10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014

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 333 - 190354

 

 

CommScope Holding Company, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   27-4332098

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1100 CommScope Place, SE

Hickory, North Carolina

(Address of principal executive offices)

28602

(Zip Code)

(828) 324-2200

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of April 23, 2014 there were 186,237,671 shares of Common Stock outstanding.

 

 

 


Table of Contents

CommScope Holding Company, Inc.

Form 10-Q

March 31, 2014

Table of Contents

 

Part I—Financial Information (Unaudited):

  

Item 1. Condensed Consolidated Financial Statements:

  

Condensed Consolidated Statements of Operations and Comprehensive Income

     2   

Condensed Consolidated Balance Sheets

     3   

Condensed Consolidated Statements of Cash Flows

     4   

Condensed Consolidated Statements of Stockholders’ Equity

     5   

Notes to Unaudited Condensed Consolidated Financial Statements

     6   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     18   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     25   

Item 4. Controls and Procedures

     25   

Part II—Other Information:

  

Item 1. Legal Proceedings

     26   

Item 1A. Risk Factors

     26   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     26   

Item 3. Defaults Upon Senior Securities

     26   

Item 4. Mine Safety Disclosures

     26   

Item 5. Other Information

     26   

Item 6. Exhibits

     26   

Signatures

     27   

 

1


Table of Contents

Part 1 — Financial Information (Unaudited)

 

ITEM 1. Condensed Consolidated Financial Statements

CommScope Holding Company, Inc.

Condensed Consolidated Statements of Operations

and Comprehensive Income

(Unaudited - In thousands except per share amounts)

 

     Three Months Ended
March 31,
 
     2014     2013  

Net sales

   $ 935,036      $ 804,689   

Operating costs and expenses:

    

Cost of sales

     597,325        539,615   

Selling, general and administrative

     113,028        108,982   

Research and development

     31,870        29,950   

Amortization of purchased intangible assets

     44,298        43,280   

Restructuring costs, net

     1,980        1,803   

Asset impairments

     —          5,634   
  

 

 

   

 

 

 

Total operating costs and expenses

     788,501        729,264   
  

 

 

   

 

 

 

Operating income

     146,535        75,425   

Other expense, net

     (3,195     (3,441

Interest expense

     (42,280     (45,785

Interest income

     1,104        704   
  

 

 

   

 

 

 

Income before income taxes

     102,164        26,903   

Income tax expense

     (37,677     (11,003
  

 

 

   

 

 

 

Net income

   $ 64,487      $ 15,900   
  

 

 

   

 

 

 

Earnings per share:

    

Basic

   $ 0.35      $ 0.10   

Diluted

   $ 0.34      $ 0.10   

Weighted average shares outstanding:

    

Basic

     185,942        154,881   

Diluted

     190,922        156,644   

Comprehensive income (loss):

    

Net income

   $ 64,487      $ 15,900   

Other comprehensive income (loss), net of tax:

    

Foreign currency gain (loss)

     1,627        (5,931

Pension and other postretirement benefit activity

     (1,551     (1,357
  

 

 

   

 

 

 

Total other comprehensive income (loss), net of tax

     76        (7,288
  

 

 

   

 

 

 

Total comprehensive income

   $ 64,563      $ 8,612   
  

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

2


Table of Contents

CommScope Holding Company, Inc.

Condensed Consolidated Balance Sheets

(Unaudited - In thousands, except share amounts)

 

     March 31, 2014     December 31, 2013  
Assets     

Cash and cash equivalents

   $ 305,188      $ 346,320   

Accounts receivable, less allowance for doubtful accounts of $12,951 and $12,617, respectively

     714,980        607,489   

Inventories, net

     410,776        372,187   

Prepaid expenses and other current assets

     66,234        71,818   

Deferred income taxes

     49,779        55,609   
  

 

 

   

 

 

 

Total current assets

     1,546,957        1,453,423   

Property, plant and equipment, net of accumulated depreciation of $193,667 and $183,965, respectively

     303,364        310,143   

Goodwill

     1,445,712        1,450,506   

Other intangible assets, net

     1,378,051        1,422,192   

Other noncurrent assets

     100,004        97,791   
  

 

 

   

 

 

 

Total assets

   $ 4,774,088      $ 4,734,055   
  

 

 

   

 

 

 
Liabilities and Stockholders’ Equity     

Accounts payable

   $ 296,568      $ 251,639   

Other accrued liabilities

     272,190        332,280   

Current portion of long-term debt

     9,097        9,462   
  

 

 

   

 

 

 

Total current liabilities

     577,855        593,381   

Long-term debt

     2,503,542        2,505,090   

Deferred income taxes

     391,293        386,527   

Pension and other postretirement benefit liabilities

     40,308        40,349   

Other noncurrent liabilities

     102,390        120,692   
  

 

 

   

 

 

 

Total liabilities

     3,615,388        3,646,039   

Commitments and contingencies

    

Stockholders’ equity:

    

Preferred stock, $.01 par value: Authorized shares: 200,000,000; Issued and outstanding shares: None at March 31, 2014 and December 31, 2013

     —          —     

Common stock, $.01 par value: Authorized shares: 1,300,000,000; Issued and outstanding shares: 186,199,035 and 185,861,777 at March 31, 2014 and December 31, 2013, respectively

     1,872        1,868   

Additional paid-in capital

     2,107,467        2,101,350   

Retained earnings (accumulated deficit)

     (913,804     (978,291

Accumulated other comprehensive loss

     (26,200     (26,276

Treasury stock, at cost: 961,566 shares at March 31, 2014 and December 31, 2013

     (10,635     (10,635
  

 

 

   

 

 

 

Total stockholders’ equity

     1,158,700        1,088,016   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 4,774,088      $ 4,734,055   
  

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

3


Table of Contents

CommScope Holding Company, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited - In thousands)

 

     Three Months Ended
March 31,
 
     2014     2013  

Operating Activities:

    

Net income

   $ 64,487      $ 15,900   

Adjustments to reconcile net income to net cash used in operating activities:

    

Depreciation and amortization

     59,461        60,898   

Equity-based compensation

     3,676        4,472   

Deferred income taxes

     7,343        (9,176

Asset impairments

     —          5,634   

Excess tax benefits from equity-based compensation

     (1,542     (1

Changes in assets and liabilities:

    

Accounts receivable

     (101,793     (52,605

Inventories

     (38,636     (34,898

Prepaid expenses and other assets

     4,341        (1,019

Accounts payable and other liabilities

     (31,063     (42,560

Other

     (1,763     500   
  

 

 

   

 

 

 

Net cash used in operating activities

     (35,489     (52,855

Investing Activities:

    

Additions to property, plant and equipment

     (6,675     (6,532

Proceeds from sale of property, plant and equipment

     1,183        276   

Cash paid for acquisitions

     —          (34,000

Other

     46        2,315   
  

 

 

   

 

 

 

Net cash used in investing activities

     (5,446     (37,941

Financing Activities:

    

Long-term debt repaid

     (17,558     (69,858

Long-term debt proceeds

     15,000        166,963   

Long-term debt financing costs

     —          (1,884

Proceeds from the issuance of common shares under equity-based compensation plans

     1,957        —     

Excess tax benefits from equity-based compensation

     1,542        1   

Other

     —          (8
  

 

 

   

 

 

 

Net cash generated by financing activities

     941        95,214   

Effect of exchange rate changes on cash and cash equivalents

     (1,138     (2,055
  

 

 

   

 

 

 

Change in cash and cash equivalents

     (41,132     2,363   

Cash and cash equivalents, beginning of period

     346,320        264,375   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 305,188      $ 266,738   
  

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

4


Table of Contents

CommScope Holding Company, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited - In thousands, except share amounts)

 

     Three Months Ended
March 31,
 
     2014     2013  

Number of common shares outstanding:

    

Balance at beginning of period

     185,861,777        154,879,299   

Issuance of shares under equity-based compensation plans

     337,258        6,618   

Shares repurchased under equity-based compensation plans

     —          (5,580
  

 

 

   

 

 

 

Balance at end of period

     186,199,035        154,880,337   
  

 

 

   

 

 

 

Common stock:

    

Balance at beginning and end of period

   $ 1,868      $ 1,558   

Issuance of shares under equity-based compensation plans

     4        —     
  

 

 

   

 

 

 

Balance at end of period

   $ 1,872      $ 1,558   
  

 

 

   

 

 

 

Additional paid-in capital:

    

Balance at beginning of period

   $ 2,101,350      $ 1,655,379   

Issuance of shares under equity-based compensation plans

     1,953        61   

Equity-based compensation

     2,622        3,261   

Tax benefit from shares issued under equity-based compensation plans

     1,542        2   
  

 

 

   

 

 

 

Balance at end of period

   $ 2,107,467      $ 1,658,703   
  

 

 

   

 

 

 

Retained earnings (accumulated deficit):

    

Balance at beginning of period

   $ (978,291   $ (447,687

Net income

     64,487        15,900   
  

 

 

   

 

 

 

Balance at end of period

   $ (913,804   $ (431,787
  

 

 

   

 

 

 

Accumulated other comprehensive loss:

    

Balance at beginning of period

   $ (26,276   $ (16,646

Other comprehensive income (loss), net of tax

     76        (7,288
  

 

 

   

 

 

 

Balance at end of period

   $ (26,200   $ (23,934
  

 

 

   

 

 

 

Treasury stock, at cost:

    

Balance at beginning of period

   $ (10,635   $ (10,322

Net shares repurchased under equity-based compensation plans

     —          (70
  

 

 

   

 

 

 

Balance at end of period

   $ (10,635   $ (10,392
  

 

 

   

 

 

 

Total stockholders’ equity

   $ 1,158,700      $ 1,194,148   
  

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

5


Table of Contents

CommScope Holding Company, Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands, 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 essential infrastructure solutions for wireless, business enterprise and residential broadband networks. The Company’s solutions and services for wired and wireless networks enable high-bandwidth data, video and voice applications. CommScope’s global 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 Condensed Consolidated Balance Sheet as of March 31, 2014, the Condensed Consolidated Statements of Operations and Comprehensive Income, Cash Flows and Stockholders’ Equity for the three months ended March 31, 2014 and 2013 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 the interim periods are not necessarily indicative of the results of operations to be expected for the full year.

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. 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2013 (the 2013 Annual Report). There were no changes in the Company’s significant accounting policies during the three months ended March 31, 2014. In addition, the Company reaffirms the use of estimates in the preparation of the financial statements as set forth in the audited consolidated financial statements. These interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements.

As of January 1, 2014, the Company adopted new accounting guidance that requires an entity to net its liability for uncertain tax positions as a reduction to deferred tax balances related to net operating loss carryforwards, similar tax losses or tax credit carryforwards when settlement in this manner is available under the tax law. The provisions of this new guidance did not have a material impact on the Company’s financial statements.

On October 4, 2013, the Company effected a 3-for-1 stock split of its common stock. All share and per share numbers have been revised to reflect the stock split.

Concentrations of Risk and Related Party Transactions

Net sales to Anixter International Inc. and its affiliates (Anixter) accounted for approximately 11% and 12% of the Company’s total net sales during the three months ended March 31, 2014 and 2013, respectively. Sales to Anixter primarily originate within the Enterprise segment. Other than Anixter, no customer accounted for 10% or more of the Company’s total net sales for the three months ended March 31, 2014 or 2013.

Accounts receivable from Anixter represented approximately 12% of accounts receivable as of March 31, 2014. Other than Anixter, no other customer accounted for 10% or more of the Company’s accounts receivable as of March 31, 2014.

As of March 31, 2014, the Company was 65.2% owned by funds affiliated with The Carlyle Group (Carlyle). The Company paid $0.8 million of the annual management and oversight fee to Carlyle in the three months ended March 31, 2013. In October 2013, the Company paid Carlyle approximately $20.2 million to terminate the management agreement.

 

6


Table of Contents

CommScope Holding Company, Inc.

Notes to Condensed Consolidated Financial Statements – (Continued)

(In thousands, 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. These product warranties extend over periods ranging from one to twenty-five years from the date of sale, depending upon the product subject to the warranty. The Company records a provision for estimated future warranty claims as cost of sales based upon the historical relationship of warranty claims to sales and specifically-identified warranty issues. The Company bases its estimates on assumptions that are believed to be reasonable under the circumstances and revises its estimates, as appropriate, when events or changes in circumstances indicate that revisions may be necessary. Such revisions may be material.

The following table summarizes the activity in the product warranty accrual, included in other accrued liabilities:

 

     Three Months Ended
March 31,
 
     2014     2013  

Product warranty accrual, beginning of period

   $ 24,838      $ 26,005   

Provision for warranty claims

     2,269        960   

Warranty claims paid

     (4,169     (1,640
  

 

 

   

 

 

 

Product warranty accrual, end of period

   $ 22,938      $ 25,325   
  

 

 

   

 

 

 

Commitments and Contingencies

The Company is either a plaintiff or a defendant in pending legal matters in the normal course of business. Management believes none of these legal matters will have a material adverse effect on the Company’s business or financial condition upon final disposition.

As of March 31, 2014, the Company had commitments of $20.8 million to purchase metals that are expected to be consumed in normal production by September 2014. In the aggregate, these commitments were at prices approximately 8% above market prices as of March 31, 2014.

Asset Impairment

Property, plant and equipment 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 carried at their estimated fair value. There were no impairments identified during the three months ended March 31, 2014. During the three months ended March 31, 2013, the Company obtained new market data regarding a facility which is being marketed for sale. Based on this data, the Company recorded a pretax asset impairment charge of $3.6 million which was recognized within the Wireless segment. Also during the three months ended March 31, 2013, the Company concluded that certain production equipment would no longer be utilized and consequently recorded pretax asset impairment charges of $2.0 million within the Wireless segment.

Income Taxes

The effective income tax rate of 36.9% for the three months ended March 31, 2014 was higher than the statutory rate of 35% primarily due to losses in certain jurisdictions where the Company did not recognize tax benefits due to the likelihood of them not being realizable, increases in valuation allowances on certain tax attributes, the provision for state income taxes and certain tax costs associated with repatriation of foreign earnings. These items were partially offset by benefits related to uncertain tax positions for which the statutes had lapsed and the $5.4 million pretax reduction in the estimated fair value of contingent consideration payable, which is not subject to tax.

The effective income tax rate of 40.9% for the three months ended March 31, 2013 was higher than the statutory rate and did not reflect benefits for losses in certain foreign jurisdictions where the Company did not recognize tax benefits due to the likelihood of them not being realizable. The effective tax rate for the first quarter of 2013 included a benefit for 2012 research and development tax credits as a result of legislation enacted early in 2013. This benefit was offset by additional expense related to uncertain tax positions and certain tax costs associated with repatriation of foreign earnings. Excluding these items, the effective tax rate was comparable to the statutory rate of 35%.

 

7


Table of Contents

CommScope Holding Company, Inc.

Notes to Condensed Consolidated Financial Statements – (Continued)

(In thousands, unless otherwise noted)

 

Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is based on net income divided by the weighted average number of common shares outstanding plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding equity-based awards such as stock options and restricted stock units. Certain outstanding equity-based awards were not included in the computation of diluted earnings per share because they would not have had a dilutive effect (0.4 million shares and 0.7 million shares for the three months ended March 31, 2014 and 2013, respectively). The following table presents the basis for the earnings per share computations:

 

     Three Months Ended
March 31,
 
     2014      2013  

Numerator:

     

Net income for basic and diluted earnings per share

   $ 64,487       $ 15,900   

Denominator:

     

Weighted average shares outstanding - basic

     185,942         154,881   

Dilutive effect of equity-based awards

     4,980         1,763   
  

 

 

    

 

 

 

Weighted average common shares outstanding - diluted

     190,922         156,644   
  

 

 

    

 

 

 

2. ACQUISITIONS

iTRACS Corporation

In March 2013, the Company acquired substantially all of the assets and assumed certain liabilities of iTRACS Corporation (iTRACS) for approximately $34.0 million in cash. In March 2014, the Company reached an agreement with the former owners of iTRACS to adjust the purchase price by $4.7 million and that amount was received by the Company in April 2014. iTRACS develops and markets enterprise-class data center infrastructure management (DCIM) solutions and is reported within the Enterprise segment. iTRACS’ sales during the three months ended March 31, 2014 were not material. The allocation of the purchase price, based on the estimated fair values of assets acquired and liabilities assumed, is as follows (in millions):

 

Current assets

   $ 1.7   

Noncurrent assets, excluding intangible assets

     0.7   

Other intangible assets

     13.1   

Goodwill

     15.1   

Less: Liabilities assumed

     (1.3
  

 

 

 

Net acquisition cost

   $ 29.3   
  

 

 

 

The goodwill arising from the purchase price allocation of the iTRACS acquisition is believed to result from the company’s reputation in the marketplace and assembled workforce and is expected to be deductible for tax purposes.

 

8


Table of Contents

CommScope Holding Company, Inc.

Notes to Condensed Consolidated Financial Statements – (Continued)

(In thousands, unless otherwise noted)

 

Redwood Systems, Inc.

In July 2013, the Company acquired Redwood Systems, Inc. (Redwood), a provider of LED lighting solutions and integrated sensor networks for data centers and buildings. Redwood was acquired for an initial payment of $9.8 million and contingent consideration with an estimated fair value of $12.4 million as of the acquisition date. The Company may be required to pay up to an additional $37.25 million of consideration if certain net sales targets of up to $55.0 million are met over various periods through July 31, 2015. During the three months ended March 31, 2014, the estimated fair value of the contingent consideration was reduced to $7.7 million (see Note 7). In addition, there are potential retention payments for employees of Redwood of up to $11.75 million based on the same net sales targets as the contingent consideration. Net sales of Redwood products and services were immaterial for the three months ended March 31, 2014 and are reported in the Enterprise segment. The preliminary allocation of the purchase price, based on estimates of the fair values of assets acquired and liabilities assumed, is as follows (in millions):

 

Current assets

   $ 2.6   

Deferred taxes

     7.3   

Other intangible assets

     9.0   

Goodwill

     4.2   

Other noncurrent assets

     0.8   

Less: Liabilities assumed

     (1.7
  

 

 

 

Net acquisition cost

   $ 22.2   
  

 

 

 

The goodwill arising from the preliminary purchase price allocation of the Redwood acquisition is believed to result from the company’s reputation in the marketplace and assembled workforce and is not expected to be deductible for tax purposes.

The Company is still finalizing the valuation of the fair value of certain tangible and intangible assets acquired and as additional information is obtained, adjustments may be made to the preliminary purchase price allocation.

3. GOODWILL

The following table presents goodwill by reportable segment (in millions):

 

     Wireless     Enterprise     Broadband     Total  

Goodwill, gross, as of December 31, 2013

   $ 821.1      $ 659.5      $ 86.3      $ 1,566.9   

Revisions to purchase price allocation

     —          (5.7     —          (5.7

Foreign exchange

     0.9        —          —          0.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Goodwill, gross, as of March 31, 2014

     822.0        653.8        86.3        1,562.1   

Accumulated impairment charges as of January 1, 2014 and March 31, 2014

     (80.2     —          (36.2     (116.4
  

 

 

   

 

 

   

 

 

   

 

 

 

Goodwill, net, as of March 31, 2014

   $ 741.8      $ 653.8      $ 50.1      $ 1,445.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

9


Table of Contents

CommScope Holding Company, Inc.

Notes to Condensed Consolidated Financial Statements – (Continued)

(In thousands, unless otherwise noted)

 

4. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION

Inventories

 

     March 31, 2014      December 31, 2013  

Raw materials

   $ 90,755       $ 72,170   

Work in process

     128,270         124,049   

Finished goods

     191,751         175,968   
  

 

 

    

 

 

 
   $ 410,776       $ 372,187   
  

 

 

    

 

 

 

Equity Method Investments

The Company utilizes the equity method of accounting for investments in entities where it does not have control but has the ability to exercise significant influence. The Company owns 2.2 million shares of Hydrogenics Corporation (Hydrogenics), a publicly traded company that supplies hydrogen generators and hydrogen-based power modules and fuel cells for various uses. As of March 31, 2014 and December 31, 2013, the Company’s ownership interest was 24.3% and 24.9%, respectively, and the carrying value of the investment was $2.5 million and $3.1 million, respectively. Equity method investments are recorded in other noncurrent assets on the Condensed Consolidated Balance Sheet.

The Company’s share of earnings and losses as well as any impairment of its equity method investments are recorded in other expense, net on the Condensed Consolidated Statement of Operations and Comprehensive Income. The Company’s share of losses in its equity method investments was $0.6 million and $0.9 million for the three months ended March 31, 2014 and 2013, respectively. For the three months ended March 31, 2013, the Company also recorded an impairment charge of $0.8 million related to one of its equity method investments.

Other Accrued Liabilities

 

     March 31, 2014      December 31, 2013  

Compensation and employee benefit liabilities

   $ 70,675       $ 124,893   

Deferred revenue

     28,138         21,498   

Product warranty accrual

     22,938         24,838   

Accrued interest

     33,993         47,366   

Restructuring reserve

     13,726         18,572   

Other

     102,720         95,113   
  

 

 

    

 

 

 
   $ 272,190       $ 332,280   
  

 

 

    

 

 

 

Accumulated Other Comprehensive Loss

The following table presents changes in accumulated other comprehensive income (AOCI), net of tax, and accumulated other comprehensive loss (AOCL), net of tax:

 

     Three Months Ended
March 31,
 
     2014     2013  

Foreign currency gain (loss)

    

AOCL balance, beginning of period

   $ (29,072   $ (24,224

Other comprehensive income (loss)

     1,727        (5,931

Amounts reclassified from AOCL

     (100     —     
  

 

 

   

 

 

 

AOCL balance, end of period

   $ (27,445   $ (30,155
  

 

 

   

 

 

 

Defined benefit plans

    

AOCI balance, beginning of period

   $ 2,796      $ 7,578   

Amounts reclassified from AOCI

     (1,551     (1,357
  

 

 

   

 

 

 

AOCI balance, end of period

   $ 1,245      $ 6,221   
  

 

 

   

 

 

 

Net AOCL, end of period

   $ (26,200   $ (23,934
  

 

 

   

 

 

 

 

10


Table of Contents

CommScope Holding Company, Inc.

Notes to Condensed Consolidated Financial Statements – (Continued)

(In thousands, unless otherwise noted)

 

Defined benefit plan amounts reclassified from accumulated other comprehensive loss are included in the computation of net periodic benefit income and are primarily recorded in cost of sales and selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income.

Cash Flow Information

 

     Three Months Ended  
     March 31,  
     2014      2013  

Cash paid during the period for:

     

Income taxes, net of refunds

   $ 15,595       $ 17,263   

Interest

   $ 52,341       $ 76,664   

Noncash financing activities:

     

Acquisition of treasury stock resulting from stock option exercises

   $ —         $ 62   

5. FINANCING

 

     March 31, 2014     December 31, 2013  

8.25% senior notes due January 2019

   $ 1,100,000      $ 1,100,000   

Senior secured term loan due January 2017

     348,250        349,125   

Senior secured term loan due January 2018

     522,375        523,688   

Senior PIK toggle notes due June 2020

     550,000        550,000   

Senior secured revolving credit facility expires January 2017

     —          —     

Other

     710        1,079   
  

 

 

   

 

 

 
   $ 2,521,335      $ 2,523,892   

Less: Original issue discount, net of amortization

     (8,696     (9,340

Less: Current portion

     (9,097     (9,462
  

 

 

   

 

 

 
   $ 2,503,542      $ 2,505,090   
  

 

 

   

 

 

 

See Note 6 in the Notes to Consolidated Financial Statements in the 2013 Annual Report for additional information on the terms and conditions of the 8.25% senior notes, the senior secured credit facilities and the 6.625%/7.375% senior payment-in-kind toggle notes (senior PIK toggle notes).

Senior Secured Credit Facilities

During the three months ended March 31, 2014, the Company repaid $2.2 million of its senior secured term loans. No portion of the senior secured term loans was reflected as a current portion of long-term debt as of March 31, 2014 related to the potentially required excess cash flow payment because the amount that may be payable in 2015, if any, cannot currently be reliably estimated. There was no excess cash flow payment required in 2014 related to 2013.

During the three months ended March 31, 2014, the Company borrowed $15.0 million and repaid $15.0 million under the revolving credit facility. As of March 31, 2014, the Company had availability of approximately $345.0 million under the asset-based revolving credit facility, after giving effect to outstanding letters of credit.

Other Matters

The Company’s non-guarantor subsidiaries held approximately $1,061 million, or 22%, of total assets and approximately $312 million, or 9%, of total liabilities as of March 31, 2014 and accounted for approximately $320 million, or 34% of net sales for the three months ended March 31, 2014. As of December 31, 2013, the non-guarantor subsidiaries held approximately $1,077 million, or 23%, of total assets and approximately $315 million, or 9%, of total liabilities. For the three months ended March 31, 2013, the non-guarantor subsidiaries accounted for approximately $290 million, or 36%, of net sales. All amounts presented exclude intercompany balances.

The weighted average effective interest rate on outstanding borrowings, including the amortization of deferred financing costs and original issue discount, was 6.73% and 6.89% at March 31, 2014 and December 31, 2013, respectively.

 

11


Table of Contents

CommScope Holding Company, Inc.

Notes to Condensed Consolidated Financial Statements – (Continued)

(In thousands, unless otherwise noted)

 

6. DERIVATIVES AND HEDGING ACTIVITIES

The Company uses forward contracts to hedge a portion of its exposure to balances denominated in currencies other than the functional currency of various subsidiaries in order to mitigate the impact of changes in exchange rates. At March 31, 2014, the Company had foreign exchange contracts with maturities ranging from one to six months with an aggregate notional value of $309 million (based on exchange rates as of March 31, 2014). Unrealized gains and losses resulting from these contracts are recognized in other expense, net and partially offset corresponding foreign exchange gains and losses on these balances. These instruments are not held for speculative or trading purposes. These contracts are not designated as hedges for hedge accounting and are marked to market each period through earnings. The following table presents the balance sheet location and fair value of the Company’s derivatives:

 

          Fair Value of Asset (Liability)  
    

Balance Sheet Location

   March 31, 2014     December 31, 2013  

Foreign currency contracts

  

Prepaid expenses and other current assets

   $ 2,055      $ 2,738   

Foreign currency contracts

  

Other accrued liabilities

     (2,399     (662
     

 

 

   

 

 

 

Total derivatives not designated as hedging instruments

      $ (344   $ 2,076   
     

 

 

   

 

 

 

The pretax impact of the foreign currency forward contracts not designated as hedging instruments on the Condensed Consolidated Statements of Operations and Comprehensive Income is as follows:

 

Foreign Currency Forward Contracts

  

Location of Gain (Loss)

   Gain (Loss) Recognized  

Three Months Ended March 31, 2014

  

Other expense, net

   $ (3,032

Three Months Ended March 31, 2013

  

Other expense, net

   $ (2,423

7. FAIR VALUE MEASUREMENTS

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 Company’s financial instruments consist primarily of cash and cash equivalents, trade receivables, trade payables, debt instruments, foreign currency contracts and contingent consideration payable. For cash and cash equivalents, trade receivables and trade payables, the carrying amounts of these financial instruments as of March 31, 2014 and December 31, 2013 were considered representative of their fair values due to their short terms to maturity. The fair value of the Company’s equity method investment is based on quoted market prices. The fair values of the Company’s debt instruments and foreign currency contracts were based on indicative quotes. The fair value of the contingent consideration payable was based on a probability weighted discounted cash flow analysis.

 

12


Table of Contents

CommScope Holding Company, Inc.

Notes to Condensed Consolidated Financial Statements – (Continued)

(In thousands, unless otherwise noted)

 

The carrying amounts, estimated fair values and valuation input levels of the Company’s equity method investment, foreign currency contracts, senior notes, senior secured term loans, senior PIK toggle notes and contingent consideration payable as of March 31, 2014 and December 31, 2013, are as follows:

 

     March 31, 2014      December 31, 2013       
     Carrying
Amount
     Fair Value      Carrying
Amount
     Fair Value      Valuation
Inputs

Assets:

              

Equity method investment

   $ 2,541       $ 59,593       $ 3,112       $ 41,879       Level 1

Foreign currency contracts

     2,055         2,055         2,738         2,738       Level 2

Liabilities:

              

8.25% senior notes

     1,100,000         1,190,750         1,100,000         1,205,280       Level 2

Senior secured term loans, at par

     870,625         871,713         872,813         874,994       Level 2

Senior PIK toggle notes

     550,000         581,625         550,000         572,000       Level 2

Foreign currency contracts

     2,399         2,399         662         662       Level 2

Contingent consideration

     7,718         7,718         13,068         13,068       Level 3

Contingent consideration represents the estimated fair value of the expected payment due related to the acquisition of Redwood. The contingent consideration is payable in 2015 and could range from zero to $37.25 million. The amount to be paid is based on the achievement of sales targets of Redwood products with a maximum payout reached with $55.0 million of sales by July 31, 2015. The estimated fair value of the contingent consideration was $12.4 million as of July 3, 2013, the Redwood acquisition date. During the three months ended March 31, 2014, the estimated fair value of the contingent consideration was reduced to $7.7 million based on the latest projections of Redwood’s performance, which resulted in a $5.4 million reduction in selling, general and administrative expense in the Condensed Consolidated Statement of Operations and Comprehensive Income.

These fair value estimates are based on pertinent information available to management as of March 31, 2014 and December 31, 2013. Although management is not aware of any factors that would significantly affect these fair value estimates, such amounts have not been comprehensively revalued for purposes of these financial statements since those dates and current estimates of fair value may differ significantly from the amounts presented.

8. SEGMENTS AND GEOGRAPHIC INFORMATION

The Company’s three reportable segments, which align with the manner in which the business is managed, are Wireless, Enterprise and Broadband.

The Wireless segment’s infrastructure solutions enable wireless carriers to deploy macro cell sites and small cell solutions to meet coverage and capacity requirements driven by increasing demand for mobile bandwidth. The macro cell site solutions can be found at wireless tower sites and include base station and microwave antennas, hybrid fiber-feeder and power cables, coaxial cables, connectors, power amplifiers and environmentally-secure cabinets for equipment, including fuel cell backup power. The small cell solutions are primarily composed of distributed antenna systems that extend and enhance cellular coverage and capacity in challenging network conditions such as stadiums, transportation systems and commercial buildings.

The Enterprise segment provides connectivity and network intelligence for data centers and commercial buildings. These solutions include optical fiber and twisted pair structured cabling applications, intelligent infrastructure software, network rack and cabinet enclosures, intelligent building sensors, advanced LED lighting control systems and network design services.

The Broadband segment consists of cable and communications equipment that support the multi-channel video, voice and high-speed data services provided by cable operators. The segment’s products include coaxial and fiber-optic cables, fiber-to-the-home equipment, amplifiers, splitters and taps, conduit and headend solutions for the network core.

 

13


Table of Contents

CommScope Holding Company, Inc.

Notes to Condensed Consolidated Financial Statements – (Continued)

(In thousands, unless otherwise noted)

 

The following table provides summary financial information by reportable segment (in millions):

 

     March 31, 2014      December 31, 2013  

Identifiable segment-related assets:

     

Wireless

   $ 2,545.1       $ 2,419.8   

Enterprise

     1,470.9         1,495.1   

Broadband

     348.8         363.4   
  

 

 

    

 

 

 

Total identifiable segment-related assets

     4,364.8         4,278.3   

Reconciliation to total assets:

     

Cash and cash equivalents

     305.2         346.3   

Deferred income tax assets

     57.2         59.7   

Deferred financing fees

     46.9         49.8   
  

 

 

    

 

 

 

Total assets

   $ 4,774.1       $ 4,734.1   
  

 

 

    

 

 

 

The following table provides net sales, operating income (loss), depreciation, and amortization by reportable segment (in millions):

 

     Three Months Ended
March 31,
 
     2014     2013  

Net sales:

    

Wireless

   $ 627.2      $ 496.5   

Enterprise

     201.5        191.8   

Broadband

     107.5        118.1   

Inter-segment eliminations

     (1.2     (1.7
  

 

 

   

 

 

 

Consolidated net sales

   $ 935.0      $ 804.7   
  

 

 

   

 

 

 

Operating income (loss):

    

Wireless (1)

   $ 127.6      $ 62.4   

Enterprise (2)

     22.6        15.4   

Broadband

     (3.7     (2.4
  

 

 

   

 

 

 

Consolidated operating income

   $ 146.5      $ 75.4   
  

 

 

   

 

 

 

Depreciation:

    

Wireless

   $ 7.0      $ 8.2   

Enterprise

     2.7        2.9   

Broadband

     2.0        2.6   
  

 

 

   

 

 

 

Consolidated depreciation

   $ 11.7      $ 13.7   
  

 

 

   

 

 

 

Amortization (3):

    

Wireless

   $ 22.5      $ 22.1   

Enterprise

     17.4        16.6   

Broadband

     4.4        4.6   
  

 

 

   

 

 

 

Consolidated amortization

   $ 44.3      $ 43.3   
  

 

 

   

 

 

 

 

(1) Operating income for the three months ended March 31, 2013 included asset impairment charges of $5.6 million.
(2) Operating income for the three months ended March 31, 2014 included a $5.4 million adjustment to the estimated fair value of contingent consideration related to the Redwood acquisition.
(3) Excludes amortization of deferred financing fees and original issue discount.

 

14


Table of Contents

CommScope Holding Company, Inc.

Notes to Condensed Consolidated Financial Statements – (Continued)

(In thousands, unless otherwise noted)

 

Sales to customers located outside of the United States comprised 39.8% and 43.6% of total net sales for the three months ended March 31, 2014 and 2013, respectively. Sales by geographic region, based on the destination of product shipments, were as follows (in millions):

 

     Three months ended
March 31,
 
     2014      2013  

United States

   $ 562.9       $ 453.6   

Europe, Middle East and Africa

     169.6         139.2   

Asia Pacific

     128.9         124.5   

Central and Latin America

     58.4         70.0   

Canada

     15.2         17.4   
  

 

 

    

 

 

 

Consolidated net sales

   $ 935.0       $ 804.7   
  

 

 

    

 

 

 

9. RESTRUCTURING COSTS

The Company has initiated restructuring actions to realign and lower its cost structure primarily through workforce reductions and other cost reduction initiatives at various facilities including the cessation of manufacturing operations at the Joliet, Illinois and Statesville, North Carolina facilities. Much of the production capacity from these facilities is being shifted to other existing facilities or contract manufacturers. The Company’s net pretax restructuring charges, by segment, were as follows:

 

     Three Months Ended
March 31,
 
     2014      2013  

Wireless

   $ 1,238       $ 1,120   

Enterprise

     214         453   

Broadband

     528         230   
  

 

 

    

 

 

 

Total

   $ 1,980       $ 1,803   
  

 

 

    

 

 

 

The activity within the liability established for these restructuring actions, which is included in other accrued liabilities, was as follows:

 

     Employee-
Related Costs
    Lease
Termination
Costs
    Fixed Asset
Related Costs
    Total  

Balance as of December 31, 2013

   $ 17,173      $ 1,399      $ —        $ 18,572   

Additional charge recorded

     455        —          1,525        1,980   

Cash paid

     (4,918     (397     (1,525     (6,840

Foreign exchange and other non-cash items

     13        1        —          14   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of March 31, 2014

   $ 12,723      $ 1,003      $ —        $ 13,726   
  

 

 

   

 

 

   

 

 

   

 

 

 

Employee-related costs include the expected severance costs and related benefits as well as any one-time severance benefits that are accrued over the remaining period employees are required to work in order to receive such benefits.

Lease termination costs relate to the cost of vacating leased facilities, net of anticipated sub-rental income.

Fixed asset related costs include costs to uninstall, pack, ship and reinstall manufacturing equipment and the costs to prepare the receiving facility to accommodate relocated equipment. These costs are expensed as incurred.

As a result of restructuring and consolidation actions, the Company owns unutilized real estate at various facilities in the U.S. and internationally. The Company is attempting to sell or lease this unutilized space. Additional impairment charges may be incurred related to these or other excess assets.

Since the inception of the initiatives in 2011, the Company has recognized restructuring charges of $65.8 million. The additional pretax costs related to completing restructuring actions initiated to date are expected to be approximately $2.0 million to $3.0 million. Cash payments of approximately $14.0 million to $15.0 million are expected during the

 

15


Table of Contents

CommScope Holding Company, Inc.

Notes to Condensed Consolidated Financial Statements – (Continued)

(In thousands, unless otherwise noted)

 

remainder of 2014 with an additional $1.0 million to $2.0 million expected to be paid by the end of 2015. In addition to the charges described above, the Company expects to recognize a restructuring charge in the second half of 2014 related to the lease agreement at its Joliet, Illinois facility once operations cease at that facility and that charge may be material. However, the Company cannot currently estimate the charge. Additional restructuring actions may be taken and the resulting charges and cash requirements could be material.

10. EMPLOYEE BENEFIT PLANS

 

     Pension Benefits     Other Postretirement Benefits  
     Three Months Ended
March 31,
 
     2014     2013     2014     2013  

Service cost

   $ 114      $ 113      $ 24      $ 62   

Interest cost

     3,335        2,901        225        228   

Recognized actuarial loss (gain)

     71        125        (84     70   

Amortization of prior service credits

     —          —          (2,494     (2,404

Expected return on plan assets

     (3,814     (3,606     —          (16
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit income

   $ (294   $ (467   $ (2,329   $ (2,060
  

 

 

   

 

 

   

 

 

   

 

 

 

The Company contributed $1.0 million to its pension and other postretirement benefit plans during the three months ended March 31, 2014. During the remainder of 2014, the Company anticipates making additional contributions of approximately $18.3 million to these plans.

11. STOCKHOLDERS’ EQUITY

Equity-Based Compensation Plans

As of March 31, 2014, $28.0 million of total unrecognized compensation costs related to non-vested stock options, restricted stock unit awards (RSUs) and share unit awards are expected to be recognized over a remaining weighted average period of 1.9 years. Although the share unit awards may be settled in stock at the Company’s discretion, they have historically been settled in cash and are accounted for as liability awards. In the first quarter of 2014, $4.7 million of share unit awards vested and were paid in cash. There were no significant capitalized equity-based compensation costs at March 31, 2014.

Stock Options

The following table summarizes the stock option activity (in thousands, except per share amounts):

 

     Shares     Weighted
Average Option
Exercise Price
Per Share
     Weighted
Average Grant
Date Fair Value
Per Share
     Aggregate
Intrinsic
Value
 

Outstanding as of December 31, 2013

     10,828      $ 6.15         

Granted

     750      $ 23.00       $ 9.40      

Exercised

     (337   $ 6.62          $ 5,483   

Adjustment related to 2013 performance

     27      $ 5.57       $ 3.60      
  

 

 

         

Outstanding as of March 31, 2014

     11,268      $ 7.26          $ 196,263   
  

 

 

         

Exercisable at March 31, 2014

     7,669      $ 6.30          $ 140,946   

Expected to vest

     3,526      $ 9.07          $ 55,061   

 

16


Table of Contents

CommScope Holding Company, Inc.

Notes to Condensed Consolidated Financial Statements – (Continued)

(In thousands, unless otherwise noted)

 

The exercise prices of outstanding options at March 31, 2014 were in the following ranges:

 

     Options Outstanding      Options Exercisable  
Range of Exercise Prices    Shares
(in thousands)
     Weighted Average
Remaining Contractual
Life

(in years)
     Weighted Average
Exercise Price Per
Share
     Shares
(in thousands)
     Weighted Average
Exercise Price Per
Share
 

$2.96 to $5.35

     1,476         3.4       $ 4.04         1,476       $ 4.04   

$5.36 to $5.67

     1,344         7.9       $ 5.57         807       $ 5.57   

$5.68 to $8.54

     5,326         6.8       $ 5.74         3,014       $ 5.74   

$8.55 to $8.90

     2,372         6.3       $ 8.67         2,372       $ 8.67   

$8.91 to $23.00

     750         9.9       $ 23.00         —         $ —     
  

 

 

          

 

 

    

$2.96 to $23.00

     11,268         6.6       $ 7.26         7,669       $ 6.30   
  

 

 

          

 

 

    

The Company uses the Black-Scholes model to estimate the fair value of stock option awards. Key input assumptions used in the model include the grant date fair value of common stock, exercise price of the award, the expected option term, stock price volatility, estimated marketability discount, the risk-free interest rate and the Company’s projected dividend yield. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in estimating the fair values of its stock options. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards. Subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the Company. The following table presents the weighted average assumptions used to estimate the fair value of stock option awards granted.

 

     Three Months Ended
March 31,
 
     2014     2013  

Expected option term (in years)

     5.0        3.8   

Risk-free interest rate

     1.5     0.4

Expected volatility

     45.0     75.0

Estimated marketability discount

     —       15.0

Expected dividend yield

     —       —  

Weighted average exercise price

   $ 23.00      $ 11.11   

Weighted average fair value at grant date

   $ 9.40      $ 4.09   

Restricted Stock Units

RSUs entitle the holder to shares of common stock generally after a three-year vesting period. The fair value of the awards is determined on the grant date based on the Company’s stock price.

The following table summarizes the RSU activity (in thousands, except per share data):

 

     Restricted
Stock Units
     Weighted Average
Grant Date Fair
Value Per Share
 

Outstanding and non-vested as of December 31, 2013

     5       $ 14.99   

Granted

     366       $ 22.96   
  

 

 

    

Outstanding and non-vested as of March 31, 2014

     371       $ 22.85   
  

 

 

    

Other

Share unit award expense of $1.1 million and $1.2 million for the three months ended March 31, 2014 and 2013, respectively, is included in equity-based compensation as an adjustment to reconcile net income to net cash used in operating activities on the Condensed Consolidated Statements of Cash Flows.

 

17


Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following narrative is an analysis of the three months ended March 31, 2014 compared to the three months ended March 31, 2013. 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 document 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 as well as the risk factors, included in our 2013 Annual Report on Form 10-K.

Overview

We are a global provider of essential infrastructure solutions for wireless, business enterprise and residential broadband networks. Our solutions and services for wired and wireless networks enable high-bandwidth data, video and voice applications. Our global position is built upon innovative technology, broad solution offerings, high-quality and cost-effective customer solutions and global manufacturing and distribution scale.

CRITICAL ACCOUNTING POLICIES

There have been no changes in our critical accounting policies or significant accounting estimates as disclosed in our 2013 Annual Report on Form 10-K.

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2014 WITH THE THREE MONTHS ENDED MARCH 31, 2013

 

     Three Months Ended March 31,              
     2014     2013              
     Amount      % of Net
Sales
    Amount      % of Net
Sales
    Dollar
Change
    %
Change
 
     (dollars in millions, except per share amounts)  

Net sales

   $ 935.0         100.0   $ 804.7         100.0   $ 130.3        16.2

Gross profit

     337.7         36.1        265.1         32.9        72.6        27.4   

SG&A expense

     113.0         12.1        109.0         13.5        4.0        3.7   

R&D expense

     31.9         3.4        30.0         3.7        1.9        6.3   

Amortization of purchased intangible assets

     44.3         4.7        43.3         5.4        1.0        2.3   

Restructuring costs, net

     2.0         0.2        1.8         0.2        0.2        11.1   

Asset impairments

     —           —          5.6         0.7        (5.6     (100.0

Net interest expense

     41.2         4.4        45.1         5.6        (3.9     (8.6

Other expense, net

     3.2         0.3        3.4         0.4        (0.2     (5.9

Income tax expense

     37.7         4.0        11.0         1.4        26.7        242.7   

Net income

   $ 64.5         6.9   $ 15.9         2.0   $ 48.6        305.7

Earnings per diluted share

   $ 0.34         $ 0.10          

Net sales

The year-over-year increase in net sales for the three months ended March 31, 2014 was due to substantially higher net sales in our Wireless segment and modestly higher net sales in our Enterprise segment. This sales growth was partially offset by lower net sales in our Broadband segment. As compared to the first quarter of 2013, net sales for the first quarter of 2014 were higher in most geographic regions, with particular strength in the U.S. and Europe, Middle East and Africa (EMEA) region. The increases in these regions were somewhat offset by lower net sales in the Central and Latin America (CALA) region. Foreign exchange rate changes had a slightly negative impact on net sales for the three months ended March 31, 2014 as compared to the same 2013 period. For further details by segment, see the section titled “Segment Results” below.

Gross profit (net sales less cost of sales)

The improvement in gross profit and gross profit margin for the three months ended March 31, 2014 as compared to the comparable prior year period was primarily due to higher sales volumes, a favorable change in the mix of products sold and benefits from cost savings initiatives.

 

18


Table of Contents

Selling, general and administrative expense

Selling, general and administrative (SG&A) expense increased for the three months ended March 31, 2014 as compared to the corresponding 2013 period due to increases in cash incentive compensation expense and incremental costs from iTRACS Corporation (iTRACS) and Redwood Systems, Inc. (Redwood) which were acquired in 2013. In addition, we incurred $0.9 million of transaction costs during the first quarter of 2014, related to the secondary offering of our common stock held by affiliates of The Carlyle Group (Carlyle). Offsetting these higher costs was a $5.4 million reduction of SG&A expense resulting from an adjustment to the estimated fair value of contingent consideration payable related to the Redwood acquisition.

Research and development

Research and development (R&D) expense was higher for the three months ended March 31, 2014 as compared to the comparable prior year period. The increase in R&D expense for the three months ended March 31, 2014 was primarily due to incremental costs from iTRACS and Redwood. R&D expense as a percentage of net sales for the three months ended March 31, 2014 was lower than the prior year period, mainly as a result of higher net sales. R&D activities generally relate to ensuring that our products are capable of meeting the developing technological needs of our customers, bringing new products to market and modifying existing products to better serve our customers.

Amortization of purchased intangible assets

The amortization of purchased intangible assets was $1.0 million higher in the three months ended March 31, 2014 as compared to the prior year period, primarily due to additional amortization resulting from the acquisitions of iTRACS and Redwood in 2013.

Restructuring costs

We recognized net restructuring costs of $2.0 million during the three months ended March 31, 2014 compared with $1.8 million during the three months ended March 31, 2013. The restructuring costs recognized in 2014 were primarily related to consolidating operations following the announced closings of manufacturing operations at two locations in the U.S. and continued efforts to realign and lower our cost structure. The 2013 restructuring costs were primarily related to workforce reductions and other cost reduction initiatives at various U.S. and international facilities.

We expect to incur additional pretax costs of $2.0 million to $3.0 million in 2014 related to completing actions announced to date. We expect to recognize an additional restructuring charge in the second half of 2014 related to the lease agreement at our Joliet, Illinois facility once operations cease at that facility and that charge may be material. However, we cannot currently estimate the charge. Additional restructuring actions may be identified and resulting charges and cash requirements could be material.

Asset impairments

We recognized impairment charges of $5.6 million in the three months ended March 31, 2013 related to long-lived assets in the Wireless segment.

Net interest expense

We incurred net interest expense of $41.2 million during the three months ended March 31, 2014 compared to $45.1 million for the three months ended March 31, 2013. Net interest expense for the first quarter of 2014 included $9.5 million of interest related to the 6.625%/7.375% senior payment-in-kind toggle notes (the senior PIK toggle notes) issued in May 2013. Net interest expense for the first quarter of 2013 included a $0.5 million write-off of deferred financing costs and original issue discount that resulted from amending our senior secured term loan facility primarily to lower the interest rate. Excluding the charges related to last year’s refinancing, net interest expense decreased in the current year quarter as compared to the corresponding prior year period, primarily due to a favorable shift to lower rate debt, slightly lower debt balances and interest savings resulting from the amendments to the senior secured term loan facility.

Our weighted average effective interest rate on outstanding borrowings, including the amortization of deferred financing costs and original issue discount, was 6.73% as of March 31, 2014, 6.89% as of December 31, 2013 and 6.92% as of March 31, 2013.

Other expense, net

Foreign exchange losses of $2.3 million were included in other expense, net for the three months ended March 31, 2014 compared to $0.3 million for the three months ended March 31, 2013. Other expense, net for the three months ended March 31, 2014 included our share of losses in our equity investments of $0.6 million compared to $0.9 million for the

 

19


Table of Contents

three months ended March 31, 2013. Also included in other expense, net for the three months ended March 31, 2013 was the write-off of one such equity investment of $0.8 million. Additionally, we incurred costs of $1.9 million that were included in net other expense for the first quarter of 2013 related to amending our senior secured term loan facility.

Income taxes

Our effective income tax rate of 36.9% for the first quarter of 2014 was higher than the statutory rate of 35% primarily due to losses in certain jurisdictions where we did not recognize tax benefits due to the likelihood of them not being realizable, increases in valuation allowances on certain tax attributes, the provision for state income taxes and certain tax costs associated with repatriation of foreign earnings. These items were partially offset by benefits related to uncertain tax positions for which the statutes had lapsed and the $5.4 million pretax reduction in the estimated fair value of contingent consideration payable, which is not subject to tax.

Our effective income tax rate of 40.9% for the three months ended March 31, 2013 was higher than the statutory rate and did not reflect benefits for losses in certain foreign jurisdictions where we did not recognize tax benefits due to the likelihood of them not being realizable. The effective tax rate for the first quarter of 2013 included a benefit for 2012 research and development tax credits as a result of legislation enacted early in 2013. This benefit was offset by additional expense related to uncertain tax positions and certain tax costs associated with repatriation of foreign earnings. Excluding these items, the effective tax rate was comparable to the statutory rate of 35%.

We expect to continue to provide for U.S. taxes on a substantial portion of our current year foreign earnings in anticipation that such earnings will be repatriated to the U.S.

Segment Results

 

     Three Months Ended
March 31,
       
     2014     2013              
     Amount     % of Net
Sales
    Amount     % of Net
Sales
    Dollar
Change
    %
Change
 
     (dollars in millions)  

Net sales by segment:

            

Wireless

   $ 627.2        67.1   $ 496.5        61.7   $ 130.7        26.3

Enterprise

     201.5        21.5        191.8        23.8        9.7        5.1   

Broadband

     107.5        11.5        118.1        14.7        (10.6     (9.0

Inter-segment eliminations

     (1.2     (0.1     (1.7     (0.2     0.5     
  

 

 

     

 

 

     

 

 

   

Consolidated net sales

   $ 935.0        100.0   $ 804.7        100.0   $ 130.3        16.2
  

 

 

     

 

 

     

 

 

   

Total domestic sales

   $ 562.9        60.2   $ 453.5        56.4   $ 109.4        24.1

Total international sales

     372.1        39.8        351.2        43.6        20.9        6.0   
  

 

 

     

 

 

     

 

 

   

Total worldwide sales

   $ 935.0        100.0   $ 804.7        100.0   $ 130.3        16.2
  

 

 

     

 

 

     

 

 

   

Operating income (loss) by segment:

            

Wireless

   $ 127.6        20.3   $ 62.4        12.6   $ 65.2        104.5

Enterprise

     22.6        11.2        15.4        8.0        7.2        46.8   

Broadband

     (3.7     (3.4     (2.4     (2.0     (1.3     NM   
  

 

 

     

 

 

     

 

 

   

Consolidated operating income

   $ 146.5        15.7   $ 75.4        9.4   $ 71.1        94.3
  

 

 

     

 

 

     

 

 

   

 

NM — Not meaningful

Wireless Segment

We provide merchant RF wireless network connectivity solutions and small cell distributed antenna systems (DAS) solutions. Our solutions, marketed primarily under the Andrew brand, enable wireless operators to deploy both macro cell sites and small cell DAS solutions to meet 2G, 3G and 4G cellular coverage and capacity requirements. Our macro cell site solutions can be found at wireless tower sites and on rooftops and include base station antennas, microwave antennas, hybrid fiber-feeder and power cables, coaxial cables, connectors, amplifiers, filters and backup power solutions. Our small cell DAS solutions are primarily composed of distributed antenna systems that allow wireless operators to increase spectral efficiency and thereby extend and enhance cellular coverage and capacity in challenging network conditions such as commercial buildings, urban areas, stadiums and transportation systems.

 

20


Table of Contents

The Wireless segment experienced a substantial increase in net sales for the three months ended March 31, 2014 as compared to the comparable period in the prior year primarily as a result of higher capital spending by U.S. wireless operators, including 4G deployments. The Wireless segment recorded higher sales in all major geographic regions except the CALA region in the first quarter of 2014 as compared to the first quarter of 2013. Foreign exchange rate changes had a negligible negative impact on Wireless segment net sales for the three months ended March 31, 2014 as compared to the same period in 2013.

We expect demand for our Wireless products to be positively affected by wireless coverage and capacity expansion in emerging markets and growth in mobile data services (including 4G deployments) in developed markets. Uncertainty in the global economy or a particular region may slow the growth or cause a decline in capital spending by wireless operators and negatively impact our net sales.

Wireless segment operating income increased $65.2 million for the three months ended March 31, 2014 as compared to the comparable period in the prior year primarily due to the higher level of net sales, with additional benefit from favorable mix of products sold and the benefit of cost reduction initiatives. These benefits were partially offset by higher cash incentive compensation expense. In addition, the Wireless segment recorded asset impairment charges of $5.6 million in the first quarter of 2013 and no such charges were recorded in 2014.

Enterprise Segment

We provide enterprise connectivity solutions for data centers and commercial buildings. Our offerings include voice, video, data and converged solutions that support mission-critical, high-bandwidth applications including storage area networks, streaming media, data backhaul, cloud applications and grid computing. These comprehensive solutions, sold primarily under the SYSTIMAX and Uniprise brands, include optical fiber and twisted pair structured cabling solutions, intelligent infrastructure software, network rack and cabinet enclosures, intelligent building sensors, advanced LED lighting control systems and network design services.

Enterprise segment net sales increased for the three months ended March 31, 2014 in the U.S., CALA and the Asia Pacific (APAC) region as compared to the comparable prior year period. Enterprise segment net sales were essentially unchanged in the EMEA region for the first quarter of 2014 as compared to the first quarter of 2013. The iTRACS and Redwood acquisitions had an immaterial impact on sales in the first quarter of 2014. Foreign exchange rate changes had a negligible negative impact on Enterprise segment net sales for the three months ended March 31, 2014 as compared to the comparable 2013 period.

We expect long-term demand for Enterprise products to be driven by global information technology and data center spending as the ongoing need for bandwidth and intelligence in the network continues to create demand for high-performance structured connectivity solutions in the enterprise market. Uncertain global economic conditions, an ongoing slowdown in commercial construction activity, uncertain levels of information technology spending and reductions in the levels of distributor inventories may negatively affect demand for our products.

The increase in Enterprise segment operating income for the three months ended March 31, 2014 as compared to the prior year period was primarily attributable to higher net sales, a favorable shift in mix, the positive impact of cost reduction initiatives and a $5.4 million reduction in expense related to the adjustment of the estimated fair value of contingent consideration payable from the Redwood acquisition. Excluding the positive impact of this adjustment to contingent consideration payable, iTRACS and Redwood decreased operating income for the first quarter of 2014 by $4.5 million, as investments are made to develop product offerings and integrate the acquired businesses.

Broadband Segment

We provide cable and communications products that support the multi-channel video, voice and high-speed data services provided by multi-system operators (MSOs). We are a global manufacturer of coaxial cable for hybrid fiber coaxial networks and a supplier of fiber optic cable for North American MSOs.

Broadband segment net sales decreased for the three months ended March 31, 2014 as compared to the comparable prior year period in the CALA and EMEA regions while net sales were essentially unchanged in the U.S. and the APAC region. Foreign exchange rate changes had a negligible negative impact on Broadband segment net sales for the three months ended March 31, 2014 as compared to the prior year period.

We expect demand for Broadband products to continue to be influenced by ongoing maintenance requirements of cable networks, cable providers’ competition with telecommunication service providers and activity in the residential construction market. Spending by our Broadband customers on maintaining and upgrading networks is expected to continue to be influenced by uncertain regional and global economic conditions.

 

21


Table of Contents

The Broadband segment recorded a larger operating loss during the three months ended March 31, 2014 than the prior year period primarily due to the impact of lower net sales and incremental costs associated with the closure of our Statesville, North Carolina facility. These unfavorable impacts were partially offset by benefits from cost reduction initiatives. We continue to evaluate alternatives to improve the performance of the Broadband segment. Future actions taken to improve performance could result in charges that may be material.

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes certain key measures of our liquidity and capital resources.

 

     March 31, 2014     December 31, 2013     Dollar Change     %
Change
 
     (dollars in millions)  

Cash and cash equivalents

   $ 305.2      $ 346.3      $ (41.1     (11.9 )% 

Working capital (1), excluding cash and cash equivalents and current portion of long-term debt

     673.0        523.2        149.8        28.6   

Availability under revolving credit facility

     345.0        308.7        36.3        11.8   

Long-term debt, including current portion

     2,512.6        2,514.6        (2.0     (0.1

Total capitalization (2)

     3,671.3        3,602.6        68.7        1.9   

Long-term debt, including current portion, as a percentage of total capitalization

     68.4     69.8    

 

(1) Working capital consists of current assets of $1,547.0 million less current liabilities of $577.9 million as of March 31, 2014. Working capital consists of current assets of $1,453.4 million less current liabilities of $593.4 million as of December 31, 2013.
(2) Total capitalization includes long-term debt, including the current portion, and stockholders’ equity.

Our principal sources of liquidity on a short-term basis are cash and cash equivalents, cash flows provided by operations and availability under credit facilities. On a long-term basis, our potential sources of liquidity also include raising capital through the issuance of debt and/or equity. The primary uses of liquidity include funding working capital requirements (primarily inventory and accounts receivable, net of accounts payable and other accrued liabilities), debt service requirements (including voluntary debt payments), capital expenditures, acquisitions, payment of certain restructuring costs, and pension and other postretirement obligations.

The decrease in cash and cash equivalents during the first three months of 2014 was primarily driven by the use of cash to fund operations. The increase in working capital, excluding cash and cash equivalents and current portion of long-term debt is primarily due to the increase in the levels of accounts receivable resulting from higher net sales in the first quarter of 2014 as compared with the fourth quarter of 2013 and higher inventory expected to be needed to meet demand in the second and third quarters. The slight decrease in long-term debt as compared to December 31, 2013 was primarily the result of mandatory payments under our senior secured term loan facility. The net change in total capitalization during the first three months of 2014 primarily reflects current year earnings.

Cash Flow Overview

 

     Three Months Ended
March 31,
       
     2014     2013     Dollar
Change
 
     (dollars in millions)  

Net cash used in operating activities

   $ (35.5   $ (52.9   $ 17.4   

Net cash used in investing activities

   $ (5.4   $ (37.9   $ 32.5   

Net cash generated by financing activities

   $ 0.9      $ 95.2      $ (94.3

Operating Activities

During the three months ended March 31, 2014, $35.5 million of cash was used in operating activities compared to $52.9 million during the three months ended March 31, 2013. Less cash was used to fund operations during the first quarter of 2014 as compared to the first quarter of 2013 due to improved operating performance partially offset by higher working capital requirements. In particular, accounts receivable increased period over period as a result of higher net sales. This use of cash was partially offset by lower cash paid for interest, which reflects a favorable shift to lower rate debt and changes in the timing of certain interest payments.

 

22


Table of Contents

We expect to generate net cash from operating activities during the remainder of 2014. The first quarter is generally the weakest cash generation quarter of the year.

Investing Activities

Investment in property, plant and equipment during the first quarter of 2014 was $6.7 million and primarily related to supporting improvements to manufacturing operations as well as investments in information technology (including internally developed software). We currently expect total capital expenditures of $40 million to $45 million in 2014.

During the first quarter of 2013, we paid $34.0 million related to the acquisition of iTRACS. We received $4.7 million in April 2014 related to the final determination of the iTRACS purchase price.

Financing Activities

During the three months ended March 31, 2014, we made a required payment of $2.2 million under our senior secured term loans. We also borrowed and repaid $15.0 million under our $400 million revolving credit facility. As of March 31, 2014, availability under our revolving credit facility was approximately $345.0 million, reflecting a borrowing base of $400.0 million reduced by $55.0 million of letters of credit issued under the revolving credit facility. During the first quarter of 2014, we received proceeds of $2.0 million and recognized $1.5 million of excess tax benefits related to the exercise of stock options.

During the first quarter of 2013, we amended our senior secured term loan primarily to lower the interest rate. The amendment resulted in the repayment of $32.0 million to certain lenders who exited the senior secured term loan and the receipt of $32.0 million in proceeds from new lenders and existing lenders who increased their positions. We also borrowed $135.0 million and repaid $35.0 million under the revolving credit facility and repaid $2.5 million of our senior secured term loan during the three months ended March 31, 2013.

Future Cash Needs

We expect that our primary future cash needs will be debt service, funding working capital requirements, capital expenditures, paying certain restructuring costs, tax payments (including the cost of repatriation), and funding pension and other postretirement benefit obligations. We paid $6.8 million of restructuring costs during the first three months of 2014 and expect to pay an additional $15.0 million to $17.0 million by 2015 related to restructuring actions that have been initiated. Any future restructuring actions would likely require additional cash expenditures and such requirements may be material. As of March 31, 2014, we have an unfunded obligation related to pension and other postretirement benefits of $36.6 million. We made contributions of $1.0 million to our pension and other postretirement benefit plans during the three months ended March 31, 2014 and currently expect to make additional contributions of $18.3 million during the balance of 2014. These contributions include those required to comply with an agreement with the Pension Benefit Guaranty Corporation. We expect that our noncurrent employee benefit liabilities will be funded from existing cash balances and cash flow from future operations. In addition to the $9.8 million we paid in July 2013 for the acquisition of Redwood, we may be required to pay up to an additional $49.0 million of additional consideration and retention payments in 2015 if certain net sales targets are met. We expect to pay the interest on the senior PIK toggle notes in cash during 2014. We may also pay existing debt or repurchase our remaining 8.25% senior notes or our senior PIK toggle notes, if market conditions are favorable and the applicable indenture permits such repayment or repurchase. We may also pursue additional strategic acquisition opportunities, which may impact our future cash requirements.

Although there are no financial maintenance covenants under the terms of our 8.25% senior notes and senior PIK toggle notes, there is a limitation, among other limitations, on certain future borrowings based on an adjusted leverage ratio or a fixed charge coverage ratio. See Part II, Item 7 of our 2013 Annual Report on Form 10-K for further discussion of these limitations and ratios. These ratios are based on pro forma adjusted EBITDA for the trailing twelve months, which is calculated as earnings ($68.0 million) before interest ($201.6 million, net), taxes ($83.5 million), depreciation ($53.2 million), amortization ($175.9 million), asset impairment charges ($39.9 million), net restructuring costs ($22.3 million), equity-based compensation ($15.3 million), other special items ($73.3 million) and adjustments to reflect the impact of cost reduction initiatives ($24.5 million) and acquisitions (a loss of $1.6 million) so that their impacts are fully reflected in the twelve-month period used in the calculation of the ratios. For the twelve months ended March 31, 2014, our pro forma adjusted EBITDA as measured pursuant to our notes indentures was $755.9 million. In addition to limitations under our notes indentures, our senior secured credit facilities contain customary negative covenants. We are currently in compliance with the covenants under our senior secured credit facilities.

As of March 31, 2014, approximately 73% of our cash and cash equivalents was held outside the United States. Income taxes have been provided on foreign earnings to repatriate substantially all of this cash. We do not anticipate significant incremental income tax expense related to repatriating existing cash balances. However, the cash tax requirements to repatriate existing funds may vary from year to year.

 

23


Table of Contents

We believe that our existing cash, cash equivalents and cash flows from operations, combined with availability under our revolving credit facility, will be sufficient to meet our presently anticipated future cash needs. We currently hold 2.2 million shares of Hydrogenics Corporation and we may sell a substantial portion of that investment. We may, from time to time, increase borrowings under our revolving credit facility or issue securities, if market conditions are favorable, to meet our future cash needs or to reduce our borrowing costs.

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 which reflect our current views with respect to future events and financial performance. These forward-looking statements are identified by their use of such terms and phrases as “intend,” “goal,” “estimate,” “expect,” “project,” “projections,” “plans,” “anticipate,” “should,” “designed to,” “foreseeable future,” “believe,” “think,” “scheduled,” “outlook,” “guidance” and similar expressions. This list of indicative terms and phrases is not intended to be all-inclusive.

These statements are subject to various risks and uncertainties, many of which are outside our control, including, without limitation, our dependence on customers’ capital spending on communication systems; concentration of sales among a limited number of customers or distributors; changes in technology; our ability to fully realize anticipated benefits from prior or future acquisitions or equity investments; industry competition and the ability to retain customers through product innovation, introduction and marketing; risks associated with our sales through channel partners; possible production disruptions due to supplier or contract manufacturer bankruptcy, reorganization or restructuring; the risk our global manufacturing operations suffer production or shipping delays causing difficulty in meeting customer demands; the risk that internal production capacity and that of contract manufacturers may be insufficient to meet customer demand or quality standards for our products; our ability to maintain effective information management systems and to successfully implement major systems initiatives; cyber-security incidents, including data security breaches or computer viruses; product performance issues and associated warranty claims; significant international operations and 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; risks associated with currency fluctuations and currency exchange; the divestiture of one or more product lines; political and economic instability, both in the U.S. and internationally; potential difficulties in realigning global manufacturing capacity and capabilities among our global manufacturing facilities, including delays or challenges related to removing, transporting or reinstalling equipment, that may affect ability to meet customer demands for products; possible future restructuring actions; possible future impairment charges for fixed or intangible assets, including goodwill; increased obligations under employee benefit plans; cost of protecting or defending intellectual property; changes in laws or regulations affecting us or the industries we serve; costs and challenges of compliance with domestic and foreign environmental laws and the effects 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; our ability to attract and retain qualified key employees; allegations of health risks from wireless equipment; availability and adequacy of insurance; natural or man-made disasters or other disruptions; income tax rate variability and ability to recover amounts recorded as value-added tax receivables; labor unrest; risks associated with future research and development projects; increased costs as a result of operating as a public company; our ability to comply with new regulations related to conflict minerals; risks associated with the seasonality of our business; substantial indebtedness and maintaining compliance with debt covenants; our ability to incur additional indebtedness; cash requirements to service indebtedness; ability of our lenders to fund borrowings under their credit commitments; changes in capital availability or costs, such as changes in interest rates, security ratings and market perceptions of the businesses in which we operate, or the ability to obtain capital on commercially reasonable terms or at all; continued global economic weakness and uncertainties and disruption in the capital, credit and commodities markets; any statements of belief and any statements of assumptions underlying any of the foregoing; and other factors beyond our control. These and other factors are discussed in greater detail in our 2013 Annual Report on Form 10-K. The information contained in this Quarterly Report on Form 10-Q represents our best judgment at the date of this report based on information currently available. However, we are not undertaking any duty or obligation to update this information to reflect developments or information obtained after the date of this report.

 

24


Table of Contents
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 2013 Annual Report on Form 10-K, as filed with the SEC on February 20, 2014.

 

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 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

There have been no changes in our internal controls over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

25


Table of Contents

PART II—OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

The material set forth in Note 1 of Notes to the Condensed Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

 

ITEM 1A. RISK FACTORS

There have been no material changes from our risk factors as previously reported in Item 1A of our 2013 Annual Report on Form 10-K.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities:

None.

Issuer Purchases of Equity Securities:

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

 

ITEM 5. OTHER INFORMATION

None.

 

ITEM 6. EXHIBITS

 

    1.1    Underwriting Agreement, dated March 27, 2014, by and among CommScope Holding Company, Inc., an affiliate of The Carlyle Group, J.P. Morgan Securities LLC, Deutsche Bank Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated. (Incorporated by reference to Exhibit 1.1 to the Form 8-K (File No. 001-36146), filed with the SEC on March 31, 2014).
  10.1    Employment Agreement between Mark A. Olson and CommScope, Inc., dated January 21, 2014 (Incorporated by reference to Exhibit 10.1 to the Form 8-K (File No. 001-36146), filed with the SEC on January 23, 2014).
  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    Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished pursuant to Item 601(b)(32)(ii) of Regulation S-K).
101.INS    XBRL Instance Document, furnished herewith.
101.SCH    XBRL Schema Document, furnished herewith.
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document.
101.INS    XBRL Taxonomy Extension Label Linkbase Document.
101.INS    XBRL Taxonomy Extension Presentation Linkbase Document.
101.INS    XBRL Taxonomy Extension Definition Linkbase Document.

 

26


Table of Contents

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.
April 29, 2014    

/s/ Mark A. Olson

Date     Mark A. Olson
    Executive Vice President and Chief Financial Officer
    (Principal Financial Officer and duly authorized officer)

 

27

EX-31.1

Exhibit 31.1

MANAGEMENT CERTIFICATION

I, Marvin S. Edwards, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of CommScope Holding Company, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and

b) [not applicable]

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: April 29, 2014

/s/ Marvin S. Edwards, Jr.

Name:   Marvin S. Edwards, Jr.
Title:   President, Chief Executive Officer
and Director (Principal Executive Officer)

 

28

EX-31.2

Exhibit 31.2

MANAGEMENT CERTIFICATION

I, Mark A. Olson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CommScope Holding Company, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and

b) [not applicable]

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: April 29, 2014

/s/ Mark A. Olson

Name:   Mark A. Olson
Title:   Executive Vice President and Chief
Financial Officer (Principal Financial Officer)

 

29

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of CommScope Holding Company, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Marvin S. Edwards, Jr., President, Chief Executive Officer and Director of the Company, and Mark A. Olson, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350 as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: April 29, 2014

/s/ Marvin S. Edwards, Jr.

Marvin S. Edwards, Jr.
President, Chief Executive Officer and Director
(Principal Executive Officer)

/s/ Mark A. Olson

Mark A. Olson
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

 

30