Company to claims for damages. Problems with the Year 2000 Issue could also result in delays in the Company invoicing its customers or in the Company receiving payments from them that would affect the Company's liquidity. Problems with the Year 2000 Issue could affect the activities of the Company's customers to the point that their demand for the Company's product is reduced. The severity of these possible problems would depend on the nature of the problem and how quickly it could be corrected or an alternative implemented, which is unknown at this time. In the extreme, such problems could bring the Company to a standstill. The Company, based on its normal interaction with its customers and suppliers and the wide attention the Year 2000 Issue has received, believes that its suppliers and customers will be prepared to the Year 2000 Issue. There can, however, be no assurance that this will be so. The Company is in the process of soliciting written assurances from its major suppliers, customers, and service providers, however, these assurances, if given, may not be enforceable. The Company has not yet seen any need for contingency plans for the Year 2000 Issue, but this need will be continuously monitored as the Company acquires more information about the preparations of its suppliers and customers. Some risks of the Year 2000 Issue are beyond the control of the Company and its suppliers and customers. For example, no preparations or contingency plan will protect the Company from a downturn in economic activity caused by the possible ripple effect throughout the entire economy that could be caused by problems of others with the Year 2000 Issue. The Company will utilize both internal and external resources to reprogram, or replace, and test the software for the system improvements and Year 2000 modifications. The Company anticipates completing the system improvements and the Year 2000 project within one year but no later than March 31, 1999, which is prior to any anticipated impact on its operating systems. The total cost of the system improvements and the Year 2000 project is estimated at approximately $5.0 million and is being funded through operating cash flows. Of the total project cost, approximately $3.8 million is attributable to the purchase of new software and hardware, in addition to consulting fees, which will be capitalized. The remaining $1.2 million, which will be expensed as incurred, is not expected to have a material effect on the results of operations. To date, the Company has incurred approximately $3.3 million ($1.0 million expensed and $2.3 million capitalized for new systems) related to its system improvements and the Year 2000 project. The costs of the project and the date on which the Company believes it will complete the Year 2000 modifications are based on management's best estimates. These estimates were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. FORWARD LOOKING STATEMENTS Any of the above statements that are not statements about historical facts are forward looking statements. The forward looking statements, as outlined in the Private Securities Litigation Reform Act of 1995 ("the Act"), can be identified by the use of terms such as "may," "expect," "anticipate," "intend," "estimate," "believe," "continue," or similar variations or the negative thereof. Such forward looking statements are based on current expectations but involve risks and uncertainties. The Company's business is dependent upon general economic conditions as well as competitive, technological, and regulatory 13 14 ANTEC CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) FORWARD LOOKING STATEMENTS - (CONTINUED) developments and trends specific to the Company's industry and customers. These conditions and events could be substantially different than believed or expected and these differences may cause actual results to vary materially from the forward-looking statements made or the results which could be expected to accompany such statements. Specific factors, which could cause such material differences, include the following: - design or manufacturing defects in the Company's products which could curtail sales and subject the Company to substantial costs for removal, replacement and reinstallation of such products; - manufacturing or product development problems that the Company does not anticipate because of the Company's relative experience with these activities; - an inability to absorb or adjust costs in response to lower than anticipated sales volumes; - unanticipated costs or inefficiencies from the ongoing consolidation of certain activities; - loss of key management, sales or technical employees; - decisions, by the Company's larger customers, to cancel contracts or orders as they are entitled to do or not enter into new contracts or orders with the Company because of dissatisfaction, technological or competitive changes, changes in control or other reasons; - and the Company's inability, as a result of the Company's relative experience, to deliver construction services within anticipated costs and time frames that could cause loss of business, operating losses and damage claims. The above list is representative of the factors which could affect the Company's forward looking statements and is not intended as an all encompassing list of such factors. In providing forward looking statements, the Company is not undertaking any obligation to update publicly or otherwise these statements, whether as a result of new information, future events or otherwise. 14 15 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27 Financial Data Schedule (for SEC use only) (b) Reports on Form 8-K None 15 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ANTEC CORPORATION By: /s/ LAWRENCE A. MARGOLIS -------------------------------------- Lawrence A. Margolis Executive Vice President (Principal Financial Officer, duly authorized to sign on behalf of the registrant) Dated: November 13, 1998 16 EX-27 2 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-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998. 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 2,401 0 139,682 3,863 140,765 6,929 40,277 0 535,897 113,446 177,500 0 0 356 244,595 535,897 414,481 414,481 306,105 306,105 92,833 0 5,998 9,545 5,535 4,010 0 0 0 4,010 .11 .10
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