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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Zip Code)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of October 22, 2021 there were
CommScope Holding Company, Inc.
Form 10-Q
September 30, 2021
Table of Contents
1
PART 1 -- FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CommScope Holding Company, Inc.
Condensed Consolidated Statements of Operations
(Unaudited – In millions, except per share amounts)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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Net sales |
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$ |
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$ |
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$ |
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$ |
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Cost of sales |
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Gross profit |
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Operating expenses: |
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Selling, general and administrative |
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Research and development |
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Amortization of purchased intangible assets |
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Restructuring costs (credits), net |
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Asset impairments |
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Total operating expenses |
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Operating income (loss) |
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( |
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Other expense, net |
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( |
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( |
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( |
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( |
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Interest expense |
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( |
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( |
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( |
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( |
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Interest income |
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Loss before income taxes |
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( |
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( |
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( |
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( |
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Income tax (expense) benefit |
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( |
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Net loss |
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( |
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( |
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( |
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( |
) |
Series A convertible preferred stock dividend |
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( |
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( |
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( |
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( |
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Net loss attributable to common stockholders |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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$ |
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Loss per share: |
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Basic |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Diluted |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted average shares outstanding: |
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Basic |
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Diluted |
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See notes to unaudited condensed consolidated financial statements. |
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2
CommScope Holding Company, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited – In millions)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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Comprehensive loss: |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation gain (loss) |
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( |
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( |
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( |
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Pension and other postretirement benefit activity |
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( |
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( |
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Gain (loss) on hedging instruments |
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( |
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( |
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Total other comprehensive income (loss), net of tax |
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( |
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( |
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( |
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Total comprehensive loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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See notes to unaudited condensed consolidated financial statements. |
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3
CommScope Holding Company, Inc.
Condensed Consolidated Balance Sheets
(In millions, except share amounts)
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Unaudited |
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December 31, 2020 |
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Assets |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, less allowance for doubtful accounts of |
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Inventories, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net of accumulated depreciation |
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Goodwill |
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Other intangible assets, net |
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Other noncurrent assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders' Equity (Deficit) |
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Accounts payable |
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$ |
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$ |
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Accrued and other liabilities |
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Current portion of long-term debt |
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Total current liabilities |
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Long-term debt |
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Deferred income taxes |
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Other noncurrent liabilities |
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Total liabilities |
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Series A convertible preferred stock, $ |
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Stockholders' equity (deficit): |
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Preferred stock, $ |
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Issued and outstanding shares: |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive loss |
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( |
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( |
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Treasury stock, at cost: |
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( |
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( |
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Total stockholders' equity (deficit) |
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( |
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Total liabilities and stockholders' equity (deficit) |
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$ |
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$ |
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See notes to unaudited condensed consolidated financial statements.
4
CommScope Holding Company, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited - In millions)
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Nine Months Ended |
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September 30, |
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2021 |
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2020 |
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Operating Activities: |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash generated by operating activities: |
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Depreciation and amortization |
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Equity-based compensation |
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Deferred income taxes |
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( |
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( |
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Asset impairments |
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— |
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Changes in assets and liabilities: |
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Accounts receivable |
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( |
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Inventories |
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( |
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( |
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Prepaid expenses and other assets |
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Accounts payable and other liabilities |
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( |
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Other |
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Net cash generated by operating activities |
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Investing Activities: |
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Additions to property, plant and equipment |
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( |
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( |
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Proceeds from sale of property, plant and equipment |
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Cash paid for Cable Exchange acquisition |
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— |
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( |
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Payments upon settlement of net investment hedge |
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( |
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— |
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Net cash used in investing activities |
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( |
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( |
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Financing Activities: |
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Long-term debt repaid |
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( |
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( |
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Long-term debt proceeds |
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Debt issuance costs |
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( |
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( |
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Debt extinguishment costs |
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( |
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( |
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Dividends paid on Series A convertible preferred stock |
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( |
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— |
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Proceeds from the issuance of common shares under equity-based compensation plans |
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Tax withholding payments for vested equity-based compensation awards |
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( |
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( |
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Other |
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— |
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Net cash used in financing activities |
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( |
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( |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
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( |
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Change in cash and cash equivalents |
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( |
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( |
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Cash and cash equivalent at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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See notes to unaudited condensed consolidated financial statements. |
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5
CommScope Holding Company, Inc.
Condensed Consolidated Statements of Stockholders' Equity (Deficit)
(Unaudited - In millions, except share amounts)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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Number of common shares outstanding: |
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Balance at beginning of period |
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Issuance of shares under equity-based |
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Shares surrendered under equity-based |
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( |
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( |
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( |
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( |
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Balance at end of period |
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Common stock: |
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Balance at beginning and end of period |
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$ |
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$ |
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$ |
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$ |
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Issuance of shares under equity-based |
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Balance at end of period |
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$ |
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$ |
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$ |
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$ |
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Additional paid-in capital: |
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Balance at beginning of period |
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$ |
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$ |
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$ |
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$ |
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Issuance of shares under equity-based |
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Equity-based compensation |
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Dividend on Series A convertible preferred stock |
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( |
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( |
) |
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( |
) |
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( |
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Balance at end of period |
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$ |
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$ |
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$ |
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$ |
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Accumulated deficit: |
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Balance at beginning of period |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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$ |
( |
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Net loss |
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( |
) |
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( |
) |
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( |
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( |
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Balance at end of period |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Accumulated other comprehensive loss: |
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Balance at beginning of period |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
Other comprehensive income (loss), net of tax |
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( |
) |
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( |
) |
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( |
) |
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Balance at end of period |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Treasury stock, at cost: |
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Balance at beginning of period |
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$ |
( |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Net shares surrendered under equity-based |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Balance at end of period |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Total stockholders' equity (deficit) |
|
$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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See notes to unaudited condensed consolidated financial statements. |
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6
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
1. BACKGROUND AND BASIS OF PRESENTATION
Background
CommScope Holding Company, Inc., along with its direct and indirect subsidiaries (CommScope or the Company), is a global provider of infrastructure solutions for communication and entertainment networks. The Company’s solutions for wired and wireless networks enable service providers including cable, telephone and digital broadcast satellite operators and media programmers to deliver media, voice, Internet Protocol (IP) data services and Wi-Fi to their subscribers and allow enterprises to experience constant, wireless and wired connectivity across complex and varied networking environments. The Company’s solutions are complemented by a broad array of services including technical support, systems design and integration. CommScope is a leader in digital video and IP television distribution systems, broadband access infrastructure platforms and equipment that delivers data and voice networks to homes. CommScope’s global leadership position is built upon innovative technology, broad solution offerings, high-quality and cost-effective customer solutions, and global manufacturing and distribution scale.
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited and reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for a fair presentation of the interim period financial statements. The results of operations for these interim periods are not necessarily indicative of the results of operations to be expected for any future period or the full fiscal year. Certain prior year amounts have been reclassified to conform to the current year presentation.
In the second quarter of 2021, management shifted certain product lines from the Company’s Broadband Networks (Broadband) segment to its Home Networks (Home) segment to better align with how the business is being managed in light of the planned spin-off of the Home Networks business. All prior period amounts in these condensed consolidated financial statements have been recast to reflect these operating segment changes.
The unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and are presented in accordance with the applicable requirements of Regulation S-X. Accordingly, these financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the 2020 Annual Report). The significant accounting policies followed by the Company are set forth in Note 2 within the Company’s audited consolidated financial statements included in the 2020 Annual Report. There were no material changes in the Company’s significant accounting policies during the three or nine months ended September 30, 2021.
Concentrations of Risk and Related Party Transactions
The Company relies on sole suppliers or a limited group of suppliers for certain key components, subassemblies and modules and a limited group of contract manufacturers to manufacture a significant portion of its products. Any disruption or termination of these arrangements could have a material adverse impact on the Company’s results of operations.
7
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
Product Warranties
The Company recognizes a liability for the estimated claims that may be paid under its customer warranty agreements to remedy potential deficiencies of quality or performance of the Company’s products.
The following table summarizes the activity in the product warranty accrual, included in accrued and other liabilities and other noncurrent liabilities:
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Three Months Ended |
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Nine Months Ended |
|
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September 30, |
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September 30, |
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|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Product warranty accrual, beginning of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Provision for warranty claims |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warranty claims paid |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Foreign exchange |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Product warranty accrual, end of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Commitments and Contingencies
The Company is party to certain intellectual property claims and periodically receives notices asserting that its products infringe on another party’s patents and other intellectual property rights. These claims and assertions, whether against the Company directly or against its customers, could require the Company to pay damages, royalties, stop offering the relevant products and/or cease other activities. The Company may also be called upon to indemnify certain customers for costs related to products sold to such customers. The outcome of these claims and notices is uncertain and a reasonable estimate of the loss from unfavorable outcomes in certain of these matters either cannot be determined or is estimated at the minimum amount of a range of estimates. The actual loss could be material and may vary significantly from our estimates.
As of September 30, 2021, the Company had a liability of $
The Company is either a plaintiff or a defendant in certain other pending legal matters in the normal course of business. Management believes none of these other pending legal matters will have a material adverse effect on the Company’s business or financial condition upon final disposition.
8
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
Asset Impairments
Goodwill is tested for impairment annually or at other times if events have occurred or circumstances exist that indicate the carrying value of the reporting unit may exceed its fair value. There were
Property, plant and equipment, intangible assets and right of use assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable, based on the undiscounted cash flows expected to be derived from the use and ultimate disposition of the assets. Assets identified as impaired are adjusted to estimated fair value. Equity investments without readily determinable fair values are evaluated each reporting period for impairment based on a qualitative assessment and are then measured at fair value if an impairment is determined to exist. Other than certain assets impaired as a result of restructuring actions, there were
Income Taxes
For the three months ended September 30, 2021, the Company’s effective tax rate was
For the three months ended September 30, 2020, the Company’s effective tax rate was (
Earnings (Loss) Per Share
Basic earnings (loss) per share (EPS) is computed by dividing net income (loss), less any dividends and deemed dividends related to the Convertible Preferred Stock, by the weighted average number of common shares outstanding during the period. The numerator in diluted EPS is based on the basic EPS numerator adjusted to add back any dividends and deemed dividends related to the Convertible Preferred Stock, subject to antidilution requirements. The denominator used in diluted EPS is based on the basic EPS computation plus the effect of potentially dilutive common shares related to the Convertible Preferred Stock and equity-based compensation plans, subject to antidilution requirements.
9
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
For the three and nine months ended September 30, 2021,
For both the three and nine months ended September 30, 2021,
The following table presents the basis for the EPS computations (in millions, except per share data):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Dividends on Series A convertible preferred stock |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net loss attributable to common stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of as-if converted Series A convertible preferred stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Dilutive effect of equity-based awards |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Weighted average common shares outstanding - diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Recent Accounting Pronouncements
Adopted During the Nine Months Ended September 30, 2021
On January 1, 2021, the Company adopted Accounting Standards Update (ASU) No. 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The new guidance is based on a consensus of the Emerging Issues Task Force and is expected to improve comparability in accounting for these transactions. The amendments in this guidance clarify the interaction of accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The impact of adopting this new guidance was not material to the consolidated financial statements.
On January 1, 2021, the Company adopted ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new guidance simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying and amending existing guidance. The impact of adopting this new guidance was not material to the consolidated financial statements.
10
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
Issued but Not Adopted
In August 2020, the Financial Accounting Standards Board (FASB) issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The new guidance simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and convertible preferred stock and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions and requires the application of the if-converted method for calculating diluted earnings per share, along with expanded disclosures. ASU No. 2020-06 is effective for the Company as of January 1, 2022 and early adoption is permitted beginning January 1, 2021. The Company is currently evaluating the impact of the new guidance on the consolidated financial statements.
2. GOODWILL
The following table presents the activity in goodwill by reportable segment.
|
|
December 31, 2020 |
|
|
Activity |
|
|
September 30, 2021 |
|
|||||||||||||||||||
|
|
Goodwill |
|
|
Accumulated Impairment Losses |
|
|
Total |
|
|
Foreign Exchange and Other |
|
|
Goodwill |
|
|
Accumulated Impairment Losses |
|
|
Total |
|
|||||||
Broadband |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
OWN |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||||
VCN |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||||
Home |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregated Net Sales
The majority of the Company’s net sales are product sales that are recognized at a point in time. The Company does have some customer arrangements where net sales are recognized over time, but this does not represent a significant portion of consolidated net sales. Contracts with net sales recognized over time are primarily concentrated in the Broadband Networks and Venue and Campus Networks segments. In the first quarter of 2021, the Company determined that the geographic disaggregation of net sales by segment is a more meaningful disaggregation of net sales than net sales disaggregated based on the timing of the transfer of goods, given the relatively low level of net sales recognized over time. Therefore, the presentation of net sales by geographic region in Note 7 has been expanded to include segments and the presentation of net sales based on the timing of the transfer of goods has been eliminated.
11
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
Allowance for Doubtful Accounts
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Allowance for doubtful accounts, beginning of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Provision (benefit) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Write-offs |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Foreign exchange and other |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Allowance for doubtful accounts, end of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Customer Contract Balances
The following table provides the balance sheet location and amounts of contract assets, or unbilled accounts receivable, and contract liabilities, or deferred revenue, from contracts with customers as of September 30, 2021 and December 31, 2020.
|
|
|
|
|
|
|||||
Contract Balance Type |
|
Balance Sheet Location |
|
September 30, |
|
|
December 31, |
|
||
Unbilled accounts receivable |
|
Accounts receivable, less allowance for doubtful accounts |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
||
Deferred revenue - current |
|
Accrued and other liabilities |
|
|
|
|
|
|
||
Deferred revenue - noncurrent |
|
Other noncurrent liabilities |
|
|
|
|
|
|
||
Total contract liabilities |
|
|
|
$ |
|
|
$ |
|
||
There were no material changes to contract asset balances for the three or nine months ended September 30, 2021 as a result of changes in estimates or impairments. The change in the contract liability balance from December 31, 2020 to September 30, 2021 was primarily due to upfront support billings recognized over the support term. During the three and nine months ended September 30, 2021, the Company recognized revenue related to contract liabilities recorded as of December 31, 2020 of $
4. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
Inventories
|
|
|
|
|||||
|
|
September 30, |
|
|
December 31, |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Accrued and Other Liabilities
|
|
|
|
|||||
|
|
September 30, |
|
|
December 31, |
|
||
Compensation and employee benefit liabilities |
|
$ |
|
|
$ |
|
||
Deferred revenue |
|
|
|
|
|
|
||
Accrued interest |
|
|
|
|
|
|
||
Product warranty accrual |
|
|
|
|
|
|
||
Operating lease liabilities |
|
|
|
|
|
|
||
Restructuring reserve |
|
|
|
|
|
|
||
Patent claims and litigation settlements |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
12
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
Operating Lease Information
|
|
|
|
|
|||||
|
Balance Sheet Location |
|
September 30, |
|
|
December 31, |
|
||
Other noncurrent assets |
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
||
Accrued and other liabilities |
|
$ |
|
|
$ |
|
|||
Other noncurrent liabilities |
|
|
|
|
|
|
|||
Total lease liabilities |
|
|
$ |
|
|
$ |
|
||
Accumulated Other Comprehensive Loss
The following table presents changes in accumulated other comprehensive loss (AOCL), net of tax:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at beginning of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive income (loss) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Amounts reclassified from AOCL |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Balance at end of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Defined benefit plan activity |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at beginning of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Amounts reclassified from AOCL |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Balance at end of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at beginning of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive income (loss) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Balance at end of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Net AOCL at end of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Amounts reclassified from net AOCL related to foreign currency translation and defined benefit plans are recorded in other expense, net in the Condensed Consolidated Statements of Operations.
Cash Flow Information
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Cash paid during the period for: |
|
|
|
|
|
|
||
Income taxes, net of refunds |
|
$ |
|
|
$ |
|
||
Interest |
|
|
|
|
|
|
||
13
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
5. FINANCING
|
|
|
|
|||||
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
— |
|
||
|
|
|
|
|
|
|||
|
|
— |
|
|
|
|
||
Senior secured term loan due |
|
|
|
|
|
|
||
Senior secured revolving credit facility |
|
|
— |
|
|
|
— |
|
Total principal amount of debt |
|
$ |
|
|
$ |
|
||
Less: Original issue discount, net of amortization |
|
|
( |
) |
|
|
( |
) |
Less: Debt issuance costs, net of amortization |
|
|
( |
) |
|
|
( |
) |
Less: Current portion |
|
|
( |
) |
|
|
( |
) |
Total long-term debt |
|
$ |
|
|
$ |
|
||
See Note 8 in the Notes to Consolidated Financial Statements in the 2020 Annual Report for additional information on the terms and conditions of the Company’s debt obligations except the new
On August 23, 2021, the Company issued $
The 2029 Secured Notes are guaranteed on a senior secured basis by CommScope Holding Company, Inc. and each of CommScope, Inc.’s existing and future wholly owned domestic restricted subsidiaries that is an obligor under the senior secured credit facilities or certain other debt, subject to certain exceptions. The 2029 Secured Notes and the related guarantees are secured on a first-priority basis by security interests in all of the assets that secure indebtedness under the 2026 Term Loan (as defined below) on a first-priority basis, and on a second-priority basis in all assets that secure the Revolving Credit Facility (as defined below) on a first-priority basis and the 2026 Term Loan on a second-priority basis. The 2029 Secured Notes and the related guarantees rank senior in right of payment to all of CommScope, Inc.’s and the guarantors’ subordinated indebtedness and equally in right of payment with all of CommScope, Inc.’s and the guarantors’ senior indebtedness (without giving effect to collateral arrangements), including the senior secured credit facilities and the Company’s other senior notes. The 2029 Secured Notes and the related guarantees are effectively subordinated to any of CommScope, Inc.’s or the guarantors’ indebtedness that is secured by assets that do not constitute collateral for the 2029 Secured Notes and effectively subordinated to any of CommScope, Inc.’s or the guarantors’ indebtedness that is secured by a senior-priority lien, including under the senior secured asset-based revolving credit facility (the Revolving Credit Facility), in each case to the extent of the value of the assets securing such indebtedness. In addition, the 2029 Secured Notes and related guarantees are structurally subordinated to all existing and future liabilities (including trade payables) of CommScope, Inc.’s subsidiaries that do not guarantee the 2029 Secured Notes.
14
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
The 2029 Secured Notes may be redeemed prior to maturity under certain circumstances. Upon certain change of control events, the 2029 Secured Notes may be redeemed at the option of the holders at
In connection with issuing the 2029 Secured Notes, the Company incurred costs of $
Senior Secured Credit Facilities
During the three and nine months ended September 30, 2021, the Company did
During the three and nine months ended September 30, 2021, the Company made quarterly scheduled amortization payments totaling $
Other Matters
The following table summarizes scheduled maturities of long-term debt as of September 30, 2021:
|
|
Remainder |
|
|
2022 |
|
|
2023 |
|
|
2024 |
|
|
2025 |
|
|
Thereafter |
|
||||||
Scheduled maturities of long-term debt |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
The Company’s non-guarantor subsidiaries held $
The weighted average effective interest rate on outstanding borrowings, including the impact of the interest rate swap, and the amortization of debt issuance costs and original issue discount, was
15
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
6. FAIR VALUE MEASUREMENTS
The Company’s financial instruments consist primarily of cash and cash equivalents, trade receivables, trade payables, debt instruments, interest rate derivatives and foreign currency contracts. For cash and cash equivalents, trade receivables and trade payables, the carrying amounts of these financial instruments as of September 30, 2021 and December 31, 2020 were considered representative of their fair values due to their short terms to maturity. The fair values of the Company’s debt instruments, interest rate derivatives and foreign currency contracts were based on indicative quotes.
Fair value measurements using quoted prices in active markets for identical assets and liabilities fall within Level 1 of the fair value hierarchy, measurements using significant other observable inputs fall within Level 2, and measurements using significant unobservable inputs fall within Level 3.
The carrying amounts, estimated fair values and valuation input levels of the Company’s debt instruments, interest rate derivatives and foreign currency contracts as of September 30, 2021 and December 31, 2020, are as follows:
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
|
|
||||||||||
|
|
Carrying |
|
|
Fair Value |
|
|
Carrying |
|
|
Fair Value |
|
|
Valuation |
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency contracts |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Level 2 |
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
7.125% senior notes due 2028 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Level 2 |
||||
5.00% senior notes due 2027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 |
||||
8.25% senior notes due 2027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 |
||||
6.00% senior notes due 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 |
||||
4.75% senior secured notes due 2029 |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Level 2 |
||
6.00% senior secured notes due 2026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 |
||||
5.50% senior secured notes due 2024 |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
Level 2 |
||
Senior secured term loan due 2026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 |
||||
Foreign currency contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 |
||||
Interest rate swap contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 |
||||
16
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
7. SEGMENTS AND GEOGRAPHIC INFORMATION
The Company has four reportable segments as described below.
The Broadband Networks (Broadband) segment provides an end-to-end product portfolio serving the telco and cable provider broadband market. The segment includes converged cable access platform, passive optical networking, video systems, access technologies, fiber and coaxial cable, fiber and copper connectivity and hardened closures.
The Outdoor Wireless Networks (OWN) segment focuses on the macro and metro cell markets. The segment includes base station antennas, RF filters, tower connectivity, microwave antennas, metro cell products, cabinets, steel, accessories, Spectrum Access Systems and Comsearch.
The Venue and Campus Networks (VCN) segment targets both public and private networks for campuses, venues, data centers and buildings. The segment combines Wi-Fi and switching, distributed antenna systems, licensed and unlicensed small cells and enterprise fiber and copper infrastructure.
The Home Networks (Home) segment includes subscriber-based solutions that support broadband and video applications. The broadband offerings in the Home segment include devices that provide residential connectivity to a service provider’s network, such as digital subscriber line and cable modems and telephony and data gateways which incorporate routing and Wi-Fi functionality. Video offerings include set top boxes that support cable, satellite and IP television content delivery and include products such as digital video recorders, high definition set top boxes and hybrid set top devices.
In the second quarter of 2021, management shifted certain product lines from the Company’s Broadband segment to its Home segment to better align with how the business is being managed in light of the planned spin-off of the Home Networks business. All prior period amounts in these condensed consolidated financial statements have been recast to reflect these operating segment changes.
The following table provides summary financial information by reportable segment:
|
|
|
|
|||||
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
Identifiable segment-related assets: |
|
|
|
|
|
|
||
Broadband |
|
$ |
|
|
$ |
|
||
OWN |
|
|
|
|
|
|
||
VCN |
|
|
|
|
|
|
||
Home |
|
|
|
|
|
|
||
Total identifiable segment-related assets |
|
|
|
|
|
|
||
Reconciliation to total assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
|
|
|
|
|
||
Deferred income tax assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
17
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
The Company’s measurement of segment performance is adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization). The Company defines adjusted EBITDA as operating income (loss), adjusted to exclude depreciation, amortization of intangible assets, restructuring costs, asset impairments, equity-based compensation, transaction, transformation and integration costs and other items that the Company believes are useful to exclude in the evaluation of operating performance from period to period because these items are not representative of the Company’s core business.
The following table provides net sales, adjusted EBITDA, depreciation expense and additions to property, plant and equipment by reportable segment:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Broadband |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
OWN |
|
|
|
|
|
|
|
|
|
|
|
|
||||
VCN |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Home |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Segment adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Broadband |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
OWN |
|
|
|
|
|
|
|
|
|
|
|
|
||||
VCN |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Home |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Total segment adjusted EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of intangible assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Restructuring (costs) credits, net |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Equity-based compensation |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Asset impairments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Transaction, transformation and integration costs |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Acquisition accounting adjustments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Patent claims and litigation settlements |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Executive severance |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Consolidated operating income (loss) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Broadband |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
OWN |
|
|
|
|
|
|
|
|
|
|
|
|
||||
VCN |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Home |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated depreciation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Additions to property, plant and equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Broadband |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
OWN |
|
|
|
|
|
|
|
|
|
|
|
|
||||
VCN |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Home |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated additions to property, plant and equipment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
18
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
Sales to customers located outside of the U.S. comprised
|
|
Three Months Ended September 30, |
|
|||||||||||||||||||||||||||||||||||||
|
|
Broadband |
|
|
OWN |
|
|
VCN |
|
|
Home |
|
|
Total |
|
|||||||||||||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||||||||
Geographic Region: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
United States |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||
Europe, Middle East |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Asia Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Caribbean and Latin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Consolidated net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
Nine Months Ended September 30, |
|
|||||||||||||||||||||||||||||||||||||
|
|
Broadband |
|
|
OWN |
|
|
VCN |
|
|
Home |
|
|
Total |
|
|||||||||||||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||||||||
Geographic Region: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
United States |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||
Europe, Middle East |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Asia Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Caribbean and Latin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Consolidated net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||||
8. RESTRUCTURING COSTS (CREDITS), NET
The Company incurs costs associated with restructuring initiatives intended to improve overall operating performance and profitability. The costs related to restructuring actions are generally cash-based and primarily consist of employee-related costs, which include severance and other one-time termination benefits.
In addition to the employee-related costs, the Company also records other costs associated with restructuring actions such as the gain or loss on the sale of facilities and impairment costs arising from unutilized real estate or equipment. The Company attempts to sell or lease this unutilized space but additional impairment charges may be incurred related to these or other excess assets.
The Company’s net pretax restructuring activity included in restructuring costs (credits), net on the Condensed Consolidated Statements of Operations, by segment, were as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Broadband |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
OWN |
|
|
|
|
|
|
|
|
|
|
|
|
||||
VCN |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Home |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
19
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
Restructuring liabilities were included in the Company’s Condensed Consolidated Balance Sheets as follows:
|
|
|
|
|||||
|
|
September 30, |
|
|
December 31, |
|
||
Accrued and other liabilities |
|
$ |
|
|
$ |
|
||
Other noncurrent liabilities |
|
|
|
|
|
|
||
Total restructuring liabilities |
|
$ |
|
|
$ |
|
||
CommScope NEXT Restructuring Actions
In the first quarter of 2021, the Company announced and began implementing a business transformation initiative called CommScope NEXT. This initiative is designed to drive shareholder value through three pillars: focusing on strategies to drive profitable growth, undertaking a full portfolio evaluation and optimizing the business by focusing on efficiency and eliminating unnecessary non-value-added complexity and cost across the business.
|
|
Employee- |
|
|
Other |
|
|
Total |
|
|||
Balance at June 30, 2021 |
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Expense reversal, net |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Cash paid |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance at September 30, 2021 |
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|||
Balance at December 31, 2020 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Additional expense, net |
|
|
|
|
|
|
|
|
|
|||
Cash paid |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Non-cash items |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance at September 30, 2021 |
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
20
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
CommScope NEXT actions to date have included the planned closure of a manufacturing facility as well as headcount reductions in manufacturing, engineering, marketing, sales and administrative functions.
The Company expects to make cash payments of $
ARRIS Integration Restructuring Actions
In anticipation of and following the acquisition of ARRIS, the Company initiated a series of restructuring actions to integrate and streamline operations and achieve cost synergies.
|
|
Employee- |
|
|
Other |
|
|
Total |
|
|||
Balance at June 30, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Additional expense, net |
|
|
|
|
|
|
|
|
|
|||
Cash paid |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Non-cash items |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance at September 30, 2021 |
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|||
Balance at December 31, 2020 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Additional expense, net |
|
|
|
|
|
|
|
|
|
|||
Cash paid |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Non-cash items |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance at September 30, 2021 |
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
The ARRIS integration actions included headcount reductions in manufacturing, sales, engineering, marketing and administrative functions. The Company has recognized restructuring charges of $
The Company expects to make cash payments of $
9. SERIES A CONVERTIBLE PREFERRED STOCK
On April 4, 2019, the Company issued and sold
21
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
10. STOCKHOLDERS’ EQUITY
Equity-Based Compensation Plans
As of September 30, 2021, $
During the nine months ended September 30, 2021, the Company’s stockholders approved the termination of certain executive performance stock options, which is reflected as forfeited stock options below, and the grant of selective performance-based retention equity awards, which is reflected in PSUs granted below. The impact under modification accounting was not material to the condensed consolidated financial statements.
The following table shows a summary of the equity-based compensation expense included in the Condensed Consolidated Statements of Operations:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Selling, general and administrative |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total equity-based compensation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Stock Options
Stock options are awards that allow the recipient to purchase shares of the Company’s common stock at a fixed price. Stock options are granted at an exercise price equal to the Company’s stock price at the date of grant. These awards generally vest over
The following table summarizes the stock option activity (in millions, except per share data and years):
|
|
Shares |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
Options outstanding at June 30, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercised |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Forfeited |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Expired |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Options outstanding at September 30, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Options outstanding at December 31, 2020 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercised |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Forfeited |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Expired |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Options outstanding at September 30, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options vested at September 30, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options unvested at September 30, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
22
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
The exercise prices of outstanding options at September 30, 2021 were in the following ranges (in millions, except per share data and years):
|
|
Options Outstanding |
|
|
Options Exercisable |
|
||||||||||||||
Range of Exercise Prices |
|
Shares |
|
|
Weighted Average |
|
|
Weighted |
|
|
Shares |
|
|
Weighted |
|
|||||
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|||||
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|||||
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|||||
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|||||
Restricted Stock Units
RSUs entitle the holder to shares of common stock after a vesting period that generally ranges from to
The following table summarizes the RSU activity (in millions, except per share data):
|
|
Restricted |
|
|
Weighted |
|
||
Non-vested share units at June 30, 2021 |
|
|
|
|
$ |
|
||
Forfeited |
|
|
( |
) |
|
$ |
|
|
Non-vested share units at September 30, 2021 |
|
|
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Non-vested share units at December 31, 2020 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Vested and shares issued |
|
|
( |
) |
|
$ |
|
|
Forfeited |
|
|
( |
) |
|
$ |
|
|
Non-vested share units at September 30, 2021 |
|
|
|
|
$ |
|
||
Performance Share Units
PSUs are stock awards in which the number of shares ultimately received by the employee depends on either a market-based performance measure or an internal performance measure and the number of shares can vary from
|
|
Nine Months Ended |
|
|
Risk-free interest rate |
|
|
% |
|
Expected volatility |
|
|
% |
|
Weighted average fair value at grant date |
|
$ |
|
|
23
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In millions, unless otherwise noted)
During the three months ended September 30, 2021, the Company granted certain PSUs with an internal performance measure vesting at the end of three years. The fair value of these awards was determined on the date of grant based on the Company's stock price.
The following table summarizes the PSU activity (in millions, except per share data):
|
|
Performance |
|
|
Weighted |
|
||
Non-vested share units at June 30, 2021 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Forfeited |
|
|
( |
) |
|
$ |
|
|
Non-vested share units at September 30, 2021 |
|
|
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Non-vested share units at December 31, 2020 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Forfeited |
|
|
( |
) |
|
$ |
|
|
Non-vested share units at September 30, 2021 |
|
|
|
|
$ |
|
||
24
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following narrative is an analysis of the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020. The discussion is provided to increase the understanding of, and should be read in conjunction with, the unaudited condensed consolidated financial statements and accompanying notes included in this report as well as the audited consolidated financial statements, related notes thereto and management’s discussion and analysis of financial condition and results of operations, including management’s discussion and analysis regarding the application of critical accounting policies and the risk factors in our Annual Report on Form 10-K for the year ended December 31, 2020 (2020 Annual Report).
We discuss certain financial measures in management’s discussion and analysis of financial condition and results of operations, including adjusted EBITDA, that differ from measures calculated in accordance with generally accepted accounting principles in the United States (U.S. GAAP). See "Reconciliation of Non-GAAP Measures" included elsewhere in this quarterly report for more information about these non-GAAP financial measures, including our reasons for including the measures and material limitations with respect to the usefulness of the measures.
Overview
We are a global provider of infrastructure solutions for communication and entertainment networks. Our solutions for wired and wireless networks enable service providers including cable, telephone and digital broadcast satellite operators and media programmers to deliver media, voice, Internet Protocol (IP) data services and Wi-Fi to their subscribers and allow enterprises to experience constant wireless and wired connectivity across complex and varied networking environments. Our solutions are complemented by a broad array of services including technical support, systems design and integration. We are a leader in digital video and IP television distribution systems, broadband access infrastructure platforms and equipment that delivers data and voice networks to homes. Our global leadership position is built upon innovative technology, broad solution offerings, high-quality and cost-effective customer solutions, and global manufacturing and distribution scale.
In the first quarter of 2021, we announced a transformation initiative called CommScope NEXT designed to drive shareholder value through three pillars: focusing on strategies to drive profitable growth, undertaking a full portfolio evaluation and optimizing our business by focusing on efficiency and eliminating unnecessary non-value-added complexity and cost across the business. We believe these efforts are critical to making us more competitive and allowing us to invest in growth and maximize shareholder and stakeholder value. We have incurred $100.2 million of restructuring costs and $62.7 million of transaction, transformation and integration costs during the nine months ended September 30, 2021, both primarily related to CommScope NEXT. We expect to continue to incur restructuring costs and transaction, transformation and integration costs related to CommScope NEXT and such costs are expected to be material.
As a step in our CommScope NEXT transformation plan, on April 8, 2021, we announced our plan to spin-off the Home Networks business to form a new stand-alone publicly traded company. Below we refer to certain supplementary “Core” financial measures, which reflect the results of our Broadband Networks (Broadband), Outdoor Wireless Networks (OWN) and Venue and Campus Networks (VCN) segments, in the aggregate. Our Core financial measures exclude the results and performance of our Home Networks (Home) segment. See the Segment Results section below for illustration of the aggregation of our Core financial measures. These metrics represent the business segments as we have reported. However, the ultimate definition of the Home Networks business that we expect to spin-off may vary, and future results may differ materially.
In the second quarter of 2021, we shifted certain product lines from our Broadband segment to our Home segment to better align with how the business is being managed in light of the planned spin-off of the Home Networks business. All prior period amounts have been recast to reflect these operating segment changes.
25
COVID-19 Update
The COVID-19 outbreak had an adverse impact on our financial performance in 2020 primarily related to decreased demand, supply constraints due to the temporary shutdown of certain of our facilities and increased business continuity costs. We took a variety of actions in 2020 to help mitigate the financial impacts such as headcount reductions, lower capital spending and lower discretionary spending. The negative impact of COVID-19 on our financial performance has eased during 2021, with network strain driving increased demand for our Broadband segment products in particular. The recovery in demand has also had unfavorable business impacts, including commodity inflation (primarily copper and resins), logistics cost increases, extended lead times and certain component part shortages. We expect certain of these unfavorable impacts to continue for the remainder of 2021 and into 2022.
The extent of the negative impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic, including new variants, the effectiveness and adoption of vaccines and related actions taken by domestic and international jurisdictions to maintain and prevent disease spread, and the extent of any financial recession resulting from the pandemic, all of which are uncertain and cannot be predicted.
Performance Highlights
The below are highlights of our results for the three and nine months ended September 30, 2021 compared to the prior year periods. We refer to the three-month period as the "quarter" and the nine-month period as "year-to-date." Core financial measures reflect the results of our Broadband, OWN and VCN segments, in the aggregate. Core financial measures exclude the results of our Home segment. See the Segment Results section below for illustration of the aggregation of our Core financial measures.
CRITICAL ACCOUNTING POLICIES
There have been no changes in our critical accounting policies as disclosed in our 2020 Annual Report.
26
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 WITH THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||||||||||
|
|
September 30, |
|
|
|
|
|
|
|
|||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
|
|
|||||||||||||||
|
|
Amount |
|
|
% of Net |
|
|
Amount |
|
|
% of Net |
|
|
$ |
|
|
% |
|
||||||
|
|
(dollars in millions, except per share amounts) |
|
|||||||||||||||||||||
Net sales |
|
$ |
2,105.3 |
|
|
|
100.0 |
% |
|
$ |
2,168.1 |
|
|
|
100.0 |
% |
|
$ |
(62.8 |
) |
|
|
(2.9 |
)% |
Core net sales (1) |
|
|
1,690.2 |
|
|
|
80.3 |
|
|
|
1,594.6 |
|
|
|
73.5 |
|
|
|
95.6 |
|
|
|
6.0 |
|
Gross profit |
|
|
653.0 |
|
|
|
31.0 |
|
|
|
735.5 |
|
|
|
33.9 |
|
|
|
(82.5 |
) |
|
|
(11.2 |
) |
Operating income |
|
|
21.0 |
|
|
|
1.0 |
|
|
|
55.8 |
|
|
|
2.6 |
|
|
|
(34.8 |
) |
|
|
(62.4 |
) |
Core operating income (1) |
|
|
89.4 |
|
|
|
5.3 |
|
|
|
57.8 |
|
|
|
3.6 |
|
|
|
31.6 |
|
|
|
54.7 |
|
Non-GAAP adjusted EBITDA (2) |
|
|
259.1 |
|
|
|
12.3 |
|
|
|
341.9 |
|
|
|
15.8 |
|
|
|
(82.8 |
) |
|
|
(24.2 |
) |
Core adjusted EBITDA (1) |
|
|
274.6 |
|
|
|
16.2 |
|
|
|
311.5 |
|
|
|
19.5 |
|
|
|
(36.9 |
) |
|
|
(11.8 |
) |
Net loss |
|
|
(124.2 |
) |
|
|
(5.9 |
) |
|
|
(116.3 |
) |
|
|
(5.4 |
) |
|
|
(7.9 |
) |
|
|
6.8 |
|
Diluted loss per share |
|
$ |
(0.68 |
) |
|
|
|
|
$ |
(0.66 |
) |
|
|
|
|
$ |
(0.02 |
) |
|
|
3.0 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|||||||||||||||
|
|
September 30, |
|
|
|
|
|
|
|
|||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
|
|
|||||||||||||||
|
|
Amount |
|
|
% of Net |
|
|
Amount |
|
|
% of Net |
|
|
$ |
|
|
% |
|
||||||
|
|
(dollars in millions, except per share amounts) |
|
|||||||||||||||||||||
Net sales |
|
$ |
6,362.6 |
|
|
|
100.0 |
% |
|
$ |
6,304.1 |
|
|
|
100.0 |
% |
|
$ |
58.5 |
|
|
|
0.9 |
% |
Core net sales (1) |
|
|
4,990.0 |
|
|
|
78.4 |
|
|
|
4,478.5 |
|
|
|
71.0 |
|
|
|
511.5 |
|
|
|
11.4 |
|
Gross profit |
|
|
1,998.5 |
|
|
|
31.4 |
|
|
|
2,032.8 |
|
|
|
32.2 |
|
|
|
(34.3 |
) |
|
|
(1.7 |
) |
Operating income (loss) |
|
|
11.5 |
|
|
|
0.2 |
|
|
|
(170.8 |
) |
|
|
(2.7 |
) |
|
|
182.3 |
|
|
|
(106.7 |
) |
Core operating income (1) |
|
|
164.8 |
|
|
|
3.3 |
|
|
|
98.5 |
|
|
|
1.6 |
|
|
|
66.3 |
|
|
|
67.3 |
|
Non-GAAP adjusted EBITDA (1) |
|
|
856.4 |
|
|
|
13.5 |
|
|
|
853.0 |
|
|
|
13.5 |
|
|
|
3.4 |
|
|
|
0.4 |
|
Core adjusted EBITDA (1) |
|
|
837.8 |
|
|
|
16.8 |
|
|
|
764.9 |
|
|
|
12.1 |
|
|
|
72.9 |
|
|
|
9.5 |
|
Net loss |
|
|
(375.6 |
) |
|
|
(5.9 |
) |
|
|
(597.3 |
) |
|
|
(9.5 |
) |
|
|
221.7 |
|
|
|
(37.1 |
) |
Diluted loss per share |
|
$ |
(2.06 |
) |
|
|
|
|
$ |
(3.26 |
) |
|
|
|
|
$ |
1.20 |
|
|
|
(36.8 |
) |
||
Net sales
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
||||||||||||||
|
|
September 30, |
|
|
$ |
|
|
% |
|
|
September 30, |
|
|
$ |
|
|
% |
|
||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Change |
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Change |
|
||||||||
|
|
(dollars in millions) |
|
|||||||||||||||||||||||||||||
Net sales |
|
$ |
2,105.3 |
|
|
$ |
2,168.1 |
|
|
$ |
(62.8 |
) |
|
|
(2.9 |
)% |
|
$ |
6,362.6 |
|
|
$ |
6,304.1 |
|
|
$ |
58.5 |
|
|
|
0.9 |
% |
Domestic |
|
|
1,201.8 |
|
|
|
1,318.2 |
|
|
|
(116.4 |
) |
|
|
(8.8 |
) |
|
|
3,647.9 |
|
|
|
3,892.3 |
|
|
|
(244.4 |
) |
|
|
(6.3 |
) |
International |
|
|
903.5 |
|
|
|
849.9 |
|
|
|
53.6 |
|
|
|
6.3 |
|
|
|
2,714.7 |
|
|
|
2,411.8 |
|
|
|
302.9 |
|
|
|
12.6 |
|
27
Compared to the prior year periods, net sales decreased $62.8 million, or 2.9%, for the three months ended September 30, 2021 and increased $58.5 million, or 0.9%, for the nine months ended September 30, 2021. Core net sales for the three months ended September 30, 2021 increased $95.6 million, or 6.0%, compared to the prior year period with increases in the OWN segment of $83.8 million and the VCN segment of $43.1 million, partially offset by a decrease in the Broadband segment of $31.3 million. Core net sales for the nine months ended September 30, 2021 increased $511.5 million, or 11.4%, compared to the prior year period with increases in the Broadband segment of $296.6 million, the VCN segment of $127.7 million and the OWN segment of $87.2 million. For the three and nine months ended September 30, 2021, net sales in the Home segment decreased $158.4 million and $453.0 million, respectively, compared to the prior year periods. In the three and nine months ended September 30, 2021, all our segments experienced supply shortages and extended lead times for certain materials that negatively affected our ability to meet customer demand for our products. We expect these shortages and delays to persist for the remainder of 2021 and into 2022. In addition, our Broadband segment faced capacity constraints that negatively affected net sales in the three and nine months ended September 30, 2021.
From a regional perspective, for the three months ended September 30, 2021 compared to the prior year period, net sales decreased in the U.S. by $116.4 million. The decrease in the U.S. was partially offset by increases in Canada by $26.5 million, the Europe, Middle East and Africa (EMEA) region by $11.5 million, the Asia Pacific (APAC) region by $9.3 million and the Caribbean and Latin American (CALA) region by $6.3 million. For the nine months ended September 30, 2021, net sales increased in the CALA region by $106.3 million, the APAC region by $99.4 million, the EMEA region by $51.9 million and Canada by $45.3 million. The increases in international net sales for the nine months ended September 30, 2021 were partially offset by a decrease of $244.4 million in the U.S. For additional information on regional sales by segment, see discussion of Segment Results below and Note 7 in the Notes to Unaudited Condensed Consolidated Financial Statements herein. Foreign exchange rate changes impacted net sales favorably by approximately 1% for both the three and nine months ended September 30, 2021 compared to the same prior year periods.
Net sales to customers located outside of the U.S. comprised 42.9% and 42.7% of total net sales for the three and nine months ended September 30, 2021, respectively, compared to 39.2% and 38.3% for the three and nine months ended September 30, 2020, respectively. For further details by segment, see the section titled “Segment Results” below.
Gross profit, SG&A expense and R&D expense
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
||||||||||||||
|
|
September 30, |
|
|
$ |
|
|
% |
|
|
September 30, |
|
|
$ |
|
|
% |
|
||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Change |
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Change |
|
||||||||
|
|
(dollars in millions) |
|
|||||||||||||||||||||||||||||
Gross profit |
|
$ |
653.0 |
|
|
$ |
735.5 |
|
|
$ |
(82.5 |
) |
|
|
(11.2 |
)% |
|
$ |
1,998.5 |
|
|
$ |
2,032.8 |
|
|
$ |
(34.3 |
) |
|
|
(1.7 |
)% |
As a percent of sales |
|
|
31.0 |
% |
|
|
33.9 |
% |
|
|
|
|
|
|
|
|
31.4 |
% |
|
|
32.2 |
% |
|
|
|
|||||||
SG&A expense |
|
|
314.3 |
|
|
|
296.7 |
|
|
|
17.6 |
|
|
|
5.9 |
|
|
|
909.3 |
|
|
|
898.7 |
|
|
|
10.6 |
|
|
|
1.2 |
|
As a percent of sales |
|
|
14.9 |
% |
|
|
13.7 |
% |
|
|
|
|
|
|
|
|
14.3 |
% |
|
|
14.3 |
% |
|
|
|
|||||||
R&D expense |
|
|
167.8 |
|
|
|
184.6 |
|
|
|
(16.8 |
) |
|
|
(9.1 |
) |
|
|
515.6 |
|
|
|
541.1 |
|
|
|
(25.5 |
) |
|
|
(4.7 |
) |
As a percent of sales |
|
|
8.0 |
% |
|
|
8.5 |
% |
|
|
|
|
|
|
|
|
8.1 |
% |
|
|
8.6 |
% |
|
|
|
|
|
|
||||
Gross profit (net sales less cost of sales)
Gross profit decreased for the three months ended September 30, 2021 compared to the prior year period primarily due to higher material and freight costs as well as lower net sales. For the nine months ended September 30, 2021, gross profit decreased despite higher net sales compared to the prior year period primarily due to higher freight and material costs as well as pricing pressures related to certain of our OWN segment products that were only partially offset by increased pricing on certain of our VCN segment products. In addition, we recorded charges of $5.0 million and $46.5 million that reduced gross profit in the three and nine months ended September 30, 2021, respectively, related to the settlement of intellectual property assertions.
Selling, general and administrative expense
In the first quarter of 2021, we announced a transformation initiative, CommScope NEXT, and in early April 2021, we announced our intention to spin-off our Home Networks business. We are also continuing to integrate the 2019 acquisition of ARRIS International plc (ARRIS), including our work to combine our enterprise resource planning systems. Due to these efforts, we incurred $26.2 million and $62.7 million of transaction, transformation and integration costs during the three and nine months ended September 30, 2021, respectively, compared to $4.8 million and $17.8 million during the three and nine months ended September 30, 2020, respectively. Transaction, transformation and integration costs during the prior year periods were mainly focused on the integration of the ARRIS business. We expect to continue to incur transaction, transformation and integration costs related to CommScope NEXT, the spin-off of the Home Networks business, and the integration of the ARRIS business, and such costs are expected to be material.
28
For the three and nine months ended September 30, 2021, excluding transaction, transformation and integration costs, selling, general and administrative (SG&A) expense decreased by $3.8 million and $34.3 million, respectively. For the three months ended September 30, 2021, the decrease was primarily due to lower variable compensation expense of $9.4 million and cost savings initiatives offset partially by higher bad debt expense of $16.3 million. For the nine months ended September 30, 2021, the decrease was primarily due to cost savings initiatives. Our cost savings initiatives in certain back-office functions have allowed us to reinvest in selling and marketing activities in our Core segments.
Research and development expense
R&D expense decreased for the three and nine months ended September 30, 2021 primarily due to decreased spending on Home segment products. R&D activities generally relate to ensuring that our products are capable of meeting the evolving technological needs of our customers, bringing new products to market and modifying existing products to better serve our customers.
Amortization of purchased intangible assets, Restructuring costs (credits), net and Asset impairments
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
||||||||||||||
|
|
September 30, |
|
|
$ |
|
|
% |
|
|
September 30, |
|
|
$ |
|
|
% |
|
||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Change |
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Change |
|
||||||||
|
|
(dollars in millions) |
|
|||||||||||||||||||||||||||||
Amortization of purchased |
|
$ |
153.0 |
|
|
$ |
158.1 |
|
|
$ |
(5.1 |
) |
|
|
(3.2 |
)% |
|
$ |
461.9 |
|
|
$ |
473.5 |
|
|
$ |
(11.6 |
) |
|
|
(2.4 |
%) |
Restructuring costs (credits), net |
|
|
(3.1 |
) |
|
|
40.3 |
|
|
|
(43.4 |
) |
|
NM |
|
|
|
100.2 |
|
|
|
83.6 |
|
|
|
16.6 |
|
|
|
19.9 |
|
|
Asset impairments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
NM |
|
|
|
— |
|
|
|
206.7 |
|
|
|
(206.7 |
) |
|
NM |
|
||
NM – Not meaningful
Amortization of purchased intangible assets
For the three and nine months ended September 30, 2021, amortization of purchased intangible assets was lower compared to the prior year periods because certain of our intangible assets became fully amortized.
Restructuring costs (credits), net
The net restructuring costs (credits) recorded during the three and nine months ended September 30, 2021 reflected actions initiated during 2021 and included $(5.1) million and $87.1 million, respectively, related to CommScope NEXT. For the three and nine months ended September 30, 2021, restructuring costs (credits) also reflected $2.0 million and $13.1 million, respectively, related to integrating the ARRIS business. Restructuring credits arise as estimates are refined or severance is forfeited when employees depart prior to the termination date. The restructuring costs recorded during the three and nine months ended September 30, 2020 were primarily related to integrating the ARRIS business. From a cash perspective, we paid $6.8 million and $38.6 million to settle restructuring liabilities during the three and nine months ended September 30, 2021, respectively, and expect to pay an additional $20.2 million by the end of 2021 and $60.5 million between 2022 and 2023 related to restructuring actions that have been initiated. Additional restructuring actions related to CommScope NEXT are expected to be identified and the resulting charges and cash requirements are expected to be material. The Company does not expect to identify significant additional restructuring actions related to the ARRIS integration.
29
Asset impairments
We did not record any asset impairment charges during the three or nine months ended September 30, 2021. For the three and nine months ended September 30, 2020, we recorded a goodwill impairment charge of $206.7 million related to our Home Networks reporting unit within our Home segment.
Other expense, net
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
||||||||||||||
|
|
September 30, |
|
|
$ |
|
|
% |
|
|
September 30, |
|
|
$ |
|
|
% |
|
||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Change |
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Change |
|
||||||||
|
|
(dollars in millions) |
|
|||||||||||||||||||||||||||||
Foreign currency loss |
|
$ |
(1.4 |
) |
|
$ |
(5.6 |
) |
|
$ |
4.2 |
|
|
|
(75.0 |
)% |
|
$ |
(2.3 |
) |
|
$ |
(19.5 |
) |
|
$ |
17.2 |
|
|
|
(88.2 |
)% |
Other expense, net |
|
|
(30.9 |
) |
|
|
(11.3 |
) |
|
|
(19.6 |
) |
|
|
173.5 |
|
|
|
(27.5 |
) |
|
|
(10.7 |
) |
|
|
(16.8 |
) |
|
|
157.0 |
|
Foreign currency loss
Foreign currency loss includes the net foreign currency gains and losses resulting from the settlement of receivables and payables, foreign currency contracts and short-term intercompany advances in a currency other than the subsidiary’s functional currency. The foreign currency loss in the prior year periods was primarily driven by certain unhedged currencies.
Other expense, net
For the three and nine months ended September 30, 2021, other expense, net was driven by the redemption fee of $34.4 million related to the refinancing of the 5.50% senior secured notes due March 2024 (the 2024 Secured Notes) as further described in Note 5 in the Notes to Unaudited Condensed Consolidated Financial Statements. For the three and nine months ended September 30, 2020, other expense, net was driven by redemption fees of $14.9 million related to the refinancing of the 5.00% senior notes due 2021 (the 2021 Notes) and the 5.50% senior notes due June 2024 (the 2024 Notes) and the redemption of $100.0 million of the 6.00% senior notes due 2025 (the 2025 Notes).
Interest expense, Interest income and Income taxes
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
||||||||||||||
|
|
September 30, |
|
|
$ |
|
|
% |
|
|
September 30, |
|
|
$ |
|
|
% |
|
||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Change |
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Change |
|
||||||||
|
|
(dollars in millions) |
|
|||||||||||||||||||||||||||||
Interest expense |
|
$ |
(148.6 |
) |
|
$ |
(147.2 |
) |
|
$ |
(1.4 |
) |
|
|
1.0 |
% |
|
$ |
(424.1 |
) |
|
$ |
(437.7 |
) |
|
$ |
13.6 |
|
|
|
(3.1 |
%) |
Interest income |
|
|
0.5 |
|
|
|
1.3 |
|
|
|
(0.8 |
) |
|
|
(61.5 |
) |
|
|
1.5 |
|
|
|
4.2 |
|
|
|
(2.7 |
) |
|
|
(64.3 |
) |
Income tax (expense) |
|
|
35.2 |
|
|
|
(9.3 |
) |
|
|
44.5 |
|
|
NM |
|
|
|
65.3 |
|
|
|
37.2 |
|
|
|
28.1 |
|
|
|
75.5 |
|
|
NM – Not meaningful
Interest expense and interest income
For the three and nine months ended September 30, 2021, we wrote off $9.9 million of debt issuance costs related to the refinancing of the 2024 Secured Notes as further described in Note 5 in the Notes to Unaudited Condensed Consolidated Financial Statements. For the three months ended September 30, 2020, we wrote off $6.0 million related to the refinancing of the 2021 Notes and 2024 Notes and the partial redemption of the 2025 Notes. Excluding the write-off of debt issuance costs, interest expense decreased for the three and nine months ended September 30, 2021 due to lower variable interest rates on our senior secured term loan due 2026 (the 2026 Term Loan). Our weighted average effective interest rate on outstanding borrowings, including the impact of the interest rate swap and the amortization of debt issuance costs and original issue discount, was 5.74% at September 30, 2021, 5.86% at December 31, 2020 and 5.87% at September 30, 2020.
30
Income tax (expense) benefit
For the three months ended September 30, 2021, our effective tax rate was 22.1% and we recognized a tax benefit of $35.2 million on a pretax loss of $159.4 million. Our tax benefit was higher than the statutory rate of 21% due to favorable changes in uncertain tax positions. For the nine months ended September 30, 2021, our effective tax rate was 14.8% and we recognized a tax benefit of $65.3 million on a pretax loss of $440.9 million. Our tax benefit was lower than the statutory rate primarily due to the impact of $37.4 million in tax expense related to a foreign tax rate change.
Our effective income tax rate was (8.7)% and 5.9% for the three and nine months ended September 30, 2020. We recognized income tax expense of $9.3 million on a pretax loss of $107.0 million and a tax benefit of $37.2 million on a pretax loss of $634.5 million respectively. For the three months ended September 30, 2020, the income tax expense on our pretax loss was driven by $19.2 million of tax expense related to a foreign tax rate change. Our tax benefit in the nine months ended September 30, 2020 was impacted unfavorably primarily by a goodwill impairment charge of $206.7 million, for which minimal tax benefits were recorded, $22.7 million of tax expense related to state valuation allowances and $19.2 million in income tax expense related to a foreign tax rate change. For both the three and nine months ended September 30, 2020, our tax rate was also impacted favorably by federal tax credits and unfavorably by U.S. anti-deferral provisions and foreign withholding taxes. Excess tax costs of $1.2 million and $9.0 million related to equity compensation awards also impacted the income taxes unfavorably for the three and nine months ended September 30, 2020, respectively
Segment Results
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
September 30, |
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
2021 |
|
|
|
2020 |
|
|
|
|
|||||||||||||||||
|
|
Amount |
|
|
% of Net |
|
|
|
Amount |
|
|
% of Net |
|
|
|
$ |
|
|
% |
|
|
||||||
|
|
(dollars in millions) |
|
|
|||||||||||||||||||||||
Net sales by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Broadband |
|
$ |
779.7 |
|
|
|
37.0 |
|
% |
|
$ |
811.0 |
|
|
|
37.4 |
|
% |
|
$ |
(31.3 |
) |
|
|
(3.9 |
) |
% |
OWN |
|
|
355.6 |
|
|
|
16.9 |
|
|
|
|
271.8 |
|
|
|
12.5 |
|
|
|
|
83.8 |
|
|
|
30.8 |
|
|
VCN |
|
|
554.9 |
|
|
|
26.4 |
|
|
|
|
511.8 |
|
|
|
23.6 |
|
|
|
|
43.1 |
|
|
|
8.4 |
|
|
Core net sales (1) |
|
|
1,690.2 |
|
|
|
80.3 |
|
|
|
|
1,594.6 |
|
|
|
73.5 |
|
|
|
|
95.6 |
|
|
|
6.0 |
|
|
Home |
|
|
415.1 |
|
|
|
19.7 |
|
|
|
|
573.5 |
|
|
|
26.5 |
|
|
|
|
(158.4 |
) |
|
|
(27.6 |
) |
|
Consolidated net sales |
|
$ |
2,105.3 |
|
|
|
100.0 |
|
% |
|
$ |
2,168.1 |
|
|
|
100.0 |
|
% |
|
$ |
(62.8 |
) |
|
|
(2.9 |
) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating income (loss) by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Broadband |
|
$ |
50.8 |
|
|
|
6.5 |
|
% |
|
$ |
75.0 |
|
|
|
9.2 |
|
% |
|
$ |
(24.2 |
) |
|
|
(32.3 |
) |
% |
OWN |
|
|
43.2 |
|
|
|
12.1 |
|
|
|
|
26.0 |
|
|
|
9.6 |
|
|
|
|
17.2 |
|
|
|
66.2 |
|
|
VCN |
|
|
(4.6 |
) |
|
|
(0.8 |
) |
|
|
|
(43.2 |
) |
|
|
(8.4 |
) |
|
|
|
38.6 |
|
|
|
(89.4 |
) |
|
Core operating income (1) |
|
|
89.4 |
|
|
|
5.3 |
|
|
|
|
57.8 |
|
|
|
3.6 |
|
|
|
|
31.6 |
|
|
|
54.7 |
|
|
Home |
|
|
(68.4 |
) |
|
|
(16.5 |
) |
|
|
|
(2.0 |
) |
|
|
(0.3 |
) |
|
|
|
(66.4 |
) |
|
|
3,320.0 |
|
|
Consolidated operating income |
|
$ |
21.0 |
|
|
|
1.0 |
|
% |
|
$ |
55.8 |
|
|
|
2.6 |
|
% |
|
$ |
(34.8 |
) |
|
|
(62.4 |
) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Adjusted EBITDA by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Broadband |
|
$ |
158.1 |
|
|
|
20.3 |
|
% |
|
$ |
202.3 |
|
|
|
24.9 |
|
% |
|
$ |
(44.2 |
) |
|
|
(21.8 |
) |
% |
OWN |
|
|
60.5 |
|
|
|
17.0 |
|
|
|
|
53.6 |
|
|
|
19.7 |
|
|
|
|
6.9 |
|
|
|
12.9 |
|
|
VCN |
|
|
56.0 |
|
|
|
10.1 |
|
|
|
|
55.6 |
|
|
|
10.9 |
|
|
|
|
0.4 |
|
|
|
0.7 |
|
|
Core adjusted EBITDA (1) |
|
|
274.6 |
|
|
|
16.2 |
|
|
|
|
311.5 |
|
|
|
19.5 |
|
|
|
|
(36.9 |
) |
|
|
(11.8 |
) |
|
Home |
|
|
(15.5 |
) |
|
|
(3.7 |
) |
|
|
|
30.4 |
|
|
|
5.3 |
|
|
|
|
(45.9 |
) |
|
|
(151.0 |
) |
|
Non-GAAP consolidated adjusted |
|
$ |
259.1 |
|
|
|
12.3 |
|
% |
|
$ |
341.9 |
|
|
|
15.8 |
|
% |
|
$ |
(82.8 |
) |
|
|
(24.2 |
) |
% |
31
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
September 30, |
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
2021 |
|
|
|
2020 |
|
|
|
|
|||||||||||||||||
|
|
Amount |
|
|
% of Net |
|
|
|
Amount |
|
|
% of Net |
|
|
|
$ |
|
|
% |
|
|
||||||
Net sales by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Broadband |
|
$ |
2,366.4 |
|
|
|
37.2 |
|
% |
|
$ |
2,069.8 |
|
|
|
32.8 |
|
% |
|
$ |
296.6 |
|
|
|
14.3 |
|
% |
OWN |
|
|
1,036.2 |
|
|
|
16.3 |
|
|
|
|
949.0 |
|
|
|
15.1 |
|
|
|
|
87.2 |
|
|
|
9.2 |
|
|
VCN |
|
|
1,587.4 |
|
|
|
24.9 |
|
|
|
|
1,459.7 |
|
|
|
23.2 |
|
|
|
|
127.7 |
|
|
|
8.7 |
|
|
Core net sales (1) |
|
|
4,990.0 |
|
|
|
78.4 |
|
|
|
|
4,478.5 |
|
|
|
71.0 |
|
|
|
|
511.5 |
|
|
|
11.4 |
|
|
Home |
|
|
1,372.6 |
|
|
|
21.6 |
|
|
|
|
1,825.6 |
|
|
|
29.0 |
|
|
|
|
(453.0 |
) |
|
|
(24.8 |
) |
|
Consolidated net sales |
|
$ |
6,362.6 |
|
|
|
100.0 |
|
% |
|
$ |
6,304.1 |
|
|
|
100.0 |
|
% |
|
$ |
58.5 |
|
|
|
0.9 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating income (loss) by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Broadband |
|
$ |
70.0 |
|
|
|
3.0 |
|
% |
|
$ |
55.8 |
|
|
|
2.7 |
|
% |
|
$ |
14.2 |
|
|
|
25.4 |
|
% |
OWN |
|
|
158.4 |
|
|
|
15.3 |
|
|
|
|
146.5 |
|
|
|
15.4 |
|
|
|
|
11.9 |
|
|
|
8.1 |
|
|
VCN |
|
|
(63.6 |
) |
|
|
(4.0 |
) |
|
|
|
(103.8 |
) |
|
|
(7.1 |
) |
|
|
|
40.2 |
|
|
|
(38.7 |
) |
|
Core operating income (1) |
|
|
164.8 |
|
|
|
3.3 |
|
|
|
|
98.5 |
|
|
|
2.2 |
|
|
|
|
66.3 |
|
|
|
67.3 |
|
|
Home |
|
|
(153.5 |
) |
|
|
(11.2 |
) |
|
|
|
(269.3 |
) |
|
|
(14.8 |
) |
|
|
|
115.8 |
|
|
|
(43.0 |
) |
% |
Consolidated operating income (loss) |
|
$ |
11.5 |
|
|
|
0.2 |
|
% |
|
$ |
(170.8 |
) |
|
|
(2.7 |
) |
% |
|
$ |
182.1 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Adjusted EBITDA by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Broadband |
|
$ |
488.3 |
|
|
|
20.6 |
|
% |
|
$ |
414.9 |
|
|
|
20.0 |
|
% |
|
$ |
73.4 |
|
|
|
17.7 |
|
% |
OWN |
|
|
214.4 |
|
|
|
20.7 |
|
|
|
|
218.4 |
|
|
|
23.0 |
|
|
|
|
(4.0 |
) |
|
|
(1.8 |
) |
|
VCN |
|
|
135.1 |
|
|
|
8.5 |
|
|
|
|
131.6 |
|
|
|
9.0 |
|
|
|
|
3.5 |
|
|
|
2.7 |
|
|
Core adjusted EBITDA (1) |
|
|
837.8 |
|
|
|
16.8 |
|
|
|
|
764.9 |
|
|
|
17.1 |
|
|
|
|
72.9 |
|
|
|
9.5 |
|
|
Home |
|
|
18.6 |
|
|
|
1.4 |
|
|
|
|
88.1 |
|
|
|
4.8 |
|
|
|
|
(69.5 |
) |
|
|
(78.9 |
) |
|
Non-GAAP consolidated adjusted |
|
$ |
856.4 |
|
|
|
13.5 |
|
% |
|
$ |
853.0 |
|
|
|
13.5 |
|
% |
|
$ |
3.4 |
|
|
|
0.4 |
|
% |
Note: Components may not sum to total due to rounding.
NM – Not meaningful
Broadband Networks Segment
Net sales for the Broadband segment decreased for the three months ended September 30, 2021 compared to the prior year period primarily due to a slowdown in service provider spending in the U.S. on our network and cloud products, and certain software licensing revenue recorded in the prior year period that did not recur in the current year. These decreases were somewhat offset by higher sales of our network connectivity products. For the nine months ended September 30, 2021, net sales increased compared to the prior year period due to increased demand for our products and services as service providers enhance their networks to keep pace with broadband demand. We are experiencing capacity constraints and supply shortages with certain of our network cable products, which hindered our ability to meet customer demand for our Broadband segment products in the three and nine months ended September 30, 2021. We are investing to alleviate our capacity constraints and expect them to ease in the fourth quarter of 2021. We expect the supply shortages to extend for the remainder of 2021 and into 2022. From a regional perspective, for the three months ended September 30, 2021, net sales decreased in the U.S. by $68.0 million and the APAC region by $18.9 million but increased in the CALA region by $30.9 million, the EMEA region by $18.1 million and Canada by $6.6 million. For the nine months ended September 30, 2021, net sales increased in the U.S. by $161.1 million, the CALA region by $115.7 million and the EMEA region by $33.0 million but decreased in the APAC region by $13.0 million and Canada by $0.2 million. Foreign exchange rate changes impacted Broadband segment net sales favorably by approximately 1% during both the three and nine months ended September 30, 2021 compared to the same prior year periods.
32
For the three months ended September 30, 2021, Broadband segment operating income and adjusted EBITDA decreased compared to the prior year period primarily due to higher material and freight costs, lower sales volumes and increased expenses to expand capacity to meet demand. For the nine months ended September 30, 2021, Broadband segment operating income and adjusted EBITDA increased compared to the prior year period due to increased sales volumes, partially offset by higher freight and material costs and increased expenses to expand capacity to meet demand. Broadband segment operating income was unfavorably impacted by increased restructuring costs of $52.7 million and an intellectual property settlement charge of $20.0 million for the nine months ended September 30, 2021. Restructuring costs and intellectual property settlements are not reflected in adjusted EBITDA. See “Reconciliation of Segment Adjusted EBITDA” below.
Outdoor Wireless Networks Segment
For the three months ended September 30, 2021, OWN segment net sales increased compared to the prior year period primarily due to an increase in spending on wireless network equipment by certain of our U.S. service provider customers. For the nine months ended September 30, 2021, OWN segment net sales increased compared to the prior year period primarily due to an increase in spending on macro cell solutions in the APAC region and Canada. Although OWN segment net sales increased year over year for both the three and nine months ended September 30, 2021, net sales were negatively affected by supply shortages of certain materials that hindered our ability to meet customer demand. From a regional perspective, for the three months ended September 30, 2021, OWN segment net sales increased in the U.S. by $64.4 million, the APAC region by $12.4 million, Canada by $9.3 million and the EMEA region by $5.9 million but decreased in the CALA region by $8.2 million. For the nine months ended September 30, 2021, OWN segment net sales increased in the APAC region by $49.5 million, Canada by $35.0 million, the EMEA region by $10.3 million and the U.S. by $3.5 million and decreased in the CALA region by $11.1 million. Foreign exchange rate changes impacted OWN segment net sales favorably by approximately 1% during both the three and nine months ended September 30, 2021 compared to the same prior year periods.
For the three months ended September 30, 2021, OWN segment operating income and adjusted EBITDA increased compared to the prior year period primarily due to increased sales volumes, partially offset by pricing pressure on certain products and higher material and freight costs. For the nine months ended September 30, 2021, OWN segment operating income and adjusted EBITDA both benefitted from increased sales volumes and benefits from cost savings initiatives, partially offset by pricing pressures on certain products and higher freight and material costs. In addition, OWN segment operating income for the nine months ended September 30, 2021 also increased as a result of a $9.1 million reduction in amortization expense compared to the prior year period. Amortization expense is excluded from adjusted EBITDA. See “Reconciliation of Segment Adjusted EBITDA” below.
Venue and Campus Networks Segment
For the three months ended September 30, 2021, net sales increased in the VCN segment due to higher sales of enterprise copper and fiber products, partially offset by lower net sales of Ruckus products and distributed antenna systems. For the nine months ended September 30, 2021, net sales increased in the VCN segment with higher net sales of enterprise and Ruckus products, partially offset by lower net sales of distributed antenna systems. Net sales of Ruckus products decreased in the third quarter and were unfavorably impacted for the year-to-date period due to shortages of certain materials that negatively affected our ability to meet customer demand. We expect this supply shortage to continue for the remainder of 2021 and into 2022. From a regional perspective, for the three months ended September 30, 2021, net sales increased in the U.S. by $22.9 million, CALA region by $10.1 million, EMEA region by $6.3 million and APAC region by $4.5 million but decreased in Canada by $0.7 million. For the nine months ended September 30, 2021, net sales increased in the APAC region by $60.6 million, the EMEA region by $34.4 million, the CALA region by $18.6 million, the U.S. by $8.2 million and Canada by $5.9 million. Foreign exchange rate changes impacted VCN segment net sales favorably by approximately 1% and 2% during the three and nine months ended September 30, 2021, respectively, compared to the same prior year periods.
For the three and nine months ended September 30, 2021, VCN segment operating loss decreased and adjusted EBITDA increased compared to the prior year periods primarily due to favorable pricing impacts on certain products, higher sales volumes and favorable geographic and product mix, partially offset by higher material and freight costs. See “Reconciliation of Segment Adjusted EBITDA” below.
33
Home Networks Segment
Net sales for the Home segment decreased for the three and nine months ended September 30, 2021 primarily due to the continuing decline in demand for video products from both U.S. and international service providers as well as the negative impact of supply shortages and delays on our ability to meet customer demand. From a regional perspective, for the three months ended September 30, 2021, net sales decreased in the U.S. by $135.7 million, CALA region by $26.5 million, EMEA region by $18.8 million and increased in the APAC region by $11.3 million and Canada by $11.3 million. For the nine months ended September 30, 2021, net sales decreased in the U.S. by $417.2 million, EMEA region by $25.8 million and CALA region by $16.9 million and increased in Canada by $4.6 million and the APAC region by $2.3 million. Foreign exchange rate changes impacted Home segment net sales favorably by approximately 1% during both the three and nine months ended September 30, 2021 compared to the same prior year periods.
For the three months ended September 30, 2021, Home segment operating loss increased and adjusted EBITDA decreased compared to the prior year period primarily due to lower sales volumes, higher material costs and higher bad debt expense, offset partially by benefits from cost savings initiatives. For the nine months ended September 30, 2021, excluding the impact of the $206.7 million prior year period goodwill impairment charge, Home segment operating loss increased and adjusted EBITDA decreased primarily due to lower sales volumes, higher material costs and higher bad debt expense, partially offset by benefits from cost savings initiatives. Home segment operating loss was also unfavorably impacted for the three and nine months ended September 30, 2021 by higher transaction, transformation and integration costs of $11.9 million and $27.3 million, respectively, and higher intellectual property litigation charges of $20.1 million and $31.5 million, respectively. During the three and nine months ended September 30, 2020, the Home segment benefited from the release of a $23.6 million accrual related to an intellectual property royalty matter that was settled for less than anticipated. Of the $23.6 million accrual release, $15.1 million related to pre-acquisition sales and was excluded from the calculation of adjusted EBITDA; the remaining $8.5 million release provided a benefit to Home segment adjusted EBITDA in the three and nine months ended September 30, 2020. Home segment transaction, transformation and integration costs were primarily related to the announced planned spin-off of the Home Networks business. Transaction, transformation and integration costs and intellectual property settlements are not reflected in adjusted EBITDA. See “Reconciliation of Segment Adjusted EBITDA” below.
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes certain key measures of our liquidity and capital resources (in millions, except percentage data).
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
September 30, |
|
|
December 31, |
|
|
$ |
|
|
% |
|
|
||||
|
|
(dollars in millions) |
|
|
|||||||||||||
Cash and cash equivalents |
|
$ |
411.5 |
|
|
$ |
521.9 |
|
|
$ |
(110.4 |
) |
|
|
(21.2 |
) |
% |
Working capital (1), excluding cash and cash |
|
|
972.3 |
|
|
|
911.2 |
|
|
|
61.1 |
|
|
|
6.7 |
|
|
Availability under revolving credit facility |
|
|
686.4 |
|
|
|
735.1 |
|
|
|
(48.7 |
) |
|
|
(6.6 |
) |
|
Long-term debt, including current portion |
|
|
9,513.0 |
|
|
|
9,520.6 |
|
|
|
(7.6 |
) |
|
|
(0.1 |
) |
|
Total capitalization (2) |
|
|
10,471.4 |
|
|
|
10,917.4 |
|
|
|
(446.0 |
) |
|
|
(4.1 |
) |
|
Long-term debt as a percentage of total |
|
|
90.8 |
% |
|
|
87.2 |
% |
|
|
|
|
|
|
|
||
(1) Working capital consisted of current assets of $3,438.5 million less current liabilities of $2,086.7 million at September 30, 2021. Working capital consisted of current assets of $3,354.5 million less current liabilities of $1,953.4 million at December 31, 2020.
(2) Total capitalization includes long-term debt, including the current portion, Series A convertible preferred stock (the Convertible Preferred Stock) and stockholders’ equity.
Our principal sources of liquidity on a short-term basis are cash and cash equivalents, cash flows provided by operations, availability under our credit facilities and potential distributions related to the spin-off of the Home Networks business. On a long-term basis, our potential sources of liquidity also include raising capital through the issuance of additional equity and/or debt.
34
The primary uses of liquidity include debt service requirements, voluntary debt repayments or redemptions, working capital requirements, capital expenditures, transaction separation costs, transformation costs, restructuring costs, acquisition integration costs, dividends related to the Convertible Preferred Stock if we elect to pay such dividends in cash, litigation settlements and income tax payments. We believe that our existing cash, cash equivalents and cash flows from operations, combined with availability under our senior secured revolving credit facility (the Revolving Credit Facility), will be sufficient to meet our presently anticipated future cash needs. We may experience volatility in cash flows between periods due to, among other reasons, variability in the timing of vendor payments and customer receipts. We may, from time to time, borrow additional amounts under the Revolving Credit Facility or issue debt securities, if market conditions are favorable, to meet future cash needs or to reduce our borrowing costs.
Although there are no financial maintenance covenants under the terms of our senior notes, there is a limitation, among other limitations, on certain future borrowings based on an adjusted leverage ratio or a fixed charge coverage ratio. These ratios are based on financial measures similar to non-GAAP adjusted EBITDA as presented in the “Reconciliation of Non-GAAP Measures” section below, but also give pro forma effect to certain events, including acquisitions, synergies and savings from cost reduction initiatives such as facility closures and headcount reductions. For the twelve months ended September 30, 2021, our pro forma adjusted EBITDA, as measured pursuant to the indentures governing our notes, was $1,303.8 million, which included annualized synergies expected to be mostly realized within the next year ($6.1 million) and annualized savings expected from cost reduction initiatives ($79.1 million) so that the impact of the synergies and cost reduction initiatives is fully reflected in the twelve-month period used in the calculation of the ratios. In addition to limitations under these indentures, our senior secured credit facilities contain customary negative covenants based on similar financial measures. We believe we are in compliance with the covenants under our indentures and senior secured credit facilities at September 30, 2021.
Cash and cash equivalents decreased during the nine months ended September 30, 2021 primarily driven by cash paid for capital expenditures of $96.2 million, cash dividends paid for the Convertible Preferred Stock of $43.0 million, a debt extinguishment payment of $34.4 million, tax withholding payments for vested equity-based compensation awards of $24.7 million, a payment to settle a net investment hedge of $18.0 million and debt issuance costs paid of $9.6 million, partially offset by cash generated from operating activities of $134.7 million. We expect cash generation to be lower in 2021 than the prior year as we continue to expand capacity for our Broadband segment and invest in CommScope NEXT initiatives. As of September 30, 2021, approximately 62% of our cash and cash equivalents were held outside the U.S.
Working capital, excluding cash and cash equivalents and the current portion of long-term debt, increased during the nine months ended September 30, 2021 primarily due to higher inventory balances as a result of rising material costs and increases in stock as we build inventory waiting for certain materials or components to complete our products for sale. Partially offsetting the increase in inventory is an increase in accounts payable due to the timing of payments. In September 2021, we sold approximately $31 million of accounts receivable under customer-sponsored supplier financing agreements. Of that amount, approximately $25 million impacted working capital as of September 30, 2021. Under these agreements, we are able to sell accounts receivable to a bank, and we retain no interest in and have no servicing responsibilities for the accounts receivable sold.
The net reduction in total capitalization during the nine months ended September 30, 2021 reflected the net loss for the period and foreign currency translation losses.
Cash Flow Overview
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
September 30, |
|
|
$ |
|
|
% |
|
|||||||
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Change |
|
||||
|
|
(dollars in millions) |
|
|||||||||||||
Net cash generated by operating activities |
|
$ |
134.7 |
|
|
$ |
338.5 |
|
|
$ |
(203.8 |
) |
|
|
(60.2 |
)% |
Net cash used in investing activities |
|
|
(111.6 |
) |
|
|
(76.8 |
) |
|
|
(34.8 |
) |
|
|
45.3 |
|
Net cash used in financing activities |
|
|
(127.7 |
) |
|
|
(259.8 |
) |
|
|
132.1 |
|
|
|
(50.8 |
) |
35
Operating Activities
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
|
|
(in millions) |
|
|||||
Net loss |
|
$ |
(375.6 |
) |
|
$ |
(597.3 |
) |
Adjustments to reconcile net loss to net cash generated by |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
595.8 |
|
|
|
618.8 |
|
Equity-based compensation |
|
|
61.0 |
|
|
|
90.0 |
|
Deferred income taxes |
|
|
(158.1 |
) |
|
|
(96.6 |
) |
Asset impairments |
|
|
— |
|
|
|
206.7 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
(36.2 |
) |
|
|
200.9 |
|
Inventories |
|
|
(173.5 |
) |
|
|
(130.3 |
) |
Prepaid expenses and other assets |
|
|
11.0 |
|
|
|
32.2 |
|
Accounts payable and other liabilities |
|
|
170.5 |
|
|
|
(25.0 |
) |
Other |
|
|
39.8 |
|
|
|
39.1 |
|
Net cash generated by operating activities |
|
$ |
134.7 |
|
|
$ |
338.5 |
|
During the nine months ended September 30, 2021, operating cash flows decreased compared to the prior year period primarily as a result of increases in working capital in the current year as net sales improved. We participated in a customer-sponsored supplier financing arrangement that favorably impacted operating cash flows by approximately $25 million during the nine months ended September 30, 2021.
Investing Activities
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
|
|
(in millions) |
|
|||||
Additions to property, plant and equipment |
|
$ |
(96.2 |
) |
|
$ |
(73.5 |
) |
Proceeds from sale of property, plant and equipment |
|
|
2.6 |
|
|
|
0.2 |
|
Payments upon settlement of net investment hedge |
|
|
(18.0 |
) |
|
|
— |
|
Cash paid for Cable Exchange acquisition |
|
|
— |
|
|
|
(3.5 |
) |
Net cash used in investing activities |
|
$ |
(111.6 |
) |
|
$ |
(76.8 |
) |
During the nine months ended September 30, 2021, the increase in cash used in investing activities was driven by a payment made to settle a net investment hedge and an increase of $22.7 million in our investment in property, plant and equipment that primarily related to supporting improvements in manufacturing operations, including expanding production capacity and investing in information technology, including software developed for internal use.
36
Financing Activities
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
|
|
(in millions) |
|
|||||
Long-term debt repaid |
|
$ |
(1,274.0 |
) |
|
$ |
(1,174.0 |
) |
Long-term debt proceeds |
|
|
1,250.0 |
|
|
|
950.0 |
|
Debt issuance costs |
|
|
(9.6 |
) |
|
|
(11.6 |
) |
Debt extinguishment costs |
|
|
(34.4 |
) |
|
|
(14.9 |
) |
Dividends paid on Series A convertible preferred stock |
|
|
(43.0 |
) |
|
|
— |
|
Proceeds from the issuance of common shares under equity-based |
|
|
5.5 |
|
|
|
1.0 |
|
Tax withholding payments for vested equity-based compensation |
|
|
(24.7 |
) |
|
|
(10.3 |
) |
Other |
|
|
2.5 |
|
|
|
— |
|
Net cash used in financing activities |
|
$ |
(127.7 |
) |
|
$ |
(259.8 |
) |
In August 2021, we issued $1,250.0 million of 4.75% senior secured notes due 2029 (the 2029 Secured Notes) and used the net proceeds from the offering, together with cash on hand, to redeem and retire $1,250.0 million outstanding under the 2024 Secured Notes. In connection with the issuance of the 2029 Secured Notes, we paid $9.6 million of debt issuance costs. We paid a redemption premium of $34.4 million to retire the 2024 Secured Notes. We also paid three quarterly scheduled amortization payments totaling $24.0 million on the senior secured term loan due in 2026 (the 2026 Term Loan). We may continue to look for favorable opportunities to refinance portions of our existing debt to lower borrowing costs, extent the term or adjust the total amount of fixed-rate or floating-rate debt.
In July 2020, we issued $700.0 million of 7.125% senior notes due 2028 (the 2028 Notes) and used the net proceeds from the offering to redeem and retire the $700.0 million outstanding under the 5.00% senior notes due 2021 (the 2021 Notes) and the 2024 Notes. We incurred $11.6 million of debt issuance costs in connection with the issuance of the 2028 Notes. Also during the nine months ended September 30, 2020, we borrowed and repaid $250.0 million under our senior secured asset-based revolving credit facility (the Revolving Credit Facility). In addition, we redeemed $100.0 million aggregate principal amount of the 2021 Notes, redeemed $100.0 million aggregate principal amount of the 2025 Notes and paid three quarterly scheduled amortization payments totaling $24.0 million on the 2026 Term Loan. We paid redemption premiums of $11.9 million to retire the 2024 Notes and $3.0 million to partially redeem the 2025 Notes.
As of September 30, 2021, we had no outstanding borrowings under the Revolving Credit Facility and the remaining availability was $686.4 million, reflecting a borrowing base of $731.6 million reduced by $45.2 million of letters of credit issued under the Revolving Credit Facility.
Also impacting cash used in financing activities for the nine months ended September 30, 2021 was the increase of $43.0 million in cash dividends paid for the Convertible Preferred Stock. In the prior year period, the dividends for the Convertible Preferred Stock were paid in additional shares of Convertible Preferred Stock. During the nine months ended September 30, 2021, we received proceeds of $5.5 million related to the exercise of stock options compared to $1.0 million in the prior year period. During the nine months ended September 30, 2021, employees surrendered shares of our common stock to satisfy their tax withholding requirements on vested restricted stock units and performance share units, which reduced cash flows by $24.7 million compared to $10.3 million in the prior year period.
Off-Balance Sheet Arrangements
We were not party to any significant off-balance sheet arrangements during the nine months ended September 30, 2021.
37
Reconciliation of Non-GAAP Measures
We believe that presenting certain non-GAAP financial measures enhances an investor’s understanding of our financial performance. We further believe that these financial measures are useful in assessing our operating performance from period to period by excluding certain items that we believe are not representative of our core business. We also use certain of these financial measures for business planning purposes and in measuring our performance relative to that of our competitors.
We believe these financial measures are commonly used by investors to evaluate our performance and that of our competitors. However, our use of the term non-GAAP adjusted EBITDA may vary from that of others in our industry. These financial measures should not be considered as alternatives to operating income (loss), net income (loss) or any other performance measures derived in accordance with U.S. GAAP as measures of operating performance, operating cash flows or liquidity.
We also believe presenting these non-GAAP results for the twelve months ended September 30, 2021 provides an additional tool for assessing our recent performance. Such amounts are unaudited and are derived by subtracting the data for the nine months ended September 30, 2020 from the data for the year ended December 31, 2020 and then adding the data for the nine months ended September 30, 2021.
Although there are no financial maintenance covenants under the terms of our senior notes, there is a limitation, among other limitations, on certain future borrowings based on an adjusted leverage ratio or a fixed charge coverage ratio. These ratios are based on financial measures similar to non-GAAP adjusted EBITDA as presented in this section, but also give pro forma effect to certain events, including acquisitions and savings from cost reduction initiatives such as facility closures and headcount reductions.
Consolidated
|
|
Three Months |
|
|
Nine Months |
|
|
Year |
|
|
Twelve Months |
|
||||||||||||
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
||||||||||||
|
|
September 30, |
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
||||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
2020 |
|
|
2021 |
|
||||||
|
|
(in millions) |
|
|||||||||||||||||||||
Net loss |
|
$ |
(124.2 |
) |
|
$ |
(116.3 |
) |
|
$ |
(375.6 |
) |
|
$ |
(597.3 |
) |
|
$ |
(573.4 |
) |
|
$ |
(351.7 |
) |
Income tax expense (benefit) |
|
|
(35.2 |
) |
|
|
9.3 |
|
|
|
(65.3 |
) |
|
|
(37.2 |
) |
|
|
(81.1 |
) |
|
|
(109.2 |
) |
Interest income |
|
|
(0.5 |
) |
|
|
(1.3 |
) |
|
|
(1.5 |
) |
|
|
(4.2 |
) |
|
|
(4.4 |
) |
|
|
(1.7 |
) |
Interest expense |
|
|
148.6 |
|
|
|
147.2 |
|
|
|
424.1 |
|
|
|
437.7 |
|
|
|
577.8 |
|
|
|
564.2 |
|
Other expense, net |
|
|
32.3 |
|
|
|
16.9 |
|
|
|
29.8 |
|
|
|
30.2 |
|
|
|
29.3 |
|
|
|
28.9 |
|
Operating income (loss) |
|
$ |
21.0 |
|
|
$ |
55.8 |
|
|
$ |
11.5 |
|
|
$ |
(170.8 |
) |
|
$ |
(51.8 |
) |
|
$ |
130.5 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Amortization of purchased intangible assets |
|
|
153.0 |
|
|
|
158.1 |
|
|
|
461.9 |
|
|
|
473.5 |
|
|
|
630.5 |
|
|
|
618.9 |
|
Restructuring costs (credits), net |
|
|
(3.1 |
) |
|
|
40.3 |
|
|
|
100.2 |
|
|
|
83.6 |
|
|
|
88.4 |
|
|
|
105.0 |
|
Equity-based compensation |
|
|
21.0 |
|
|
|
34.0 |
|
|
|
61.0 |
|
|
|
90.0 |
|
|
|
115.0 |
|
|
|
86.0 |
|
Asset impairments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
206.7 |
|
|
|
206.7 |
|
|
|
— |
|
Transaction, transformation and integration |
|
|
26.2 |
|
|
|
4.8 |
|
|
|
62.7 |
|
|
|
17.8 |
|
|
|
24.9 |
|
|
|
69.8 |
|
Acquisition accounting adjustments (2) |
|
|
2.8 |
|
|
|
5.1 |
|
|
|
9.0 |
|
|
|
15.8 |
|
|
|
20.6 |
|
|
|
13.8 |
|
Patent claims and litigation settlements |
|
|
5.0 |
|
|
|
(1.4 |
) |
|
|
46.5 |
|
|
|
11.4 |
|
|
|
16.3 |
|
|
|
51.4 |
|
Executive severance |
|
|
— |
|
|
|
6.3 |
|
|
|
— |
|
|
|
6.3 |
|
|
|
6.3 |
|
|
|
— |
|
Depreciation |
|
|
33.2 |
|
|
|
38.9 |
|
|
|
103.6 |
|
|
|
118.7 |
|
|
|
158.3 |
|
|
|
143.2 |
|
Non-GAAP adjusted EBITDA |
|
$ |
259.1 |
|
|
$ |
341.9 |
|
|
$ |
856.4 |
|
|
$ |
853.0 |
|
|
$ |
1,215.2 |
|
|
$ |
1,218.6 |
|
Note: Components may not sum to total due to rounding.
38
Reconciliation of Segment Adjusted EBITDA
Segment adjusted EBITDA is provided as a performance measure in Note 7 in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. Below we reconcile segment adjusted EBITDA for each segment individually to operating income (loss) for that segment to supplement the reconciliation of the total segment adjusted EBITDA to consolidated operating loss in that footnote.
Broadband Networks Segment
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
|
(in millions) |
|
|||||||||||||
Operating income |
|
$ |
50.8 |
|
|
$ |
75.0 |
|
|
$ |
70.0 |
|
|
$ |
55.8 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of purchased intangible assets |
|
|
80.5 |
|
|
|
81.2 |
|
|
|
241.9 |
|
|
|
243.4 |
|
Restructuring costs (credits), net |
|
|
(3.6 |
) |
|
|
11.7 |
|
|
|
69.6 |
|
|
|
16.9 |
|
Equity-based compensation |
|
|
8.6 |
|
|
|
13.1 |
|
|
|
25.0 |
|
|
|
34.7 |
|
Transaction, transformation and integration costs |
|
|
6.4 |
|
|
|
1.7 |
|
|
|
15.4 |
|
|
|
6.1 |
|
Acquisition accounting adjustments |
|
|
1.2 |
|
|
|
2.8 |
|
|
|
3.6 |
|
|
|
8.6 |
|
Patent claims and litigation settlements |
|
|
— |
|
|
|
— |
|
|
|
20.0 |
|
|
|
3.0 |
|
Executive severance |
|
|
— |
|
|
|
2.2 |
|
|
|
— |
|
|
|
2.2 |
|
Depreciation |
|
|
14.1 |
|
|
|
14.6 |
|
|
|
42.8 |
|
|
|
44.2 |
|
Adjusted EBITDA |
|
$ |
158.1 |
|
|
$ |
202.3 |
|
|
$ |
488.3 |
|
|
$ |
414.9 |
|
Outdoor Wireless Networks Segment
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
|
(in millions) |
|
|||||||||||||
Operating income |
|
$ |
43.2 |
|
|
$ |
26.0 |
|
|
$ |
158.4 |
|
|
$ |
146.5 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of purchased intangible assets |
|
|
8.2 |
|
|
|
11.4 |
|
|
|
25.3 |
|
|
|
34.4 |
|
Restructuring costs, net |
|
|
0.4 |
|
|
|
5.9 |
|
|
|
6.6 |
|
|
|
9.8 |
|
Equity-based compensation |
|
|
2.2 |
|
|
|
4.0 |
|
|
|
6.3 |
|
|
|
10.6 |
|
Transaction, transformation and integration costs |
|
|
2.7 |
|
|
|
0.9 |
|
|
|
6.4 |
|
|
|
3.2 |
|
Executive severance |
|
|
— |
|
|
|
1.2 |
|
|
|
— |
|
|
|
1.2 |
|
Depreciation |
|
|
3.8 |
|
|
|
4.1 |
|
|
|
11.4 |
|
|
|
12.7 |
|
Adjusted EBITDA |
|
$ |
60.5 |
|
|
$ |
53.6 |
|
|
$ |
214.4 |
|
|
$ |
218.4 |
|
Venue and Campus Networks Segment
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
|
(in millions) |
|
|||||||||||||
Operating loss |
|
$ |
(4.6 |
) |
|
$ |
(43.2 |
) |
|
$ |
(63.6 |
) |
|
$ |
(103.8 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of purchased intangible assets |
|
|
38.3 |
|
|
|
39.6 |
|
|
|
116.9 |
|
|
|
117.9 |
|
Restructuring costs (credits), net |
|
|
(0.1 |
) |
|
|
18.9 |
|
|
|
16.0 |
|
|
|
29.0 |
|
Equity-based compensation |
|
|
6.7 |
|
|
|
10.3 |
|
|
|
19.5 |
|
|
|
27.4 |
|
Transaction, transformation and integration costs |
|
|
4.3 |
|
|
|
1.3 |
|
|
|
10.4 |
|
|
|
5.3 |
|
Acquisition accounting adjustments |
|
|
1.0 |
|
|
|
1.7 |
|
|
|
3.9 |
|
|
|
5.7 |
|
Patent claims and litigation settlements |
|
|
— |
|
|
|
13.7 |
|
|
|
0.3 |
|
|
|
13.7 |
|
Executive severance |
|
|
— |
|
|
|
1.7 |
|
|
|
— |
|
|
|
1.7 |
|
Depreciation |
|
|
10.3 |
|
|
|
11.7 |
|
|
|
31.8 |
|
|
|
34.9 |
|
Adjusted EBITDA |
|
$ |
56.0 |
|
|
$ |
55.6 |
|
|
$ |
135.1 |
|
|
$ |
131.6 |
|
39
Home Networks Segment
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
|
(in millions) |
|
|||||||||||||
Operating loss |
|
$ |
(68.4 |
) |
|
$ |
(2.0 |
) |
|
$ |
(153.5 |
) |
|
$ |
(269.3 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of purchased intangible assets |
|
|
26.0 |
|
|
|
26.0 |
|
|
|
77.9 |
|
|
|
77.9 |
|
Restructuring costs, net |
|
|
0.2 |
|
|
|
3.8 |
|
|
|
8.0 |
|
|
|
27.9 |
|
Equity-based compensation |
|
|
3.5 |
|
|
|
6.5 |
|
|
|
10.2 |
|
|
|
17.3 |
|
Asset impairments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
206.7 |
|
Transaction, transformation and integration costs |
|
|
12.8 |
|
|
|
0.9 |
|
|
|
30.5 |
|
|
|
3.2 |
|
Acquisition accounting adjustments |
|
|
0.5 |
|
|
|
0.5 |
|
|
|
1.4 |
|
|
|
1.4 |
|
Patent claims and litigation settlements |
|
|
5.0 |
|
|
|
(15.1 |
) |
|
|
26.2 |
|
|
|
(5.3 |
) |
Executive severance |
|
|
— |
|
|
|
1.2 |
|
|
|
— |
|
|
|
1.2 |
|
Depreciation |
|
|
5.0 |
|
|
|
8.5 |
|
|
|
17.6 |
|
|
|
26.9 |
|
Adjusted EBITDA |
|
$ |
(15.5 |
) |
|
$ |
30.4 |
|
|
$ |
18.6 |
|
|
$ |
88.1 |
|
Note: Components may not sum to total due to rounding.
40
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q or any other oral or written statements made by us or on our behalf may include forward-looking statements that reflect our current views with respect to future events and financial performance. These statements may discuss goals, intentions or expectations as to future plans, trends, events, results of operations or financial condition or otherwise, in each case, based on current beliefs and expectations of management, as well as assumptions made by, and information currently available to, management. These forward-looking statements are generally identified by their use of such terms and phrases as “intend,” “goal,” “estimate,” “expect,” “project,” “projections,” “plans,” “potential,” “anticipate,” “should,” “could,” “designed to,” “foreseeable future,” “believe,” “think,” “scheduled,” “outlook,” “target,” “guidance” and similar expressions, although not all forward-looking statements contain such terms. This list of indicative terms and phrases is not intended to be all-inclusive.
These forward-looking statements are subject to various risks and uncertainties, many of which are outside our control, including, without limitation, risks related to the planned spin-off of the Home Networks business, including uncertainty regarding whether such transaction will be commenced or completed and the timing and value of such transaction; risks related to the potential separation of the Home Networks business; our ability to integrate and fully realize anticipated benefits from prior or future divestitures, acquisitions or equity investments; selling or discontinuing one or more of our product lines; potential difficulties in realigning global manufacturing capacity and capabilities among our global manufacturing facilities or those of our contract manufacturers that may affect our ability to meet customer demands for products; possible future restructuring actions; our dependence on customers’ capital spending on data and communication systems; concentration of sales among a limited number of customers and channel partners; changes in technology; industry competition and the ability to retain customers through product innovation, introduction, and marketing; risks associated with our sales through channel partners; changes to the regulatory environment in which we and our customers operate; product quality or performance issues and associated warranty claims; our ability to maintain effective management information technology systems and to successfully implement major systems initiatives; cyber-security incidents, including data security breaches, ransomware or computer viruses; the risk our global manufacturing operations suffer production or shipping delays, causing difficulty in meeting customer demands; the risk that internal production capacity or that of contract manufacturers may be insufficient to meet customer demand or quality standards; the use of open standards; the long-term impact of climate change; changes in cost and availability of key raw materials, components and commodities and the potential effect on customer pricing; risks associated with our dependence on a limited number of key suppliers for certain raw materials and components; the risk that contract manufacturers we rely on encounter production, quality, financial or other difficulties; substantial indebtedness and restrictive debt covenants; our ability to incur additional indebtedness; our ability to generate cash to service our indebtedness; possible future impairment charges for fixed or intangible assets, including goodwill; income tax rate variability and ability to recover amounts recorded as deferred tax assets; our ability to attract and retain qualified key employees; labor unrest; obligations under our defined benefit employee benefit plans requiring plan contributions in excess of current estimates; significant international operations exposing us to economic, political and other risks, including the impact of variability in foreign exchange rates; our ability to comply with governmental anti-corruption laws and regulations and export and import controls worldwide; our ability to compete in international markets due to export and import controls to which we may be subject; changes in the laws and policies in the United States affecting trade, including the risk and uncertainty related to tariffs or a potential global trade war and potential changes to laws and policies as a result of a new administration in the United States, that may impact our products; cost of protecting or defending intellectual property; costs and challenges of compliance with domestic and foreign environmental laws; the impact of litigation and similar regulatory proceedings that we are involved in or may become involved in, including the costs of such litigation; the scope, duration and impact of disease outbreaks and pandemics, such as COVID-19, on our business including employees, sites, operations, customers, supply chain and the global economy; risks associated with stockholder activism, which could cause us to incur significant expense, hinder execution of our business strategy and impact the trading value of our securities; and other factors beyond our control. These and other factors are discussed in greater detail in our 2020 Annual Report on Form 10-K and in Part II, Item 1A, “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 and may be updated from time to time in our annual reports, quarterly reports, current reports and other filings we make with the Securities and Exchange Commission. Although the information contained in this Quarterly Report on Form 10-Q represents our best judgment as of the date of this report based on information currently available and reasonable assumptions, we can give no assurance that the expectations will be attained or that any deviation will not be material. Given these uncertainties, we caution you not to place undue reliance on these forward-looking statements, which speak only as of the date made. We are not undertaking any duty or obligation to update this information to reflect developments or information obtained after the date of this report, except as otherwise may be required by law.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the interest rate risk, commodity price risk or foreign currency exchange rate risk information previously reported under Item 7A of our 2020 Annual Report, as filed with the SEC on February 17, 2021.
41
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
Reference should be made to our 2020 Annual Report for additional information regarding discussion of the effectiveness of the Company’s controls and procedures. There have been no other changes in our internal control over financial reporting during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
42
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is party to certain intellectual property claims and also periodically receives notices asserting that its products infringe on another party’s patents and other intellectual property rights. These claims and assertions, whether against the Company directly or against its customers, could require the Company to pay damages, royalties, stop offering the relevant products and/or cease other activities. The Company may also be called upon to indemnify certain customers for costs related to products sold to such customers. The outcome of these claims and notices is uncertain and a reasonable estimate of the loss from unfavorable outcomes in certain of these matters either cannot be determined or is estimated at the minimum amount of a range of estimates. The actual loss could be material and may vary significantly from our estimates.
The Company is also either a plaintiff or a defendant in certain other pending legal matters in the normal course of business. Management believes none of these pending legal matters will have a material adverse effect on the Company’s business or financial condition upon final disposition.
In addition, the Company is subject to various federal, state, local and foreign laws and regulations governing the use, discharge, disposal and remediation of hazardous materials. Compliance with current laws and regulations has not had, and is not expected to have, a materially adverse effect on the Company’s financial condition or results of operations.
ITEM 1A. RISK FACTORS
The Company’s business, financial condition, results of operations and cash flows are subject to various risks which could cause actual results to vary from recent results or from anticipated future results. Other than the supplemental risk factor previously reported in Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, which is incorporated herein by reference, there have been no material changes to our risk factors disclosed in Part I - Item 1A, Risk Factors, of our Form 10-K for the year ended December 31, 2020.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities:
None.
Issuer Purchases of Equity Securities:
The following table summarizes the stock purchase activity for the three months ended September 30, 2021:
Period |
|
Total Number |
|
|
Average |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
|
Maximum Value of Shares that May Yet be Purchased Under the Plans or Programs |
|
||||
July 1, 2021 - July 31, 2021 |
|
|
593 |
|
|
|
21.58 |
|
|
|
— |
|
|
$ |
— |
|
August 1, 2021 - August 31, 2021 |
|
|
1,385 |
|
|
|
20.05 |
|
|
|
— |
|
|
|
— |
|
September 1, 2021 - September 30, 2021 |
|
|
2,381 |
|
|
|
14.94 |
|
|
|
— |
|
|
|
— |
|
Total |
|
|
4,359 |
|
|
$ |
17.47 |
|
|
|
— |
|
|
|
|
|
(1) The shares purchased were withheld to satisfy the withholding tax obligations related to restricted stock units and performance share units that vested during the period.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
43
ITEM 6. EXHIBITS
3.1** |
Fifth Amended and Restated By-Laws of CommScope Holding Company, Inc. (as adopted May 7, 2021). |
4.1* |
|
10.1* |
|
31.1 ** |
Certification of Principal Executive Officer pursuant to Rule 13a-14(a). |
31.2 ** |
Certification of Principal Financial Officer pursuant to Rule 13a-14(a). |
32.1 ** |
|
101.INS |
Inline XBRL Instance Document – The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. |
101.SCH |
Inline XBRL Schema Document, furnished herewith. |
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 |
Cover Page Interactive Data File (embedded within the Inline XBRL document). |
* |
Previously filed. |
** |
Filed herewith. |
|
|
44
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
COMMSCOPE HOLDING COMPANY, INC. |
|
|
November 3, 2021 |
/s/ Kyle D. Lorentzen |
Date |
Kyle D. Lorentzen |
|
Executive Vice President and Chief Financial Officer |
|
(Principal Financial Officer and duly authorized officer) |
|
|
|
|
45
