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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 March 31, 2023

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 April 21, 2023, there were 209,789,841 shares of Common Stock outstanding.

 

 


 

 

 

CommScope Holding Company, Inc.

Form 10-Q

March 31, 2023

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’ Deficit

 

6

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

7

 

 

 

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

 

22

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

35

 

 

 

Item 4. Controls and Procedures

 

36

 

 

 

Part II—Other Information:

 

 

 

 

 

Item 1. Legal Proceedings

 

37

 

 

 

Item 1A. Risk Factors

 

37

 

 

 

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

 

37

 

 

 

Item 3. Defaults Upon Senior Securities

 

37

 

 

 

Item 4. Mine Safety Disclosures

 

37

 

 

 

Item 5. Other Information

 

37

 

 

 

Item 6. Exhibits

 

38

 

 

 

Signatures

 

39

 

 

 

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

 

 

March 31,

 

 

2023

 

 

2022

 

Net sales

$

2,001.5

 

 

$

2,228.6

 

Cost of sales

 

1,309.8

 

 

 

1,592.3

 

Gross profit

 

691.7

 

 

 

636.3

 

Operating expenses:

 

 

 

 

 

Selling, general and administrative

 

263.5

 

 

 

286.0

 

Research and development

 

153.4

 

 

 

170.7

 

Amortization of purchased intangible assets

 

126.4

 

 

 

140.7

 

Restructuring costs (credits), net

 

(4.1

)

 

 

12.1

 

Total operating expenses

 

539.2

 

 

 

609.5

 

Operating income

 

152.5

 

 

 

26.8

 

Other income, net

 

5.7

 

 

 

 

Interest expense

 

(165.1

)

 

 

(136.5

)

Interest income

 

2.5

 

 

 

0.7

 

Loss before income taxes

 

(4.4

)

 

 

(109.0

)

Income tax (expense) benefit

 

7.8

 

 

 

(30.9

)

Net income (loss)

 

3.4

 

 

 

(139.9

)

Series A convertible preferred stock dividends

 

(15.1

)

 

 

(14.5

)

Net loss attributable to common stockholders

$

(11.7

)

 

$

(154.4

)

 

 

 

 

 

 

Loss per share:

 

 

 

 

 

Basic

$

(0.06

)

 

$

(0.75

)

Diluted

$

(0.06

)

 

$

(0.75

)

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

Basic

 

208.9

 

 

 

205.4

 

Diluted

 

208.9

 

 

 

205.4

 

 

 

 

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

 

2

 


 

CommScope Holding Company, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited – In millions)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

Comprehensive income (loss):

 

 

 

 

 

 

Net income (loss)

 

$

3.4

 

 

$

(139.9

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

 

20.4

 

 

 

(16.7

)

Pension and other postretirement benefit activity

 

 

(0.1

)

 

 

(1.3

)

Gain (loss) on hedging instruments

 

 

(1.5

)

 

 

8.8

 

Total other comprehensive income (loss), net of tax

 

 

18.8

 

 

 

(9.2

)

Total comprehensive income (loss)

 

$

22.2

 

 

$

(149.1

)

 

 

 

 

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

 

3

 


 

CommScope Holding Company, Inc.

Condensed Consolidated Balance Sheets

(In millions, except share amounts)

 

 

 

Unaudited
March 31, 2023

 

 

December 31, 2022

 

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

327.3

 

 

$

398.1

 

Accounts receivable, net of allowance for doubtful accounts
   of $
81.2 and $82.8, respectively

 

 

1,352.5

 

 

 

1,523.6

 

Inventories, net

 

 

1,622.2

 

 

 

1,588.1

 

Prepaid expenses and other current assets

 

 

207.8

 

 

 

216.4

 

Total current assets

 

 

3,509.8

 

 

 

3,726.2

 

Property, plant and equipment, net of accumulated depreciation
   of $
905.8 and $873.5, respectively

 

 

580.2

 

 

 

609.6

 

Goodwill

 

 

4,078.0

 

 

 

4,072.4

 

Other intangible assets, net

 

 

2,348.0

 

 

 

2,473.5

 

Other noncurrent assets

 

 

821.0

 

 

 

803.7

 

Total assets

 

$

11,337.0

 

 

$

11,685.4

 

Liabilities and Stockholders' Deficit

 

 

 

 

 

 

Accounts payable

 

$

905.4

 

 

$

1,025.5

 

Accrued and other liabilities

 

 

864.9

 

 

 

1,050.0

 

Current portion of long-term debt

 

 

32.0

 

 

 

32.0

 

Total current liabilities

 

 

1,802.3

 

 

 

2,107.5

 

Long-term debt

 

 

9,410.5

 

 

 

9,469.6

 

Deferred income taxes

 

 

163.8

 

 

 

173.4

 

Other noncurrent liabilities

 

 

375.4

 

 

 

380.6

 

Total liabilities

 

 

11,752.0

 

 

 

12,131.1

 

Commitments and contingencies

 

 

 

 

 

 

Series A convertible preferred stock, $0.01 par value

 

 

1,115.4

 

 

 

1,100.3

 

Stockholders' deficit:

 

 

 

 

 

 

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

 

 

 

 

 

 

Issued and outstanding shares: 1,115,439 and 1,100,310, respectively,
Series A convertible preferred stock

 

 

 

 

 

 

Common stock, $0.01 par value: Authorized shares: 1,300,000,000;
   Issued and outstanding shares:
209,777,988 and 208,371,426, respectively

 

 

2.2

 

 

 

2.2

 

Additional paid-in capital

 

 

2,541.3

 

 

 

2,542.9

 

Accumulated deficit

 

 

(3,498.8

)

 

 

(3,502.2

)

Accumulated other comprehensive loss

 

 

(277.5

)

 

 

(296.3

)

Treasury stock, at cost: 13,427,361 shares and
   
12,726,695 shares, respectively

 

 

(297.6

)

 

 

(292.6

)

Total stockholders' deficit

 

 

(1,530.4

)

 

 

(1,546.0

)

Total liabilities and stockholders' deficit

 

$

11,337.0

 

 

$

11,685.4

 

 

See notes to unaudited condensed consolidated financial statements.

 

 

4

 


 

CommScope Holding Company, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited – In millions)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

Operating Activities:

 

 

 

 

 

 

Net income (loss)

 

$

3.4

 

 

$

(139.9

)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

164.1

 

 

 

180.2

 

Equity-based compensation

 

 

13.5

 

 

 

16.5

 

Deferred income taxes

 

 

(30.0

)

 

 

2.3

 

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

175.3

 

 

 

(60.5

)

Inventories

 

 

(31.9

)

 

 

(73.7

)

Prepaid expenses and other assets

 

 

10.2

 

 

 

29.6

 

Accounts payable and other liabilities

 

 

(318.3

)

 

 

23.5

 

Other

 

 

(32.4

)

 

 

7.4

 

Net cash used in operating activities

 

 

(46.1

)

 

 

(14.6

)

Investing Activities:

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(14.4

)

 

 

(27.4

)

Proceeds from sale of property, plant and equipment

 

 

41.0

 

 

 

 

Other

 

 

9.3

 

 

 

11.4

 

Net cash generated by (used in) investing activities

 

 

35.9

 

 

 

(16.0

)

Financing Activities:

 

 

 

 

 

 

Long-term debt repaid

 

 

(8.0

)

 

 

(93.0

)

Long-term debt repurchases

 

 

(50.0

)

 

 

 

Long-term debt proceeds

 

 

 

 

 

85.0

 

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

 

 

 

 

 

0.1

 

Tax withholding payments for vested equity-based compensation awards

 

 

(5.0

)

 

 

(10.6

)

Other

 

 

1.9

 

 

 

1.3

 

Net cash used in financing activities

 

 

(61.1

)

 

 

(17.2

)

Effect of exchange rate changes on cash and cash equivalents

 

 

0.5

 

 

 

2.2

 

Change in cash and cash equivalents

 

 

(70.8

)

 

 

(45.6

)

Cash and cash equivalents at beginning of period

 

 

398.1

 

 

 

360.3

 

Cash and cash equivalents at end of period

 

$

327.3

 

 

$

314.7

 

 

 

 

 

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

 

5

 


 

 

CommScope Holding Company, Inc.

 

Condensed Consolidated Statements of Stockholders' Deficit

 

(Unaudited – In millions, except share amounts)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

Number of common shares outstanding:

 

 

 

 

 

 

Balance at beginning of period

 

 

208,371,426

 

 

 

204,567,294

 

Issuance of shares under equity-based compensation plans

 

 

2,107,228

 

 

 

3,716,067

 

Shares surrendered under equity-based compensation plans

 

 

(700,666

)

 

 

(1,231,239

)

Balance at end of period

 

 

209,777,988

 

 

 

207,052,122

 

Common stock:

 

 

 

 

 

 

Balance at beginning and end of period

 

$

2.2

 

 

$

2.2

 

Additional paid-in capital:

 

 

 

 

 

 

Balance at beginning of period

 

$

2,542.9

 

 

$

2,540.7

 

Issuance of shares under equity-based compensation plans

 

 

 

 

 

0.1

 

Equity-based compensation

 

 

13.5

 

 

 

16.5

 

Dividends on Series A convertible preferred stock

 

 

(15.1

)

 

 

(14.5

)

Balance at end of period

 

$

2,541.3

 

 

$

2,542.8

 

Accumulated deficit:

 

 

 

 

 

 

Balance at beginning of period

 

$

(3,502.2

)

 

$

(2,215.3

)

Net income (loss)

 

 

3.4

 

 

 

(139.9

)

Balance at end of period

 

$

(3,498.8

)

 

$

(2,355.2

)

Accumulated other comprehensive loss:

 

 

 

 

 

 

Balance at beginning of period

 

$

(296.3

)

 

$

(206.4

)

Other comprehensive income (loss), net of tax

 

 

18.8

 

 

 

(9.2

)

Balance at end of period

 

$

(277.5

)

 

$

(215.6

)

Treasury stock, at cost:

 

 

 

 

 

 

Balance at beginning of period

 

$

(292.6

)

 

$

(277.8

)

Net shares surrendered under equity-based compensation plans

 

 

(5.0

)

 

 

(10.6

)

Balance at end of period

 

$

(297.6

)

 

$

(288.4

)

Total stockholders' deficit

 

$

(1,530.4

)

 

$

(314.2

)

 

 

 

 

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

 

6

 


CommScope Holding Company, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(In millions, unless otherwise noted)

 

1. BACKGROUND AND BASIS OF PRESENTATION

Background

CommScope Holding Company, Inc., along with its direct and indirect subsidiaries (CommScope or the Company), is a global provider of infrastructure solutions for communication, data center and entertainment networks. The Company’s solutions for wired and wireless networks enable service providers, including cable, telephone and digital broadcast satellite operators and media programmers, to deliver media, voice, Internet Protocol (IP) data services and Wi-Fi to their subscribers and allow enterprises to experience constant wireless and wired connectivity across complex and varied networking environments. The Company’s solutions are complemented by services including technical support, systems design and integration. CommScope is a leader in digital video and IP television distribution systems, broadband access infrastructure platforms and equipment that delivers data and voice networks to homes. CommScope’s global leadership position is built upon innovative technology, broad solution offerings, high-quality and cost-effective customer solutions, and global manufacturing and distribution scale.

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited and reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for a fair presentation of the interim period financial statements. The results of operations for these interim periods are not necessarily indicative of the results of operations to be expected for any future period or the full fiscal year.

The unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States (U.S.) for interim financial information and are presented in accordance with the applicable requirements of Regulation S-X. Accordingly, these financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the 2022 Annual Report). The significant accounting policies followed by the Company are set forth in Note 2 within the Company’s audited consolidated financial statements included in the 2022 Annual Report. There were no material changes in the Company’s significant accounting policies during the three months ended March 31, 2023.

Concentrations of Risk and Related Party Transactions

Net sales to Comcast Corporation and affiliates (Comcast) accounted for 11% of the Company's total net sales during the three months ended March 31, 2023. No direct customer accounted for 10% or more of the Company's total net sales during the three months ended March 31, 2022. As of March 31, 2023, no direct customer accounted for 10% or more of the Company’s accounts receivable.

The Company relies on sole suppliers or a limited group of suppliers for certain key components, subassemblies and modules and a limited group of contract manufacturers to manufacture a significant portion of its products. Any disruption or termination of these arrangements could have a material adverse impact on the Company’s results of operations.

As of March 31, 2023, funds affiliated with Carlyle Partners VII S1 Holdings, L.P. (Carlyle) owned 100% of the Series A convertible preferred stock (the Convertible Preferred Stock), which was sold to Carlyle to fund a portion of the acquisition of ARRIS International plc (ARRIS) in 2019. See Note 9 for further discussion of the Convertible Preferred Stock. Other than transactions related to the Convertible Preferred Stock, there were no material related party transactions for the three months ended March 31, 2023.

7

 


CommScope Holding Company, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(In millions, unless otherwise noted)

 

Commitments and Contingencies

Product Warranties

The Company recognizes a liability for the estimated claims that may be paid under its customer assurance-type warranty agreements to remedy potential deficiencies of quality or performance of the Company’s products. These product warranties extend over various periods, depending on the product subject to the warranty and the terms of the individual agreements. 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 accrued and other liabilities and other noncurrent liabilities on the Condensed Consolidated Balance Sheets:

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

Product warranty accrual, beginning of period

 

$

55.0

 

 

$

66.8

 

Provision for warranty claims

 

 

6.5

 

 

 

5.1

 

Warranty claims paid

 

 

(8.5

)

 

 

(6.0

)

Foreign exchange

 

 

0.1

 

 

 

0.1

 

Product warranty accrual, end of period

 

$

53.1

 

 

$

66.0

 

Third-Party Guarantees

The Company was contingently liable under open standby letters of credit issued by its banks to support performance obligations of a third-party contractor that totaled $44.0 million as of March 31, 2023. These amounts represent an estimate of the maximum amounts the Company would expect to incur upon the contractual non-performance of the third-party contractor, but the Company also has cross-indemnities in place that may enable it to recover amounts in the event of non-performance by the third-party contractor. The Company believes the likelihood of having to perform under these guarantees is remote. There were no material amounts recorded in the condensed consolidated financial statements related to third-party guarantee agreements for the three months ended March 31, 2023 or 2022 and as of March 31, 2023 or December 31, 2022. As of March 31, 2023, these instruments reduced the available borrowings under the senior secured asset-based revolving credit facility (the Revolving Credit Facility).

Legal Proceedings

The Company is party to certain intellectual property claims and also periodically receives notices asserting that its products infringe on another party’s patents and other intellectual property rights. These claims and assertions, whether against the Company directly or against its customers, could require the Company to pay damages or royalties, stop offering the relevant products and/or cease other activities. The Company may also be called upon to defend and indemnify certain customers for costs related to products sold to such customers. The outcome of these claims and notices is uncertain and a reasonable estimate of the loss from unfavorable outcomes in certain of these matters either cannot be determined or is estimated at the minimum amount of a range of estimates. The actual loss, through settlement or trial, could be material and may vary significantly from the Company's estimates. From time to time, the Company may also be involved as a plaintiff in certain intellectual property claims. Gain contingencies, if any, are recognized when they are realized.

The Company had liabilities of $27.4 million and $37.1 million as of March 31, 2023 and December 31, 2022, respectively, recorded in accrued and other liabilities and noncurrent liabilities on the Condensed Consolidated Balance Sheets related to certain intellectual property assertions that have been settled or are in the process of settlement. For the three months ended March 31, 2023, the Company released $11.0 million in accrued liabilities related to an intellectual property claim that was settled at an amount that was lower than estimated. Charges related to intellectual property assertions were not material for the three months ended March 31, 2022. The Company did not make any payments to settle intellectual property claims and assertions during the three months ended March 31, 2023. The Company paid $7.1 million during the three months ended March 31, 2022 to settle intellectual property claims and assertions.

8

 


CommScope Holding Company, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(In millions, unless otherwise noted)

 

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

In addition, the Company is subject to various federal, state, local and foreign laws and regulations governing the use, discharge, disposal and remediation of hazardous materials. Compliance with current laws and regulations has not had, and is not expected to have, a materially adverse effect on the Company’s financial condition or results of operations.

Asset Impairments

Goodwill is tested for impairment annually or at other times if events have occurred or circumstances exist that indicate the carrying value of the reporting unit may exceed its fair value. There were no goodwill impairments identified during the three months ended March 31, 2023 or 2022.

The Company’s Access Network Solutions (ANS) reporting unit failed the annual goodwill impairment test and a partial impairment was recorded as of October 1, 2022. Also, the amount by which the Company's Building and Data Center Connectivity (BDCC) reporting unit's fair value exceeded its carrying value was lower year over year. The BDCC reporting unit is in the Connectivity and Cable Solutions (CCS) reportable segment. Considering the headroom going forward for each of the ANS and BDCC reporting units, there is a risk for future impairment in the event of declines in general economic, market or business conditions or any significant unfavorable change in the forecasted cash flows, weighted average cost of capital or growth rates. If current and long-term projections for the ANS and BDCC reporting units are not realized or decrease materially, the Company may be required to recognize additional goodwill impairment charges, and these charges could be material to its results of operations.

Property, plant and equipment, intangible assets with finite lives and right of use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable, based on the undiscounted cash flows expected to be derived from the use and ultimate disposition of the assets. Assets identified as impaired are adjusted to estimated fair value. Equity investments without readily determinable fair values are evaluated each reporting period for impairment based on a qualitative assessment and are then measured at fair value if an impairment is determined to exist. Other than certain assets impaired as a result of restructuring actions, there were no definite-lived intangible or other long-lived asset impairments identified during the three months ended March 31, 2023 or 2022. Changes in the estimates of forecasted net cash flows or changes in classification from held for use may result in future asset impairments that could be material to the Company's results of operations.

Income Taxes

For the three months ended March 31, 2023, the Company recognized an income tax benefit of $7.8 million on a pretax loss of $4.4 million. The Company’s tax benefit was higher than the statutory rate of 21.0% due to a reduction in tax expense of $8.3 million related to the release of various uncertain tax positions. This benefit was partially offset by the unfavorable impacts of U.S. anti-deferral provisions and non-creditable withholding taxes.

For the three months ended March 31, 2022, the Company recognized income tax expense of $30.9 million on a pretax loss of $109.0 million. The Company’s tax expense was driven by the unfavorable impacts of U.S. anti-deferral provisions and non-creditable withholding taxes.

Earnings (Loss) Per Share

Basic earnings (loss) per share (EPS) is computed by dividing net income (loss), less any dividends and deemed dividends related to the Convertible Preferred Stock, by the weighted average number of common shares outstanding during the period. The numerator in diluted EPS is based on the basic EPS numerator, adjusted to add back any dividends and deemed dividends related to the Convertible Preferred Stock, subject to antidilution requirements. The denominator used in diluted EPS is based on the basic EPS computation plus the effect of potentially dilutive common shares related to the Convertible Preferred Stock and equity-based compensation plans, subject to antidilution requirements.

9

 


CommScope Holding Company, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(In millions, unless otherwise noted)

 

For the three months ended March 31, 2023 and 2022, 15.4 million and 11.5 million shares, respectively, of outstanding equity-based compensation awards were not included in the computation of diluted EPS because the effect was antidilutive or the performance conditions were not met. Of those amounts, for the three months ended March 31, 2023 and 2022, 3.2 million and 3.6 million shares, respectively, would have been considered dilutive if the Company had not been in a net loss attributable to common stockholders position.

For the three months ended March 31, 2023 and 2022, 40.0 million and 38.4 million, respectively, of as-if converted shares related to the Convertible Preferred Stock were excluded from the diluted share count because they were antidilutive; however, they may have been considered dilutive if the Company had not been in a net loss attributable to common stockholders position.

The following table presents the basis for the EPS computations (in millions, except per share data):

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

Numerator:

 

 

 

 

 

 

Net income (loss)

 

$

3.4

 

 

$

(139.9

)

Dividends on Series A convertible preferred stock

 

 

(15.1

)

 

 

(14.5

)

Net loss attributable to common stockholders

 

$

(11.7

)

 

$

(154.4

)

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

Weighted average common shares outstanding – basic

 

 

208.9

 

 

 

205.4

 

Dilutive effect of as-if converted Series A convertible preferred stock

 

 

 

 

 

 

Dilutive effect of equity-based awards

 

 

 

 

 

 

Weighted average common shares outstanding – diluted

 

 

208.9

 

 

 

205.4

 

 

 

 

 

 

 

 

Loss per share:

 

 

 

 

 

 

Basic

 

$

(0.06

)

 

$

(0.75

)

Diluted

 

$

(0.06

)

 

$

(0.75

)

Recent Accounting Pronouncements

Adopted During the Three Months Ended March 31, 2023

On January 1, 2023, the Company adopted Accounting Standards Update (ASU) No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. The new guidance improves the transparency of supplier finance programs by requiring that a buyer in a supplier finance program disclose sufficient qualitative and quantitative information about the program to allow a user of its financial statements to understand the program's nature, activity during the period, changes from period to period and potential effect on an entity's financial statements. This guidance has been applied retrospectively to all periods in which a balance sheet is presented, except for the requirement to disclose rollforward information, which is effective prospectively for the Company as of January 1, 2024. The impact of adopting this new guidance was not material to the condensed consolidated financial statements.

Issued but Not Adopted

In March 2020, January 2021 and December 2022, the Financial Accounting Standards Board (FASB) issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope and ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, respectively. Together, the ASUs provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity. The most recent amendment defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. As of March 31, 2023, the Company had not utilized any of the expedients discussed within these ASUs; however, management continues to assess the Company's agreements to determine whether the expedients would be utilized through the remainder of 2023.

10

 


CommScope Holding Company, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(In millions, unless otherwise noted)

 

2. GOODWILL

The following table presents the activity in goodwill by reportable segment:

 

 

December 31, 2022