SEC Filing | CommScope Holding Company, Inc.

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comm-10q_20190630.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2019

☐	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 001-36146

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

COMM

The NASDAQ Stock Market

As of July 26, 2019 there were 194,105,783 shares of Common Stock outstanding.

CommScope Holding Company, Inc.

Form 10-Q

June 30, 2019

Table of Contents

Part I—Financial Information (Unaudited):

Item 1. Condensed Consolidated Financial Statements:

Condensed Consolidated Statements of Operations		2

Condensed Consolidated Statements of Comprehensive Income (Loss)		3

Condensed Consolidated Balance Sheets		4

Condensed Consolidated Statements of Cash Flows		5

Condensed Consolidated Statements of Stockholders’ Equity		6

Notes to Unaudited Condensed Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		38

Item 3. Quantitative and Qualitative Disclosures About Market Risk		56

Item 4. Controls and Procedures		57

Part II—Other Information:

Item 1. Legal Proceedings		58

Item 1A. Risk Factors		58

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		58

Item 3. Defaults Upon Senior Securities		58

Item 4. Mine Safety Disclosures		58

Item 5. Other Information		58

Item 6. Exhibits		59

Signatures		60

PART 1 -- FINANCIAL INFORMATION (UNAUDITED)

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CommScope Holding Company, Inc.

Condensed Consolidated Statements of Operations

(Unaudited – In millions, except per share amounts)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Net sales	$	2,566.7		$	1,239.9		$	3,666.3		$	2,360.4
Cost of sales		1,906.7			782.7			2,608.2			1,505.4
Gross profit		660.0			457.2			1,058.1			855.0
Operating expenses:
Selling, general and administrative		480.9			171.1			666.3			342.6
Research and development		177.8			47.8			228.0			97.6
Amortization of purchased intangible assets		164.1			66.4			223.5			133.7
Restructuring costs, net		46.4			7.2			58.8			12.7
Total operating expenses		869.2			292.5			1,176.6			586.6
Operating income (loss)		(209.2	)		164.7			(118.5	)		268.4
Other income (expense), net		0.7			(3.2	)		(5.0	)		(2.1	)
Interest expense		(165.3	)		(60.7	)		(262.8	)		(120.5	)
Interest income		2.3			2.1			14.1			3.5
Income (loss) before income taxes		(371.5	)		102.9			(372.2	)		149.3
Income tax (expense) benefit		37.5			(37.0	)		35.9			(49.6	)
Net income (loss)		(334.0	)		65.9			(336.3	)		99.7
Series A convertible preferred stock dividend		(13.1	)		—			(13.1	)		—
Deemed dividend on Series A convertible preferred stock		(3.0	)		—			(3.0	)		—
Net income (loss) attributable to common stockholders	$	(350.1	)	$	65.9		$	(352.4	)	$	99.7

Earnings (loss) per share:
Basic	$	(1.81	)	$	0.34		$	(1.82	)	$	0.52
Diluted	$	(1.81	)	$	0.34		$	(1.82	)	$	0.51

Weighted average shares outstanding:
Basic		193.6			192.2			193.2			191.8
Diluted		193.6			195.2			193.2			195.3

See notes to unaudited condensed consolidated financial statements.

CommScope Holding Company, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited – In millions)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Comprehensive income (loss):
Net income (loss)	$	(334.0	)	$	65.9		$	(336.3	)	$	99.7
Other comprehensive loss, net of tax:
Foreign currency translation gain (loss)		9.9			(108.6	)		0.1			(61.8	)
Pension and other postretirement benefit activity		(0.1	)		(1.3	)		(0.1	)		(2.7	)
Gain (loss) on hedging instruments		(10.4	)		3.1			(11.9	)		2.5
Total other comprehensive loss, net of tax		(0.6	)		(106.8	)		(11.9	)		(62.0	)
Total comprehensive income (loss)	$	(334.6	)	$	(40.9	)	$	(348.2	)	$	37.7

See notes to unaudited condensed consolidated financial statements.

CommScope Holding Company, Inc.

Condensed Consolidated Balance Sheets

(Unaudited - In millions, except share amounts)

	June 30, 2019			December 31, 2018
Assets
Cash and cash equivalents	$	348.0		$	458.2
Accounts receivable, less allowance for doubtful accounts of $25.6 and $17.4, respectively		2,264.7			810.4
Inventories, net		1,404.1			473.3
Prepaid expenses and other current assets		284.4			135.9
Total current assets		4,301.2			1,877.8
Property, plant and equipment, net of accumulated depreciation of $482.2 and $437.7, respectively		767.3			450.9
Goodwill		5,759.1			2,852.3
Other intangible assets, net		4,670.6			1,352.0
Other noncurrent assets		438.5			97.5
Total assets	$	15,936.7		$	6,630.5
Liabilities and Stockholders' Equity
Accounts payable	$	1,406.5		$	399.2
Accrued and other liabilities		854.9			291.4
Current portion of long-term debt		24.0			—
Total current liabilities		2,285.4			690.6
Long-term debt		10,302.5			3,985.9
Deferred income taxes		345.1			83.3
Other noncurrent liabilities		578.8			113.9
Total liabilities		13,511.8			4,873.7
Commitments and contingencies
Series A convertible preferred stock, $0.01 par value		1,000.0			—
Stockholders' equity:
Preferred stock, $0.01 par value: Authorized shares: 200,000,000;
Issued and outstanding shares: 1,000,000 Series A convertible preferred stock		—			—
Common stock, $0.01 par value: Authorized shares: 1,300,000,000;
Issued and outstanding shares: 193,873,919 and 192,376,255,
respectively		2.0			2.0
Additional paid-in capital		2,410.7			2,385.1
Retained earnings (accumulated deficit)		(586.1	)		(249.8	)
Accumulated other comprehensive loss		(171.1	)		(159.2	)
Treasury stock, at cost: 7,153,511 shares and 6,744,082 shares,
respectively		(230.6	)		(221.3	)
Total stockholders' equity		1,424.9			1,756.8
Total liabilities and stockholders' equity	$	15,936.7		$	6,630.5

See notes to unaudited condensed consolidated financial statements.

CommScope Holding Company, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited - In millions)

	Six Months Ended
	June 30,
	2019			2018
Operating Activities:
Net income (loss)	$	(336.3	)	$	99.7
Adjustments to reconcile net income (loss) to net cash generated by (used in) operating activities:
Depreciation and amortization		301.0			178.3
Equity-based compensation		30.7			22.4
Deferred income taxes		(105.4	)		(24.6	)
Changes in assets and liabilities:
Accounts receivable		(304.0	)		(137.0	)
Inventories		132.2			(48.0	)
Prepaid expenses and other assets		24.2			(0.6	)
Accounts payable and other liabilities		(1.0	)		40.9
Other		(3.0	)		4.0
Net cash generated by (used in) operating activities		(261.6	)		135.1
Investing Activities:
Additions to property, plant and equipment		(48.0	)		(30.8	)
Proceeds from sale of property, plant and equipment		0.8			6.2
Cash paid for current year acquisitions, net of cash acquired		(5,049.9	)		—
Cash paid for prior year acquisition		(11.0	)		—
Other		6.6			1.3
Net cash used in investing activities		(5,101.5	)		(23.3	)
Financing Activities:
Long-term debt repaid		(2,553.3	)		—
Long-term debt proceeds		6,933.0			—
Debt issuance costs		(118.1	)		—
Series A convertible preferred stock proceeds		1,000.0			—
Deemed dividend paid on Series A convertible preferred stock		(3.0	)		—
Proceeds from the issuance of common shares under equity-based compensation plans		2.7			4.9
Tax withholding payments for vested equity-based compensation awards		(9.3	)		(15.5	)
Net cash generated by (used in) financing activities		5,252.0			(10.6	)
Effect of exchange rate changes on cash and cash equivalents		0.9			(9.5	)
Change in cash and cash equivalents		(110.2	)		91.7
Cash and cash equivalent at beginning of period		458.2			454.0
Cash and cash equivalents at end of period	$	348.0		$	545.7

See notes to unaudited condensed consolidated financial statements.

CommScope Holding Company, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited - In millions, except share amounts)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Number of common shares outstanding:
Balance at beginning of period		193,456,207			192,077,678			192,376,255			190,906,110
Issuance of shares under equity-based compensation plans		510,460			138,864			1,907,093			1,707,573
Shares surrendered under equity-based compensation plans		(92,748	)		(2,045	)		(409,429	)		(399,186	)
Balance at end of period		193,873,919			192,214,497			193,873,919			192,214,497
Common stock:
Balance at beginning and end of period	$	2.0