SEC Filing | CommScope Holding Company, Inc.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

View:

Download DOC

Download PDF

Download XLS

Download XBRL

comm-10q_20200930.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 September 30, 2020

☐	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.

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 October 23, 2020 there were 198,644,631 shares of Common Stock outstanding.

CommScope Holding Company, Inc.

Form 10-Q

September 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		28

Item 3. Quantitative and Qualitative Disclosures About Market Risk		47

Item 4. Controls and Procedures		48

Part II—Other Information:

Item 1. Legal Proceedings		49

Item 1A. Risk Factors		49

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		49

Item 3. Defaults Upon Senior Securities		49

Item 4. Mine Safety Disclosures		49

Item 5. Other Information		49

Item 6. Exhibits		50

Signatures		51

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						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Net sales	$	2,168.1		$	2,380.2		$	6,304.1		$	6,046.4
Cost of sales		1,432.6			1,770.3			4,271.3			4,378.5
Gross profit		735.5			609.9			2,032.8			1,667.9
Operating expenses:
Selling, general and administrative		296.7			305.8			898.7			972.0
Research and development		184.6			171.5			541.1			399.5
Amortization of purchased intangible assets		158.1			163.9			473.5			387.3
Restructuring costs, net		40.3			19.5			83.6			78.3
Asset impairments		—			—			206.7			—
Total operating expenses		679.7			660.7			2,203.6			1,837.1
Operating income (loss)		55.8			(50.8	)		(170.8	)		(169.2	)
Other income (expense), net		(16.9	)		1.5			(30.2	)		(3.6	)
Interest expense		(147.2	)		(160.7	)		(437.7	)		(423.5	)
Interest income		1.3			1.8			4.2			15.9
Loss before income taxes		(107.0	)		(208.2	)		(634.5	)		(580.4	)
Income tax (expense) benefit		(9.3	)		51.7			37.2			87.6
Net loss		(116.3	)		(156.5	)		(597.3	)		(492.8	)
Series A convertible preferred stock dividend		(14.1	)		(13.8	)		(41.8	)		(26.9	)
Deemed dividend on Series A convertible preferred stock		—			—			—			(3.0	)
Net loss attributable to common stockholders	$	(130.4	)	$	(170.3	)	$	(639.1	)	$	(522.7	)

Loss per share:
Basic	$	(0.66	)	$	(0.88	)	$	(3.26	)	$	(2.70	)
Diluted	$	(0.66	)	$	(0.88	)	$	(3.26	)	$	(2.70	)

Weighted average shares outstanding:
Basic		196.9			194.1			195.9			193.5
Diluted		196.9			194.1			195.9			193.5

See notes to unaudited condensed consolidated financial statements.

CommScope Holding Company, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited – In millions)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Comprehensive loss:
Net loss	$	(116.3	)	$	(156.5	)	$	(597.3	)	$	(492.8	)
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)		63.7			(76.6	)		(1.3	)		(76.5	)
Pension and other postretirement benefit activity		(0.1	)		(0.1	)		(0.6	)		(0.2	)
Gain (loss) on hedging instruments		(9.0	)		7.9			(21.9	)		(4.0	)
Total other comprehensive income (loss), net of tax		54.6			(68.8	)		(23.8	)		(80.7	)
Total comprehensive loss	$	(61.7	)	$	(225.3	)	$	(621.1	)	$	(573.5	)

See notes to unaudited condensed consolidated financial statements.

CommScope Holding Company, Inc.

Condensed Consolidated Balance Sheets

(In millions, except share amounts)

	Unaudited
	September 30, 2020			December 31, 2019
Assets
Cash and cash equivalents	$	582.8		$	598.2
Accounts receivable, less allowance for doubtful accounts of $43.1 and $35.4, respectively		1,497.2			1,698.8
Inventories, net		1,104.5			975.9
Prepaid expenses and other current assets		230.9			238.9
Total current assets		3,415.4			3,511.8
Property, plant and equipment, net of accumulated depreciation of $665.5 and $553.8, respectively		673.3			723.8
Goodwill		5,254.1			5,471.7
Other intangible assets, net		3,795.5			4,263.6
Other noncurrent assets		562.7			460.7
Total assets	$	13,701.0		$	14,431.6
Liabilities and Stockholders' Equity
Accounts payable	$	1,147.3		$	1,148.0
Accrued and other liabilities		878.3			862.0
Current portion of long-term debt		32.0			32.0
Total current liabilities		2,057.6			2,042.0
Long-term debt		9,589.3			9,800.4
Deferred income taxes		217.7			215.1
Other noncurrent liabilities		540.5			537.8
Total liabilities		12,405.1			12,595.3
Commitments and contingencies
Series A convertible preferred stock, $0.01 par value		1,041.8			1,000.0
Stockholders' equity:
Preferred stock, $0.01 par value: Authorized shares: 200,000,000;
Issued and outstanding shares: 1,041,819 Series A convertible preferred stock		—			—
Common stock, $0.01 par value: Authorized shares: 1,300,000,000;
Issued and outstanding shares: 196,990,667 and 194,563,530,
respectively		2.1			2.0
Additional paid-in capital		2,494.2			2,445.1
Retained earnings (accumulated deficit)		(1,776.6	)		(1,179.3	)
Accumulated other comprehensive loss		(220.8	)		(197.0	)
Treasury stock, at cost: 8,498,082 shares and 7,411,382 shares,
respectively		(244.8	)		(234.5	)
Total stockholders' equity		254.1			836.3
Total liabilities and stockholders' equity	$	13,701.0		$	14,431.6

See notes to unaudited condensed consolidated financial statements.

CommScope Holding Company, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited - In millions)

	Nine Months Ended
	September 30,
	2020			2019
Operating Activities:
Net loss	$	(597.3	)	$	(492.8	)
Adjustments to reconcile net loss to net cash generated by operating activities:
Depreciation and amortization		618.8			514.5
Equity-based compensation		90.0			58.7
Deferred income taxes		(96.6	)		(172.4	)
Asset impairments		206.7			—
Changes in assets and liabilities:
Accounts receivable		200.9			165.3
Inventories		(130.3	)		356.3
Prepaid expenses and other assets		32.2			63.8
Accounts payable and other liabilities		(25.0	)		(228.0	)
Other		39.1			(5.0	)
Net cash generated by operating activities		338.5			260.4
Investing Activities:
Additions to property, plant and equipment		(73.5	)		(72.3	)
Proceeds from sale of property, plant and equipment		0.2			1.2
Proceeds from sale of long-term investments		—			9.3
Cash paid for ARRIS acquisition, net of cash acquired		—			(5,053.4	)
Cash paid for Cable Exchange acquisition		(3.5	)		(11.0	)
Other		—			1.1
Net cash used in investing activities		(76.8	)		(5,125.1	)
Financing Activities:
Long-term debt repaid		(1,174.0	)		(2,753.3	)
Long-term debt proceeds		950.0			6,933.0
Debt issuance costs		(11.6	)		(120.8	)
Debt extinguishment costs		(14.9	)		—
Series A convertible preferred stock proceeds		—			1,000.0
Dividends paid on Series A convertible preferred stock		—			(29.9	)
Proceeds from the issuance of common shares under equity-based compensation plans		1.0			3.0
Tax withholding payments for vested equity-based compensation awards		(10.3	)		(12.3	)
Net cash generated by (used in) financing activities		(259.8	)		5,019.7
Effect of exchange rate changes on cash and cash equivalents		(17.3	)		(4.1	)
Change in cash and cash equivalents		(15.4	)		150.9
Cash and cash equivalent at beginning of period		598.2			458.2
Cash and cash equivalents at end of period	$	582.8		$	609.1

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						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Number of common shares outstanding:
Balance at beginning of period		195,997,230			193,873,919			194,563,530			192,376,255
Issuance of shares under equity-based compensation plans		1,469,968			569,086			3,513,837			2,476,179
Shares surrendered under equity-based compensation plans		(476,531	)		(192,283	)		(1,086,700	)		(601,712	)
Balance at end of period		196,990,667			194,250,722			196,990,667			194,250,722
Common stock:
Balance at beginning and end of period	$	2.0		$	2.0		$	2.0		$	2.0
Issuance of shares under equity-based compensation plans		0.1			—			0.1			—
Balance at end of period	$	2.1		$	2.0		$	2.1		$	2.0
Additional paid-in capital:
Balance at beginning of period	$	2,474.3		$	2,410.7		$	2,445.1		$	2,385.1
Issuance of shares under equity-based compensation plans		—			0.3			0.9			3.0
Equity-based compensation		34.0			28.0			90.0			58.7
Equity-based compensation assumed		—			—