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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K/A
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OF
ANTEC CORPORATION
A DELAWARE CORPORATION
IRS EMPLOYER IDENTIFICATION NO. 36-3892082
SEC FILE NUMBER 000-22336
11450 TECHNOLOGY CIRCLE
DULUTH, GA 30097
(678) 473-2000
ANTEC's Common stock, no par value per share, is registered pursuant to
Section 12(g) of the Act. ANTEC does not have any securities registered pursuant
to Section 12(g) of the Act.
ANTEC (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, and (2)
has been subject to such filing requirements for the past 90 days.
ANTEC is unaware of any delinquent filers pursuant to Item 405 of
Regulation S-K.
The aggregate market value of ANTEC's Common Stock (based upon the closing
sales price quoted on the over the counter market) held by non-affiliates as of
February 28, 2001 was approximately $273,249,850. As of February 28, 2001,
38,147,374 shares of the registrant's Common Stock were outstanding. For these
purposes, directors, officers and 10% shareholders have been assumed to be
affiliates.
No documents are incorporated by reference.
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TABLE OF CONTENTS
PAGE
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PART I
ITEM 1. Business.................................................... 2
- General................................................... 2
- Industry.................................................. 3
- Principal Products........................................ 4
- Developmental Products.................................... 6
- Sales and Marketing....................................... 6
- Research and Development.................................. 7
- Patents................................................... 7
- Manufacturing............................................. 7
- Materials and Supplies.................................... 8
- Backlog................................................... 8
- International Opportunities............................... 8
- Seasonality............................................... 9
- Significant Customers..................................... 9
- Employees................................................. 9
ITEM 2. Properties.................................................. 10
ITEM 3. Legal Proceedings........................................... 10
ITEM 4. Submission of Matters to a Vote of Security Holders......... 10
PART II
ITEM 5. Market for the Registrant's Common Stock and Related
Stockholder Matters......................................... 11
ITEM 6. Selected Consolidated Historical Financial Data............. 11
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
ITEM 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 30
ITEM 8. Consolidated Financial Statements and Supplementary Data.... 30
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 30
PART III
ITEM 10. Directors and Executive Officers of the Registrant.......... 59
ITEM 11. Executive Compensation...................................... 62
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 66
ITEM 13. Certain Relationships and Related Transactions.............. 68
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 68
ITEM 14(a). Index to Consolidated Financial Statements and Financial
Statement Schedules......................................... 69
Signatures............................................................... 74
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PART I
ITEM 1. BUSINESS
GENERAL
ANTEC Corporation (together with its consolidated subsidiaries, except as
the context otherwise indicates, "ANTEC" or the "Company") is a developer,
manufacturer and supplier of optical and radio frequency ("RF") transmission
equipment for the construction, rebuilding and maintenance of broadband
communications systems. A broadband communications system (the "broadband pipe")
is the network that carries video, voice and data from system providers to
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. ANTEC supplies equipment and services for these systems
primarily to broadband communication providers, and believes it has earned 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 until its initial public offering in 1993, ANTEC was
primarily a distributor of cable television equipment and was owned and operated
by Anixter, Inc. ("Anixter"). Since that time, the Company has completed several
important strategic transactions 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 in its industry. 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 International
Organization for Standardization, or ISO, certified facilities and through
relationships with third party manufacturers in China, Malaysia and Taiwan. In
addition, through its distribution channels ANTEC 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, ANTEC 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
- 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 completed the acquisition of the following companies, which
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 manufacturer of power supplies and high security
enclosures for broadband communications networks
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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
- 1995 -- ANTEC and Nortel Networks ("Nortel") formed a joint venture
company, 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, which is known as LANcity, with Arris,
resulting in an increase in Nortel's interest in the joint
venture to 81.25% while ANTEC's interest was reduced to 18.75%
- 1999 -- ANTEC introduced the industry's first 18 band block converter and
combined that with the DWDM allowing 144 bands on a single fiber
- 2000 -- ANTEC agreed to acquire all of Nortel's ownership interest in
Arris
INDUSTRY
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 communication networks.
Increasingly, the value of high-speed Internet access experienced at work is
being demanded at similar levels of access from the home. 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. ANTEC'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.
A broadband communications system consists of three principal segments.
- Headend. The headend is 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.
- Distribution Network. 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.
- Drop. The drop 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 or
non-addressable. An addressable converter 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. A
non-addressable converter box is one in which premium channels are
activated or
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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 within all areas of the communications
industry, these systems have gone through dramatic changes including:
- 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 digital
subscriber lines, local multiport distribution services and direct
broadcast satellite;
- increased and deeper utilization of fiber optic technology, including the
dense wavelength division multiplexing, into the network;
- 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.
ANTEC believes that its 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.
All aspects of the Company's business are highly competitive. The broadband
communication industry itself is dynamic, requiring companies to react quickly
and capitalize on change. ANTEC must retain skilled and experienced personnel as
well as deploy substantial resources to meet 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. ANTEC's
major competitors include:
- ADC Telecommunications, Inc.,
- C-COR.net Corporation,
- General Instrument Corporation, now a part of Motorola, Inc.,
- Harmonic Inc.,
- Phillips, and
- Scientific-Atlanta.
Various manufacturers who are suppliers to ANTEC 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 ANTEC'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.
PRINCIPAL PRODUCTS
ANTEC, initially through its predecessor, Anixter, 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 believes it
supplies the most complete set of products required in a cable system including
headend,
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distribution, drop and in-home subscriber products. ANTEC's vast product
offerings can be classified into four distinct product categories: optical and
broadband transmission, cable telephony and Internet access, outside plant and
powering, and supply.
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,
radio frequency 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 radio frequency 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 mounted. The Company also manufactures
certain other telecommunications products, including T-1 and digital subscriber
technology components, for signal broadband in traditional telephony
architectures.
Sales of optical and broadband products related to ANTEC's broadband and
optical products offerings were 26%, 29% and 34%, respectively, of the
consolidated net sales of the Company for the years ended December 31, 2000,
1999 and 1998.
Cable Telephony and Internet Access. ANTEC supplies products for the cable
telephony and high-speed data access business under the brand name Cornerstone.
Arris designs and, through a series of strategic manufacturing partnerships,
both in the United States and the Far East, manufactures these products for sale
by ANTEC to domestic telecommunications operators. These products 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 radio
frequency 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. Additionally, ANTEC provides training, technical
support, engineering and installation services for these products. Sales of
these combined product lines were approximately 31%, 28% and 6% of the
consolidated net sales of the Company for the years ended December 31, 2000,
1999 and 1998. Voice over Internet protocol telephony and data products,
including the packet port and advanced Internet protocol module are planned for
introduction and deployment during the latter part of 2001.
Outside Plant and Powering. The transmission and drop systems of the HFC
networks require, and ANTEC'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. This product family also includes network interface
devices. ANTEC manufactures network interface devices for
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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%, 17% and 22% of consolidated net sales of the
Company for the years ended December 31, 2000, 1999 and 1998.
Supplies and Services. Distribution networks, whether fiber optic or
coaxial, can be constructed either above or below ground. In an aerial system,
galvanized steel cables, or strand, support the transmission cable, 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 ANTEC also
supplies. In addition, to meet its customers' need for ancillary products, ANTEC
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 and
military markets. Additionally, ANTEC provides engineering consulting services
primarily for developers of HFC cable systems products. Sales of these combined
products and services were approximately 26%, 26% and 38% of the consolidated
sales of the Company for the years ended December 31, 2000, 1999 and 1998.
DEVELOPMENTAL PRODUCTS
ANTEC is committed to being a technology integrator and product development
specialist in the evolving broadband communications market. ANTEC strives to
develop new products and technology applications, both through its own
engineering resources and by forging strategic alliances with other companies.
ANTEC currently is 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 progress 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 reorganization of
the sales force is structured around the customer, where ANTEC will manage the
sales and positioning of all of the Company's product offerings, providing the
customer with optimized system solutions. 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
telecommunication companies, overbuilders, competitive local exchange carriers
and other business opportunities. 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. ANTEC
anticipates that its customer base will continue to consolidate in the future.
ANTEC's ability to respond quickly to these changes and deploy its resources in
a highly focused manner will be key to future success.
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.
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The Company also employs an experienced marketing and product management
team that focuses on each of the various product categories and works with
ANTEC'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
ensure that customers are getting the benefits of the newest technologies and
that ANTEC is abreast of market trends in the industry.
ANTEC utilizes sophisticated information systems. These systems are on-line
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 that are reasonably expected to be needed
by a substantial number of customers in the Company's markets. The Company's
research and development expenditures for the years ended December 31, 2000,
1999 and 1998 were approximately $23.4 million, $16.6 million and $14.4 million,
respectively. Additionally, ANTEC 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 and Arris. Arris spends
a significant amount of its resources in research and development of ANTEC's
cable telephony and Internet access products.
PATENTS
ANTEC 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 its competitiveness within the
industry.
MANUFACTURING
ANTEC 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 reduces 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 ANTEC's
products, from the purchasing of raw components to manufacturing and shipping
products, is three months or less. A significant element of ANTEC'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, all of which are ISO
certified. The Company also utilizes various contract manufacturers to
supplement its manufacturing needs. In addition, ANTEC acquires products for
resale from other domestic and foreign manufacturers.
ANTEC operates two facilities in Juarez, Mexico. The first, a 135,000
square foot electronic design and assembly facility, is used in prototyping,
manufacturing and testing the majority of all optronics, radio frequency
amplifier lines and nodes. This facility houses sophisticated electronic surface
mount and thru-hole automated assembly lines. 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. ANTEC produces its own molding tools within this
facility using computer aided design software and machining systems. All metal
housings are manufactured in a metal fabricating facility also located in El
Paso,
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Texas. This 120,000 square foot plant supplies enclosures for various powering,
demarcation and outside plant products.
ANTEC 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.
Arris Interactive manufactures ANTEC's cable telephony and Internet access
products through a series of strategic manufacturing partnerships in the United
States and the Far East.
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 competitive for the geographic areas in which they
are located, and ANTEC enjoys good relationships with all of its landlords.
MATERIALS AND SUPPLIES
ANTEC makes significant purchases of electronic components, metals,
original equipment manufacturer products, and other materials and components
from various domestic and 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, ANTEC occasionally may maintain special
inventories of certain components. Additionally, ANTEC 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. With respect to
long-term contracts, ANTEC includes in its backlog only amounts representing
orders currently released for production or, in specific instances, the amount
ANTEC expects to be released in the succeeding 12 months. The amount contained
in backlog for any 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. The Company's backlog at December 31,
2000, 1999 and 1998 was approximately $209.5 million, $105.4 million and $37.4
million.
ANTEC believes that substantially all of the backlog existing at December
31, 2000 will be shipped in 2001.
INTERNATIONAL OPPORTUNITIES
ANTEC believes that international opportunities exist and continues to
strategically invest in worldwide marketing efforts, which have yielded some
promising results in several regions. During 2000, the international HFC market
reversed the downward trend, which began in late 1997. International orders in
2000 were up 84% over 1999, and ANTEC ended the year with a record backlog for
its international business. Europe and Latin America, in particular, rebounded
in 2000. In Europe, ANTEC experienced strong demand in Portugal, Hungary,
Ireland and Spain. Norway continued its strong purchasing pattern towards the
end of the year. United Pan Europe Communications in the Netherlands deployed
significant amounts of dense wavelength division multiplexing equipment. Orders
in Europe in 2000 increased 68% over 1999, and shipments increased over 95%.
ANTEC's business in Latin America was particularly strong in 2000. Orders
increased over 150% from 1999 with a resulting significant shipment increase. In
Latin America, ANTEC closed two significant long-term sales opportunities in
Argentina and Chile, and it finished 2000 with a significant backlog. In Asia,
orders increased 35% and shipments increased 27% over 1999. ANTEC continues to
invest in marketing efforts in this region. The results achieved internationally
during 2000 may not necessarily be indicative of future results. Current
industry and financial market conditions affect international as well as
domestic customers' capital spending. The Company anticipates that 2001 will be
adversely affected by these conditions, especially during the first half of the
year.
ANTEC maintains sales offices in Argentina, Australia, Brazil, China, Hong
Kong, Italy, Mexico, Singapore, Spain and the United Kingdom.
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SEASONALITY
Although ANTEC's business is not highly seasonal, the Company's sales in
the second and third quarters generally have 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 each year.
SIGNIFICANT CUSTOMERS
ANTEC's two largest customers for 2000 were AT&T (including MediaOne
Communications, which was acquired by AT&T during 2000) and Cox Communications.
Traditionally, a significant portion of the Company's revenue is derived from
sales to AT&T aggregating $431.5 million, $355.0 million and $142.7 million for
2000, 1999 and 1998, respectively. Giving effect to AT&T's acquisition of
MediaOne Communications, sales to the combined entity were $391.1 million for
1999 and $149.9 million for 1998. Sales to Cox Communications doubled during
2000 to $117.9 million from $58.5 million in 1999 and $28.9 million in 1998.
Sales to AT&T for 2000 accounted for approximately 43.2% of ANTEC's total sales
while Cox Communications accounted for approximately 11.8%. Other than Adelphia
Communications Corp., which accounted for 5% of ANTEC's total revenues for 2000,
no other customer provided more than 5% of ANTEC's total revenues for the year.
ANTEC is currently Cox Communications' exclusive provider of cable
telephony network solutions in eight of its 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.
On November 24, 2000, AT&T Broadband, a unit of AT&T Corp., announced that
it would not accept or pay for product shipments that it had previously ordered
until mid-January 2001. On the trading day following the AT&T Broadband
announcement, ANTEC's stock fell $2.36 per share, or approximately 21%, from its
previous closing price as indicated by the Nasdaq National Market System. The
delayed shipments had a material adverse effect on ANTEC's revenue and earnings
in the fourth quarter 2000. ANTEC anticipates overall sales to AT&T in 2001 will
be reduced from the sales level achieved in 2000.
In addition, on October 25, 2000, AT&T announced that it will voluntarily
break itself up into four separate publicly traded companies that will bundle
each other's services through inter-company agreements. The immediate
consequences, if any, to ANTEC, regarding product orders from AT&T, as a result
of this split-up are not yet determinable. It is possible that the AT&T break-up
will have a future material adverse effect on ANTEC's business. Circumstances
significantly altering the relationship between ANTEC and either of AT&T or Cox
Communications may arise in the future.
EMPLOYEES
As of December 31, 2000, the Company had approximately 3,100 full-time
employees of which approximately 88 were members of a union. ANTEC believes that
its relationship with its employees is good. 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. ANTEC has entered into employment
contracts with its key executive officers. ANTEC also has a stock option program
that is intended to provide substantial incentives for its key employees to
remain with the Company.
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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. ANTEC's long-term leases expire at
various dates through 2009. The principal properties are located in Ontario,
California; Duluth, Georgia; Englewood, Colorado; El Paso, Texas; Cary, North
Carolina; Rock Falls, Illinois; Juarez, Mexico and Chesham, England. ANTEC
believes that its current properties are adequate for its operations. During
2000, ANTEC consolidated its Tinton Falls, New Jersey operations into the
corporate facility in Duluth, Georgia and into 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 2000, no matters were submitted to a vote of
the Company's security holders.
EXECUTIVE OFFICERS OF THE COMPANY
NAME AGE POSITION
---- --- --------
John M. Egan......................... 53 Chairman and Director
Robert J. Stanzione.................. 52 President, Chief Executive Officer and Director
Lawrence A. Margolis................. 52 Executive Vice President and Chief Financial
Officer
Gordon E. Halverson.................. 58 Executive Vice President and Chief Executive
Officer, TeleWire Supply
James E. Knox........................ 63 General Counsel and Assistant Secretary
Michael Graziano..................... 40 Treasurer
John M. Egan joined the Company in 1973 and has been Chairman of ANTEC's
Board of Directors since 1997. Mr. Egan was President and Chief Executive
Officer of ANTEC and its predecessors from 1980 to December 31, 1999. On January
1, 2000, Mr. Egan stepped down from his role as Chief Executive Officer of
ANTEC. He remains a full-time employee. 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 Executive Officer since
January 1, 2000. From January 1998 through 1999, Mr. Stanzione was President and
Chief Operating Officer of ANTEC. Mr. Stanzione has been a director of ANTEC
since 1997. From October 1995 to December 1997, he was President and Chief
Executive Officer of Arris Interactive. 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 International, Inc., a global communications
products distribution company, from 1986 to 1992 and General Counsel and
Secretary of Anixter from 1984 to 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 of ANTEC since April 1997. From 1990 to April 1997, he
was Executive Vice President, Sales of ANTEC. During the period 1969 to 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,
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Society of Cable Television Engineers, Illinois Cable Association, Cable
Television Administration and Marketing Society.
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 the law firm of Mayer, Brown
& Platt from 1992 to 1996.
Michael Graziano has been Treasurer since June 1998 and Director of Finance
of ANTEC 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.
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 reports the high and low
trading prices per share of ANTEC's common stock as listed on the Nasdaq
National Market System.
HIGH LOW
-------- --------
1999
First Quarter.......................................... $29.6875 $ 18.00
Second Quarter......................................... 34.1875 19.00
Third Quarter.......................................... 55.25 29.625
Fourth Quarter......................................... 60.25 23.25
2000
First Quarter.......................................... $61.25 $ 28.9375
Second Quarter......................................... 57.00 34.375
Third Quarter.......................................... 50.00 20.4375
Fourth Quarter......................................... 29.75 6.875
2001
First Quarter (through February 28, 2001).............. $14.375 $ 7.5625
ANTEC has not paid dividends on its common stock since its inception. The
Credit Facility, the Company's primary loan agreement at December 31, 2000,
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 2000,
such covenants precluded the Company from declaring any dividends on its common
stock.
As of February 28, 2001, there were approximately 318 holders of record of
ANTEC common stock.
ITEM 6. SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The selected consolidated financial data as of December 31, 2000 and 1999
and for each of the three years in the period ended December 31, 2000 set forth
below are derived from the accompanying audited consolidated financial
statements of ANTEC, as restated for 2000 and 1999, and should be read in
conjunction with such statements and related notes thereto. The selected
consolidated financial data as of December 31, 1998, 1997 and 1996 and for the
years ended December 31, 1997 and 1996 is 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 dated as of October 28, 1996 among ANTEC Corporation, TSX
Corporation and TSX Acquisition Corporation, and the Merger
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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. Consequently, the statements of operations for
the twelve months ended December 31, 1996 represent ANTEC's fiscal period ended
on that date combined with TSX's twelve months ended the last Saturday in
October 1996. 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 ANTEC's
historical consolidated financial statements and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this document.
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
RESTATED RESTATED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED OPERATING DATA:
Net sales(7).............................. $998,730 $844,756 $546,767 $480,078 $690,877
Cost of sales(1)(4)(7).................... 812,958 679,774 404,999 365,860 511,646
-------- -------- -------- -------- --------
Gross profit.............................. 185,772 164,982 141,768 114,218 179,231
Selling, general, administrative and
development expenses(2)................ 133,988 111,937 105,643 110,803 125,997
Amortization of goodwill.................. 4,917 4,946 4,910 4,927 4,981
Restructuring and other(1)(3)(4)(5)....... -- 5,647 9,119 21,550 2,109
-------- -------- -------- -------- --------
Operating income (loss)................... 46,867 42,452 22,096 (23,062) 46,144
Interest expense.......................... 11,053 12,406 9,337 6,264 8,037
Other (income) expense, net............... 87 (745) (977) (348) (951)
Loss on marketable securities............. 773 275 -- -- 450
(Gain) on sale of Canadian business(6).... -- -- -- -- (3,835)
-------- -------- -------- -------- --------
Income (loss) before income tax expense
(benefit).............................. 34,954 30,516 13,736 (28,978) 42,443
Income tax expense (benefit).............. 14,285 13,806 7,911 (7,534) 16,083
-------- -------- -------- -------- --------
Net income (loss)......................... $ 20,669 $ 16,710 $ 5,825 $(21,444) $ 26,360
======== ======== ======== ======== ========
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................... $305,921 $255,000 $200,194 $133,302 $185,288
Total assets.............................. 731,495 700,541 532,645 443,883 510,249
Long-term debt............................ 204,000 183,500 181,000 72,339 102,658
Stockholders' equity...................... 341,902 309,338 249,778 295,785 310,388
NET INCOME (LOSS) PER COMMON SHARE:
Basic..................................... $ 0.54 $ 0.46 $ 0.16 $ (0.55) $ 0.69
======== ======== ======== ======== ========
Diluted................................... $ 0.52 $ 0.43 $ 0.15 $ (0.55) $ 0.67
======== ======== ======== ======== ========
---------------
(1) In the fourth quarter of 1999, in conjunction with the consolidation of the
New Jersey facility to Georgia and the Southwest, and with the
discontinuance of certain product offerings, ANTEC recorded pre-tax charges
of approximately $16.0 million. The charges were approximately $2.6 million
related to personnel costs and approximately $3.0 million related to lease
termination and other charges. The charges also included the elimination of
product lines resulting in an inventory obsolescence charge totaling
approximately $10.4 million, which has been reflected in cost of sales.
During the second quarter of 2000, ANTEC booked an additional $3.5 million
pre-tax charge for product discontinuation costs as an increase to cost of
goods sold, related to this fourth quarter 1999 reorganization. (See Note 5
of the Notes to the Consolidated Financial Statements.)
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(2) In the first quarter of 2000, ANTEC recorded a pre-tax gain of $2.1 million
realized as a result of the curtailment of ANTEC's defined benefit pension
plan. (See Note 14 of the Notes to the Consolidated Financial Statements.)
(3) In the first quarter of 1998, in connection with the consolidation plan of
ANTEC's corporate and administrative functions, ANTEC recorded a pre-tax
charge of approximately $10.0 million. The charge included 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 its combination with TSX
Corporation, ANTEC recorded pre-tax merger/integration costs aggregating
approximately $28.0 million. Included in the merger/integration charge was a
write-off of inventories totaling approximately $6.5 million that has been
reflected in cost of sales. The combination was accounted for as a pooling
of interests. (See Note 5 of the Notes to the Consolidated Financial
Statements.)
(5) In the fourth quarter of 1996, the Company recorded a pre-tax charge of $3.6
million 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 1996, the Company sold its Canadian distribution
business to Cabletel Communications Corporation.
(7) Net sales and cost of sales, in aggregate, for the years ended December 31,
2000 and 1999 differ from amounts previously reported as net sales and cost
of sales in the respective Form 10-Q's and Form 10-K dated December 31,
1999, due to the adoption of EITF No. 00-10, Accounting for Shipping and
Handling Fees and Costs, during the fourth quarter of 2000. (See Note 4 of
the Notes to the Consolidated Financial Statements.)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following should be read in conjunction with ANTEC's consolidated
financial statements and the related notes thereto and the description of the
Company's business included elsewhere in this document.
ACQUISITION OF ARRIS
On October 18, 2000, ANTEC agreed to acquire Nortel's interest in Arris
Interactive, L.L.C., the joint venture between the two companies. In general,
Nortel agreed to transfer its 81.25% stake in Arris in exchange for 33 million
shares of Common Stock of a newly formed holding company and $325 million in
cash, directly and, through the repayment of a loan, indirectly. In the
transaction, ANTEC's stockholders would have received one share of the new
holding company for each share of ANTEC that they held. The agreement
contemplated that ANTEC would enter into a new revolving credit facility
providing sufficient availability to pay the cash portion of the purchase price
and to fund on-going operations of the combined entity. As a result of changes
in industry and financial market conditions, ANTEC has not yet been able to
obtain the contemplated credit facility. ANTEC and Nortel are in the process of
renegotiating the terms of the agreement in order to reflect current industry
and financial market conditions. ANTEC is currently seeking a credit facility
sufficient for the revised terms. Although credit markets are extremely
difficult in the telecommunications sector at the present time, ANTEC believes
it will be able to obtain a commitment for an appropriate facility. The
consummation of the acquisition, which is subject to the approval of ANTEC's
stockholders, other customary closing conditions and certain regulatory
approvals, is expected to occur in July of 2001 if the necessary credit facility
is obtained.
Assuming that the transaction is completed, ANTEC and Arris will become
subsidiaries of a newly formed holding company tentatively named Arris Group,
Inc. The combined company will be substantially larger than ANTEC, and the
combined company's results of operations will differ significantly from ANTEC's
historical results. In general, in addition to its existing business, the
combined company will
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manufacture and distribute Arris' products, primarily the Cornerstone line, on
an international basis to all potential customers. By contrast, ANTEC currently
functions solely as a distributor of Arris products to cable systems in the
United States.
INDUSTRY CONDITIONS
ANTEC's performance is largely dependent on capital spending for
constructing, rebuilding, maintaining or upgrading broadband communications
systems. After a period of intense consolidation and rapid stock-price
acceleration within the industry during 1999, the fourth quarter of 2000 brought
a sudden tightening of credit availability throughout the telecom industry and a
broad-based and severe drop in market capitalization for the sector during the
period. This has caused broadband system operators to become more judicious in
their capital spending, adversely affecting ANTEC and other equipment providers,
generally.
Like its competitors, ANTEC suffered a major decline in sales during the
fourth quarter of 2000. The major factors responsible for this decline include:
- AT&T's fourth quarter decision to hold off on equipment shipments until
later in 2001;
- capital spending delays from overbuilders; and
- the general tightening of credit availability causing cable operators to
conserve cash.
Although sales are expected to improve from these levels during 2001,
significant improvement is not expected until at least the second half of the
year. However, broadband system operators are expected ultimately to continue to
spend money on revenue-generating equipment that creates a substantial return on
their investment.
Growth within the industry will continue to be fueled by the demand for
bandwidth created by the continued success of high-speed Internet access and
digital cable and the 2001 rollout of video-on-demand services. The demand for
broadband access has increased significantly 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 at home. This demand has created a new revenue opportunity for broadband
system operators who are ANTEC's customers. The broadband pipe is the system
operators' 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 and faster 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. ANTEC's 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
To follow is ANTEC's report on its financial condition and results of
operations. During 2000, ANTEC posted record revenues for the second consecutive
year, increasing by 18.2% from 1999 despite the slow down of capital spending by
its customers during the fourth quarter of 2000. This record performance in both
years was driven by increased sales of cable telephony and Internet access
products. As you read the material below, we urge you to carefully consider our
financial statements and related notes contained elsewhere in this report.
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The following table sets forth ANTEC's key operating data as a percentage
of net sales:
YEARS ENDED DECEMBER 31,
--------------------------
2000 1999 1998
------ ------ ------
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 81.4 80.5 74.1
----- ----- -----
Gross profit................................................ 18.6 19.5 25.9
Selling, general, administrative and development expenses... 13.4 13.2 19.3
Amortization of goodwill.................................... 0.5 0.6 0.9
Restructuring and other..................................... -- 0.7 1.7
----- ----- -----
Operating income............................................ 4.7 5.0 4.0
Interest expense and other, net............................. 1.1 1.4 1.7
Other (income) expense, net................................. -- -- (0.2)
Loss on marketable securities............................... 0.1 -- --
----- ----- -----
Income before income tax expense............................ 3.5 3.6 2.5
Income tax expense.......................................... 1.4 1.6 1.4
----- ----- -----
Net income.................................................. 2.1% 2.0% 1.1%
===== ===== =====
SIGNIFICANT CUSTOMERS
ANTEC's two largest customers for 2000 were AT&T (including MediaOne
Communications, which was acquired by AT&T during 2000) and Cox Communications.
Traditionally, a significant portion of the Company's revenue has been derived
from sales to AT&T, which aggregated $431.5 million, $355.0 million and $142.7
million for 2000, 1999 and 1998, respectively. Giving effect to AT&T's
acquisition of MediaOne Communications, sales to the combined entity were $391.1
million for 1999 and $149.9 million for 1998. Sales to Cox Communications
doubled during 2000 to $117.9 million from $58.5 million in 1999 and $28.9
million in 1998. Sales to AT&T for 2000 accounted for approximately 43.2% of
ANTEC's total sales, while Cox Communications accounted for approximately 11.8%.
Other than Adelphia Communications Corp., which accounted for approximately 5%
of ANTEC's total sales for 2000, no other customer provided more than 5% of
ANTEC's total sales for the year.
ANTEC is currently Cox Communication's exclusive provider of cable
telephony network solutions in eight of its 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.
On November 24, 2000, AT&T Broadband, a unit of AT&T Corp., announced that
it would not accept or pay for product shipments that it had previously ordered
until mid-January 2001. On the trading day following the AT&T Broadband
announcement, ANTEC's stock fell $2.36 per share, or approximately 21%, from its
previous closing price as indicated by the Nasdaq National Market System. The
delayed shipments had a material adverse effect on ANTEC's revenue and earnings
in the fourth quarter 2000. ANTEC anticipates overall sales to AT&T in 2001 will
be reduced from the sales level achieved in 2000.
In addition, on October 25, 2000, AT&T announced that it will voluntarily
break itself up into four separate publicly traded companies that will bundle
each other's services through inter-company agreements. The immediate
consequences, if any, to ANTEC, regarding product orders from AT&T, as a result
of this split-up are not yet determinable. It is possible that the AT&T break-up
will have a future material adverse
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effect on ANTEC's business. Circumstances significantly altering the
relationship between ANTEC and either of AT&T or Cox Communications may arise in
the future.
COMPARISON OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
Net Sales. ANTEC's consolidated sales for 2000 increased by 18.2% to
$998.7 million as compared to 1999 sales of $844.8 million. Over the last two
years, ANTEC experienced a rise in sales resulting from earlier investments in
new products, primarily for cable telephony and the 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. Through the twelve months ended December 31, 2000, all of ANTEC's
product lines, cable telephony and Internet access products in particular,
benefited from the growth in capital spending despite the slow down experienced
during the fourth quarter of the year. ANTEC's Cornerstone voice and data
product revenues grew from approximately $237.4 million in 1999 to approximately
$312.3 million in 2000, an increase of approximately 31.6%. Cornerstone's growth
focused on Host Digital Terminal 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 and all of 2000. These cable modems and cable modem termination systems
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 $18.5
million for 2000 and $38.2 million for 1999. The decline in data product sales
during 2000 is a result of the general market shift from proprietary technology
to a standards-based technology or data over cable standards interface system
("DOCSIS"). The DOCSIS modems are a commodity product that face strong pricing
pressure. Also, during the fourth quarter of 1999, ANTEC 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 host digital
terminal, and AT&T bought licenses equivalent to the number of HDTs purchased
during 1999. Effective January 1, 2000 the price of the software was packaged
with the sale of the device.
The balance of the revenue increase for 2000, as compared to the prior
year, was from revenue growth related to ANTEC's other product offerings.
Exclusive of the Cornerstone voice and data growth, combined sales for the
remaining product lines increased approximately $79.1 million:
- Optical and broadband transmission product revenues increased
approximately 6.0% to $259.7 million for the year ended December 31, 2000
as compared to $245.0 million for 1999. This growth within this area was
particularly derived from optical headend, RF taps and T-carrier repeater
product sales.
- Outside plant and powering product revenues increased by approximately
18.2% to $169.8 million for the year ended December 31, 2000 as compared
to $143.6 million for 1999. Sales of Monarch brand products, including
drop, aerial, ground and underground products, as well as powering
product sales led the year over year increase within this product
offering.
- Supplies and services revenue increased approximately 18.2% to $259.7
million for the year ended December 31, 2000 as compared to $219.6
million for 1999. Sales of fiber optic cable products and engineering
services drove this increase.
Sales to ANTEC's largest customer, AT&T (including MediaOne Communications,
which was acquired by AT&T during 2000), reached approximately $431.5 million
during 2000, or approximately 43.2% of the annual volume. This compares to 1999
when sales to AT&T were $355.0 million or 42.0% of the volume for the year.
Giving effect to AT&T's acquisition of MediaOne Communications, sales to the
combined entity were $391.1 million for 1999 or 46.3% of the annual volume. This
marks a $40.4 million increase in revenue from the combined AT&T entity despite
their fourth quarter decision to hold off on equipment shipments until later in
2001. Although sales growth is expected to resume during 2001, significant
improvement is not expected until at least the second half of the year.
International sales for the twelve months ended December 31, 2000 increased
59.2% to $86.6 million as compared to the twelve months ended December 31, 1999
when sales were $54.4 million. International
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revenue for 2000 represented approximately 12.9% of ANTEC's total revenue for
the year, exclusive of the Cornerstone products, which ANTEC does not sell
internationally. This compares to international revenue of 9.0% of ANTEC's total
revenue for 1999, also net of the Cornerstone product sales.
Gross Profit. The abrupt decline of business during the fourth quarter
adversely affected ANTEC's overall gross margin results for 2000. Gross profit
in 2000 was $185.8 million as compared to $165.0 million in 1999. Gross profit
margins for 2000 slipped 0.9 percentage points to 18.6% versus 19.5% for the
prior year. Within ANTEC's product families, gross profit results for 2000 as
compared to 1999 were as follows:
- Optical and broadband transmission gross margin percentage decreased
approximately 0.2 percentage points to 25.9% for the twelve months ended
December 31, 2000 as compared to 26.1% for 1999. Within this product
category, fiber management product margins showed strong improvement in
2000 as compared to 1999, while radio frequency product margins declined
approximately 6.6 percentage points during 2000 as compared to 1999.
- Cable telephony and Internet access gross margin percentage increased
approximately 0.1 percentage points to 14.6% for the twelve months ended
December 31, 2000 as compared to 14.5% for 1999. The increase in margin
dollars of approximately $11.1 million during 2000 as compared to 1999,
is reflective of the year-over-year revenue growth within this product
category.
- Outside plant and powering gross margin percentage decreased 2.4
percentage points to 21.3% for the twelve months ended December 31, 2000
as compared to 23.7% for 1999. Overall margin performance within this
category has been adversely affected by factory absorption issues,
industry pricing pressures and an increase in volume of lower margin
products, such as power supplies. These factors offset the positive
effects of the increased revenue in this category during 2000 as compared
to 1999.
- Supplies and services gross margin percentage decreased approximately 2.5
percentage points to 15.7% for the twelve months ended December 31, 2000
as compared to 18.2% for 1999. There was an increase in sales of products
within this category, particularly fiber optic cable that experienced
strong margin pressure during 2000. Increased business with several
customers came at the cost of being very competitive with product
pricing. Additionally, during the second half of 2000, some suppliers of
products within this category passed on pricing increasing to ANTEC and
other customers. These combined factors resulted in the gross profit
shortfall during 2000 as compared to 1999.
When comparing the overall 2000 gross profit results to the overall 1999
gross profit results, both years were effected by a variety of factors,
including:
- Cost of sales for 1999 includes a $10.4 million pre-tax charge related to
the elimination of certain product lines and the resulting inventory
obsolescence charge. ANTEC discontinued certain older product lines not
consistent with the Company's focus on two-way, high-speed Internet,
voice and video communications equipment. This discontinuance affected
the uninterruptible common ferroresonant and security lock powering
products and included a narrowing of the Company's radio frequency ("RF")
and optical products. During the second quarter of 2000, ANTEC recorded
an additional $3.5 million pre-tax charge to cost of goods sold for
product discontinuation costs, related to the continued evaluation of the
estimated costs associated with these actions.
- Cornerstone voice and data sales growth began during 1999 and continued
during 2000. Sales of these products accounted for approximately 31.3%
and 28.1% of the consolidated sales for the years ended December 31, 2000
and 1999, respectively. 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
ANTEC's overall volume, ANTEC's consolidated gross profit percentage is
impacted by the relatively lower gross margin percentage achieved on
these sales.
- A portion of the increased revenue from some customers during 2000
required aggressive pricing for products already experiencing strong
margin pressure.
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- During 2000, ANTEC's customers shifted the focus of their capital
spending from higher margin, basic network infrastructure type products
towards more revenue generating investments such as cable telephony,
which carry lower margins. The MSOs are expected to continue to spend
money on revenue-generating equipment that creates a substantial return
on their investment during 2001.
- Partially offsetting some of the unfavorable gross margin issues, during
1999, ANTEC recognized approximately $2.1 million in previously deferred
gross margin related to intercompany profit in inventory pertaining to
sales of ANTEC'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. 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 intended
to generate profits and the termination of the contracts and the
dissolution of this venture did not have any material adverse effect on
ANTEC or its product sales to AT&T.
Selling, General, Administrative and Development ("SGA&D") Expenses. SGA&D
expenses in 2000 were $134.0 million as compared to $111.9 million in 1999. As a
percentage of sales, SGA&D was 13.4% in 2000 as compared with 13.2% in 1999.
Research and development expenses related to new product development and
introductions accounted for approximately $6.9 million of the year-over-year
increase. Selling expenses accounted for approximately $12.6 million of the
year-over-year expense increase as resources were added in support of the top
line growth. General and administrative costs accounted for the remaining
expense increase. These additional costs were somewhat offset by the reversal of
approximately $1.8 million in over-accrued expenses made early in 1999 due to
changes in estimated bonuses and a reduction in self-insurance reserves from
year end 1998. SGA&D expenses are expected to maintain a quarterly level between
$33.0 million and $35.0 million for 2001, which is reflective of the levels
achieved during 2000.
It should be noted that the 2000 results include a one-time pre-tax gain of
$2.1 million realized as a result of employee elections associated with a new
and enhanced benefit plan and the resultant effect on ANTEC's defined benefit
pension plan. Additionally, approximately $0.7 million has been charged to
expense during 2000 incurred in connection with the New Jersey facility closure.
(See Note 5 of the Notes to the Consolidated Financial Statements.)
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, ANTEC recorded a
pre-tax 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. ANTEC offered terminated
employees separation amounts in accordance with ANTEC's severance policy and
provided the employees with specific separation dates. In connection with
customer demand shifting to ANTEC's newer product offerings, such as the new
Total System Power ("TSP") and the Scaleable and Micro Node products, ANTEC
discontinued certain older product lines that were not consistent with ANTEC's
focus on two-way, high-speed Internet, voice and video communications equipment.
This discontinuance affected the uninterruptible common ferroresonant and
security lock powering products and included the narrowing of ANTEC's RF and
optical products.
During the second quarter of 2000, ANTEC further evaluated its powering and
RF products and recorded an additional pre-tax charge of $3.5 million to cost of
goods sold, bringing the total reorganization related charge to $19.5 million.
In addition to the charges totaling $19.5 million, ANTEC anticipated that
approximately $1.6 million of relocation and fixed asset depreciation expenses
would be incurred in connection with the New Jersey facility closure, of which
approximately $0.7 million had been recognized as of December 31, 2000. As of
December 31, 2000, $0.9 million related to personnel costs, $2.2 million related
to RF product warranties and approximately $1.2 million related to lease
termination and other facility shutdown
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expenses remained to be paid. ANTEC anticipates the majority of the personnel
costs remaining will be expended during the first quarter of 2001 and that the
remaining lease termination and facility shutdown charges will be expended
during the first half of 2001. (See Note 5 of the Notes to the Consolidated
Financial Statements.)
Interest Expense. Interest expense for 2000 was approximately $11.1
million as compared to $12.4 million in 1999. Both years reflect the cost of
borrowings on ANTEC's revolving line of credit as well as interest on $115.0
million of 4.5% Convertible Subordinated Notes issued during 1998. As of
December 31, 2000, ANTEC had approximately $89.0 million of floating debt
outstanding under its Credit Facility. The average annual interest rate on these
outstanding borrowings was approximately 8.117% at December 31, 2000 with an
overall blended rate of approximately 6.1% when considering the subordinated
debt. This compares to approximately $68.5 million outstanding under its Credit
Facility with an average annual interest rate of approximately 7.615% at
December 31, 1999 with an overall blended rate of approximately 5.7% including
the subordinated debt.
Other Income and Expenses, net. 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 the
transaction, a channel fee of 15% was earned by ANTEC for sales of LANcity
products sold in the first quarter of 1999. In addition, in connection with
Nortel's contribution of LANcity to Arris, the Company recorded approximately
$2.5 million of transaction related expenses.
Income Tax Expense. Income tax expense for the year ended December 31,
2000 was approximately $14.3 million as compared to 1999 income tax expense of
$13.8 million due to the increase in pre-tax earnings for 2000 as compared to
1999. During 1999, ANTEC shifted its focus towards a more aggressive tax savings
and planning strategy. In line with this strategy, ANTEC was able to record
benefits from filing amended foreign sales corporation ("FSC") returns as well
as research and development ("R&D") credits from previous years. During 2000,
with this tax strategy in place, ANTEC was able to reduce its effective tax rate
from that of prior years.
Net Income. Net income in 2000 was $20.7 million as compared to a net
income of $16.7 million recorded in 1999. The results for 2000 included a $2.1
million pre-tax pension curtailment gain, an additional $3.5 million pre-tax
charge to cost of goods sold related to the reorganizational charge taken in the
fourth quarter of 1999, as well as several mark-to-market adjustments on
investments which netted to a pre-tax loss of $0.8 million. Included in the 1999
results was the fourth quarter pre-tax restructuring charge of approximately
$16.0 million. (See Financial Liquidity and Capital Resources.)
Eliminating the gain transaction and the respective charges for 2000 and
1999, as identified above, net income for the year ended December 31, 2000 was
approximately $22.9 million or $0.58 per diluted share as compared to 1999
results of approximately $29.6 million or $0.76 per diluted share.
COMPARISON OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Net Sales. ANTEC's revenue for 1999 increased by 54.5% to $844.8 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 MSOs, as they rebuilt
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 $237.4 million in 1999, an increase of more
than 665%. Cornerstone's growth focused on the strength of host digital terminal
sales. The HDT product provides an interface between the 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
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
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these data products amounted to approximately $38.2 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 host digital
terminal and AT&T purchased licenses equivalent to the number of HDTs they
purchased during 1999. Effective January 1, 2000 the price of the software was
packaged with the sale of the device.
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 $91.6 million:
- Optical and broadband transmission product revenues increased
approximately 31.8% to $245.0 million for the year ended December 31,
1999 as compared to $185.9 million for 1998. This growth was across all
product lines within this area, particularly the optronics and node
products.
- Outside plant and powering product revenues increased approximately 19.4%
to $143.6 million for the year ended December 31, 1999 as compared to
$120.3 million for 1998. Sales of Monarch brand products, including drop,
aerial, ground and underground products, led the year over year increase
within this product offering followed by increased sales of network
interface devices.
- Supplies and services revenue increased approximately 5.7% to $219.6
million for the year ended December 31, 1999 as compared to $207.8
million for 1998. Sales of fiber optic cable and installation tools drove
this increase.
Sales to ANTEC's largest customer, AT&T, reached approximately $355.0
million during 1999, or approximately 42.0% of the annual volume as compared to
1998 when sales to AT&T were $142.7 million or 26.1% of the volume for the year.
This marked a $212.3 million increase in revenue from AT&T; an increase of
approximately 149% for the year ended December 31, 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 6.4 percentage
points to 19.5% versus 25.9% for the prior year. This decrease is attributable
to a number of factors, including:
- Cost of sales for 1999 included a $10.4 million charge related to the
elimination of certain product lines and the resulting inventory
obsolescence charge. The Company discontinued 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
affected the uninterruptible common ferroresonant and security lock
powering products and included a narrowing of the Company's radio
frequency 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 mini-bridgers 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 uninterruptible common ferroresonant and security lock power
supplies and limited bandwidth, RF and Optical products to the newer
products. This caused temporary part shortages on buy components and
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resulted in higher than planned unabsorbed overhead, material costs and
factory inefficiencies, which negatively impacted margins.
- Gross margins were also adversely impacted by the cost of resolving field
reliability issues for customers that had purchased products previously
designed and sold by acquired companies. The Company believes these
reliability issues have been 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.
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 13.2% 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 changes 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 pre-tax 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, was an inventory obsolescence charge totaling approximately $10.4
million, which was 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 discontinued certain older
product lines that were not consistent with ANTEC's focus on two-way, high-speed
Internet, voice and video communications equipment. This discontinuance affected
the uninterruptible common ferroresonant and security lock powering products and
included the narrowing of the Company's radio frequency and optical products. It
was 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, would be
recognized and expensed during 2000. These steps were 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, the remaining costs related to the New Jersey facility were shifted 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
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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.)
Interest Expense. Interest expense for 1999 was approximately $12.4
million as compared to $9.3 million in 1998. This increase primarily related to
the full year impact of the issuance of $115.0 million of 4.5% 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 included 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 included 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. In addition, in connection with
Nortel's contribution of LANcity to Arris, the Company recorded approximately
$2.5 million of transaction related expenses.
Income Tax Expense. Income tax expense for the year ended December 31,
1999 was approximately $13.8 million as compared to the 1998 income tax expense
of $7.9 million due to the increase in pre-tax earnings for 1999 as compared to
1998. Additionally, during 1999, the Company shifted its focus towards a more
aggressive tax savings and planning strategy. In line with this strategy, the
Company was able to record benefits from filing amended foreign sales
corporation ("FSC") returns as well as research and development ("R&D") credits
from previous years.
Net Income. Net income in 1999 was $16.7 million as compared to a net
income of $5.8 million recorded in 1998. The results for 1999 included 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 respective charges for 1999 and 1998, net income for the
year ended December 31, 1999 was approximately $29.6 million or $0.76 per
diluted share as compared to the 1998 results of approximately $11.3 million or
$0.29 per diluted share. Stripping away these factors, net income increased
primarily as a result of the dramatic revenue growth during 1999.
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
Financing
In 1998, ANTEC 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 ANTEC's Common Stock at a conversion price of $24.00 per
share. The Notes are redeemable, in whole or in part, at ANTEC'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 deposit 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.)
The Company is party to a secured four-year credit facility expiring in May
2002 ("Credit Facility"). The Credit Facility permits ANTEC to borrow, on a
revolving basis, an amount contingent upon the level of
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certain eligible assets. The Credit Facility provides for various interest rate
alternatives. The commitment fee on unused borrowings is approximately 0.2%. The
Credit Facility contains various restrictions and covenants, including limits on
payments to stockholders, interest coverage, and net worth tests. In April 1999,
ANTEC amended the Credit Facility to increase the maximum borrowing from $85.0
million to $120.0 million. The Credit Facility also was amended to increase the
assets eligible for borrowings to be advanced against.
As of December 31, 2000, ANTEC had approximately $89.0 million outstanding
under its Credit Facility and $31.0 million of available borrowings. ANTEC is in
compliance with all covenants related to the Credit Facility. The commitment fee
on unused borrowings is approximately 0.2%. The average annual interest rate on
these outstanding borrowings was approximately 8.117% at December 31, 2000 as
compared to 7.615% at December 31, 1999.
In connection with the proposed acquisition of Arris by ANTEC, ANTEC is in
the process of negotiating a new credit facility. This facility is intended to
provide ANTEC with sufficient capacity to fund the combined operations of ANTEC
and Arris going forward. As a result of recent developments in industry and
financial market conditions, ANTEC has not yet been able to obtain a commitment
letter with respect to this credit facility, and there can be no assurances that
it will be able to obtain the desired credit facility. If it is not able to
obtain a new credit facility, ANTEC will not be able to acquire Arris under the
current terms and conditions of the proposed transaction.
Interest Rates
As of December 31, 2000, ANTEC had approximately $89.0 million in floating
rate indebtedness. As of December 31, 2000, the average interest rate on its
outstanding line of credit borrowings was 8.117% with an overall blended rate of
6.08% when considering the subordinated debt. At December 31, 2000, ANTEC did
not have any outstanding interest rate swap agreements.
Foreign Currency
A significant portion of ANTEC's products are manufactured or assembled in
Mexico and other countries outside the United States. ANTEC'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 ANTEC's
international sales have been denominated in U.S. dollars, ANTEC's business
could be adversely affected if relevant currencies fluctuate relative to the
United States dollar.
Financial Instruments
In the ordinary course of business, ANTEC, from time to time, will enter
into financing arrangements with customers. These financial instruments include
letters of credit, commitments to extend credit and guarantees of debt. These
agreements could include the granting of extended payment terms that result in a
longer collection period for accounts receivable and slower cash inflows from
operations and/or could result in the deferral of revenue.
Investments
In the ordinary course of business, ANTEC may make strategic investments in
the equity securities of various companies, both public and private. As of
December 31, 2000, approximately 31% of the Company's investments were in
marketable securities, resulting in net realized and unrealized losses of
approximately $0.8 million. Although the Company's future earnings and
investment yields, as well as its liquidity and capital resources will be
impacted by fluctuations in the market values of these investments,
historically, the net effect of the market fluctuations have not been
significant.
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The remaining 69% of the Company's investments at December 31, 2000 consist
of securities that are not traded actively in a liquid market. Due to the nature
of these investments, the Company is subject to the earnings and liquidity risks
of the investees. (See Notes 2, 3 and 11 of the Notes to the Consolidated
Financial Statements.)
Liquidity Table
YEAR ENDED DECEMBER 31,
--------------------------
2000 1999 1998
------ ------ ------
(DOLLARS IN THOUSANDS)
Working capital.......................................... $305.9 $255.0 $200.2
Current ratio............................................ 2.7 2.2 3.0
Cash provided by (used in) operations.................... $ 4.7 $ (4.3) $(28.7)
Proceeds from issuance of common stock................... $ 5.5 $ 21.3 $ 8.8
Capital expenditures..................................... $ 15.5 $ 20.8 $ 16.8
A/R collection period (days)............................. 66.7 70.9 70.7
Inventory turnover....................................... 3.6 3.5 3.0
Capital Expenditures
Capital expenditures are made at a level designed to support the strategic
and operating needs of the business. ANTEC's capital expenditures were $15.5
million in 2000 as compared to $20.8 million in 1999 and $16.8 million in 1998.
ANTEC had no significant commitments for capital expenditures at December 31,
2000. Management expects to invest approximately $15.0 million in capital
expenditures for the year 2001.
Cash Flow
Cash levels increased by approximately $5.8 million during 2000 as compared
to decreases of approximately $1.5 million and $2.8 million during 1999 and
1998, respectively. As discussed in more detail below, operating activities in
2000 provided approximately $4.7 million in positive cash flow while investing
activities used approximately $23.7 million and financing activities provided
approximately $24.8 million in positive cash flow. During 1999, net cash used in
operating activities was $4.3 million. This use of cash was primarily resultant
of net income of $16.7 million being offset by increases in accounts receivable
and inventory levels in support of the Company's 1999 growth and an increase in
other, net, which used $14.8 million. These operating cash outlays in 1999 were
somewhat offset by non-cash activities which provided $23.2 million and an
increase in accounts payable and accrued liabilities, which provided
approximately $114.1 million in positive cash flow during the year. ANTEC spent
$20.8 million in capital expenditures during 1999. These cash outlays during
1999 were partially offset by positive cash flows of $23.6 million provided
through financing activities. Cash used by operating activities during 1998 was
$28.7 million primarily driven by increases in accounts receivable and
inventories from the low levels at year end 1997, which were partially offset by
increases in accounts payable and accrued liabilities. Investment activity in
1998 consumed $23.0 million. These 1998 outlays were partially offset by $48.9
million of positive cash flow from financing activities.
Operating activities provided cash of $4.7 million during 2000. Net income
provided $20.7 million in positive cash flow during 2000. Non-cash items such as
depreciation, amortization, deferred income taxes, provisions for doubtful
accounts and losses on marketable securities accounted for positive cash flow of
approximately $22.5 million in 2000. Additionally, a decrease in accounts
receivable provided $36.0 million of positive cash flow during 2000 while an
increase in inventory utilized cash of approximately $48.5 million. The increase
in other, net, which utilized approximately $4.4 million in cash, relates to
several factors including an increase in royalty receivables based on current
year sales. A decrease in accounts payable and accrued liabilities used
approximately $21.6 million through December 31, 2000.
Days sales outstanding ("DSO") was approximately 67 days at December 31,
2000 as compared to 71 days outstanding at year end 1999. The fourth quarter of
2000 experienced a drop in receivable levels, primarily due to the low revenue
levels recorded during the fourth quarter, which dropped the 2000 DSO
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below the range of 1999. Fourth quarter 2000 sales were adversely affected by
the decline in customers' capital spending during that period. December 1999
sales included approximately $28.7 million in revenue pertaining to RF
Concentration software licensing related to AT&T. Approximately $16.1 million in
receivables was collected during the first week of January 2001 as compared to
$21.9 million collected during the first week of January 2000.
Current inventory levels increased by $48.5 million, as compared to
December 31, 1999. This rise in inventory is comprised of approximately $4.9
million in raw material and approximately $47.9 million in finished goods,
offset by the $3.5 million inventory write-off as previously discussed and by a
$0.8 million decrease in work in process. This inventory increase is reflective
of the abrupt slow down in ANTEC's business late in 2000. During the fourth
quarter AT&T announced that it would delay equipment shipments until later in
2001. Changes in both the financial markets in general and in the telecom
equipment market specifically, created a slow down in capital spending by
ANTEC's customers late in 2000. With these events unfolding during the fourth
quarter, ANTEC was unable to effect any significant change in its inventory
levels. ANTEC was unable to alter contractual purchasing obligations for some
products, which also contributed to this inventory growth. Although sales growth
is expected to resume during 2001, significant improvement is not expected until
at least the second half of the year. Despite this increase in inventory levels,
inventory turns improved slightly to 3.6 times in 2000 as compared to 3.5 times
recorded in 1999 and 3.0 times recorded in 1998.
A decrease in accounts payable and accrued liabilities utilized $21.6
million in cash during 2000. This decrease in the level of payables and accrued
expenses is reflective of the decline in product demand volumes during the
fourth quarter of 2000 and the subsequent slow down of purchasing levels.
Cash flows used by investing activities were approximately $23.7 million
for 2000 as compared to $20.8 million and $23.0 million used during 1999 and
1998, respectively. The investments made during 2000 included $15.5 million to
purchase capital assets and an additional $8.3 million added to its strategic
business investments. The $20.8 million in 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 ANTEC's joint ventures.
Cash flows provided by financing activities were $24.8 million for 2000 as
compared to positive cash flows of $23.6 million in 1999 and $48.9 million in
1998. All periods presented reflect their respective trends in operating and
investing activities. The results for 2000 were affected by the exercise of
stock options that provided a positive cash flow of approximately $5.5 million
as compared to providing $21.3 million in 1999 and providing $8.8 million in
1998. Net borrowings under ANTEC's credit facility provided approximately $20.5
million during 2000 while providing approximately $2.5 million in 1999. Net
reductions in debt levels used approximately $6.3 million during 1998. The most
significant financing activity occurred during 1998 resulting from the impact of
the issuance of $115.0 million of 4.5% convertible subordinated 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, ANTEC expects that sufficient cash
flow will be generated from operations so that, combined with other financing
alternatives available, including bank credit facilities, the Company will be
able to meet all of its current debt service, capital expenditure and working
capital requirements. Currently, ANTEC is negotiating a commitment for a new
credit facility that will replace the Company's current $120 million credit
facility. The need for the new credit facility was facilitated by ANTEC's
proposed acquisition of Nortel Network's ownership interest in Arris Interactive
L.L.C. and the ability to sufficiently fund the working capital needs of the
combined entity at the close of the proposed transaction.
Net Operating Loss Carryforwards
As of December 31, 2000, ANTEC had net operating loss ("NOL") carryforwards
for domestic and foreign income tax purposes of approximately $8.8 million and
$6.9 million, respectively. The Company established a valuation allowance in
accordance with the provisions of SFAS No. 109, Accounting for Income
25
27
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, 2000, the
valuation allowance on deferred tax assets was approximately $2.4 million.
The availability of tax benefits of NOL carryforwards to reduce ANTEC'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 ANTEC's foreign income tax liability is subject to the various tax
provisions of the respective countries.
As of December 31, 2000, tax benefits arising from NOL carryforwards of
approximately $2.4 million originating prior to TSX's quasi-reorganization would
be credited directly to additional paid-in capital if and when realized.
Year 2000 Disclosure
ANTEC transitioned through January 1, 2000 and experienced no significant
date related processing issues. ANTEC does not anticipate incurring any material
direct costs related to the Year 2000 Issue going forward. As of December 31,
2000, ANTEC 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. ANTEC
will continue to monitor its mission critical computer applications and those of
its suppliers and vendors throughout 2001 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's
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. These and any other statements in this document that are not
statements about historical facts are "forward-looking statements." 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. Important factors that
could cause results or events to differ from current expectations are described
in the risk factors 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, ANTEC is not undertaking any obligation to update
publicly or otherwise these statements, whether as a result of new information,
future events or otherwise.
RISK FACTORS
ANTEC'S BUSINESS HAS COME FROM TWO KEY CUSTOMERS. THE LOSS OF ONE OR BOTH OF
THESE CUSTOMERS OR A SIGNIFICANT REDUCTION IN SERVICES TO ONE OR BOTH OF THESE
CUSTOMERS WOULD HAVE A MATERIAL ADVERSE EFFECT ON ANTEC'S BUSINESS.
ANTEC's two largest customers are AT&T and Cox Communications. For the
twelve months ended December 31, 2000, sales to AT&T (including sales to
MediaOne Communications, which was acquired by AT&T during 2000) accounted for
approximately 43.2% of ANTEC's total sales, while Cox Communications accounted
for approximately 11.8%. Other then Adelphia Communications Corp., which
accounted for 5% of ANTEC's total revenues for 2000, no other customer provided
more than 5% of ANTEC's total sales for the year. ANTEC currently is the
exclusive provider of telephony products for both AT&T and Cox Communications in
eight metro areas. Although ANTEC's relationships with AT&T and Cox
Communications are
26
28
expected to continue, the loss of one or both of these customers, or a
significant reduction in services provided to one or both of them, would have a
material adverse impact on ANTEC.
On November 24, 2000, AT&T Broadband, a unit of AT&T Corporation, announced
that it would not accept or pay for product shipments that it had previously
ordered until mid-January 2001. On the trading day following the AT&T Broadband
announcement, ANTEC's stock price fell $2.36 per share, or 21%, from its
previous closing price per share as indicated by the Nasdaq National Stock
Market System. The delayed shipments had a material adverse effect on ANTEC's
revenue and earnings in the fourth quarter of 2000. ANTEC anticipates overall
sales to AT&T in 2001 will be reduced from the sales level achieved in 2000.
In addition, on October 25, 2000, AT&T announced that it will voluntarily
break itself up into four separate publicly traded companies that will bundle
each other's services through inter-company agreements. The immediate
consequences, if any, to ANTEC, regarding product orders from AT&T, as a result
of this split-up are not yet determinable. It is possible that the AT&T break-up
will have a future material adverse effect on ANTEC's business. Circumstances
significantly altering the relationship between ANTEC and AT&T or Cox
Communications may arise in the future.
ANTEC'S BUSINESS IS DEPENDENT ON CUSTOMERS' CAPITAL SPENDING ON BROADBAND
COMMUNICATION SYSTEMS, AND REDUCTIONS BY CUSTOMERS IN CAPITAL SPENDING COULD
ADVERSELY AFFECT ANTEC'S BUSINESS.
ANTEC's performance has been largely dependent on customers' capital
spending for constructing, rebuilding, maintaining or upgrading broadband
communications systems. Capital spending in the telecommunications industry is
cyclical. A variety of factors will affect the amount of capital spending, and
therefore, ANTEC's sales and profits, including:
- general economic conditions,
- availability and cost of capital,
- other demands on and opportunities for capital,
- regulations,
- demands for network services,
- competition and technology, and
- real or perceived trends or uncertainties in these factors.
THE MARKETS IN WHICH ANTEC OPERATES ARE INTENSELY COMPETITIVE, AND COMPETITIVE
PRESSURES MAY ADVERSELY AFFECT ANTEC'S RESULTS OF OPERATIONS.
The markets for broadband communication systems are extremely competitive
and dynamic, requiring the companies that compete in these markets to react
quickly and capitalize on change. This will require ANTEC to retain skilled and
experienced personnel as well as deploy substantial resources toward meeting the
ever-changing demands of the industry. ANTEC competes with national and
international manufacturers, distributors and wholesales, including many
companies larger than ANTEC. ANTEC's major competitors include:
- ADC Telecommunications, Inc.,
- C-COR.net Corporation,
- General Instrument Corporation, now a part of Motorola, Inc.,
- Harmonic Inc.,
- Philips, and
- Scientific-Atlanta, Inc.
27
29
The rapid technological changes occurring in the broadband markets may lead
to the entry of new competitors, including those with substantially greater
resources than ANTEC. Since the markets in which the Company competes are
characterized by rapid growth and, in some cases, low barriers to entry, smaller
niche market companies and start-up ventures also may become principal
competitors in the future. Actions by existing competitors and the entry of new
competitors may have an adverse effect on ANTEC's sales and profitability. The
broadband communications industry is further characterized by rapid
technological change. In the future, technological advances could lead to the
obsolescence of some of ANTEC's current products, which could have a material
adverse effect on ANTEC's business.
Further, many of ANTEC's larger competitors are in a better position to
withstand any significant reduction in capital spending by customers in these
markets. They often have broader product lines and market focus and therefore
will not be as susceptible to downturns in a particular market. In addition,
several of ANTEC's competitors have been in operation longer than ANTEC and
therefore have more long-standing and established relationships with domestic
and foreign broadband service users. ANTEC may not be able to compete
successfully in the future, and competition may harm ANTEC's business.
PRODUCTS CURRENTLY UNDER DEVELOPMENT MAY FAIL TO REALIZE ANTICIPATED BENEFITS.
Rapidly changing technologies, evolving industry standards, frequent new
product introductions and relatively short product life cycles characterize the
markets for ANTEC's products. The technology applications currently under
development by ANTEC may not be successfully developed. Even if the
developmental products are successfully developed, they may not be widely used
or ANTEC may not be able to successfully exploit these technology applications.
To compete successfully, ANTEC must quickly design, develop, manufacture and
sell new or enhanced products that provide increasingly higher levels of
performance and reliability. However, ANTEC may not be able to successfully
develop or introduce these products if its products:
- are not cost effective;
- are not brought to market in a timely manner; or
- fail to achieve market acceptance.
Furthermore, ANTEC's competitors may develop similar or alternative new
technology solutions and applications that, if successful, could have a material
adverse effect on ANTEC. ANTEC's strategic alliances are based on business
relationships that have not been 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 progress
of new products under development with that partner.
CONSOLIDATIONS IN THE TELECOMMUNICATIONS INDUSTRY COULD RESULT IN DELAYS OR
REDUCTIONS IN PURCHASES OF PRODUCTS, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT
ON ANTEC'S BUSINESS.
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 businesses that have merged
or will merge in the future. Consolidations could result in delays in purchasing
decisions by merged businesses, with ANTEC 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
ANTEC's business.
Mergers among the supplier base also have increased, and this trend may
continue. The larger combined companies with pooled capital resources may be
able to provide solution alternatives with which ANTEC would be put at a
disadvantage to compete. The larger breadth of product offerings by these
consolidated suppliers could result in customers electing to trim their supplier
base for the advantages of one-stop shopping solutions for all of its product
needs. These consolidated supplier companies could have a material adverse
effect on ANTEC's business.
28
30
ANTEC'S SUCCESS DEPENDS IN LARGE PART ON ITS ABILITY TO ATTRACT AND RETAIN
QUALIFIED PERSONNEL IN ALL FACETS OF ITS OPERATIONS.
Competition for qualified personnel is intense, and ANTEC may not be
successful in attracting and retaining key executives, marketing, engineering
and sales personnel, which could impact its ability to maintain and grow its
operations. ANTEC's future success will depend, to a significant extent, on the
ability of its management to operate effectively. In the past, competitors and
others have attempted to recruit ANTEC employees and in the future, these
attempts may continue. The loss of services of any key personnel, the inability
to attract and retain qualified personnel in the future or delays in hiring
required personnel, particularly engineers and other technical professionals
could negatively affect ANTEC's business.
ANTEC'S INTERNATIONAL OPERATIONS MAY BE ADVERSELY AFFECTED BY ANY DECLINE IN THE
DEMAND FOR BROADBAND SYSTEMS DESIGNS AND EQUIPMENT IN INTERNATIONAL MARKETS.
Historically, sales of broadband communications equipment into
international markets have been an important part of ANTEC's business, a trend
that ANTEC expects to continue. In addition, United States broadband system
designs and equipment are increasingly being deployed in international markets,
where market penetration is relatively lower than in the United States. While
international operations are expected to comprise an integral part of ANTEC's
future business, there can be no assurances that international markets will
continue to develop or that ANTEC will receive additional contracts to supply
equipment in these markets. ANTEC's international operations may be adversely
affected by changes in the foreign laws or trade in the countries in which it
has manufacturing or assembly plants. A significant portion of ANTEC's products
are manufactured or assembled in Mexico and other countries outside the United
States.
ANTEC's foreign operations are subject to risks inherent in conducting
operations abroad, including risks with respect to:
- currency exchange rates between the United States and Mexico and other
countries in which ANTEC has operations;
- economic and political destabilization;
- restrictive actions and taxation by foreign governments in countries
where ANTEC has operations;
- difficulty in converting earnings to U.S. dollars or moving funds out of
the country in which they were earned;
- longer accounts receivable payment cycles and difficulties in collecting
these accounts receivable in countries where ANTEC has operations;
- nationalization of ANTEC's businesses;
- the laws and policies of the United States affecting trade;
- foreign investment and loans; and
- foreign tax laws.
ANTEC'S PROFITABILITY HAS BEEN, AND MAY CONTINUE TO BE, VOLATILE, WHICH COULD
ADVERSELY AFFECT THE PRICE OF ANTEC'S STOCK.
For the third and fourth quarters of 2000, ANTEC failed to meet the level
of profitability expected by the investment community. Further, ANTEC has
experienced years with significant operating losses. ANTEC has been profitable
during recent years, however ANTEC's business may not be profitable or meet the
level of expectations of the investment community in the future, which could
have a material adverse impact on ANTEC's stock price.
29
31
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion of ANTEC'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. Taking into account the
effects of interest rate changes on the Company's revolving debt facility, a
hypothetical 100 basis point adverse change in interest rates would increase
interest expense by approximately $0.7 million annually. As of December 31,
2000, the Company had no material contracts denominated in foreign currencies.
In the past, ANTEC has used interest rate swap agreements, with large
creditworthy financial institutions, to manage its exposure to interest rate
changes. These swaps would involve the exchange of fixed and variable interest
rate payments without exchanging the notional principal amount. At December 31,
2000 ANTEC did not have any outstanding interest rate swap agreements.
The Company is exposed to foreign currency exchange rate risk as a result
of sales of its products in various foreign countries and manufacturing
operations conducted in Juarez, Mexico. In order to minimize the risks
associated with foreign currency fluctuations, most sales contracts are issued
in U.S. dollars. The Company has previously used foreign currency contracts to
hedge the risks associated from foreign currency fluctuations for significant
sales contracts, however, no significant contracts were in place at December 31,
2000. ANTEC 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.
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 31.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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32
ANTEC CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Ernst & Young LLP, Independent Auditors........... 32
Consolidated Balance Sheets at December 31, 2000 and 1999
(as restated)............................................. 33
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998 (as restated for 2000 and
1999)..................................................... 34
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 (as restated for 2000 and
1999)..................................................... 35
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2000, 1999 and 1998 (as restated
for 2000 and 1999)........................................ 36
Notes to the Consolidated Financial Statements.............. 37
31
33
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, 2000 and 1999 (as restated) and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 2000 (2000 and 1999 as
restated). 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, 2000 and 1999 (as
restated), and the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 2000 (2000 and 1999 as
restated), 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.
The consolidated financial statements as of and for the years ended
December 31, 2000 and December 31, 1999 have been restated as discussed in Note
2.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
February 7, 2001, except for Note 2 paragraph 4,
as to which the date is June 26, 2001
32
34
ANTEC CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
--------------------
2000 1999
-------- --------
(AS RESTATED)
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 8,788 $ 2,971
Accounts receivable (net of allowances for doubtful
accounts of $6,686 in 2000 and $7,505 in 1999)......... 138,537 106,955
Accounts receivable from AT&T............................. 21,662 90,395
Inventories............................................... 263,683 215,216
Income taxes recoverable.................................. 17,895 10,403
Deferred income taxes..................................... 18,928 18,608
Investments held for resale............................... 1,561 --
Other current assets...................................... 19,098 15,989
-------- --------
Total current assets.............................. 490,152 460,537
Property, plant and equipment (net of accumulated
depreciation of $55,443 in 2000 and $43,195 in 1999)...... 53,353 51,406
Goodwill (net of accumulated amortization of $51,559 in 2000
and $46,641 in 1999)...................................... 144,919 149,836
Investments................................................. 12,085 8,468
Deferred income taxes....................................... 6,773 6,905
Other assets................................................ 24,213 23,389
-------- --------
$731,495 $700,541
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $138,774 $153,596
Accrued compensation, benefits and related taxes.......... 17,350 20,539
Other accrued liabilities................................. 28,107 31,402
-------- --------
Total current liabilities......................... 184,231 205,537
Long-term debt.............................................. 204,000 183,500
Deferred income taxes....................................... 1,362 2,166
-------- --------
Total liabilities................................. 389,593 391,203
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, 150.0 million and
75.0 million shares authorized; 38.1 million and 37.6
million shares issued and outstanding in 2000 and 1999,
respectively........................................... 383 378
Capital in excess of par value............................ 266,216 252,245
Retained earnings......................................... 77,569 56,900
Unrealized holding loss on marketable securities.......... (1,668) --
Unearned compensation..................................... (678) (184)
Cumulative translation adjustments........................ 80 (1)
-------- --------
Total stockholders' equity........................ 341,902 309,338
-------- --------
$731,495 $700,541
======== ========
See accompanying notes to the consolidated financial statements.
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35
ANTEC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
2000 1999 1998
------------- ------------- --------
(AS RESTATED) (AS RESTATED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales (includes sales to AT&T of $431.5 million,
$355.0 million and $142.7 million for the years
ended December 31, 2000, 1999, and 1998,
respectively)....................................... $998,730 $844,756 $546,767
Cost of sales......................................... 812,958 679,774 404,999
-------- -------- --------
Gross profit........................................ 185,772 164,982 141,768
Operating expenses:
Selling, general, administrative and development
expenses......................................... 133,988 111,937 105,643
Amortization of goodwill............................ 4,917 4,946 4,910
Restructuring and other charges..................... -- 5,647 9,119
-------- -------- --------
138,905 122,530 119,672
-------- -------- --------
Operating income...................................... 46,867 42,452 22,096
Other expense (income):
Interest expense.................................... 11,053 12,406 9,337
Other (income) expense, net......................... 87 (745) (977)
Loss on marketable securities....................... 773 275 --
-------- -------- --------
Income before income tax expense...................... 34,954 30,516 13,736
Income tax expense.................................... 14,285 13,806 7,911
-------- -------- --------
Net income............................................ $ 20,669 $ 16,710 $ 5,825
======== ======== ========
Net income per common share:
Basic............................................... $ 0.54 $ 0.46 $ 0.16
======== ======== ========
Diluted............................................. $ 0.52 $ 0.43 $ 0.15
======== ======== ========
Weighted average common shares:
Basic............................................... 37,965 36,600 37,195
======== ======== ========
Diluted............................................. 39,571 38,867 38,751
======== ======== ========
See accompanying notes to the consolidated financial statements.
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36
ANTEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-------------------------------------------
2000 1999 1998
------------- ------------- ---------
(AS RESTATED) (AS RESTATED)
(IN THOUSANDS)
Operating activities:
Net income........................................... $ 20,669 $ 16,710 $ 5,825
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization..................... 19,631 17,075 16,163
Provision for doubtful accounts................... 1,117 5,859 1,971
Deferred income taxes............................. 30 (405) (3,310)
Loss on marketable securities..................... 773 275 --
Amortization of unearned compensation............. 950 389 295
Changes in operating assets and liabilities, net
of effects of acquisitions:
Decrease (increase) in accounts receivable...... 36,034 (79,250) (38,130)
(Increase) in inventories....................... (48,467) (64,228) (39,290)
(Decrease) increase in accounts payable and
accrued liabilities.......................... (21,629) 114,106 28,904
(Increase) in other, net........................ (4,386) (14,807) (1,124)
--------- --------- ---------
Net cash provided by (used in) operating activities.... 4,722 (4,276) (28,696)
Investing activities:
Purchases of property, plant and equipment........... (15,498) (20,802) (16,757)
Investments in/advances to joint ventures............ 52 -- (6,800)
Strategic investments................................ (8,250) -- 584
--------- --------- ---------
Net cash (used in) investing activities................ (23,696) (20,802) (22,973)
--------- --------- ---------
Net cash (used) before financing activities............ (18,974) (25,078) (51,669)
Financing activities:
Borrowings under credit facilities................... 352,000 251,500 151,000
Reductions in borrowings under credit facilities..... (331,500) (249,000) (157,339)
Issuance of 4.5% convertible subordinated notes...... -- -- 115,000
Purchase and retirement of common stock.............. -- -- (63,459)
Deferred financing costs paid........................ (1,163) (166) (5,142)
Proceeds from issuance of common stock............... 5,454 21,279 8,801
--------- --------- ---------
Net cash provided by financing activities.............. 24,791 23,613 48,861
Net increase (decrease) in cash and cash equivalents... 5,817 (1,465) (2,808)
Cash and cash equivalents at beginning of year......... 2,971 4,436 7,244
--------- --------- ---------
Cash and cash equivalents at end of year............... $ 8,788 $ 2,971 $ 4,436
========= ========= =========
Supplemental cash flow information:
Interest paid during the year........................ $ 10,966 $ 10,893 $ 7,119
========= ========= =========
Income taxes paid during the year.................... $ 15,286 $ 5,690 $ 9,384
========= ========= =========
See accompanying notes to the consolidated financial statements.
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37
ANTEC CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
UNREALIZED
CAPITAL IN LOSS ON CUMULATIVE
COMMON EXCESS OF RETAINED UNEARNED MARKETABLE TRANSLATION
STOCK PAR VALUE EARNINGS COMPENSATION SECURITIES ADJUSTMENTS TOTAL
------- ---------- -------- ------------ ---------- ----------- --------
(IN THOUSANDS)
Balance, December 31, 1997............... $ 393 $261,081 $34,365 $ (188) $ -- $(54) $295,597
Comprehensive income:
Net income............................. -- -- 5,825 -- -- -- 5,825
Translation adjustment................. -- -- -- -- -- 91 91
--------
Comprehensive income................... 5,916
Shares granted under stock award
plan................................. -- 318 -- (318) -- -- --
Compensation under stock award plan.... -- -- -- 295 -- -- 295
Issuance of common stock and other..... 8 8,793 -- -- -- -- 8,801
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 (211) -- 37 249,567
Comprehensive income:
Net income (as restated)............... -- -- 16,710 -- -- -- 16,710
Translation adjustment................. -- -- -- -- -- (38) (38)
--------
Comprehensive income................... 16,672
Shares granted under stock award
plan................................. -- 362 -- (362) -- -- --
Compensation under stock award plan.... -- -- -- 389 -- -- 389
Issuance of common stock and other..... 20 21,259 -- -- -- -- 21,279
Tax benefit related to exercise of
stock options........................ -- 21,431 -- -- -- -- 21,431
------- -------- ------- ------- ------- ---- --------
Balance, December 31, 1999 (as
restated).............................. 378 252,245 56,900 (184) -- (1) 309,338
Comprehensive income:
Net income (as restated)............... -- -- 20,669 -- -- -- 20,669
Unrealized loss on marketable
securities........................... -- -- -- -- (1,668) -- (1,668)
Translation adjustment................. -- -- -- -- -- 81 81
--------
Comprehensive income................... 19,082
Shares granted under stock award
plan................................. -- 1,444 -- (1,444) -- -- --
Compensation under stock award plan.... -- -- -- 950 -- -- 950
Issuance of common stock and other..... 5 5,449 -- -- -- -- 5,454
Tax benefit related to exercise of
stock options........................ -- 7,078 -- -- -- -- 7,078
------- -------- ------- ------- ------- ---- --------
Balance, December 31, 2000 (as
restated).............................. $ 383 $266,216 $77,569 $ (678) $(1,668) $ 80 $341,902
======= ======== ======= ======= ======= ==== ========
See accompanying notes to the consolidated financial statements.
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38
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. 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.
ANTEC 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 communications 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, 2000, Liberty Media Corporation, which is part of the
Liberty Media Group of AT&T whose financial performance is "tracked" by a
separate class of AT&T stock, 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 (including MediaOne
Communications, which was acquired by AT&T during 2000) aggregating $431.5
million, $355.0 million and $142.7 million for the years ended December 31,
2000, 1999 and 1998, respectively. Giving effect to AT&T's acquisition of
MediaOne Communications, sales to the combined entity aggregated $391.1 million
for 1999 and $149.9 million for 1998. ANTEC had accounts receivable from AT&T of
approximately $21.7 million, $90.4 million and $25.0 million at December 31,
2000, 1999 and 1998, respectively. This drop in accounts receivable during 2000
coincides with AT&T Broadband's announcement on November 24, 2000 that it would
not accept or pay for product shipments that it had previously ordered until
2001.
NOTE 2. LANCITY TRANSACTION AND RESTATEMENT
During the first quarter of 1999, ANTEC and Nortel Networks completed the
combination of the Broadband Technology Division of Nortel Networks, referred to
as 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 25.0% to 18.75% with potential
dilution to 12.5%, while Nortel's interest was increased from 75.0% to 81.25%
with the potential to increase to 87.5%.
In connection with the transaction, as previously disclosed, ANTEC recorded
a one-time, pre-tax, non-cash gain of $60.0 million, net of $2.5 million of
transaction related expenses, based upon an independent valuation of LANcity.
The transaction was accounted for, in effect, as if it were a gain on the sale
of a 12.50% interest in Arris by ANTEC to Nortel in exchange for a 12.50%
interest in LANcity. ANTEC 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 were provided on such
gain.
ANTEC's interest in Arris was subject to further dilution based upon its
performance over the eighteen-month period ended June 30, 2000. At the
expiration of the eighteen-month period, no further dilution of ANTEC's share of
the joint venture occurred, and, based upon the initial independent valuation,
as previously
37
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ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
disclosed, ANTEC recorded an additional one-time, pre-tax, non-cash gain of
$31.25 million to reflect ANTEC's final ownership percentage in the joint
venture of 18.75%.
The Company has restated its consolidated financial statements for the
years ended December 31, 2000 and 1999 by eliminating the gain of $31.25 million
and $62.5 million, respectively, recorded on the LANcity transaction in the
second quarter of the year ended December 31, 2000 and the first quarter of the
year ended December 31, 1999. The gains previously recorded for the years ended
December 31, 2000 and 1999 were based on the fair value of the LANcity assets
contributed to Arris by Nortel. Upon further review, in connection with the
pending acquisition of Nortel's interest in Arris, the Company determined that
Arris accounted for the contribution of LANcity into Arris at historical cost in
a manner similar to a pooling of interests since LANcity and Arris were under
the common control of Nortel. Accordingly, the Company revised its accounting
for the LANcity transaction to be consistent with the accounting by Arris. As
Arris continued to have a deficit in members' equity subsequent to the LANcity
transaction and the Company's accounting for the transaction is predicated on
the accounting by Arris, the Company has eliminated its one-time, pre-tax,
non-cash gain on the LANcity transaction. The effects of the restatement on the
Company's financial statements as of and for the years ending December 31, 2000
and 1999 are as follows (in thousands except for per share amounts):
2000 1999
-------------------------- --------------------------
AS REPORTED AS RESTATED AS REPORTED AS RESTATED
Investments................................. $105,835 $ 12,085 $ 70,968 $ 8,468
Noncurrent deferred income tax assets....... 5,292 6,773 5,918 6,905
Total assets................................ 823,764 731,495 762,054 700,541
Noncurrent deferred income tax
liabilities............................... 36,912 1,362 25,866 2,166
Total liabilities........................... 425,143 388,593 414,903 391,203
Retained earnings........................... 134,288 77,569 94,713 56,900
Total stockholders' equity.................. 398,621 341,902 347,151 309,338
Gain on LANcity transaction................. 31,250 -- 60,000 --
Other expense (income), net................. 87 87 (3,245) (745)
Income before income tax expense............ 66,204 34,954 93,016 30,516
Income tax expense.......................... 26,629 14,285 38,493 13,806
Net income.................................. 39,575 20,669 54,523 16,710
Net income per share -- basic............... $ 1.04 $ 0.54 $ 1.49 $ 0.46
Net income per share -- diluted............. $ 0.98 $ 0.52 $ 1.33 $ 0.43
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Consolidation
The consolidated financial statements include the accounts of ANTEC after
elimination of intercompany transactions.
(b) Use of Estimates
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States 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.
38
40
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year's financial statement presentation.
(d) 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.
(e) 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.
(f) Investments
Prior to March 1999, ANTEC 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%. ANTEC's
interest in Arris was subject to further dilution based upon LANcity's
performance over the eighteen-month period ended June 30, 2000. At the
expiration of the eighteen-month period, no further dilution of ANTEC's share of
the joint venture occurred. Due to this change in ownership percentage,
effective March 31, 1999, ANTEC accounts for this investment under the cost
method. The Company initially recorded one-time, pre-tax, non-cash gains of
$31.25 million and $60.0 million for the years ended December 31, 2000 and 1999,
respectively, based on the fair value of the LANcity assets contributed to
Arris. Upon further review, because Arris accounted for the transaction similar
to a pooling of interests, the Company has revised its financial statements to
record the gain based on the historical value of the LANcity assets. (See Note 2
of the Notes to the Consolidated Financial Statements.)
ANTEC recorded no equity in the net (loss) of Arris for the year ended
December 31, 1998, as ANTEC's investment in Arris was $0. For the quarter ended
March 31, 1999, ANTEC recorded no equity in the net income of Arris as the joint
venture agreement states that all net profits of Arris would be allocated to
Nortel first to the extent of allocations of prior net losses. Subsequent to
March 31, 1999 Arris has been accounted for on the cost method as ANTEC's
interest in Arris was reduced to 18.75%.
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.
Purchases from Arris were approximately $266.6 million, $215.2 million and
$28.3 million for 2000, 1999 and 1998, respectively. ANTEC had accounts payable
to Arris of approximately $80.1 million and $80.0 million, and net accounts
receivable from Arris of $2.7 million and $10.1 million at December 31, 2000 and
1999, respectively. ANTEC also holds a participation in a note receivable from
Arris of approximately $12.4 million and $11.8 million at December 31, 2000 and
1999, 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 $0.8 million and $0.1 million in accrued interest for the years ended
December 31, 2000 and 1999, respectively, net of payments made during the
periods disclosed.
39
41
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company holds a 50% interest in Tanco, L.L.C. ("Tanco"), a joint
venture accounted for under the equity method. Tanco was established to complete
build-outs of cable infrastructures in three cities, primarily for 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 joint venture is moving through the process of dissolution and ANTEC's
investment in Tanco at December 31, 2000 and 1999 was $0. ANTEC's joint venture
partner controlled Tanco and ANTEC's equity in Tanco's income (loss) for
December 31, 2000, 1999 and 1998 was $0.
The Company holds investments in the common stock of Lucent Technologies
and Avaya, Inc. totaling approximately $1.6 million at December 31, 2000, which
are classified as trading securities. Changes in the market value of these
securities are recognized in income and resulted in a net pre-tax gain of
approximately $0.5 million at December 31, 2000.
The Company's remaining investments in marketable securities, totaling
approximately $2.6 million, are classified as available-for-sale. At December
31, 2000 ANTEC had unrealized losses and associated income tax benefits related
to these available-for-sale equity securities of approximately $2.7 million and
$1.0 million, respectively, which were included in other comprehensive income.
Recognized losses on available-for-sale securities the Company considered to be
other-than-temporary totaled approximately $1.3 million for the year ended
December 31, 2000.
During the ordinary course of business, the Company has made strategic
investments in private companies totaling approximately $8.3 million at December
31, 2000. These strategic investments are recorded at cost and are periodically
evaluated for impairment.
(g) Revenue Recognition
ANTEC's revenue recognition policies are in compliance with Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, as
issued by the Securities and Exchange Commission. Sales and related cost of
sales are recognized at the time products are shipped or title passes pursuant
to the terms of the agreement with the customer, the amount due from the
customer is fixed and collectibility of the related receivable is reasonably
assured. Sales of services are recognized at the time of performance. ANTEC
resells software developed by outside third parties. Software sold by ANTEC does
not require significant production, modification or customization. Software
revenue is generally recognized when shipment is made, no significant vendor
obligations remain and collection is considered probable.
ANTEC has, in the ordinary course of business, reached agreements to extend
payment terms with credit-worthy customers or agreements to guarantee the debt
of a customer. In the event payment terms extend beyond one year, the revenue
and accounts receivable related to that agreement are discounted in accordance
with APB No. 21, Interest on Receivables and Payables. The discount on such a
transaction is then amortized over the agreed payment terms and reflected as
interest income rather than as revenue. Transactions accounted for under this
method resulted in a discount of approximately $0.4 million at December 31, 2000
and zero at the end of both 1999 and 1998. Under guarantees of debt, ANTEC
defers the recognition of revenue until the terms of the agreement, such as the
customer's payment under the contract, are satisfied. As of December 31, 2000
and 1999, ANTEC had deferred the recognition of revenue of approximately $2.9
million and $0.0 million, respectively and the related cost of sales for such
agreements.
(h) Depreciation of Property, Plant and Equipment
The Company provides for depreciation of property, 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
40
42
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
machinery and equipment, and the term of the lease for leasehold improvements.
Depreciation expense for the three years ended December 31, 2000, 1999 and 1998
was approximately $13.6 million, $11.0 million and $11.3 million, respectively.
(i) 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 ANTEC, 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 ANTEC's proportionate share of total operating earnings of Anixter for
the period subsequent to the acquisition by Anixter International. ANTEC
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.
(j) Advertising and Sales Promotion
Advertising and sales promotion costs are expensed as incurred. Advertising
expense was approximately $3.3 million, $2.8 million and $2.1 million for the
years ended December 31, 2000, 1999 and 1998, respectively.
(k) Research and Development
Research and development ("R&D") costs are expensed as incurred. ANTEC's
research and development expenditures for the years ended December 31, 2000,
1999 and 1998 were approximately $23.4 million, $16.6 million and $14.4 million,
respectively.
(l) Warranty
ANTEC 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.
(m) Income Taxes
ANTEC 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.
(n) Foreign Currency
The financial position and operating results of ANTEC'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.
41
43
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(o) Stock-Based Compensation
ANTEC 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, ANTEC presents supplemental information disclosing pro
forma net income and net income 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 13 of Notes to
the Consolidated Financial Statements.)
(p) Interest Rate Agreements
As of December 31, 2000, the Company had approximately $89.0 million in
floating rate indebtedness and had no outstanding interest rate swap agreements
at that time.
(q) Concentrations of Credit
Financial instruments that potentially subject ANTEC to concentrations of
credit risk consist principally of temporary cash investments and accounts
receivable. ANTEC 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. ANTEC closely
monitors extensions of credit to other parties and, where necessary, utilizes
common financial instruments to mitigate risk or requires cash on delivery
terms. Overall financial strategies and the effect of using a hedge are reviewed
periodically.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
- Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
- Accounts receivable and accounts payable: The carrying amounts reported
in the balance sheet for accounts receivable and accounts payable
approximate their fair value.
- Marketable securities: The fair values for trading and available-for-sale
equity securities are based on quoted market prices.
- Long-and short-term debt: The carrying amounts of the Company's
borrowings under its short-term revolving credit arrangements approximate
their fair value. The fair value of the Company's long-term debt is based
on its quoted market price and totaled approximately $62.1 million and
$185.2 million at December 31, 2000 and 1999, respectively.
- Foreign exchange contracts and interest rate swaps: The fair values of
the Company's foreign currency contracts and interest rate swaps are
estimated based on dealer quotes, quoted market prices of comparable
contracts, adjusted through interpolation where necessary maturity
differences or if there are no relevant comparable contracts on pricing
models or formulas using current assumptions. As of December 31, 2000,
the Company's foreign exchange contracts were recorded at their fair
value of approximately $1.6 million. The Company had no interest rate
swap agreements outstanding as of December 31, 2000.
42
44
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(r) Accounting for Derivative Instruments
ANTEC uses various derivative financial instruments, including foreign
exchange contracts, and in the past, interest rate swap agreements to enhance
the Company's ability to manage risk. Derivative instruments are entered into
for periods consistent with related underlying exposures and do not constitute
positions independent of those exposures. ANTEC's derivative financial
instruments are for purposes other than trading. ANTEC's non-derivative
financial instruments include letters of credit, commitments to extend credit
and guarantees of debt. ANTEC generally does not require collateral to support
its financial instruments.
It is the Company's policy to recognize all derivative financial
instruments, such as interest rate swap contracts and foreign exchange
contracts, in the consolidated financial statements at fair value regardless of
the purpose or intent for holding the instrument. Changes in the fair value of
derivative financial instruments are either recognized periodically in income or
in shareholders' equity as a component of comprehensive income depending on
whether the derivative financial instrument qualifies for hedge accounting, and
if so, whether it qualifies as a fair value hedge or cash flow hedge. Generally,
changes in fair values of derivatives accounted for as fair value hedges are
recorded in income along with the portions of the changes in the fair values of
the hedged items that relate to the hedged risk(s). Changes in fair values of
derivatives accounted for as cash flow hedges, to the extent they are effective
as hedges, are recorded in comprehensive income net of deferred taxes. Changes
in fair values of derivatives not qualifying as hedges are reported in income.
NOTE 4. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In 2000, the Emerging Issues Task Force reached a consensus on EITF No.
00-10, Accounting for Shipping and Handling Fees and Costs ("EITF 00-10") that
states all amounts billed to a customer in a sale transaction related to
shipping and handling represent revenues earned for the goods provided and
should be classified as revenue. Historically, ANTEC has not included amounts
billed to customers for shipping and handling as revenues. These amounts were
not previously recorded as revenue and the related costs as cost of sales
because they were netted as pass-through expenses, reimbursed in total by the
Company's customers. Charges for shipping and handling billed to customers in
1998 are not readily available or separately maintained, making it impracticable
to reclassify these financial statements. For the years ended December 31, 2000
and 1999, shipping and handling costs, in aggregate, were approximately $20.0
million and $18.2 million for 2000 and 1999, respectively, and were
appropriately reclassified to net sales and cost of sales.
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.
Effective December 31, 2000, ANTEC adopted FASB Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities, as amended, which requires
that all derivative instruments be reported on the balance sheet at fair value
and establishes criteria for designation and effectiveness of hedging
relationships. There was no material impact on the Company's 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 14 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
43
45
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
components. Adoption of FASB Statement No. 130 had no effect on the Company's
financial position or operating results.
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
pre-tax 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. ANTEC offered terminated
employees separation amounts in accordance with ANTEC's severance policy and
provided the employees with specific separation dates. In connection with
customer demand shifting to ANTEC's newer product offerings, such as the new
Total System Power ("TSP") and the Scaleable and Micro Node products, ANTEC
discontinued certain older product lines that were not consistent with ANTEC's
focus on two-way, high-speed Internet, voice and video communications equipment.
This discontinuance affected the uninterruptible common ferroresonant and
security lock powering products and included the narrowing of ANTEC's radio
frequency and optical products.
During the second quarter of 2000, ANTEC further evaluated its powering and
radio frequency products and recorded an additional pre-tax charge of $3.5
million to cost of goods sold, bringing the total reorganization related charge
to $19.5 million. In addition to the charges totaling $19.5 million, ANTEC
anticipated that approximately $1.6 million of relocation and fixed asset
depreciation expenses would be incurred in connection with the New Jersey
facility closure, of which approximately $0.7 million has been recognized as of
December 31, 2000. As of December 31, 2000, $0.9 million related to personnel
costs, $2.2 million related to RF product warranties and approximately $1.2
million related to lease termination and other facility shutdown expenses remain
to be paid. ANTEC anticipates the majority of the personnel costs remaining will
be expended at the close of the first quarter of 2001 while the remaining lease
termination and facility shutdown charges will be fully recognized through the
first half of 2001. ANTEC undertook all of these actions to structure itself
into a more efficient organization and to further integrate ANTEC's speed-to-
market philosophy. ANTEC realigned its manufacturing operations located in New
Jersey 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 selling, general,
administrative and development costs, ANTEC has shifted the remaining costs
related to the New Jersey facility to Georgia and the Southwest.
In January 1998, ANTEC announced a consolidation plan implemented
concurrently with the creation of the new organization in Georgia. ANTEC
completed the consolidation of its Rolling Meadows, Illinois corporate and
administrative functions into the Duluth, Georgia or the Englewood, Colorado
locations during 1999. As part of the consolidation, the two principal
facilities located in Georgia were consolidated and some international operating
and administrative functions located in Miami and Chicago were also consolidated
in Georgia. In connection with these consolidations, ANTEC recorded a pre-tax
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, ANTEC reduced this charge 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 and management
information systems activities as well as international operational functions
located in Chicago and Miami. ANTEC offered terminated employees separation
amounts in accordance with
44
46
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ANTEC's severance policy and provided the employees with specific separation
dates. As of December 31, 1999, 139 of the 177 employees had been terminated and
it was determined that 38 employees originally included as part of the 177
employees to be terminated would remain as employees. Additionally, ANTEC's
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 remained. ANTEC expended this remaining balance during
the first quarter of 2000.
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,
--------------------
2000 1999
-------- --------
Raw material........................................... $ 62,458 $ 57,538
Work in process........................................ 9,119 9,938
Finished goods......................................... 192,106 147,740
-------- --------
Total inventories............................ $263,683 $215,216
======== ========
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consisted of the following (in
thousands):
DECEMBER 31,
--------------------
2000 1999
-------- --------
Land................................................... $ 2,549 $ 2,549
Buildings and leasehold improvements................... 15,394 15,485
Machinery and equipment................................ 90,853 76,567
-------- --------
108,796 94,601
Less: Accumulated depreciation......................... (55,443) (43,195)
-------- --------
Total property, plant and equipment, net..... $ 53,353 $ 51,406
======== ========
NOTE 8. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
DECEMBER 31,
--------------------
2000 1999
-------- --------
Revolving Credit Facility.............................. $ 89,000 $ 68,500
4.5% Convertible Subordinated Notes.................... 115,000 115,000
-------- --------
$204,000 $183,500
======== ========
In 1998, ANTEC 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, commencing 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.
45
47
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net proceeds from the Offering were used to repay all outstanding
amounts under ANTEC's existing credit facility, and the remainder of the net
proceeds were invested in government securities, certificates of deposit 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, ANTEC entered into a secured four-year credit facility
("Credit Facility") with a group of banks aggregating $85.0 million. This Credit
Facility permitted ANTEC to borrow, on a revolving basis, an amount contingent
upon the level of certain eligible assets providing for various interest rate
alternatives that were secured by substantially all of ANTEC's assets.
In April 1999, ANTEC 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. The average annual interest rate on borrowings was
approximately 8.12% at December 31, 2000. The commitment fee on unused
borrowings is approximately 0.2%. The Credit Facility contains various
restrictions and covenants, including limits on payments to stockholders,
interest coverage, and net worth tests. As of December 31, 2000, ANTEC had
approximately $31.0 million of available borrowings under the Credit Facility.
Currently, ANTEC is negotiating a commitment for a new credit facility that
will replace the Company's current $120.0 million credit facility. The new
credit is needed because of ANTEC's proposed acquisition of Nortel Network's
ownership interest in Arris Interactive L.L.C. and the need to sufficiently fund
the working capital needs of the combined entity at the close of the proposed
transaction. (See Note 17 of the Notes to the Consolidated Financial
Statements.)
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,
--------------------------------------
2000 1999 1998
---------- ---------- ----------
Convertible subordinated notes................. 4,791,667 4,791,667 4,791,667
Stock options.................................. 7,251,775 4,742,112 6,612,469
Director stock units........................... 40,500 36,900 35,900
Employee stock purchase plan................... 448,298 466,907 11,358
TCI options.................................... 854,341 854,341 854,341
Nortel Networks................................ -- 2,747,252 --
---------- ---------- ----------
Total.......................................... 13,386,581 13,639,179 12,305,735
========== ========== ==========
46
48
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 (in thousands except per share data):
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
2000 1999 1998
------------- ------------- -------
(AS RESTATED) (AS RESTATED)
Basic:
Net income..................................... $20,669 $16,710 $ 5,825
======= ======= =======
Weighted average shares outstanding............ 37,965 36,600 37,195
======= ======= =======
Basic earnings per share....................... $ 0.54 $ 0.46 $ 0.16
======= ======= =======
Diluted:
Net income..................................... $20,669 $16,710 $ 5,825
======= ======= =======
Weighted average shares outstanding............ 37,965 36,600 37,195
Net effect of dilutive securities:
Add: options/warrants, net of tax benefit... 1,606 2,267 1,556
------- ------- -------
Total.......................................... 39,571 38,867 38,751
======= ======= =======
Diluted earnings per share..................... $ 0.52 $ 0.43 $ 0.15
======= ======= =======
Under the treasury stock method of calculating earnings per share, the 4.5%
Convertible Subordinated Notes issued in May 1998, were antidilutive for all
periods presented.
NOTE 11. INCOME TAXES
Income before income taxes consisted of the following (in thousands):
YEARS ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
Domestic (U.S.)....................................... $34,954 $30,516 $13,736
======= ======= =======
Income tax expense (benefit) consisted of the following (in thousands):
YEARS ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
Current -- Federal.................................... $12,496 $11,698 $ 9,268
State...................................... 1,759 2,513 1,953
------- ------- -------
14,255 14,211 11,221
------- ------- -------
Deferred -- Federal................................... 26 (355) (2,661)
State..................................... 4 (50) (649)
------- ------- -------
30 (405) (3,310)
------- ------- -------
$14,285 $13,806 $ 7,911
======= ======= =======
47
49
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,
-------------------------------------------------------
2000 1999 1998
---------------- ---------------- ---------------
Statutory Federal income tax expense
(benefit)........................... $12,234 35.00% $10,681 35.00% $4,807 35.00%
Effects of:
Amortization of goodwill............ 1,531 4.38% 1,531 5.02% 1,531 11.14%
State income taxes, net of Federal
benefit.......................... 745 2.13% 1,032 3.38% 848 6.17%
Meals and entertainment............. 396 1.13% 390 1.28% 361 2.63%
Change in valuation allowance....... (984) (2.81)% 0 0.00% 0 0.00%
Other, net.......................... 363 1.04% 172 0.56% 364 2.65%
------- ----- ------- ----- ------ -----
$14,285 40.87% $13,806 45.24% $7,911 57.59%
======= ===== ======= ===== ====== =====
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 ANTEC's net deferred tax assets (liabilities)
were as follows (in thousands):
DECEMBER 31,
------------------
2000 1999
------- -------
Current deferred tax assets:
Inventory costs........................................ $11,678 $10,293
Merger/restructuring related reserves.................. 3,897 2,777
Other, principally operating expenses.................. 3,353 5,538
------- -------
Total current deferred tax assets.............. 18,928 18,608
Long-term deferred tax assets:
Federal/state net operating loss carryforwards......... 3,076 3,569
Foreign net operating loss carryforwards............... 2,358 2,358
Plant and equipment, depreciation differences.......... 3,697 5,090
------- -------
Total long-term deferred tax assets............ 9,131 11,017
------- -------
Long-term deferred tax liabilities:
Goodwill and other..................................... (1,362) (2,166)
------- -------
Total long-term deferred tax liabilities....... (1,362) (2,166)
Total deferred tax assets................................ 26,697 27,459
Valuation allowance on deferred tax assets............. (2,358) (4,111)
------- -------
Net deferred tax assets........................ $24,339 $23,348
======= =======
As of December 31, 2000, ANTEC has estimated federal and foreign tax loss
carryforwards of $8.8 million and $6.9 million, respectively. The federal and
foreign tax loss carryforwards expire through 2008 and 2005, respectively. As of
December 31, 2000, tax benefits arising from loss carryforwards of approximately
$2.4 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.
ANTEC 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
48
50
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, 2000 expiring as follows (in thousands):
U.S. FOREIGN
EXPIRATION IN CALENDAR YEAR AMOUNT AMOUNT
--------------------------- ------ -------
2001..................................................... $1,099 $ --
2002..................................................... 1,099 --
2003..................................................... -- --
2004..................................................... 501 --
2005..................................................... 1,967 6,935
2006..................................................... -- --
2007..................................................... 2,745 --
2008..................................................... 1,379 --
------ ------
$8,790 $6,935
====== ======
NOTE 12. COMMITMENTS
ANTEC leases office, distribution, and manufacturing facilities as well as
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 4) at
December 31, 2000 were as follows (in thousands):
2001..................................................... $ 5,655
2002..................................................... 4,612
2003..................................................... 3,112
2004..................................................... 2,875
2005..................................................... 2,790
Thereafter............................................... 5,925
-------
Total minimum lease payments............................. $24,969
=======
Total rental expense for all operating leases amounted to approximately
$5.3 million, $7.6 million and $9.5 million for the years ended December 31,
2000, 1999 and 1998, respectively.
NOTE 13. STOCK-BASED COMPENSATION
ANTEC 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. ANTEC 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.
ANTEC grants stock options under its 2000 Stock Incentive Plan, ("2000
SIP"), its 2000 Mid-Level Stock Option Plan ("MIP"), 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
49
51
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, ANTEC presents below supplemental
information disclosing pro forma net income and net income per common share as
if ANTEC had 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 2000 SIP, MIP, SIP, ESIP, DSOP and LTIP for
2000, 1999 and 1998 were as follows: risk-free interest rates of 5.03%, 5.41%
and 5.21%, respectively; a dividend yield of 0%; volatility factor of the
expected market price of ANTEC's common stock of .64, .56 and .54, respectively;
and a weighted average expected life of 5, 7, and 5 years, respectively.
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 ANTEC'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. ANTEC's pro
forma information follows (in thousands, except per share data):
2000 1999 1998
------- ------- ------
Pro forma net income................................... $14,454 $12,766 $3,204
======= ======= ======
Pro forma net income per common share:
Basic................................................ $ 0.38 $ 0.35 $ 0.09
======= ======= ======
Diluted.............................................. $ 0.37 $ 0.33 $ 0.08
======= ======= ======
Compensation expense recognized for pro forma purposes was approximately
$10.4 million, $6.6 million and $4.4 million for 2000, 1999 and 1998,
respectively. FASB Statement No. 123 is applicable only to options granted
subsequent to December 31, 1994.
In 2000, the Board of Directors approved the 2000 SIP to facilitate the
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 2000 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 2,500,000 shares of the
Company's common stock may be issued pursuant to this plan. Options granted
under this plan vest in fourths on the anniversary date of the grant beginning
with the first anniversary and terminate ten years from the date of grant.
In 2000, the Board of Directors approved the 2000 MIP established to
facilitate the retention and continued motivation of key mid-level employees and
to align more closely their interests with those of the Company and its
stockholders. Awards under this plan may be in the form of non-qualified stock
options. A total of 500,000 shares of ANTEC's common stock may be issued
pursuant to this plan. As only mid-level employees of the Company are eligible
to receive grants under this plan, no options under this plan were granted to
officers of ANTEC. No mid-level employee received more than 7,500 options to
purchase shares of the Company's stock under this plan and no option may be
granted under this plan after the date of the 2000
50
52
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
annual meeting of stockholders. Options granted under this plan vest in fourths
on the anniversary date of the grant beginning with the first anniversary and
terminate ten years from the date of grant.
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 issuance 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 ANTEC's stock closed 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 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 vests 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.
No options have been issued pursuant to this plan after 1996.
In connection with ANTEC's acquisition of TSX, each 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.
51
53
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of activity of ANTEC's options granted under its 2000 SIP, MIP,
SIP, ESIP, DSOP, and LTIP is presented below:
2000 1999 1998
--------------------------- ---------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
---------- -------------- ----------- -------------- ----------- --------------
Beginning balance......... 3,940,717 $14.34 5,450,903 $11.55 6,187,250 $11.02
Grants.................... 2,389,017 $21.11 774,500 $23.86 1,006,450 $14.68
Exercises................. (490,337) $10.71 (1,870,357) $10.83 (677,049) $12.05
Terminations.............. (460,003) $30.85 (403,496) $11.07 (1,040,831) $10.93
Expirations............... (667) $15.88 (10,833) $20.48 (24,917) $17.71
---------- ----------- -----------
Ending balance............ 5,378,727 $16.27 3,940,717 $14.34 5,450,903 $11.55
========== =========== ===========
Vested at period end...... 2,261,708 $12.46 965,275 $12.49 1,284,952 $12.54
========== =========== ===========
Weighted average fair
value of options granted
during year............. $ 21.11 $ 14.67 $ 7.84
========== =========== ===========
The following table summarizes information about SIP, ESIP, DSOP, and LTIP
options outstanding at December 31, 2000.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- ------------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/00 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/00 EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
$2.00 20,000 2.25 years $ 2.00 20,000 $ 2.00
$ 5.00 to $ 8.00 1,380,400 9.95 years $ 8.00 1,200 $ 5.00
$ 8.88 to $10.00 910,833 3.33 years $ 8.88 910,833 $ 8.88
$10.50 to $15.88 1,184,926 3.16 years $12.80 930,784 $12.69
$16.60 to $19.75 420,451 3.89 years $17.68 224,141 $18.38
$22.88 to $59.31 1,462,117 8.62 years $31.27 174,750 $23.57
--------- ---------
$ 2.00 to $59.31 5,378,727 6.47 years $16.27 2,261,708 $12.46
========= =========
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, 2000, 1999, and 1998. Additionally, as of December 31, 2000 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
52
54
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exercise date (currently one year). Under the ESPP, employees of ANTEC purchased
18,709, 44,451 and 47,660 shares of ANTEC common stock in 2000, 1999 and 1998,
respectively. At December 31, 2000, approximately 44,167 shares are subject to
purchase under the ESPP at a price of no more than $24.44 per share.
In 2000, 1999 and 1998, ANTEC 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 December 31, 2000,
1999 and 1998 there were 40,300 units, 36,700 units and 35,900 units issued and
outstanding, respectively.
NOTE 14. EMPLOYEE BENEFIT PLANS
The Company sponsors two non-contributory defined benefit pension plans
that cover the majority of the Company's U.S. employees. As of January 1, 2000,
the Company froze the defined pension plan benefits for 569 participants. These
participants elected to participate in ANTEC's enhanced 401(k) plan. Due to the
cessation of plan accruals for such a large group of participants, a curtailment
was considered to have occurred. As a result of the curtailment, as outlined
under FASB Statement No. 88, Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits, the
Company recorded a $2.1 million pre-tax gain on the curtailment during the first
quarter 2000.
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. ANTEC'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.
2000 1999
------- -------
(IN THOUSANDS)
Change in Benefit Obligation:
Benefit obligation at the beginning of year............ $17,791 $21,357
Service cost........................................... 597 1,629
Interest cost.......................................... 1,143 1,446
Plan amendment......................................... 86 2,347
Actuarial (gain) loss.................................. 1,829 (8,659)
Benefit payments....................................... (259) (329)
Curtailment............................................ (3,336) --
------- -------
Benefit obligation at year end......................... $17,851 $17,791
======= =======
Change in Plan Assets:
Fair value of plan assets at beginning of year......... $11,468 $11,517
Actual return on plan assets........................... 304 281
Company contributions.................................. -- --
Benefits paid from plan assets......................... (259) (330)
------- -------
Fair value of plan assets at year end.................. $11,513 $11,468
======= =======
Funded Status:
Funded status of plan.................................. $(6,338) $(6,323)
Unrecognized actuarial (gain).......................... (1,713) (4,281)
Unrecognized prior service cost........................ 2,108 2,290
------- -------
(Accrued) benefit cost................................. $(5,943) $(8,314)
======= =======
53
55
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The plans' assets consist of corporate and government debt securities and
equity securities. Net periodic pension cost for 2000, 1999 and 1998 for pension
and supplemental benefit plans includes the following components (in thousands):
2000 1999 1998
------- ------ ------
Service cost............................................ $ 597 $1,629 $1,559
Interest cost........................................... 1,143 1,446 1,202
Return on assets (expected)............................. (901) (940) (836)
Recognized net actuarial loss........................... (141) 104 36
Amortization of prior service cost...................... 308 128 7
------- ------ ------
Net periodic pension cost............................... 1,006 2,367 1,968
Additional pension (income) due to curtailment.......... (2,108) -- --
------- ------ ------
Net periodic pension cost............................... $(1,102) $2,367 $1,968
======= ====== ======
The assumptions used in accounting for the Company's defined benefit plans
for the three years presented are set forth below:
2000 1999 1998
---- ---- ----
Assumed discount rate for active participants............... 7.75% 7.5% 6.5%
Assumed discount rate for inactive participants............. 6.5% -- --
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, ANTEC has established defined contribution plans pursuant to
the Internal Revenue Code Section 401(a) that cover all eligible U.S. employees.
ANTEC contributes to these plans based upon the dollar amount of each
participant's contribution. ANTEC made contributions to these plans of
approximately $1.1 million, $0.7 million and $0.7 million in 2000, 1999, and
1998, respectively.
NOTE 15. SALES INFORMATION
As of December 31, 2000, Liberty Media Corporation, which is part of the
Liberty Media Group of AT&T whose financial performance is "tracked" by a
separate class of AT&T stock, 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 (including MediaOne
Communications, which was acquired by AT&T during 2000) aggregating $431.5
million, $355.0 million and $142.7 million for the years ended December 31,
2000, 1999 and 1998, respectively. Giving effect to AT&T's acquisition of
MediaOne Communications, sales to the combined entity aggregated $391.1 million
for 1999 and $149.9 million for 1998.
ANTEC operates globally and offers products and services that are sold to
cable system operators and telecommunications providers. ANTEC's products and
services are focused in four general product categories: optical and broadband
transmission, cable telephony and Internet access, outside plant and powering,
and
54
56
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
supplies and services. Consolidated revenues by principal products and services
for the years ended December 31, 2000, 1999 and 1998, respectively were as
follows (in thousands):
OPTICAL AND CABLE TELEPHONY AND OUTSIDE PLANT AND SUPPLIES AND
BROADBAND TRANSMISSION INTERNET ACCESS POWERING SERVICES TOTAL
---------------------- ------------------- ----------------- ------------ --------
Annual sales:
December 31, 2000...... $259,670 $309,606 $169,784 $259,670 $998,730
December 31, 1999...... $244,979 $236,532 $143,609 $219,636 $844,756
December 31, 1998...... $185,901 $ 32,806 $120,289 $207,771 $546,767
Export sales accounted for approximately 5.7%, 4.0% and 6.0% of total sales
for the years ended December 31, 2000, 1999 and 1998, respectively. Sales to
international customers (including export sales) were approximately 8.7%, 6.4%
and 11.4% of total sales for the years ended December 31, 2000, 1999 and 1998,
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, China, Hong Kong, India,
Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Sampan, Singapore,
Taiwan, and Thailand. The European market includes France, Ireland, Italy,
Portugal, Spain and the United Kingdom. International sales for the three years
ended December 31, 2000, 1999 and 1998 are as follows:
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
------------ ------------ ------------
(IN THOUSANDS)
International region
Asia Pacific................................ $15,789 $12,445 $24,691
Europe...................................... 37,126 19,035 12,020
Latin America............................... 29,803 19,545 24,233
Canada...................................... 3,898 3,347 2,559
------- ------- -------
Total international sales........... $86,616 $54,372 $63,503
======= ======= =======
Total identifiable international assets were immaterial.
55
57
ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16. SUMMARY QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED) (AS
RESTATED)
The following table summarizes ANTEC's quarterly consolidated financial
information (in thousands, except share data).
QUARTERS IN 2000 ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
Net sales(8)........................ $256,571 $283,016 $281,413 $177,730
Gross profit(3)..................... 51,280 52,826 52,317 29,349
Operating income (loss)(1).......... 19,320 17,690 16,315 (6,458)
Income (loss) before income
taxes(2)(4)(5)(6)................. 16,449 19,607 9,910 (11,012)
Net income (loss)(9)................ $ 9,727 $ 11,594 $ 5,860 $ (6,512)
======== ======== ======== ========
Net income (loss) per common share:
Basic(9).......................... $ 0.26 $ 0.31 $ 0.15 $ (0.17)
======== ======== ======== ========
Diluted(9)........................ $ 0.24 $ 0.28 $ 0.15 $ (0.17)
======== ======== ======== ========
Supplemental financial information (excluding the effects of the pension
curtailment gain, additional inventory write-off related to the restructuring
charge, and the mark-to-market adjustments on investments):
Gross profit(3)..................... $ 51,280 $ 56,326 $ 52,317 $ 29,347
======== ======== ======== ========
Operating income (loss)(1).......... $ 17,212 $ 21,190 $ 16,315 $ (6,460)
======== ======== ======== ========
Income (loss) before income
taxes(2)(4)(5)(6)................. $ 14,341 $ 18,457 $ 13,324 $ (9,005)
======== ======== ======== ========
Net income (loss)(9)................ $ 8,392 $ 12,102 $ 7,806 $ (5,394)
======== ======== ======== ========
Net income (loss) per common share:
Diluted(9)........................ $ 0.21 $ 0.29 $ 0.19 $ (0.14)
======== ======== ======== ========
Weighted average diluted
share(9)....................... 44,513 44,733 44,641 38,772
======== ======== ======== ========
QUARTERS IN 1999 ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
Net sales(8)........................ $148,459 $200,647 $242,439 $253,211
Gross profit(7)..................... 34,211 43,984 50,025 36,762
Operating income (loss)............. 8,080 15,666 20,312 (1,606)
Income (loss) before income
taxes(7).......................... 5,025 13,050 17,359 (4,918)
Net income (loss)(9)................ $ 2,752 $ 7,146 $ 9,506 $ (2,694)
======== ======== ======== ========
Net income (loss) per common share:
Basic(9).......................... $ 0.08 $ 0.20 $ 0.26 $ (0.07)
======== ======== ======== ========
Diluted(9)........................ $ 0.07 $ 0.19 $ 0.24 $ (0.07)
======== ======== ======== ========
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ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Supplemental financial information (excluding the effects of the restructuring
charge including the related inventory write-off):
QUARTERS IN 1999 ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
Gross profit(7)..................... $ 34,211 $ 43,984 $ 50,025 $ 47,115
======== ======== ======== ========
Income before income taxes(7)....... $ 7,525 $ 13,050 $ 17,359 $ 11,081
======== ======== ======== ========
Net income(9)....................... $ 6,464 $ 7,146 $ 9,506 $ 6,473
======== ======== ======== ========
Net income per common share:
Diluted(9)........................ $ 0.17 $ 0.19 $ 0.24 $ 0.16
======== ======== ======== ========
---------------
(1) As of January 1, 2000, the Company froze the defined pension plan benefits
for 569 participants. These participants elected to participate in ANTEC's
enhanced 401(k) plan. Due to the cessation of plan accruals for such a large
group of participants, a curtailment was considered to have occurred. As a
result of the curtailment, as outlined under FASB Statement No. 88,
Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits, the Company recorded a $2.1
million pre-tax gain on the curtailment during the first quarter 2000. (See
Note 14 of the Notes to the Consolidated Financial Statements.)
(2) During the fourth quarter of 2000, the Company reversed $1.25 million of
accrued expenses related to the LANcity transaction, due to a change in
estimate for costs related to the transaction. (See Note 2 of the Notes to
the Consolidated Financial Statements.)
(3) During the second quarter of 2000, ANTEC further evaluated its powering and
RF products and recorded an additional pre-tax charge of $3.5 million to
cost of goods sold, bringing the total reorganization related charge to
$19.5 million. (See Note 4 of the Notes to the Consolidated Financial
Statements.)
(4) During the second quarter of 2000, ANTEC made a strategic investment in
Chromatis Networks, Inc. ("Chromatis"), receiving 56,882 shares of the
company's preferred stock. On June 28, 2000, Lucent Technologies announced
it had completed an acquisition of Chromatis. The conversion of the
Chromatis shares into Lucent shares resulted in ANTEC receiving 120,809
shares of Lucent's stock. Lucents's stock price on the date of the completed
transaction was $57.48, valuing ANTEC's investment at approximately $6.9
million, thus producing a pre-tax gain of $5.9 million. These shares of
Lucent stock are considered trading securities held for resale.
(5) Because the shares of Lucent stock discussed in the footnote above, are
considered trading securities held for resale, they are required to be
carried at their fair market value with any gains or losses being included
in earnings. Additionally, as a result of Lucent's spin-off of Avaya Inc.,
during the third quarter of 2000, ANTEC was issued approximately 9,060
shares of Avaya stock on September 19, 2000. These securities are also being
held for resale. By the end of the third quarter, the stock price of Lucent
dropped significantly. In calculating the fair market value of the
investments as of September 30, 2000, ANTEC recognized a $3.4 million
pre-tax write down of the investments in Lucent and Avaya.
(6) During the fourth quarter of 2000, ANTEC calculated the fair market value of
its investments and recorded an additional pre-tax mark-to-market write down
on its investments of approximately $3.3 million.
(7) 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, ANTEC recorded a pre-tax 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. Also
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ANTEC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.)
(8) Net sales and cost of sales for the quarters ended March 31, June 30, and
September 30, 2000 and March 31, June 30, September 30, and December 31,
1999 differ from amounts reported as net sales and cost of sales in the
respective Form 10-Q's (and Form 10-K) due to the adoption of EITF No.
00-10, Accounting for Shipping and Handling Fees and Costs, in the fourth
quarter of 2000.
(9) During the year ANTEC provides for income taxes using anticipated effective
annual tax rates. The rates are based on expected operating results and
permanent differences between book and tax income. Due to the restatement of
the consolidated financial statements to eliminate the LANcity gain, the
Company also restated income tax expense (benefit) for each of the quarters
in the years ended December 31, 2000 and 1999 to reflect the Company's
effective annual tax rate after restatement. Therefore, the income tax
expense (benefit) amounts for the each of the quarters in the year ended
December 31, 2000 and 1999 were adjusted to maintain the Company's effective
annual tax rate of 40.9% and 45.2%, respectively.
NOTE 17. SUBSEQUENT EVENT
On October 18, 2000, ANTEC Corporation and Nortel Networks, Inc. agreed to
a transaction in which, among other things, ANTEC would acquire Nortel Network's
ownership interest in Arris Interactive L.L.C., the joint venture between the
two companies. In general, Nortel Networks agreed to transfer its 81.25% stake
in Arris Interactive L.L.C. in exchange for approximately 33 million new shares
of Common Stock of a newly formed holding company and $325 million in cash,
directly, and, through the repayment of a loan, indirectly. The agreement
contemplated that ANTEC would enter into a new revolving credit facility
providing sufficient availability to pay the cash portion of the purchase price
and to fund on-going operations of the combined entity. As a result of changes
in industry and financial market conditions, ANTEC has not yet been able to
obtain the necessary credit facility. ANTEC and Nortel are in the process of
renegotiating the terms of the agreement in order to reflect current industry
and financial market conditions. It is expected that the resulting changes will
provide for an increase in the number of shares issued to Nortel and elimination
of the cash portion of the purchase price. ANTEC is currently seeking a credit
facility sufficient for the contemplated revised terms. Although credit markets
are extremely difficult in the telecommunications sector at the present time,
ANTEC believes it will be able to obtain a commitment for an appropriate
facility. The consummation of the transaction, which is subject to the approval
of ANTEC's stockholders, other customary closing conditions and certain
regulatory approvals, is expected to occur in July of 2001.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to directors of ANTEC is set forth below. Information
concerning the executive officers of ANTEC is set forth in Part I of this
document on Form 10-K under the caption entitled "Executive Officers of the
Company."
ANTEC's Board of Directors has eleven members. The term of office of each
director will extend until the holding of the next annual meeting of
stockholders or until his or her successor is elected and qualified.
Name: John (Ian) Anderson Craig
Age: 57
Director since: 1998
ANTEC Board Committee: None.
Principal occupation and recent
business experience: Mr. Craig was Chief Marketing Officer of Nortel Networks,
Inc. a leading global supplier of data and telephony
network solutions and services, from September 1998
through March 2000. Prior thereto he has held, since 1968,
numerous senior management positions within Northern
Telecom Inc., now known as Nortel Networks.
Other directorships: BCI, CAE, Inc., and TrizecHahn Corporation.
Name: Rod F. Dammeyer
Age: 60
Director since: 1993
ANTEC Board Committees: Compensation Committee (Chair) and Executive Committee
Principal occupation and recent
business experience: Vice Chairman since 1998 and President and Chief Executive
Officer from 1993 to 1998 of Anixter International Inc., a
global communications products distribution company.
Managing Partner from 1998 to 2000 and Managing Director
from 1996 to 1998 of EGI Corporate Investments, a
diversified management and investment company.
Other directorships: GATX Corporation, Stericycle, Inc., TeleTech Holdings,
Inc., and Trustee of Van Kampen Investments, Inc.
closed-end funds.
Name: John M. Egan
Age: 53
Director since: 1993
ANTEC Board Committee: Executive Committee
Principal occupation and recent
business experience: Chairman of the Board since 1997, President from 1980
through 1997 and Chief Executive Officer from 1980 through
1999 of ANTEC and its predecessors.
Other directorships: National Cable Television Association ("NCTA"), the Walter
Kaitz Foundation and Cable PAC.
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Name: James L. Faust
Age: 58
Director since: 1995
ANTEC Board Committee: None.
Principal occupation and recent
business experience: Chief Executive Officer of Evolve Products, Inc., a
developer and marketer of two-way, interactive remote
control devices, since 1998. Consultant since 1998 and
Executive Vice President, International from 1995 to 1998
of ANTEC.
Other directorships: Evolve Products, Inc. and Cabletel Communications
Corporation.
Name: William H. Lambert
Age: 63
Director since: 1997
ANTEC Board Committee: None.
Principal occupation and recent
business experience: Chairman, President and Chief Executive Officer of TSX
Corporation, now a subsidiary of ANTEC, from 1988 to 1997.
Other directorships: None.
Name: John R. Petty
Age: 70
Director since: 1993
ANTEC Board Committee: Audit Committee (Chair)
Principal occupation and recent
business experience: Chairman of TECSEC Incorporated, a data security company
since 1997. Chairman of Federal National Payables, Inc., a
factoring company, since 1992. A private investor since
1988.
Other directorships: Director of Anixter International, Inc.
Name: Larry Romrell
Age: 60
Director since: 2000
ANTEC Board Committee: None.
Principal occupation and recent
business experience: A consultant to AT&T since 1999. Executive Vice President
of Tele-Communications, Inc., a subsidiary of AT&T from
1994 to March 1999. Prior thereto he has held various
executive positions within Tele-Communications, Inc. and
its subsidiaries.
Other directorships: Director of Guaranty Bank & Trust Company and AT&T
Corp. -- Liberty Media Group.
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Name: William T. Schleyer
Age: 48
Director since: 1998
ANTEC Board Committee: None.
Principal occupation and recent
business experience: A venture capitalist principally within the communications
industry since 1997. President and Chief Operating Officer
of MediaOne, the broadband services arm of U S West Media
Group, during 1997. President and Chief Operating Officer
of Continental Cablevision, Inc. during 1996. Prior
thereto held various executive management positions within
Continental Cablevision since 1977.
Other directorships: Director of CableLabs, Inc., Darwin Partners, Inc., Rogers
Communications, Inc., Storage Networks, Inc., and Wink
Communications, Inc.
Name: Samuel K. Skinner
Age: 61
Director since: 1995
ANTEC Board Committee: Audit Committee and Compensation Committee
Principal occupation and recent
business experience: Mr. Skinner has been Chairman of US Freightways
Corporation since January 2001 and President and Chief
Executive Officer of US Freightways since July 2000.
Previously, Mr. Skinner was a Partner and co-Chairman of
the law firm of Hopkins and Sutter from 1998 until June
2000. President and Director of Unicom Corp., an
electrical utilities company, from 1993 to 1998. Chief of
Staff to the President of the United States from 1992 to
1993. United States Secretary of Transportation from 1989
to 1992.
Other directorships: Director of LTV Corporation, Midwest Express Holdings,
Inc., Navigant Consulting, Inc., Union Pacific Resources,
Inc., and US Freightways.
Name: Robert J. Stanzione
Age: 52
Director since: 1998
ANTEC Board Committee: None.
Principal occupation and recent
business experience: President and Chief Executive Officer since January 1,
2000 and President and Chief Operating Officer from 1998
through 1999 of ANTEC. President and Chief Executive
Officer of Arris Interactive, a joint venture company of
ANTEC and Nortel Networks, from 1995 to 1997. Prior
thereto held various management positions with AT&T
Corporation since 1969.
Other directorships: Evolve Products, Inc., and Cyberfone, Inc.
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Name: Bruce Van Wagner
Age: 74
Director since: 1993
ANTEC Board Committee: Executive Committee (Chair)
Principal occupation and recent
business experience: A private investor. Chairman of the Company from 1993 to
1997.
Other directorships: None.
Other matters: In 2000, Mr. Van Wagner has consented to the entry of a
permanent injunction in connection with the settlement of
a civil action by the Securities and Exchange Commission
that enjoins him from engaging in conduct in violation of
the securities laws.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of officers and directors of the Company
is set forth below under the captions entitled "Executive Compensation,"
"Compensation of Directors," and "Employment Contracts and Termination of
Employment and Change-In-Control Arrangements."
EXECUTIVE COMPENSATION
The following tables set forth information about the compensation of its
Chief Executive Officer, and the four most highly compensated executive officers
of ANTEC for the last fiscal year.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION AWARDS
--------------------------
SECURITIES
ANNUAL COMPENSATION RESTRICTED UNDERLYING ALL OTHER
NAME AND ---------------------------------- STOCK AWARDS COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OTHER ($) AWARDS ($) (#) ($)(4)
------------------ ---- ---------- --------- --------- ---------- ---------- ------------
Robert J. Stanzione.... 2000 500,000 37,500 1,125,000(1)(2) 160,000 9,760
President, Chief 1999 420,000 254,600 233,625(3) 500,000 2,500
Executive Officer 1998 340,000 229,500 335,000 2,500
John M. Egan........... 2000 500,000 37,500 187,500(2) 0 9,187
Chairman 1999 500,000 525,500 100,000 1,250
1998 500,000 337,500 0 1,250
Lawrence A. Margolis... 2000 309,000 18,540 45,000 92,700(2) 60,000 9,187
Executive Vice 1999 300,000 67,245 221,944(3) 50,000 2,213
President, Chief 1998 280,000 151,200 0 2,275
Financial Officer
Gordon E. Halverson.... 2000 220,000 52,580 33,334 30,250(2) 100,000 8,750
Executive Vice 1999 216,400 112,624 33,333 24,920(3) 0 1,939
President, Sales 1998 201,400 102,210 33,333 0 2,362
Michael Graziano....... 2000 142,000 19,000 16,500 7,875
Treasurer 1999 136,900 49,500 0 6,336
1998 118,208 10,000 13,000 5,047
---------------
(1) The amount in 2000 for Mr. Stanzione includes the value as of January 31,
2000 ($937,500), which was the date of grant, of the grant of 24,077 stock
units that convert on a one-for-one basis into shares of common stock. As of
December 29, 2000, the value of common stock into which these units would
convert was $190,358. For a description of the terms of these stock units
granted see "Employment Contracts and Termination of Employment and Change
in Control."
(2) Amounts in 2000 for Messrs. Stanzione, Egan, Margolis and Halverson,
represent the value of restricted common stock granted on February 21, 2001,
at $9.844 per share. The restricted common stock vests in
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thirds beginning on the date of grant and then on each anniversary of the
date of grant. Although the stock was issued in 2001, it relates to 2000
compensation for these officers. Holders of the restricted stock are
entitled to receive any distribution made to holders of common stock.
(3) Amounts in 1999 represent the value on January 31, 2000, the date of
issuance, of common stock into which stock units granted convert on a
one-for-one basis at the time predetermined at issuance. Although the stock
units were issued in 2000, they relate to 1999 compensation for these
officers. Twenty percent of the units will be forfeited if the employee
leaves ANTEC without good reason before December 31, 2002. As of December
29, 2000, the value of common stock into which these units would convert was
$47,460, $45,087 and $5,062 for Messrs. Stanzione, Margolis and Halverson,
respectively. Generally, holders of stock units are entitled to receive any
distribution made to holders of common stock or an equitable adjustment to
the number of stock units based on such distribution.
(4) Represents contributions by the Company to an employee savings plan.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
---------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF
UNDERLYING GRANTED TO STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES IN EXERCISE OR DATE FOR OPTION TERM(3)
GRANTED FISCAL BASE PRICE OF -------------------------
NAME (#) YEAR ($/SH) EXPIRATION 5% ($) 10% ($)
---- ---------- ------------ ----------- ---------- ---------- ------------
Robert J. Stanzione.......... 160,000(2) 6.81% $ 8.0000 12/19/2010 $904,022 $2,197,690
John M. Egan................. -- -- -- -- -- --
Lawrence A. Margolis......... 60,000(2) 2.55% $ 8.0000 12/19/2010 $339,008 $ 824,134
Gordon E. Halverson.......... 20,000(1) 0.85% $38.9375 01/31/2010 $487,878 $1,238,144
80,000(2) 3.40% $ 8.0000 12/19/2010 $452,011 $1,098,845
Michael Graziano............. 6,500(1) 0.28% $38.9375 01/31/2010 $158,561 $ 402,397
10,000(2) 0.43% $ 8.0000 12/19/2010 $ 56,501 $ 137,356
---------------
(1) One-fourth of the options become exercisable each anniversary of the grant
beginning January 31, 2001.
(2) One-fourth of the options become exercisable each anniversary of the grant
beginning December 19, 2000.
(3) The potential realizable value is calculated based on the term of the option
at its time of grant, which is ten years, assuming the fair market price of
the common stock on the date of grant (the average of the high and low on
the date of grant) appreciates at the indicated annual rate compounded
annually for the entire term of the option and that the option is exercised
and sold on the last day of its term for the appreciated stock price. These
numbers are for presentation purposes only and are not predictions of future
stock prices.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY -- END (#) FY-END ($)
SHARES ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE(1)
------------------ ------------ --------------- ----------------
Robert J. Stanzione.......... 0 0 560,000/535,000 $0/$0
John M. Egan................. 85,000 $2,964,375 568,833/111,667 $0/$0
Lawrence A. Margolis......... 0 0 355,833/114,167 $0/$0
Gordon E. Halverson.......... 0 0 196,667/108,333 $0/$0
Michael Graziano............. 3,334 $ 114,068 1,000/ 25,166 $0/$0
---------------
(1) The value of the unexercised options was calculated using the difference
between the option exercise price and the fiscal year-end fair market value
(the average of the high and the low stock price on December 29, 2000) of
$7.81 per share, multiplied by the number of shares underlying the option.
PENSION PLAN TABLE
ESTIMATED BENEFIT BASED ON YEARS OF SERVICE
------------------------------------------------------------------------------
REMUNERATION 10 15 20 25 30 35
------------ -------- -------- -------- -------- -------- --------
2$50,000.... $ 30,595 $ 45,893 $ 61,190 $ 76,488 $ 91,786 $ 91,786
350,000.... 43,595 65,393 87,190 108,988 130,786 130,786
450,000.... 56,595 84,893 113,190 141,488 169,786 169,786
550,000.... 69,595 104,393 139,190 173,988 208,786 208,786
650,000.... 82,595 123,893 165,190 206,488 247,786 247,786
750,000.... 95,595 143,393 191,190 238,988 286,786 286,786
850,000.... 108,595 162,893 217,190 271,488 325,786 325,786
950,000.... 121,595 182,393 243,190 303,988 364,786 364,786
1,050,000.. 134,595 201,893 269,190 336,488 403,786 403,786
1,150,000.. 147,595 221,393 295,190 368,988 442,786 442,786
The amounts in the table above are annual straight-line annuity amounts
(which are not reduced for Social Security benefits) payable upon retirement at
age 65 under ANTEC's funded defined benefit pension plan and an unfunded
supplementary defined benefit pension plan. The benefits are determined by the
average of the five highest consecutive years of salary and bonus during an
employee's last ten years of service. Bonus is attributable to the year in which
it is paid not the year for which it is accrued. Thus, the covered remuneration
for 2000 was the salary for 2000 and the bonus accrued for 1999 in the "Summary
Compensation Table." As of December 31, 2000, Messrs. Egan, Stanzione, Margolis
and Halverson have approximately 27, 12 (actual service tripled pursuant to
employment agreement), 18 and 32 years of service, respectively. Mr. Graziano
did not participate in the defined benefit pension plans. In exchange for Mr.
Egan's agreement to consult with ANTEC from the termination of his employment
until 2007, ANTEC has agreed to provide Mr. Egan a supplemental benefit, which
together with the benefits under other pension plans of ANTEC, will provide Mr.
Egan a single life annuity of $41,667 a month beginning at age 55. ANTEC has
recently adopted changes in its retirement plans to enable Messrs. Stanzione,
Margolis and Halverson to elect to freeze their benefits in the funded pension
plan as of December 31, 1999 in exchange for better matching contributions in
the future by ANTEC under its 401(k) savings plan and supplemental savings plan.
They will continue to participate in the unfunded supplementary pension plan
that provides benefits based on the remuneration that is in excess of the
remuneration, $160,000 in 2000, that the federal tax rules permit to be
considered in determining benefits under the funded pension plan.
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COMPENSATION OF DIRECTORS
ANTEC pays its non-employee directors annual retainers of $50,000 of its
stock in the form of stock units which convert to common stock on a one-for-one
basis at the pre-arranged time selected by each director plus fees of $1,000 for
each board meeting attended, $750 for each committee meeting attended and a
$2,500 annual retainer for committee chairperson.
Effective February 1, 1998, Mr. Faust's arrangement with ANTEC was changed
from an employment contract to a consulting contract. The new contract provides
for quarterly payments of $27,500 for five years and for continuation for a year
or more of certain benefits Mr. Faust had received as an employee.
ANTEC paid for the defense by Mr. Van Wagner of charges by the Securities
and Exchange Commission that several members of his family and a neighbor sold
stock of ANTEC based on material non-public information of ANTEC obtained from
Mr. Van Wagner. In 2000, ANTEC paid approximately $6,300 for this defense. Mr.
Van Wagner has consented to the entry of a permanent injunction in connection
with the settlement of a civil action by the Securities and Exchange Commission
that enjoins him from engaging in conduct in violation of the securities laws.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ANTEC has entered into employment agreements with Messrs. Egan, Stanzione,
Margolis and Halverson. The agreements with Messrs. Egan, Stanzione and Margolis
obligate the officers to continue to serve ANTEC and for ANTEC to continue to
employ the officers until the agreements are terminated by two years prior
notice or for cause or good reason as defined in the agreements or, in the case
of Messrs. Egan, Stanzione and Margolis, they reach the ages of 55, 65 or 65,
respectively. These agreements provide for the vesting of options to purchase
shares of common stock and for the continuation of employment benefits
(including salaries and bonuses) for the time period otherwise required to
terminate the agreements by prior notice in the event that the officers
terminate the agreements and their employment for good reason. Good reason
includes "Change of Control" which occurs if any person becomes, directly or
indirectly, the beneficial owner of securities representing more than 25% of the
combined voting power of ANTEC's then outstanding voting securities. Each of
these individuals has waived his right to terminate the agreements as a result
of ANTEC's proposed acquisition of Nortel Networks' ownership interest in Arris.
The agreements also prohibit each officer from working for a competitor until
the expiration of the above time periods.
The agreements provide for minimum salaries equal to current salaries, and
for ANTEC to determine annual bonus opportunities targeted at 75% of salary for
Messrs. Egan and Stanzione and 60% of salary for Mr. Margolis.
In addition, Mr. Stanzione's contract provides for the following salary
increases and benefits:
- for his salary to be increased to $500,000 on January 1, 2000 and at
least to the extent of inflation thereafter,
- for him to be granted options to purchase between 100,000 and 160,000
shares of common stock each year beginning in 2001, and
- a grant of 24,077 stock units in 2000 that convert on a one-for-one basis
to shares of common stock on June 30, 2004, or the earlier termination of
his employment, if prior to June 30, 2001 Mr. Stanzione has not
terminated his employment without good reason (4,815 of these units will
be forfeited if he so terminates his employment prior to June 30, 2004).
Mr. Margolis' contract provides for the payment of a relocation assistance
advance to him of $180,000, the repayment of which is to be forgiven in four
annual installments beginning April 30, 2000 as long as he has not terminated
his employment without good reason.
Mr. Egan and ANTEC agreed that upon termination of his employment with
ANTEC he would serve ANTEC as a consultant for up to 20 days a year until May
31, 2007. As consideration for this agreement, ANTEC has agreed to provide Mr.
Egan a supplemental retirement benefit, which together with the benefits
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under other pension plans of ANTEC, will provide Mr. Egan a single life annuity
of $41,667 a month beginning at age 55. ANTEC has also agreed to provide medical
coverage to Mr. Egan and his wife until they are eligible for Medicare and to
provide a $3,000,000 death benefit to Mrs. Egan if Mr. Egan dies before the age
55.
Mr. Halverson's contract provides for his continued employment at a salary
no lower than his current salary and an annual bonus opportunity targeted at 50%
of his salary. Mr. Halverson may terminate the contract at any time on 90 days
notice and by ANTEC at any time. If the termination by ANTEC is without cause as
defined in the contract, ANTEC must continue to pay Mr. Halverson an amount
equal to his salary and bonus at target for a year and must vest all his stock
options and stock units. In the event of a change of control, which is defined
to include any person, other than AT&T, becoming the beneficial owner of 30% of
ANTEC's common stock, Mr. Halverson may resign with severance benefits any time
during the one-year period following the change of control, if he is adversely
affected by a change in responsibility, location or benefits. The severance
benefits are substantially equal to that payable in the event of his discharge
without cause. The contract restricts Mr. Halverson from competing with ANTEC
for four months following the termination of his employment and prohibits the
solicitation of employees for a period of two years.
Mr. Graziano's hiring arrangements include termination benefits of one
year's compensation, benefit continuation and vesting of all unvested options in
the event there is a change of control of the Company or termination without
cause.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding ownership of the Company's common stock is set forth
below.
The following table contains information about the beneficial ownership of
ANTEC's common stock by the persons listed based on their ownership of ANTEC
common stock as of February 28, 2001. Unless otherwise indicated, to our
knowledge, each person listed below has sole voting and investment power over
his or her shares of common stock, unless each person shares ownership with his
spouse.
The following table also contains information about the beneficial
ownership of ANTEC common stock of:
- Each person known to us to own beneficially more than 5% of the
outstanding shares of ANTEC common stock, based upon such person's most
recently filed Schedule 13D or 13G;
- The chief executive officer and four other most highly compensated
executive officers of ANTEC;
- Each director of ANTEC; and
- All directors and executive officers of ANTEC as a group.
ANTEC
BENEFICIAL OWNERSHIP
----------------------
NAME OF BENEFICIAL OWNER COMMON STOCK PERCENT
------------------------ ------------ -------
Liberty Media Corporation, a subsidiary of AT&T
Corp. -- Liberty Media, an Independent profit center of
AT&T Corp.(1)............................................. 7,681,341 20.2%
Terrace Tower II
5619 DTC Parkway
Englewood, Colorado 80111
John Hancock Financial Services, Inc.(2).................... 3,109,420 8.2%
John Hancock Place
P.O. Box 111
Boston, Massachusetts 02117
Mellon Financial Corporation(3)............................. 2,470,097 6.5%
One Mellon Center
Pittsburgh, Pennsylvania 15258
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ANTEC
BENEFICIAL OWNERSHIP
----------------------
NAME OF BENEFICIAL OWNER COMMON STOCK PERCENT
------------------------ ------------ -------
The Boston Company(3)....................................... 2,031,587 5.3%
c/o Mellon Financial Corporation
One Mellon Center
Pittsburgh, Pennsylvania 15258
Merrill Lynch & Co., Inc.(4)................................ 2,255,624 5.9%
World Financial Center, North Tower
250 Vesey Street
New York, New York 10381
Lazard Freres & Co., LLC(5)................................. 2,168,910 5.7%
30 Rockefeller Plaza
New York, New York 10020
John (Ian) Anderson Craig(6)................................ 5,000 *
Rod F. Dammeyer(6).......................................... 9,100 *
John M. Egan(7)(11)......................................... 684,777 1.8%
James L. Faust(8)........................................... 62,949 *
Michael Graziano(9)......................................... 6,068 *
Gordon E. Halverson(10)(11)(12)............................. 217,458 *
William H. Lambert(6)(13)................................... 30,050 *
Lawrence A. Margolis(10)(11)(14)............................ 419,597 1.1%
John R. Petty(6)(15)........................................ 16,600 *
Larry Romrell(6)(16)........................................ 17,400 *
William T. Schleyer(6)...................................... 5,000 *
Samuel K. Skinner(6)(17).................................... 14,100 *
Robert J. Stanzione(10)(11)(18)............................. 761,066 2.0%
Bruce Van Wagner(6)(19)..................................... 96,600 *
All directors, nominees and executive officers as a group,
including the above-named persons (16 persons)(20)........ 2,426,265 6.4%
---------------
* Less than 1%.
(1) According to a Schedule 13D, filed March 30, 1999. Includes 854,341 shares
issuable upon exercise of stock options, which are freely exercisable.
(2) According to a Schedule 13G, filed February 12, 2001. All of the shares are
held by its indirect wholly-owned subsidiary, John Hancock Advisers, Inc.
(3) According to a Schedule 13G, filed January 19, 2001.
(4) According to a Schedule 13G, filed February 5, 2001.
(5) According to a Schedule 13G, filed February 13, 2001.
(6) Includes 37,950 stock units awarded to directors that convert on a
one-for-one basis into shares of ANTEC common stock at a time predetermined
at the time of issuance.
(7) Includes 630,500 shares that may be acquired within 60 days after February
28, 2001.
(8) Includes 50,000 shares that may be acquired within 60 days after February
28, 2001.
(9) Includes 5,958 shares that may be acquired within 60 days after February
28, 2001.
(10) Includes stock units that convert on a one for one basis into shares of
ANTEC common stock at the time predetermined at issuance for Messrs.
Halverson (640 stock units), Margolis (5,700 stock units) and Stanzione
(6,000 stock units). Twenty percent of these units will be forfeited if the
holder leaves ANTEC without good reason before December 31, 2002. Also
includes 24,077 stock units for Mr. Stanzione. These units will be
forfeited if Mr. Stanzione leaves ANTEC without good reason prior to June
30, 2001 and 20% of these units will be forfeited if he so leaves ANTEC
prior to June 30, 2004.
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(11) Includes restricted common stock granted on February 21, 2001, for Messrs.
Stanzione, Egan, Margolis and Halverson. The restricted common stock vests
in thirds beginning on the date of grant and then on each anniversary of
the date of grant.
(12) Includes 210,000 shares that may be acquired within 60 days after February
28, 2001.
(13) Includes 20,000 shares that may be acquired within 60 days after February
28, 2001.
(14) Includes 385,000 shares that may be acquired within 60 days after February
28, 2001.
(15) Includes 7,500 shares that may be acquired within 60 days after February
28, 2001.
(16) Includes 16,200 shares that may be acquired within 60 days after February
28, 2001.
(17) Includes 5,000 shares that may be acquired within 60 days after February
28, 2001.
(18) Includes 685,000 shares that may be acquired within 60 days after February
28, 2001.
(19) Includes 35,000 shares that may be acquired within 60 days after February
28, 2001.
(20) Includes 2,112,658 shares that may be acquired within 60 days after
February 28, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding relationships and related transactions with ANTEC is
set forth below.
RELATIONSHIPS AND RELATED TRANSACTIONS
For a description of transactions between ANTEC and Messrs. Faust and Van
Wagner, directors of ANTEC, see "Executive Compensation -- Compensation of
Directors" above.
ANTEC loaned $100,000 to Mr. Egan, its Chairman, in 1980 and an additional
$50,000 to him in 1983. Although these loans are interest-free and have no
stated maturity date, Mr. Egan is currently making monthly payments to ANTEC to
reduce the outstanding balance on these loans. As of December 31, 2000, the
balance due on the loans was $103,900.
As of December 31, 2000, Liberty Media Corporation, which is part of the
Liberty Media Group of AT&T whose financial performance is "tracked" by a
separate class of AT&T stock, 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 (including MediaOne
Communications, which was acquired by AT&T during 2000) aggregating $431.5
million, $355.0 million and $142.7 million for the years ended December 31,
2000, 1999 and 1998, respectively. Giving effect to AT&T's acquisition of
MediaOne Communications, sales to the combined entity aggregated $391.1 million
for 1999 and $149.9 million for 1998.
During the year ended December 31, 2000, ANTEC purchased $930,000 of
convertible promissory notes from Evolve Products, Inc., a developer and
marketer of two-way, interactive remote control devices. James L. Faust, the
Chief Executive Officer and a director of Evolve Products, is a member of
ANTEC's board of directors. In 2000, ANTEC also received stock warrants
exercisable for shares of Evolve Products in exchange for performing engineering
services for Evolve Products. The value of the engineering services performed by
ANTEC during 2000 was approximately $202,000.
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
document. Each management contract or compensatory plan required to be filed as
an exhibit is identified by an asterisk (*).
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70
(B) REPORTS ON FORM 8-K.
On October 25, 2000 ANTEC filed a report on Form 8-K relating to Item 5,
Other Events, to describe the Company's agreement with Nortel Networks, Inc. to
a transaction in which ANTEC will acquire Nortel's ownership interest in Arris
Interactive L.L.C., the joint venture between the two companies.
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.............................. 32
Consolidated Balance Sheets at December 31, 2000 and 1999
(as restated)............................................. 33
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998 (as restated for 2000 and
1999)..................................................... 34
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 (as restated for 2000 and
1999)..................................................... 35
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2000, 1999 and 1998 (as restated
for 2000 and 1999)........................................ 36
Notes to the Consolidated Financial Statements.............. 37
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.
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71
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ANTEC CORPORATION
BALANCE AT BALANCE AT
BEGINNING OF CHARGE TO END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
----------- ------------ --------- ---------- ----------
(IN THOUSANDS)
YEAR ENDED DECEMBER 31, 2000
Reserves and allowances deducted from asset
accounts:
Allowance for uncollectible accounts.......... $ 7,505 $ 1,117 $1,936(1) $ 6,686
Reserve for obsolescence and excess
inventory(2)................................ $26,541 $ 5,485 $1,866 $30,160
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
Reserve for obsolescence and excess
inventory(2)................................ $17,026 $10,230 $ 715 $26,541
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
Reserve for obsolescence and excess
inventory(2)................................ $12,973 $ 4,053 $ 0 $17,026
---------------
(1) Uncollectible accounts written off, net of recoveries
(2) The reserve for obsolescence and excess inventory is included in inventories
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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:
------- ---------------------- ------------------------------
2.1 Agreement and Plan of Reorganization dated as of
October 18, 2000.**................................. October 25, 2000, Form 8-K,
Exhibit 2.1.
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 Certificate
of Incorporation.................................... June 30, 1999, Form 10-Q,
Exhibit 3.1(b).
3.1(c) Amendment of May 8, 2000 to Restated Certificate of
Incorporation....................................... June 30, 2000, Form 10-Q,
Exhibit 3.1(c).
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 2003 dated
May 5, 1998......................................... March 31, 1998, Form 10-Q,
Exhibit 10.28.
10.1(a) Credit Agreement.................................... Form S-3, Registration #
333-58437, Exhibit 10.1
10.1(b) Amendment to Credit and Guarantee Agreement, dated
April 28, 1999...................................... March 31, 1999, Form 10-Q,
Exhibit 10.4.
10.2(a) Amended and Restated Limited Liability Company
Agreement of Arris Interactive, L.L.C., dated March
31, 1999............................................ March 31, 1999, Form 10-Q,
Exhibit 10.1.
10.2(b) Earnout Share Agreement between Nortel Networks,
L.L.C. and ANTEC Corporation, dated March 31,
1999................................................ March 31, 1999, Form 10-Q,
Exhibit 10.2.
10.2(c) Products Distribution Agreement between Products
Venture L.L.C. and ANTEC Corporation................ December 31, 1995, Form 10-K,
Exhibit 10.20.
10.2(d) Amendment to Products Distribution Agreement between
Arris Interactive, L.L.C. and ANTEC Corporation,
dated March 31, 1999................................ March 31, 1999, Form 10-Q,
Exhibit 10.3.
10.3 Evolve Products, Inc. Agreement..................... December 31, 1998, Form 10-K,
Exhibit 10.30.
10.4(a)* Amended and Restated Employee Stock Incentive
Plan................................................ Form S-1, Registration #
33-65488, Exhibit 10.1(a).
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INCORPORATED BY REFERENCE FROM
EXHIBIT ANTEC'S SEC FILINGS UNLESS
NUMBER DESCRIPTION OF EXHIBIT OTHERWISE INDICATED:
------- ---------------------- ------------------------------
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 Covered by
Amended and Restated Employee Stock Incentive
Plan................................................ Form S-8, Registration #
33-12131, Exhibit 4.
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).
10.4(f)* Form of Stock Option Grant.......................... December 31, 2000, Form 10-K,
Exhibit 10.4(f).
10.5* 1997 Stock Incentive Plan........................... Schedule 14A, Filed 3/28/97
10.6* Form of agreement for receipt of stock units in lieu
of cash bonus....................................... December 31, 1999, Form 10-K,
Exhibit 10.6.
10.7* Form of Director Stock Option Plan.................. Form S-1, Registration #
33-65488, Exhibit 10.3.
10.8* Form of Supplemental Retirement Benefits Plan....... Form S-1, Registration #
33-65488, Exhibit 10.4.
10.9* Form of Supplemental Savings Plan................... December 31, 1999, Form 10-K,
Exhibit 10.9.
10.10(a)* Amended and Restated Employment Agreement, dated
April 29, 1999, with Robert J. Stanzione............ June 30, 1999, Form 10-Q,
Exhibit 10.32.
10.10(b)* Agreement with Robert J. Stanzione for the
conversion of special 2001 bonus to stock units..... December 31, 1999, Form 10-K,
Exhibit 10.10(b).
10.11(a)* Amended and Restated Employment Agreement dated
April 29, 1999, with John M. Egan................... June 30, 1999, Form 10-Q,
Exhibit 10.31(a).
10.11(b)* Consulting Agreement, dated April 27, 1999 with John
M. Egan............................................. June 30, 1999, Form 10-Q,
Exhibit 10.31(b).
10.11(c)* Supplemental Executive Retirement Plan for John M.
Egan................................................ June 30, 1999, Form 10-Q,
Exhibit 10.31(c).
10.12* Amended and Restated Employment Agreement, dated
April 29, 1999, with Lawrence A. Margolis........... June 30, 1999, Form 10-Q,
Exhibit 10.33.
10.13* Form of Employment Agreement with Gordon E.
Halverson........................................... December 31, 2000, Form 10-K,
Exhibit 10.13.
10.14* Employment Agreement with Michael Graziano.......... December 31, 2000, Form 10-K,
Exhibit 10.14.
10.15* Retainer Agreement with James E. Knox............... December 31, 1996, Form 10-K,
Exhibit 10.17
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INCORPORATED BY REFERENCE FROM
EXHIBIT ANTEC'S SEC FILINGS UNLESS
NUMBER DESCRIPTION OF EXHIBIT OTHERWISE INDICATED:
------- ---------------------- ------------------------------
10.16* Consulting Agreement dated February 1, 1998 for
James L. Faust...................................... December 31, 1998, Form 10-K,
Exhibit 10.14.
10.17* Stock Option Agreement with William H. Lambert dated
March 14, 1994...................................... April 30, 1994, TSX
Corporation Form 10-K, Exhibit
10(A)(1)(3)
10.18* 2000 Stock Incentive Plan........................... March 31, 2000, Form 10-Q,
Exhibit 10.18.
10.19* Management Incentive Plan........................... March 31, 2000, Form 10-Q,
Exhibit 10.19.
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.................................. December 31, 2000, Form 10-K,
Exhibit 24.
---------------
** The schedules and exhibits described in the Agreement and Plan of
Reorganization will be furnished to the Commission upon request.
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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
/s/ LAWRENCE A. MARGOLIS
--------------------------------------
Lawrence A. Margolis
Executive Vice President,
Chief Financial Officer
Dated: June 27, 2001
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 June 27, 2001
---------------------------------------------------
John M. Egan
/s/ ROBERT J. STANZIONE President, Chief Executive Officer June 27, 2001
--------------------------------------------------- and Director
Robert J. Stanzione
/s/ LAWRENCE A. MARGOLIS Executive Vice President, Chief June 27, 2001
--------------------------------------------------- Financial Officer
Lawrence A. Margolis
/s/ MICHAEL GRAZIANO Treasurer June 27, 2001
---------------------------------------------------
Michael Graziano
/s/ JOHN IAN ANDERSON CRAIG* Director June 27, 2001
---------------------------------------------------
John Ian Anderson Craig
/s/ ROD F. DAMMEYER* Director June 27, 2001
---------------------------------------------------
Rod F. Dammeyer
/s/ JAMES L. FAUST* Director June 27, 2001
---------------------------------------------------
James L. Faust
/s/ WILLIAM H. LAMBERT* Director June 27, 2001
---------------------------------------------------
William H. Lambert
/s/ JOHN R. PETTY* Director June 27, 2001
---------------------------------------------------
John R. Petty
/s/ LARRY ROMRELL* Director June 27, 2001
---------------------------------------------------
Larry Romrell
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SIGNATURE TITLE DATE
--------- ----- ----
/s/ WILLIAM T. SCHLEYER* Director June 27, 2001
---------------------------------------------------
William T. Schleyer
/s/ SAMUEL K. SKINNER* Director June 27, 2001
---------------------------------------------------
Samuel K. Skinner
/s/ BRUCE VAN WAGNER* Director June 27, 2001
---------------------------------------------------
Bruce Van Wagner
*By: /s/ LAWRENCE A. MARGOLIS
---------------------------------------------------
Lawrence A. Margolis
(as attorney in fact for each
person indicated)
75