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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, 2020

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 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)

 

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

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.

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

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  

As of July 23, 2020 there were 196,813,504 shares of Common Stock outstanding.

 

 

 


CommScope Holding Company, Inc.

Form 10-Q

June 30, 2020

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 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

 

27

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

44

 

 

 

Item 4. Controls and Procedures

 

45

 

 

 

Part II—Other Information:

 

 

 

 

 

Item 1. Legal Proceedings

 

46

 

 

 

Item 1A. Risk Factors

 

46

 

 

 

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

 

46

 

 

 

Item 3. Defaults Upon Senior Securities

 

46

 

 

 

Item 4. Mine Safety Disclosures

 

47

 

 

 

Item 5. Other Information

 

47

 

 

 

Item 6. Exhibits

 

48

 

 

 

Signatures

 

49

 

 

 

1

 


PART 1 -- FINANCIAL INFORMATION (UNAUDITED)

ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CommScope Holding Company, Inc.

Condensed Consolidated Statements of Operations

(Unaudited – In millions, except per share amounts)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net sales

$

2,102.8

 

 

$

2,566.7

 

 

$

4,136.0

 

 

$

3,666.3

 

Cost of sales

 

1,446.7

 

 

 

1,906.7

 

 

 

2,838.7

 

 

 

2,608.2

 

Gross profit

 

656.1

 

 

 

660.0

 

 

 

1,297.3

 

 

 

1,058.1

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

290.9

 

 

 

480.9

 

 

 

602.0

 

 

 

666.3

 

Research and development

 

176.1

 

 

 

177.8

 

 

 

356.5

 

 

 

228.0

 

Amortization of purchased intangible assets

 

157.6

 

 

 

164.1

 

 

 

315.4

 

 

 

223.5

 

Restructuring costs, net

 

19.6

 

 

 

46.4

 

 

 

43.3

 

 

 

58.8

 

Asset impairments

 

206.7

 

 

 

 

 

 

206.7

 

 

 

 

Total operating expenses

 

850.9

 

 

 

869.2

 

 

 

1,523.9

 

 

 

1,176.6

 

Operating loss

 

(194.8

)

 

 

(209.2

)

 

 

(226.6

)

 

 

(118.5

)

Other income (expense), net

 

(0.8

)

 

 

0.7

 

 

 

(13.3

)

 

 

(5.0

)

Interest expense

 

(141.4

)

 

 

(165.3

)

 

 

(290.5

)

 

 

(262.8

)

Interest income

 

0.8

 

 

 

2.3

 

 

 

2.9

 

 

 

14.1

 

Loss before income taxes

 

(336.2

)

 

 

(371.5

)

 

 

(527.5

)

 

 

(372.2

)

Income tax benefit

 

15.1

 

 

 

37.5

 

 

 

46.5

 

 

 

35.9

 

Net loss

 

(321.1

)

 

 

(334.0

)

 

 

(481.0

)

 

 

(336.3

)

Series A convertible preferred stock dividend

 

(13.9

)

 

 

(13.1

)

 

 

(27.7

)

 

 

(13.1

)

Deemed dividend on Series A convertible preferred stock

 

 

 

 

(3.0

)

 

 

 

 

 

(3.0

)

Net loss attributable to common stockholders

$

(335.0

)

 

$

(350.1

)

 

$

(508.7

)

 

$

(352.4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(1.71

)

 

$

(1.81

)

 

$

(2.60

)

 

$

(1.82

)

Diluted

$

(1.71

)

 

$

(1.81

)

 

$

(2.60

)

 

$

(1.82

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

195.9

 

 

 

193.6

 

 

 

195.4

 

 

 

193.2

 

Diluted

 

195.9

 

 

 

193.6

 

 

 

195.4

 

 

 

193.2

 

 

See notes to unaudited condensed consolidated financial statements.

2

 


CommScope Holding Company, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited – In millions)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(321.1

)

 

$

(334.0

)

 

$

(481.0

)

 

$

(336.3

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

34.6

 

 

 

9.9

 

 

 

(65.0

)

 

 

0.1

 

Pension and other postretirement benefit activity

 

 

 

 

(0.1

)

 

 

(0.5

)

 

 

(0.1

)

Loss on hedging instruments

 

(5.3

)

 

 

(10.4

)

 

 

(12.9

)

 

 

(11.9

)

Total other comprehensive income (loss), net of tax

 

29.3

 

 

 

(0.6

)

 

 

(78.4

)

 

 

(11.9

)

Total comprehensive loss

$

(291.8

)

 

$

(334.6

)

 

$

(559.4

)

 

$

(348.2

)

 

See notes to unaudited condensed consolidated financial statements.

3

 


CommScope Holding Company, Inc.

Condensed Consolidated Balance Sheets

(In millions, except share amounts)

 

 

 

Unaudited

 

 

 

 

 

 

 

June 30, 2020

 

 

December 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

823.4

 

 

$

598.2

 

Accounts receivable, less allowance for doubtful accounts of

   $43.4 and $35.4, respectively

 

 

1,649.3

 

 

 

1,698.8

 

Inventories, net

 

 

1,038.4

 

 

 

975.9

 

Prepaid expenses and other current assets

 

 

236.7

 

 

 

238.9

 

Total current assets

 

 

3,747.8

 

 

 

3,511.8

 

Property, plant and equipment, net of accumulated depreciation

   of $624.3 and $553.8, respectively

 

 

681.4

 

 

 

723.8

 

Goodwill

 

 

5,231.2

 

 

 

5,471.7

 

Other intangible assets, net

 

 

3,944.6

 

 

 

4,263.6

 

Other noncurrent assets

 

 

533.2

 

 

 

460.7

 

Total assets

 

$

14,138.2

 

 

$

14,431.6

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,222.1

 

 

$

1,148.0

 

Accrued and other liabilities

 

 

887.3

 

 

 

862.0

 

Current portion of long-term debt

 

 

32.0

 

 

 

32.0

 

Total current liabilities

 

 

2,141.4

 

 

 

2,042.0

 

Long-term debt

 

 

9,946.8

 

 

 

9,800.4

 

Deferred income taxes

 

 

196.2

 

 

 

215.1

 

Other noncurrent liabilities

 

 

526.3

 

 

 

537.8

 

Total liabilities

 

 

12,810.7

 

 

 

12,595.3

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Series A convertible preferred stock, $0.01 par value

 

 

1,027.7

 

 

 

1,000.0

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value: Authorized shares: 200,000,000;

 

 

 

 

 

 

 

 

Issued and outstanding shares: 1,027,689 Series A convertible preferred stock

 

 

 

 

 

 

Common stock, $0.01 par value: Authorized shares: 1,300,000,000;

 

 

 

 

 

 

 

 

Issued and outstanding shares: 195,997,230 and 194,563,530,

 

 

 

 

 

 

 

 

respectively

 

 

2.0

 

 

 

2.0

 

Additional paid-in capital

 

 

2,474.3

 

 

 

2,445.1

 

Retained earnings (accumulated deficit)

 

 

(1,660.3

)

 

 

(1,179.3

)

Accumulated other comprehensive loss

 

 

(275.4

)

 

 

(197.0

)

Treasury stock, at cost: 8,021,551 shares and 7,411,382 shares,

 

 

 

 

 

 

 

 

respectively

 

 

(240.8

)

 

 

(234.5

)

Total stockholders' equity

 

 

299.8

 

 

 

836.3

 

Total liabilities and stockholders' equity

 

$

14,138.2

 

 

$

14,431.6

 

 

See notes to unaudited condensed consolidated financial statements.

4

 


CommScope Holding Company, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited - In millions)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2020

 

 

2019

 

Operating Activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(481.0

)

 

$

(336.3

)

Adjustments to reconcile net loss to net cash generated by (used in)

   operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

408.9

 

 

 

301.0

 

Equity-based compensation

 

 

56.0

 

 

 

30.7

 

Deferred income taxes

 

 

(69.4

)

 

 

(105.4

)

Asset impairments

 

 

206.7

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

33.5

 

 

 

(304.0

)

Inventories

 

 

(73.5

)

 

 

132.2

 

Prepaid expenses and other assets

 

 

11.7

 

 

 

24.2

 

Accounts payable and other liabilities

 

 

62.7

 

 

 

(1.0

)

Other

 

 

10.7

 

 

 

(3.0

)

Net cash generated by (used in) operating activities

 

 

166.3

 

 

 

(261.6

)

Investing Activities:

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(47.7

)

 

 

(48.0

)

Proceeds from sale of property, plant and equipment

 

 

0.1

 

 

 

0.8

 

Cash paid for ARRIS acquisition, net of cash acquired

 

 

 

 

 

(5,049.9

)

Cash paid for Cable Exchange acquisition

 

 

 

 

 

(11.0

)

Other

 

 

 

 

 

6.6

 

Net cash used in investing activities

 

 

(47.6

)

 

 

(5,101.5

)

Financing Activities:

 

 

 

 

 

 

 

 

Long-term debt repaid

 

 

(116.0

)

 

 

(2,553.3

)

Long-term debt proceeds

 

 

250.0

 

 

 

6,933.0

 

Debt issuance costs

 

 

 

 

 

(118.1

)

Series A convertible preferred stock proceeds

 

 

 

 

 

1,000.0

 

Dividends paid on Series A convertible preferred stock

 

 

 

 

 

(3.0

)

Proceeds from the issuance of common shares under equity-based

   compensation plans

 

 

0.9

 

 

 

2.7

 

Tax withholding payments for vested equity-based compensation

  awards

 

 

(6.3

)

 

 

(9.3

)

Net cash generated by financing activities

 

 

128.6

 

 

 

5,252.0

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(22.1

)

 

 

0.9

 

Change in cash and cash equivalents

 

 

225.2

 

 

 

(110.2

)

Cash and cash equivalent at beginning of period

 

 

598.2

 

 

 

458.2

 

Cash and cash equivalents at end of period

 

$

823.4

 

 

$

348.0

 

 

See notes to unaudited condensed consolidated financial statements.

5

 


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,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

195,807,913

 

 

 

193,456,207

 

 

 

194,563,530

 

 

 

192,376,255

 

Issuance of shares under equity-based compensation plans

 

 

229,571

 

 

 

510,460

 

 

 

2,043,869

 

 

 

1,907,093

 

Shares surrendered under equity-based compensation plans

 

 

(40,254

)

 

 

(92,748

)

 

 

(610,169

)

 

 

(409,429

)

Balance at end of period

 

 

195,997,230

 

 

 

193,873,919

 

 

 

195,997,230

 

 

 

193,873,919

 

Common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning and end of period

 

$

2.0

 

 

$

2.0

 

 

$

2.0

 

 

$

2.0

 

Additional paid-in capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

2,455.7

 

 

$

2,393.9

 

 

$

2,445.1

 

 

$

2,385.1

 

Issuance of shares under equity-based compensation plans

 

 

 

 

 

1.5

 

 

 

0.9

 

 

 

2.7

 

Equity-based compensation

 

 

32.5

 

 

 

23.1

 

 

 

56.0

 

 

 

30.7

 

Equity-based compensation assumed

 

 

 

 

 

8.3

 

 

 

 

 

 

8.3

 

Dividend on Series A convertible preferred stock

 

 

(13.9

)

 

 

(13.1

)

 

 

(27.7

)

 

 

(13.1

)

Deemed dividend on Series A convertible preferred stock