UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 15, 2018
COMMSCOPE HOLDING COMPANY, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-36146 | 27-4332098 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
1100 CommScope Place, SE
Hickory, North Carolina 28602
(Address of principal executive offices)
Registrant’s telephone number, including area code: (828) 324-2200
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☐
| Item 2.02. | Results of Operations and Financial Condition. |
On February 15, 2018, CommScope Holding Company, Inc. (the “Company”) issued a press release relating to its financial results for the fourth quarter of 2017 and full fiscal year 2017. A copy of the press release, which is incorporated by reference herein, is attached hereto as Exhibit 99.1. Following the publication of the press release, the Company will host an earnings call during which its financial results for the fourth quarter of 2017 and full fiscal year 2017 will be discussed.
The foregoing information (including the exhibit hereto) is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.
| Item 9.01. | Financial Statements and Exhibits. |
| Exhibit. |
Description. | |
| 99.1 | CommScope Holding Company, Inc. press release, dated February 15, 2018. | |
2
INDEX OF EXHIBITS
| Exhibit. |
Description. | |
| 99.1 | CommScope Holding Company, Inc. press release, dated February 15, 2018. | |
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Dated: February 15, 2018 | ||||||||
| COMMSCOPE HOLDING COMPANY, INC. | ||||||||
| By: | /s/ Mark A. Olson | |||||||
| Name: | Mark A. Olson | |||||||
| Title: | Executive Vice President and Chief Financial Officer | |||||||
4
Exhibit 99.1
CommScope Reports Fourth Quarter 2017 Results
| • | Fourth Quarter 2017 Performance |
| • | Sales of $1.12 billion, consistent with guidance |
| • | GAAP operating income of $92 million and non-GAAP adjusted operating income (excluding special items) of $199 million |
| • | GAAP net income of $0.27 per diluted share |
| • | Non-GAAP adjusted net income (excluding special items) of $0.47 per diluted share, consistent with guidance |
| • | Calendar Year 2017 Performance |
| • | Sales of $4.56 billion, consistent with guidance |
| • | GAAP operating income of $478 million and non-GAAP adjusted operating income (excluding special items) of $882 million |
| • | GAAP net income of $0.98 per diluted share |
| • | Non-GAAP adjusted net income (excluding special items) of $2.14 per diluted share, consistent with guidance |
HICKORY, NC, February 15, 2018—CommScope Holding Company, Inc. (NASDAQ: COMM), a global leader in infrastructure solutions for communications networks, reported sales of $1.12 billion and net income of $54 million, or $0.27 per diluted share, for the quarter ended December 31, 2017. Non-GAAP adjusted net income for the fourth quarter of 2017 was $91 million, or $0.47 per diluted share. A reconciliation of reported GAAP results to non-GAAP results is attached.
In comparison, for the quarter ended December 31, 2016, CommScope reported sales of $1.18 billion and net income of $54 million, $0.28 per diluted share. Non-GAAP adjusted net income for the fourth quarter of 2016 was $121 million, or $0.61 per diluted share.
“We are pleased to deliver fourth quarter results consistent with our expectations despite lingering volatility in customer order patterns and near-term raw material cost pressures,” said President and Chief Executive Officer Eddie Edwards. “While 2017 was challenging across the industry, we made significant progress in strengthening CommScope for the long term. During the year, we substantially completed a complex systems integration, delivered on significant product development, extended a long-term optical fiber supply partnership and achieved our capital allocation priorities of strategically reinvesting in the business while repaying debt and returning capital to shareholders.
“Looking ahead, we are expecting more normalized customer order patterns and preparing to capitalize on numerous global developments to ensure we return to growth in 2018. We believe there are significant opportunities ahead and are confident in our ability to leverage FirstNet and fiber deep network deployments, expansion within the hyperscale data centers and our compelling quick turn capabilities. We have developed a platform of world-class differentiated solutions and services and are well positioned for value creation in 2018 and beyond.”
Fourth Quarter 2017 Overview
Fourth quarter 2017 sales decreased 5 percent year over year with growth in the Europe, Middle East and Africa (EMEA) and Central America and Latin America (CALA) regions more than offset by declines in other regions, most notably in the U.S. Foreign exchange rate changes positively impacted revenue by about 1.5 percent year over year.
GAAP operating income in the fourth quarter of 2017 declined 23 percent year over year to $92 million. Non-GAAP adjusted operating income, which excludes amortization of purchased intangibles, integration and transaction costs, restructuring costs and other special items, declined 21 percent year over year to $199 million. The decreases in operating income and non-GAAP adjusted operating income were primarily driven by lower sales volumes and the impact from higher commodity prices, partially offset by the benefit of cost reduction initiatives and lower incentive compensation expense.
Fourth Quarter 2017 Segment Overview
Fourth quarter Connectivity Solutions segment sales increased 2 percent year over year to $694 million with growth in international markets more than offsetting a modest decline domestically. Foreign exchange rate changes positively impacted revenue by about 1 percent from the year-ago period.
Connectivity Solutions GAAP operating income increased 11 percent year over year to $48 million, while non-GAAP adjusted operating income decreased 10 percent year over year to $125 million. GAAP operating income improved year over year due to lower integration and transaction costs in 2017 and an impairment charge recorded in 2016. The decrease in non-GAAP adjusted operating income was primarily driven by higher commodity prices, partially offset by the benefit of cost reduction initiatives.
Fourth quarter Mobility Solutions segment sales declined 14 percent year over year to $427 million. Year-over-year growth in the EMEA region was more than offset by declines in all other major geographic regions, most notably North America. Foreign exchange rate changes had a positive impact of about 2 percent on sales compared to the year-ago period.
Mobility Solutions GAAP operating income declined 43 percent year over year to $43 million, and non-GAAP adjusted operating income decreased 35 percent year over year to $74 million. Both GAAP and non-GAAP adjusted operating income were impacted by lower sales volumes, partially offset by lower incentive compensation expense.
Full Year 2017 Overview
For 2017, sales declined 7 percent to $4.56 billion driven by overall softness in the market that was exacerbated by M&A-related pauses in customer spending. Foreign exchange rate changes had a negligible impact to sales in 2017 compared to the prior year.
GAAP operating income decreased 17 percent to $478 million and non-GAAP adjusted operating income declined 16 percent to $882 million versus prior year results, primarily due to lower sales volumes, unfavorable geographic and product mix and the negative impact from higher commodity prices. These declines were partially offset by cost reduction initiatives and lower incentive compensation expense. CommScope realized over $170 million in BNS cost synergies during the two years ended December 31, 2017. It plans to realize at least an additional $30 million by the end of 2018.
Full Year 2017 Segment Overview
Connectivity Solutions segment sales declined 5 percent to $2.81 billion, primarily due to declines in all major geographic regions except the EMEA region. Foreign exchange rate changes had a negligible impact to sales in 2017 compared to the prior year.
Connectivity Solutions GAAP operating income declined 17 percent to $242 million. Non-GAAP adjusted operating income for the segment decreased 17 percent to $526 million, or 19 percent of sales. The decreases in GAAP and non-GAAP adjusted operating income were driven by lower sales volumes, price reductions, unfavorable geographic and product mix and higher commodity costs. The decreases were partly offset by cost reduction initiatives and lower incentive compensation expense.
Mobility Solutions segment sales declined 11 percent to $1.75 billion with declines in all major geographic regions. Foreign exchange rate changes had a negligible impact on sales in 2017 compared to the prior year.
Mobility Solutions GAAP operating income declined 17 percent to $236 million. Non-GAAP adjusted operating income for the segment decreased by 15 percent to $356 million, or 20 percent of sales. The decline was largely due to lower sales volumes, price reductions and unfavorable geographic mix, partly offset by lower incentive compensation expense.
Stock Repurchase Program
In 2017, the Board of Directors authorized two separate $100 million stock repurchases of CommScope’s outstanding common stock. Since the initial authorization, the company repurchased $175 million of its common stock, or 4.8 million shares, at an average cost of $36.50 per share. There is $25 million remaining authorized under the stock repurchase program that expires on July 31, 2018.
Debt Repayment
The company voluntarily repaid a net $210 million in debt during 2017 and delivered on its target to repay more than $1 billion of its debt since the BNS acquisition in August 2015. The next debt maturity is not until 2021.
Outlook
CommScope management provided the following first quarter and full year 2018 guidance.
First Quarter 2018 Guidance:
| • | Revenue of $1.085 billion – $1.135 billion |
| • | Operating income of $93 million – $108 million |
| • | Non-GAAP adjusted operating income of $175 million – $195 million |
| • | Non-GAAP adjusted effective tax rate of approximately 29 percent – 30 percent |
| • | Earnings per diluted share of $0.13 – $0.16, based on 196 million weighted average diluted shares |
| • | Non-GAAP adjusted earnings per diluted share of $0.44 – $0.49 |
Full Year 2018 Guidance:
| • | Revenue of $4.675 billion – $4.825 billion |
| • | Operating income of $615 million – $660 million |
| • | Non-GAAP adjusted operating income of $935 million – $985 million |
| • | Non-GAAP adjusted effective tax rate of approximately 29 percent – 30 percent |
| • | Earnings per diluted share of $1.46 – $1.58, based on 196 million weighted average diluted shares |
| • | Non-GAAP adjusted earnings per diluted share of $2.56 – $2.71 |
| • | Cash flow from operations > $600 million |
A reconciliation of GAAP to non-GAAP outlook is attached.
Management currently expects a non-GAAP adjusted effective tax rate for 2018 to be in the range of 29 percent to 30 percent. This non-GAAP adjusted effective tax rate does not reflect any potential impact from finalizing the estimated one-time benefits realized in the fourth quarter of 2017 resulting from the U.S. Tax Cuts and Jobs Act.
Conference Call, Webcast and Investor Presentation
As previously announced, CommScope will host a conference call today at 8:30 a.m. ET in which management will discuss fourth quarter and full year 2017 results and 2018 guidance. The conference call will also be webcast.
To participate in the conference call, dial 844-397-6169 (US and Canada only) or +1 478-219-0508. The conference identification number is 9657389. Please plan to dial in 15 minutes before the start of the call to facilitate a timely connection. The live, listen-only audio of the call and corresponding presentation will be available through a link on CommScope’s Investor Relations page.
A webcast replay will be archived on CommScope’s website for a limited period of time following the conference call.
END
About CommScope
CommScope (NASDAQ: COMM) helps design, build and manage wired and wireless networks around the world. As a communications infrastructure leader, we shape the always-on networks of tomorrow. For more than 40 years, our global team of more than 20,000 employees, innovators and technologists have empowered customers in all regions of the world to anticipate what’s next and push the boundaries of what’s possible. Discover more at http://www.commscope.com/
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Sign up for our press releases and blog posts.
Investor Contact:
Jennifer Crawford, CommScope
+1 828-323-4970
jennifer.crawford@commscope.com
News Media Contact:
Rick Aspan, CommScope
+1 708-236-6568
publicrelations@commscope.com
Non-GAAP Financial Measures
CommScope management believes that presenting certain non-GAAP financial measures enhances an investor’s understanding of our financial performance. CommScope management further believes that these financial measures are useful in assessing CommScope’s operating performance from period to period by excluding certain items that we believe are not representative of our core business.
CommScope management also uses certain of these financial measures for business planning purposes and in measuring CommScope’s performance relative to that of its competitors. CommScope management believes these financial measures are commonly used by investors to evaluate CommScope’s performance and that of its competitors. However, CommScope’s use of the terms non-GAAP adjusted operating income, non-GAAP adjusted EBITDA, non-GAAP adjusted net income and non-GAAP adjusted earnings per share may vary from that of others in its industry. These financial measures should not be considered as alternatives to operating income (loss), net income (loss) or any other performance measures derived in accordance with U.S. GAAP as measures of operating performance, operating cash flows or liquidity.
Forward Looking Statements
This press release or any other oral or written statements made by us or on our behalf may include forward-looking statements that reflect our current views with respect to future events and financial performance. These forward-looking statements are generally identified by their use of such terms and phrases as “intend,” “goal,” “estimate,” “expect,” “project,” “projections,” “plans,” “anticipate,” “should,” “could,” “designed to,” “foreseeable future,” “believe,” “think,” “scheduled,” “outlook,” “target,” “guidance” and similar expressions, although not all forward-looking statements contain such terms. This list of indicative terms and phrases is not intended to be all-inclusive.
These statements are subject to various risks and uncertainties, many of which are outside our control, including, without limitation, our dependence on customers’ capital spending on data and communication systems; concentration of sales among a limited number of customers and channel partners; changes in technology; industry competition and the ability to retain customers through product innovation, and marketing; risks associated with our sales through channel partners; changes to the regulatory environment in which our customers operate; product quality or performance issues and associated warranty claims; our ability to maintain effective management information systems and to successfully implement major systems initiatives; cyber-security incidents, including data security breaches, ransomware or computer viruses; the risk our global manufacturing operations suffer production or shipping delays, causing difficulty in meeting customer demands; the risk that internal production capacity or that of contract manufacturers may be insufficient to meet customer demand or quality standards; changes in cost and availability of key raw materials, components and commodities and the potential effect on customer pricing; risks associated with our dependence on a limited number of key suppliers for certain raw material and components; the risk that our contract manufacturers encounter production, quality, financial or other difficulties; our ability to fully realize anticipated benefits from prior or future acquisitions or equity investments; potential difficulties in realigning global manufacturing capacity and capabilities among our global manufacturing facilities that may affect our ability to meet customer demands for products; possible future restructuring actions; substantial indebtedness and maintaining compliance with debt covenants; our ability to incur additional indebtedness; our ability to generate cash to service our indebtedness; possible future impairment charges for fixed or intangible assets, including goodwill; income tax rate variability and ability to recover amounts recorded as deferred tax assets; our ability to attract and retain qualified key employees; labor unrest; obligations under our defined benefit employee benefit plans may require plan contributions in excess of current estimates; significant international operations exposing us to economic, political and other risks, including the impact of variability in foreign exchange rates; our ability to comply with governmental anti-corruption laws and regulations and export and import controls worldwide; our ability to compete in international markets due to export and import controls to which we may be subject; changes in the laws and policies in the United States affecting trade; cost of protecting or defending intellectual property; costs and challenges of compliance with domestic and foreign environmental laws; risks associated with stockholder activism, which could cause us to incur significant expense, hinder execution of our business strategy and impact the trading value of our securities; and other factors beyond our control. These and other factors are discussed in greater detail in our 2017 Annual Report on Form 10-K. Although the information contained in this press release represents our best judgment as of the date of this report based on information currently available and reasonable assumptions, we can give no assurance that the expectations will be attained or that any deviation will not be material. Given these uncertainties, we caution you not to place undue reliance on these forward-looking statements, which speak only as of the date made. We are not undertaking any duty or obligation to update this information to reflect developments or information obtained after the date of this report, except as otherwise may be required by law.
CommScope Holding Company, Inc.
Condensed Consolidated Statements of Operations
(Unaudited — In thousands, except per share amounts)
| Three Months Ended | Year Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net sales |
$ | 1,120,432 | $ | 1,178,906 | $ | 4,560,582 | $ | 4,923,621 | ||||||||
|
|
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|
|
|
|
|
|
|||||||||
| Operating costs and expenses: |
||||||||||||||||
| Cost of sales |
705,778 | 689,018 | 2,788,688 | 2,890,032 | ||||||||||||
| Selling, general and administrative |
190,697 | 215,130 | 794,291 | 879,495 | ||||||||||||
| Research and development |
44,942 | 48,161 | 185,222 | 200,715 | ||||||||||||
| Amortization of purchased intangible assets |
68,099 | 72,932 | 270,989 | 297,202 | ||||||||||||
| Restructuring costs, net |
19,261 | 18,372 | 43,782 | 42,875 | ||||||||||||
| Asset impairments |
— | 15,884 | — | 38,552 | ||||||||||||
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|||||||||
| Total operating costs and expenses |
1,028,777 | 1,059,497 | 4,082,972 | 4,348,871 | ||||||||||||
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|
|||||||||
| Operating income |
91,655 | 119,409 | 477,610 | 574,750 | ||||||||||||
| Other expense, net |
(1,626 | ) | (8,273 | ) | (15,040 | ) | (30,171 | ) | ||||||||
| Interest expense |
(64,290 | ) | (62,510 | ) | (257,059 | ) | (277,534 | ) | ||||||||
| Interest income |
437 | 774 | 4,221 | 5,524 | ||||||||||||
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|||||||||
| Income before income taxes |
26,176 | 49,400 | 209,732 | 272,569 | ||||||||||||
| Income tax (expense) benefit |
27,405 | 5,066 | (15,968 | ) | (49,731 | ) | ||||||||||
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| Net income |
$ | 53,581 | $ | 54,466 | $ | 193,764 | $ | 222,838 | ||||||||
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| Earnings per share: |
||||||||||||||||
| Basic |
$ | 0.28 | $ | 0.28 | $ | 1.01 | $ | 1.16 | ||||||||
| Diluted (a) |
$ | 0.27 | $ | 0.28 | $ | 0.98 | $ | 1.13 | ||||||||
| Weighted average shares outstanding: |
||||||||||||||||
| Basic |
190,826 | 193,305 | 192,430 | 192,470 | ||||||||||||
| Diluted (a) |
195,074 | 197,401 | 196,811 | 196,459 | ||||||||||||
| (a) Calculation of diluted earnings per share: |
||||||||||||||||
| Net income (basic and diluted) |
$ | 53,581 | $ | 54,466 | $ | 193,764 | $ | 222,838 | ||||||||
| Weighted average shares (basic) |
190,826 | 193,305 | 192,430 | 192,470 | ||||||||||||
| Dilutive effect of stock awards |
4,248 | 4,096 | 4,381 | 3,989 | ||||||||||||
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| Denominator (diluted) |
195,074 | 197,401 | 196,811 | 196,459 | ||||||||||||
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See notes to consolidated financial statements included in our Form 10-K.
CommScope Holding Company, Inc.
Consolidated Balance Sheets
(In thousands, except share amounts)
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| Assets | ||||||||
| Cash and cash equivalents |
$ | 453,977 | $ | 428,228 | ||||
| Accounts receivable, less allowance for doubtful accounts of $13,976 and $17,211, respectively |
898,829 | 952,367 | ||||||
| Inventories, net |
444,941 | 473,267 | ||||||
| Prepaid expenses and other current assets |
146,112 | 139,902 | ||||||
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| Total current assets |
1,943,859 | 1,993,764 | ||||||
| Property, plant and equipment, net of accumulated depreciation of $390,389 and $303,734, respectively |
467,289 | 474,990 | ||||||
| Goodwill |
2,886,630 | 2,768,304 | ||||||
| Other intangible assets, net |
1,636,084 | 1,799,065 | ||||||
| Other noncurrent assets |
107,804 | 105,863 | ||||||
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| Total assets |
$ | 7,041,666 | $ | 7,141,986 | ||||
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| Liabilities and Stockholders’ Equity | ||||||||
| Accounts payable |
$ | 436,737 | $ | 415,921 | ||||
| Other accrued liabilities |
286,980 | 429,397 | ||||||
| Current portion of long-term debt |
— | 12,500 | ||||||
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|||||
| Total current liabilities |
723,717 | 857,818 | ||||||
| Long-term debt |
4,369,401 | 4,549,510 | ||||||
| Deferred income taxes |
134,241 | 199,121 | ||||||
| Pension and other postretirement benefit liabilities |
25,140 | 31,671 | ||||||
| Other noncurrent liabilities |
141,341 | 109,782 | ||||||
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| Total liabilities |
5,393,840 | 5,747,902 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $.01 par value: Authorized shares: 200,000,000; Issued and outstanding shares: None |
— | — | ||||||
| Common stock, $0.01 par value: Authorized shares: 1,300,000,000; Issued and outstanding shares: 190,906,110 and 193,837,437, respectively |
1,972 | 1,950 | ||||||
| Additional paid-in capital |
2,334,071 | 2,282,014 | ||||||
| Retained earnings (accumulated deficit) |
(395,998 | ) | (589,556 | ) | ||||
| Accumulated other comprehensive loss |
(86,603 | ) | (285,113 | ) | ||||
| Treasury stock, at cost: 6,336,144 shares and 1,129,222 shares, respectively |
(205,616 | ) | (15,211 | ) | ||||
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|||||
| Total stockholders’ equity |
1,647,826 | 1,394,084 | ||||||
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|||||
| Total liabilities and stockholders’ equity |
$ | 7,041,666 | $ | 7,141,986 | ||||
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|||||
See notes to consolidated financial statements included in our Form 10-K.
CommScope Holding Company, Inc.
Consolidated Statements of Cash Flows
(Unaudited — In thousands)
| Three Months Ended | Year Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Operating Activities: |
||||||||||||||||
| Net income |
$ | 53,581 | $ | 54,466 | $ | 193,764 | $ | 222,838 | ||||||||
| Adjustments to reconcile net income to net cash generated by operating activities: |
||||||||||||||||
| Depreciation and amortization |
95,469 | 97,603 | 378,012 | 399,053 | ||||||||||||
| Equity-based compensation |
10,278 | 8,385 | 41,850 | 35,006 | ||||||||||||
| Deferred income taxes |
(51,499 | ) | (6,639 | ) | (71,475 | ) | (100,878 | ) | ||||||||
| Asset impairments |
— | 15,884 | — | 38,552 | ||||||||||||
| Changes in assets and liabilities: |
||||||||||||||||
| Accounts receivable |
37,691 | (4,530 | ) | 96,745 | (100,867 | ) | ||||||||||
| Inventories |
41,868 | (8,516 | ) | 53,658 | (31,996 | ) | ||||||||||
| Prepaid expenses and other current assets |
21,188 | (12,332 | ) | (1,273 | ) | 14,273 | ||||||||||
| Accounts payable and other accrued liabilities |
9,785 | (46,263 | ) | (154,691 | ) | 191,405 | ||||||||||
| Other noncurrent liabilities |
28,673 | (16,872 | ) | 14,644 | (35,950 | ) | ||||||||||
| Other noncurrent assets |
(8,197 | ) | 12,231 | (8,418 | ) | (1,834 | ) | |||||||||
| Other |
12,044 | (4,310 | ) | 43,470 | 10,619 | |||||||||||
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|||||||||
| Net cash generated by operating activities |
250,881 | 89,107 | 586,286 | 640,221 | ||||||||||||
| Investing Activities: |
||||||||||||||||
| Additions to property, plant and equipment |
(17,569 | ) | (18,654 | ) | (68,721 | ) | (68,314 | ) | ||||||||
| Proceeds from sale of property, plant and equipment |
408 | 149 | 5,424 | 4,084 | ||||||||||||
| Cash paid for acquisitions, including purchase price adjustments, net of cash acquired |
— | 3,384 | (105,249 | ) | 6,098 | |||||||||||
| Proceeds from sale of businesses and long-term investments |
— | 1 | 9,898 | 1,292 | ||||||||||||
| Payments upon settlement of net investment hedge |
(7,558 | ) | — | (7,558 | ) | — | ||||||||||
| Other |
— | 57 | — | 2,253 | ||||||||||||
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| Net cash used in investing activities |
(24,719 | ) | (15,063 | ) | (166,206 | ) | (54,587 | ) | ||||||||
| Financing Activities: |
||||||||||||||||
| Long-term debt repaid |
(185,000 | ) | (172,889 | ) | (990,379 | ) | (718,914 | ) | ||||||||
| Long-term debt proceeds |
— | 19,764 | 780,379 | 19,764 | ||||||||||||
| Debt issuance and modification costs |
— | (4,318 | ) | (8,363 | ) | (4,318 | ) | |||||||||
| Debt extinguishment costs |
— | — | (14,800 | ) | (17,779 | ) | ||||||||||
| Cash paid for repurchase of common stock |
— | — | (175,000 | ) | — | |||||||||||
| Proceeds from the issuance of common shares under equity-based compensation plans |
1,146 | 8,119 | 9,949 | 16,756 | ||||||||||||
| Tax withholding payments for vested equity-based compensation awards |
(449 | ) | (932 | ) | (15,405 | ) | (3,878 | ) | ||||||||
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|||||||||
| Net cash used in financing activities |
(184,303 | ) | (150,256 | ) | (413,619 | ) | (708,369 | ) | ||||||||
| Effect of exchange rate changes on cash and cash equivalents |
876 | (12,835 | ) | 19,288 | (11,921 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Change in cash and cash equivalents |
42,735 | (89,047 | ) | 25,749 | (134,656 | ) | ||||||||||
| Cash and cash equivalents at beginning of period |
411,242 | 517,275 | 428,228 | 562,884 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Cash and cash equivalents at end of period |
$ | 453,977 | $ | 428,228 | $ | 453,977 | $ | 428,228 | ||||||||
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|
|
|
|
|
|
|
|||||||||
See notes to consolidated financial statements included in our Form 10-K.
CommScope Holding Company, Inc.
Reconciliation of GAAP Measures to Non-GAAP Adjusted Measures
(Unaudited — In millions, except per share amounts)
| Three Months Ended | Year Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Operating income, as reported |
$ | 91.7 | $ | 119.4 | $ | 477.6 | $ | 574.8 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Adjustments: |
||||||||||||||||
| Amortization of purchased intangible assets |
68.1 | 72.9 | 271.0 | 297.2 | ||||||||||||
| Restructuring costs, net |
19.3 | 18.4 | 43.8 | 42.9 | ||||||||||||
| Equity-based compensation |
10.3 | 8.4 | 41.9 | 35.0 | ||||||||||||
| Asset impairments |
— | 15.9 | — | 38.6 | ||||||||||||
| Integration and transaction costs |
9.8 | 17.2 | 48.0 | 62.3 | ||||||||||||
| Purchase accounting adjustments |
— | — | — | 0.6 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total adjustments to operating income |
107.5 | 132.8 | 404.7 | 476.6 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Non-GAAP adjusted operating income |
$ | 199.1 | $ | 252.2 | $ | 882.3 | $ | 1,051.4 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Income before income taxes, as reported |
$ | 26.2 | $ | 49.4 | $ | 209.7 | $ | 272.6 | ||||||||
| Income tax (expense) benefit, as reported |
27.4 | 5.1 | (16.0 | ) | (49.7 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income, as reported |
$ | 53.6 | $ | 54.5 | $ | 193.8 | $ | 222.8 | ||||||||
| Adjustments: |
||||||||||||||||
| Total pretax adjustments to operating income |
107.5 | 132.8 | 404.7 | 476.6 | ||||||||||||
| Pretax amortization of deferred financing costs & OID (1) |
6.6 | 4.4 | 25.4 | 21.4 | ||||||||||||
| Pretax loss on debt transactions (2) |
— | — | 16.0 | 17.8 | ||||||||||||
| Pretax net investment gains (2) |
— | — | (9.0 | ) | (0.5 | ) | ||||||||||
| Tax effects of adjustments and other tax items (3) |
(76.6 | ) | (71.1 | ) | (210.5 | ) | (218.9 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Non-GAAP adjusted net income |
$ | 91.1 | $ | 120.6 | $ | 420.4 | $ | 519.2 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Diluted EPS, as reported |
$ | 0.27 | $ | 0.28 | $ | 0.98 | $ | 1.13 | ||||||||
| Non-GAAP adjusted diluted EPS |
$ | 0.47 | $ | 0.61 | $ | 2.14 | $ | 2.64 | ||||||||
| (1) | Included in interest expense. |
| (2) | Included in other expense, net. |
| (3) | The tax rates applied to adjustments reflect the tax expense or benefit based on the tax jurisdiction of the entity generating the adjustment. There are certain items for which we expect little or no tax effect. Given the complexities of the U.S. tax legislation enacted in late 2017, we applied a non-GAAP effective tax rate of 35% for the fourth quarter, consistent with the adjusted rate in prior quarters in 2017. |
Note: Components may not sum to total due to rounding
See Description of Non-GAAP Financial Measures
CommScope Holding Company, Inc.
Sales by Region
(Unaudited — In millions)
Sales by Region
| % Change | ||||||||||||
| Q4 2017 | Q4 2016 | YOY | ||||||||||
| United States |
$ | 561.9 | $ | 623.7 | (9.9 | )% | ||||||
| Europe, Middle East and Africa |
243.9 | 240.1 | 1.6 | |||||||||
| Asia Pacific |
224.0 | 224.8 | (0.4 | ) | ||||||||
| Central and Latin America |
68.5 | 67.9 | 0.9 | |||||||||
| Canada |
22.1 | 22.4 | (1.3 | ) | ||||||||
|
|
|
|
|
|||||||||
| Total Net Sales |
$ | 1,120.4 | $ | 1,178.9 | (5.0 | )% | ||||||
|
|
|
|
|
|||||||||
Sales by Region
| % Change | ||||||||||||
| Full Year 2017 | Full Year 2016 | YOY | ||||||||||
| United States |
$ | 2,449.4 | $ | 2,634.9 | (7.0 | )% | ||||||
| Europe, Middle East and Africa |
942.5 | 933.5 | 1.0 | |||||||||
| Asia Pacific |
828.3 | 961.0 | (13.8 | ) | ||||||||
| Central and Latin America |
245.6 | 280.3 | (12.4 | ) | ||||||||
| Canada |
94.8 | 113.9 | (16.8 | ) | ||||||||
|
|
|
|
|
|||||||||
| Total Net Sales |
$ | 4,560.6 | $ | 4,923.6 | (7.4 | )% | ||||||
|
|
|
|
|
|||||||||
CommScope Holding Company, Inc.
Segment Information
(Unaudited — In millions)
Sales by Segment
| % Change | ||||||||||||||||||||
| Q4 2017 | Q3 2017 | Q4 2016 | Sequential | YOY | ||||||||||||||||
| Connectivity Solutions |
$ | 693.8 | $ | 708.7 | $ | 681.3 | (2.1 | )% | 1.8 | % | ||||||||||
| Mobility Solutions |
426.6 | 420.1 | 497.6 | 1.5 | % | (14.3 | )% | |||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
| Total Net Sales |
$ | 1,120.4 | $ | 1,128.8 | $ | 1,178.9 | (0.7 | )% | (5.0 | )% | ||||||||||
|
|
|
|
|
|
|
|||||||||||||||
| Non-GAAP Adjusted Operating Income by Segment |
| |||||||||||||||||||
| % Change | ||||||||||||||||||||
| Q4 2017 | Q3 2017 | Q4 2016 | Sequential | YOY | ||||||||||||||||
| Connectivity Solutions |
$ | 125.4 | $ | 139.3 | $ | 139.5 | (10.0 | )% | (10.1 | )% | ||||||||||
| Mobility Solutions |
73.6 | 84.2 | 112.7 | (12.6 | )% | (34.7 | )% | |||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
| Total Non-GAAP Adjusted Operating Income |
$ | 199.1 | $ | 223.5 | $ | 252.2 | (10.9 | )% | (21.1 | )% | ||||||||||
|
|
|
|
|
|
|
|||||||||||||||
Sales by Segment
| % Change | ||||||||||||
| 2017 | 2016 | YOY | ||||||||||
| Connectivity Solutions |
$ | 2,809.8 | $ | 2,965.5 | (5.3 | )% | ||||||
| Mobility Solutions |
1,750.8 | 1,958.1 | (10.6 | )% | ||||||||
|
|
|
|
|
|||||||||
| Total Net Sales |
$ | 4,560.6 | $ | 4,923.6 | (7.4 | )% | ||||||
|
|
|
|
|
|||||||||
| Non-GAAP Adjusted Operating Income by Segment |
| |||||||||||
| % Change | ||||||||||||
| 2017 | 2016 | YOY | ||||||||||
| Connectivity Solutions |
$ | 526.3 | $ | 632.3 | (16.8 | )% | ||||||
| Mobility Solutions |
356.0 | 419.1 | (15.1 | )% | ||||||||
|
|
|
|
|
|||||||||
| Total Non-GAAP Adjusted Operating Income |
$ | 882.3 | $ | 1,051.4 | (16.1 | )% | ||||||
|
|
|
|
|
|||||||||
Components may not sum to total due to rounding
See Description of Non-GAAP Financial Measures
CommScope Holding Company, Inc.
Reconciliation of GAAP to Non-GAAP Adjusted Operating Income by Segment
(Unaudited — In millions)
| Year Ended December 31, 2017 Non-GAAP Adjusted Operating Income Reconciliation by Segment | ||||||||||||
| Connectivity Solutions |
Mobility Solutions |
Total | ||||||||||
| Operating income, as reported |
$ | 242.0 | $ | 235.6 | $ | 477.6 | ||||||
| Amortization of purchased intangible assets |
175.5 | 95.5 | 271.0 | |||||||||
| Restructuring costs, net |
36.6 | 7.2 | 43.8 | |||||||||
| Equity-based compensation |
24.4 | 17.5 | 41.9 | |||||||||
| Integration and transaction costs |
47.9 | 0.2 | 48.0 | |||||||||
|
|
|
|
|
|
|
|||||||
| Non-GAAP adjusted operating income |
$ | 526.3 | $ | 356.0 | $ | 882.3 | ||||||
| Non-GAAP adjusted operating margin % |
18.7 | % | 20.3 | % | 19.3 | % | ||||||
| Year Ended December 31, 2016 Non-GAAP Adjusted Operating Income Reconciliation by Segment | ||||||||||||
| Connectivity Solutions |
Mobility Solutions |
Total | ||||||||||
| Operating income, as reported |
$ | 291.2 | $ | 283.6 | $ | 574.8 | ||||||
| Amortization of purchased intangible assets |
195.9 | 101.3 | 297.2 | |||||||||
| Restructuring costs, net |
27.1 | 15.8 | 42.9 | |||||||||
| Equity-based compensation |
19.8 | 15.2 | 35.0 | |||||||||
| Asset impairments |
38.6 | — | 38.6 | |||||||||
| Integration and transaction costs |
59.1 | 3.3 | 62.3 | |||||||||
| Purchase accounting adjustments |
0.6 | — | 0.6 | |||||||||
|
|
|
|
|
|
|
|||||||
| Non-GAAP adjusted operating income |
$ | 632.3 | $ | 419.1 | $ | 1,051.4 | ||||||
| Non-GAAP adjusted operating margin % |
21.3 | % | 21.4 | % | 21.4 | % | ||||||
| Components may not sum to total due to rounding |
||||||||||||
| See Description of Non-GAAP Financial Measures |
||||||||||||
CommScope Holding Company, Inc.
Reconciliation of GAAP to Non-GAAP Adjusted Operating Income by Segment
(Unaudited — In millions)
| Fourth Quarter 2017 Non-GAAP Adjusted Operating Income Reconciliation by Segment
|
| |||||||||||
| Connectivity Solutions |
Mobility Solutions |
Total | ||||||||||
| Operating income, as reported |
$ | 48.2 | $ | 43.4 | $ | 91.7 | ||||||
| Amortization of purchased intangible assets |
44.8 | 23.3 | 68.1 | |||||||||
| Restructuring costs, net |
16.6 | 2.6 | 19.3 | |||||||||
| Equity-based compensation |
6.0 | 4.3 | 10.3 | |||||||||
| Integration and transaction costs |
9.8 | — | 9.8 | |||||||||
|
|
|
|
|
|
|
|||||||
| Non-GAAP adjusted operating income |
$ | 125.4 | $ | 73.6 | $ | 199.1 | ||||||
| Non-GAAP adjusted operating margin % |
18.1 | % | 17.3 | % | 17.8 | % | ||||||
| Third Quarter 2017 Non-GAAP Adjusted Operating Income Reconciliation by Segment |
| |||||||||||
| Connectivity Solutions |
Mobility Solutions |
Total | ||||||||||
| Operating income, as reported |
$ | 71.2 | $ | 55.6 | $ | 126.8 | ||||||
| Amortization of purchased intangible assets |
44.2 | 24.1 | 68.3 | |||||||||
| Restructuring costs, net |
5.6 | (0.2 | ) | 5.4 | ||||||||
| Equity-based compensation |
6.4 | 4.6 | 11.0 | |||||||||
| Integration and transaction costs |
11.9 | 0.2 | 12.0 | |||||||||
|
|
|
|
|
|
|
|||||||
| Non-GAAP adjusted operating income |
$ | 139.3 | $ | 84.2 | $ | 223.5 | ||||||
| Non-GAAP adjusted operating margin % |
19.7 | % | 20.0 | % | 19.8 | % | ||||||
| Fourth Quarter 2016 Non-GAAP Adjusted Operating Income Reconciliation by Segment |
| |||||||||||
| Connectivity Solutions |
Mobility Solutions |
Total | ||||||||||
| Operating income, as reported |
$ | 43.3 | $ | 76.1 | $ | 119.4 | ||||||
| Amortization of purchased intangible assets |
47.7 | 25.3 | 72.9 | |||||||||
| Restructuring costs, net |
11.0 | 7.3 | 18.4 | |||||||||
| Equity-based compensation |
4.7 | 3.7 | 8.4 | |||||||||
| Asset impairments |
15.9 | — | 15.9 | |||||||||
| Integration and transaction costs |
16.9 | 0.3 | 17.2 | |||||||||
|
|
|
|
|
|
|
|||||||
| Non-GAAP adjusted operating income |
$ | 139.5 | $ | 112.7 | $ | 252.2 | ||||||
| Non-GAAP adjusted operating margin % |
20.5 | % | 22.7 | % | 21.4 | % | ||||||
| Components may not sum to total due to rounding |
| |||||||||||
| See Description of Non-GAAP Financial Measures |
| |||||||||||
CommScope Holding Company, Inc.
Adjusted Free Cash Flow
(Unaudited — In millions)
| Adjusted Free Cash Flow |
||||||||||||||||
| Q4 2017 | Q4 2016 | Full Year 2017 |
Full Year 2016 |
|||||||||||||
| Cash flow from operations |
$ | 250.9 | $ | 89.1 | $ | 586.3 | $ | 640.2 | ||||||||
| Integration and transaction costs |
8.4 | 17.0 | 50.6 | 64.8 | ||||||||||||
| Capital expenditures |
(17.6 | ) | (18.7 | ) | (68.7 | ) | (68.3 | ) | ||||||||
| Capex related to BNS integration |
— | 1.2 | — | 6.1 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Adjusted Free Cash Flow |
$ | 241.7 | $ | 88.6 | $ | 568.2 | $ | 642.8 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| See Description of Non-GAAP Financial Measures |
||||||||||||||||
CommScope Holding Company, Inc.
Quarterly Adjusted Operating Income and Adjusted EBITDA
(Unaudited — In millions)
| GAAP to Non-GAAP Adjusted Operating Income and Adjusted EBITDA Reconciliation |
| |||||||||||||||||||
| Q4 2017 | Q3 2017 | Q2 2017 | Q1 2017 | Q4 2016 | ||||||||||||||||
| Operating income, as reported |
$ | 91.7 | $ | 126.8 | $ | 137.8 | $ | 121.4 | $ | 119.4 | ||||||||||
| Amortization of purchased intangible assets |
68.1 | 68.3 | 67.0 | 67.6 | 72.9 | |||||||||||||||
| Restructuring costs, net |
19.3 | 5.4 | 13.8 | 5.4 | 18.4 | |||||||||||||||
| Equity-based compensation |
10.3 | 11.0 | 11.2 | 9.4 | 8.4 | |||||||||||||||
| Asset impairments |
— | — | — | — | 15.9 | |||||||||||||||
| Integration and transaction costs |
9.8 | 12.0 | 12.6 | 13.5 | 17.2 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Non-GAAP adjusted operating income |
$ | 199.1 | $ | 223.5 | $ | 242.4 | $ | 217.3 | $ | 252.2 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Non-GAAP adjusted operating margin % |
17.8 | % | 19.8 | % | 20.6 | % | 19.1 | % | 21.4 | % | ||||||||||
| Depreciation |
20.8 | 20.6 | 20.2 | 20.0 | 20.2 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Non-GAAP adjusted EBITDA |
$ | 219.9 | $ | 244.1 | $ | 262.6 | $ | 237.3 | $ | 272.5 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Components may not sum to total due to rounding |
| |||||||||||||||||||
| See Description of Non-GAAP Financial Measures |
| |||||||||||||||||||
CommScope Holding Company, Inc.
Reconciliation of GAAP Measures to Non-GAAP Adjusted Measures
(Unaudited — In millions, except per share amounts)
| Outlook | ||||||||
| Three Months Ended | ||||||||
| March 31, 2018 |
Full Year 2018 |
|||||||
| Operating income |
$ | 93 - $108 | $ | 615 - $660 | ||||
|
|
|
|
|
|||||
| Adjustments: |
||||||||
| Amortization of purchased intangible assets |
$ | 70 | $ | 265 | ||||
| Equity-based compensation |
$ | 12 | $ | 55 | ||||
| Restructuring costs, integration costs and other (1) |
$ | 0 - $5 | $ | 0 - $5 | ||||
|
|
|
|
|
|||||
| Total adjustments to operating income |
$ | 82 - $87 | $ | 320 - $325 | ||||
|
|
|
|
|
|||||
| Non-GAAP adjusted operating income |
$ | 175 - $195 | $ | 935 - $985 | ||||
|
|
|
|
|
|||||
| Diluted earnings per share |
$ | 0.13 - $0.16 | $ | 1.46 - $1.58 | ||||
|
|
|
|
|
|||||
| Adjustments (2): |
||||||||
| Total adjustments to operating income |
$ | 0.30 - $0.32 | $ | 1.20 - $1.25 | ||||
| Debt-related costs and other special items (3) |
$ | 0.01 | $ | (0.10) - $(0.12 | ) | |||
|
|
|
|
|
|||||
| Non-GAAP adjusted diluted earnings per share |
$ | 0.44 - $0.49 | $ | 2.56 - $2.71 | ||||
|
|
|
|
|
|||||
| (1) | Reflects projections for restructuring costs, integration costs and other special items. Actual adjustments may vary from projections. |
| (2) | The tax rates applied to projected adjustments reflect the tax expense or benefit based on the expected tax jurisdiction of the entity generating the projected adjustments. There are certain items for which we expect little or no tax effect. |
| (3) | Reflects projections for amortization of debt issuance costs, loss on debt extinguishment, gains on defined benefit plan terminations and tax items. Actual adjustments may vary from projections. |
Our actual results may be impacted by additional events for which information is not currently available, such as additional restructuring activities, asset impairments, debt extinguishments, additional transaction and integration costs, foreign exchange rate fluctuations and other gains or losses related to events that are not currently known or measurable.
See Caution Regarding Forward-Looking Statements and Description of Non-GAAP Financial Measures.