UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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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.
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).
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.
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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
As of April 21, 2023, there were
CommScope Holding Company, Inc.
Form 10-Q
March 31, 2023
Table of Contents
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)
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Three Months Ended |
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March 31, |
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2023 |
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2022 |
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Net sales |
$ |
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$ |
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Cost of sales |
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Gross profit |
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Operating expenses: |
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Selling, general and administrative |
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Research and development |
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Amortization of purchased intangible assets |
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Restructuring costs (credits), net |
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( |
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Total operating expenses |
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Operating income |
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Other income, net |
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Interest expense |
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( |
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( |
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Interest income |
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Loss before income taxes |
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( |
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( |
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Income tax (expense) benefit |
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( |
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Net income (loss) |
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( |
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Series A convertible preferred stock dividends |
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( |
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( |
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Net loss attributable to common stockholders |
$ |
( |
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$ |
( |
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Loss per share: |
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Basic |
$ |
( |
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$ |
( |
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Diluted |
$ |
( |
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$ |
( |
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Weighted average shares outstanding: |
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Basic |
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Diluted |
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See notes to unaudited condensed consolidated financial statements. |
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2
CommScope Holding Company, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited – In millions)
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Three Months Ended |
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March 31, |
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2023 |
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2022 |
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Comprehensive income (loss): |
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Net income (loss) |
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$ |
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$ |
( |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation gain (loss) |
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( |
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Pension and other postretirement benefit activity |
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( |
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( |
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Gain (loss) on hedging instruments |
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( |
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Total other comprehensive income (loss), net of tax |
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( |
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Total comprehensive income (loss) |
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$ |
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$ |
( |
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See notes to unaudited condensed consolidated financial statements. |
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3
CommScope Holding Company, Inc.
Condensed Consolidated Balance Sheets
(In millions, except share amounts)
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Unaudited |
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December 31, 2022 |
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Assets |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net of allowance for doubtful accounts |
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Inventories, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net of accumulated depreciation |
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Goodwill |
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Other intangible assets, net |
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Other noncurrent assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders' Deficit |
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Accounts payable |
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$ |
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$ |
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Accrued and other liabilities |
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Current portion of long-term debt |
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Total current liabilities |
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Long-term debt |
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Deferred income taxes |
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Other noncurrent liabilities |
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Total liabilities |
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Series A convertible preferred stock, $ |
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Stockholders' deficit: |
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Preferred stock, $ |
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Issued and outstanding shares: |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive loss |
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( |
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( |
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Treasury stock, at cost: |
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( |
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( |
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Total stockholders' deficit |
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( |
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( |
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Total liabilities and stockholders' deficit |
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$ |
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$ |
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See notes to unaudited condensed consolidated financial statements.
4
CommScope Holding Company, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited – In millions)
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Three Months Ended |
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March 31, |
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2023 |
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2022 |
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Operating Activities: |
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Net income (loss) |
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$ |
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$ |
( |
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Adjustments to reconcile net income (loss) to net cash used in operating activities: |
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Depreciation and amortization |
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Equity-based compensation |
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Deferred income taxes |
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( |
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Changes in assets and liabilities: |
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Accounts receivable |
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( |
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Inventories |
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( |
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( |
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Prepaid expenses and other assets |
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Accounts payable and other liabilities |
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( |
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Other |
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( |
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Net cash used in operating activities |
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( |
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( |
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Investing Activities: |
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Additions to property, plant and equipment |
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( |
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( |
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Proceeds from sale of property, plant and equipment |
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Other |
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Net cash generated by (used in) investing activities |
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( |
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Financing Activities: |
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Long-term debt repaid |
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( |
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( |
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Long-term debt repurchases |
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( |
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Long-term debt proceeds |
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Proceeds from the issuance of common shares under equity-based compensation plans |
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Tax withholding payments for vested equity-based compensation awards |
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( |
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( |
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Other |
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Net cash used in financing activities |
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( |
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( |
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Effect of exchange rate changes on cash and cash equivalents |
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Change in cash and cash equivalents |
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( |
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( |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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See notes to unaudited condensed consolidated financial statements. |
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5
CommScope Holding Company, Inc. |
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Condensed Consolidated Statements of Stockholders' Deficit |
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(Unaudited – In millions, except share amounts) |
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Three Months Ended |
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March 31, |
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2023 |
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2022 |
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Number of common shares outstanding: |
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Balance at beginning of period |
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Issuance of shares under equity-based compensation plans |
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Shares surrendered under equity-based compensation plans |
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( |
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( |
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Balance at end of period |
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Common stock: |
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Balance at beginning and end of period |
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$ |
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$ |
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Additional paid-in capital: |
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Balance at beginning of period |
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$ |
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$ |
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Issuance of shares under equity-based compensation plans |
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Equity-based compensation |
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Dividends on Series A convertible preferred stock |
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( |
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( |
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Balance at end of period |
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$ |
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$ |
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Accumulated deficit: |
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Balance at beginning of period |
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$ |
( |
) |
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$ |
( |
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Net income (loss) |
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( |
) |
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Balance at end of period |
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$ |
( |
) |
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$ |
( |
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Accumulated other comprehensive loss: |
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Balance at beginning of period |
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$ |
( |
) |
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$ |
( |
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Other comprehensive income (loss), net of tax |
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( |
) |
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Balance at end of period |
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$ |
( |
) |
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$ |
( |
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Treasury stock, at cost: |
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Balance at beginning of period |
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$ |
( |
) |
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$ |
( |
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Net shares surrendered under equity-based compensation plans |
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( |
) |
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( |
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Balance at end of period |
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$ |
( |
) |
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$ |
( |
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Total stockholders' deficit |
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$ |
( |
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$ |
( |
) |
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See notes to unaudited condensed consolidated financial statements. |
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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
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
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.
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:
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Three Months Ended |
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March 31, |
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2023 |
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2022 |
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Product warranty accrual, beginning of period |
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$ |
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$ |
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Provision for warranty claims |
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Warranty claims paid |
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( |
) |
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( |
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Foreign exchange |
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Product warranty accrual, end of period |
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$ |
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$ |
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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 $
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 $
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
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
Income Taxes
For the three months ended March 31, 2023, the Company recognized an income tax benefit of $
For the three months ended March 31, 2022, the Company recognized income tax expense of $
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,
For the three months ended March 31, 2023 and 2022,
The following table presents the basis for the EPS computations (in millions, except per share data):
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Three Months Ended |
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March 31, |
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2023 |
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2022 |
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Numerator: |
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Net income (loss) |
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$ |
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$ |
( |
) |
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Dividends on Series A convertible preferred stock |
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( |
) |
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( |
) |
Net loss attributable to common stockholders |
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$ |
( |
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$ |
( |
) |
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Denominator: |
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Weighted average common shares outstanding – basic |
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Dilutive effect of as-if converted Series A convertible preferred stock |
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— |
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— |
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Dilutive effect of equity-based awards |
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— |
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— |
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Weighted average common shares outstanding – diluted |
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Loss per share: |
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