Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, 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 the core, access and edge layers of communication networks. The Company’s solutions and services for wired and wireless networks enable high-bandwidth data, video and voice applications. 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 Condensed Consolidated Balance Sheet as of June 30, 2017, the Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2017 and 2016, and the Condensed Consolidated Statements of Cash Flows and Stockholders’ Equity for the six months ended June 30, 2017 and 2016 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 accounting principles generally accepted in the United States (U.S. GAAP) 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. 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (the 2016 Annual Report). There were no changes in the Company’s significant accounting policies during the three or six months ended June 30, 2017. These interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements.
Prior to January 1, 2017, the Company consolidated the operating results of the acquired BNS business based on the BNS fiscal reporting calendar that resulted in a reporting lag of one day for the year ended December 31, 2016. Effective January 1, 2017, the reporting lag was eliminated as a result of system conversions that were part of the BNS integration. The elimination of the reporting lag represents a change in accounting principle which the Company believes to be preferable because it provides more current information to the users of its financial statements. The Company determined that it was impracticable to apply the effects of the lag elimination to financial reporting periods prior to January 1, 2017. The cumulative effect of not retroactively applying this change in accounting, however, was immaterial as of January 1, 2017. Therefore, the Company reported the cumulative effect of the change in accounting principle in net income for the six months ended June 30, 2017 and did not retrospectively apply the effects of this change to prior periods.
Concentrations of Risk and Related Party Transactions
Net sales to Anixter International Inc. and its affiliates (Anixter) accounted for 12% and 11% of the Company’s total net sales during the three and six months ended June 30, 2017, respectively. Net sales to Anixter accounted for 11% of the Company’s total net sales during the three and six months ended June 30, 2016. Sales to Anixter primarily originate within the CommScope Connectivity Solutions (CCS) segment. Other than Anixter, no other direct customer accounted for 10% or more of the Company’s total net sales for the three or six months ended June 30, 2017 or 2016.
Accounts receivable from Anixter represented approximately 12% of accounts receivable as of June 30, 2017. Other than Anixter, no direct customer accounted for 10% or more of the Company’s accounts receivable as of June 30, 2017.
6
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, unless otherwise noted)
Product Warranties
The Company recognizes a liability for the estimated claims that may be paid under its customer warranty agreements to remedy potential deficiencies of quality or performance of the Company’s products. These product warranties extend over periods ranging from one to twenty-five years from the date of sale, depending upon the product subject to the warranty. 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 other accrued liabilities:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Product warranty accrual, beginning of period
|
|
$
|
20,180
|
|
|
$
|
17,689
|
|
|
$
|
21,631
|
|
|
$
|
17,964
|
|
Provision for warranty claims
|
|
|
2,028
|
|
|
|
2,468
|
|
|
|
4,231
|
|
|
|
4,519
|
|
Warranty claims paid
|
|
|
(2,029
|
)
|
|
|
(1,864
|
)
|
|
|
(5,718
|
)
|
|
|
(4,412
|
)
|
Foreign exchange
|
|
|
104
|
|
|
|
63
|
|
|
|
139
|
|
|
|
285
|
|
Product warranty accrual, end of period
|
|
$
|
20,283
|
|
|
$
|
18,356
|
|
|
$
|
20,283
|
|
|
$
|
18,356
|
|
Commitments and Contingencies
The Company is either a plaintiff or a defendant in certain pending legal matters in the normal course of business. Management believes none of these legal matters will have a material adverse effect on the Company’s business or financial condition upon final disposition.
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. During the six months ended June 30, 2016, the Company recorded a $15.3 million goodwill impairment charge as a result of the change in its reportable segments. The impairment was recorded in the CCS segment.
Property, plant and equipment and intangible assets with finite lives 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 carried at estimated fair value. Other than the goodwill impairment described above, there were no asset impairments identified during the three or six months ended June 30, 2017 or 2016.
7
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, unless otherwise noted)
Income Taxes
The effective income tax rate of 30.3% and 22.9% for the three and six months ended June 30, 2017, respectively, was lower than the statutory rate of 35.0% primarily due to the favorable impact of $4.4 million and $13.1 million of excess tax benefits related to equity-based compensation awards for the three and six months ended June 30, 2017, respectively. Such benefits, which were previously reflected in additional paid-in capital, are now recognized in income tax expense as a result of the adoption of Accounting Standards Update (ASU) No. 2016-09. See the discussion under Recent Accounting Pronouncements for further information regarding the adoption of this new accounting guidance. The effective income tax rate was also favorably affected by the impact of earnings in foreign jurisdictions that the Company does not plan to repatriate. These earnings are generally taxed at rates lower than the United States (U.S.) statutory rate. Offsetting these decreases for the three and six months ended June 30, 2017 was the effect of the provision for state income taxes.
The effective income tax rate of 35.6% and 36.4% for the three and six months ended June 30, 2016, respectively, was higher than the statutory rate of 35.0% primarily due to the provision for state income taxes as well as losses in certain jurisdictions where the Company did not recognize tax benefits due to the likelihood of them not being realizable. In addition, the effective income tax rate for the six months ended June 30, 2016 was affected by the impact of the goodwill impairment charge for which only partial tax benefits were recorded. These increases to the effective income tax rate were partially offset by the favorable impact of earnings in foreign jurisdictions that the Company does not plan to repatriate.
Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is based on net income divided by the weighted average number of common shares outstanding plus the effect of potentially dilutive common shares using the treasury stock method. Potentially dilutive common shares include outstanding equity-based awards (stock options, restricted stock units and performance share units). Certain outstanding equity-based awards were not included in the computation of diluted earnings per share because the effect was either antidilutive or the performance conditions were not met (0.7 million shares and 0.5 million shares for the three and six months ended June 30, 2017, respectively, and 1.7 million shares and 1.6 million shares for the three and six months ended June 30, 2016, respectively). During the three and six months ended June 30, 2017, the Company repurchased 0.9 million shares and 2.5 million shares, respectively, of its common stock to reduce dilution from grants under its equity-based award programs. See Note 11 for more information on the share repurchase program.
The following table presents the basis for the earnings per share computations (in thousands, except per share data):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for basic and diluted earnings per share
|
|
$
|
55,464
|
|
|
$
|
61,961
|
|
|
$
|
89,026
|
|
|
$
|
74,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
|
|
193,092
|
|
|
|
192,241
|
|
|
|
193,555
|
|
|
|
191,996
|
|
Dilutive effect of equity-based awards
|
|
|
4,126
|
|
|
|
3,832
|
|
|
|
4,618
|
|
|
|
3,819
|
|
Weighted average common shares outstanding - diluted
|
|
|
197,218
|
|
|
|
196,073
|
|
|
|
198,173
|
|
|
|
195,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.29
|
|
|
$
|
0.32
|
|
|
$
|
0.46
|
|
|
$
|
0.39
|
|
Diluted
|
|
$
|
0.28
|
|
|
$
|
0.32
|
|
|
$
|
0.45
|
|
|
$
|
0.38
|
|
8
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, unless otherwise noted)
Recent Accounting Pronouncements
Adopted During the Six Months Ended June 30, 2017
The Company adopted ASU No. 2016-09,
Improvements to Employee Share-Based Payment Accounting
on January 1, 2017. The new standard simplifies several aspects of the accounting for employee equity-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. Beginning January 1, 2017, the Company recognized all excess tax benefits in income tax expense. An income tax benefit of $4.4 million and $13.1 million was recognized for the three and six months ended June 30, 2017, respectively, under ASU No. 2016-09. The Company recognized a $0.2 million, net of tax, cumulative effect adjustment to retained earnings as a result of its election to change its accounting policy to account for forfeitures as they occur. The impact of the adoption of ASU No. 2016-09 to the Condensed Consolidated Statements of Cash Flows was to present excess tax benefits or deficiencies as an operating activity rather than as a financing activity. The Company elected to present the impact on the Condensed Consolidated Statements of Cash Flows retrospectively; therefore, the Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2016 reflects an increase to both net cash generated by operating activities and net cash used in financing activities of $6.7 million.
The Company also adopted ASU No. 2016-15,
Cash Flow Classification of Certain Cash Receipts and Cash Payments
, as of January 1, 2017. This guidance amends or clarifies guidance on classification of certain transactions in the statement of cash flows, including classification of debt extinguishment costs and contingent consideration payments after a business combination. During the six months ended June 30, 2017, the impact of adoption on the Company’s Condensed Consolidated Statements of Cash Flows was to present $14.8 million of debt redemption premium paid as a financing activity rather than as an operating activity. The provisions of this new standard are required to be applied retrospectively; therefore, the Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2016 reflects an increase to both net cash generated by operating activities and net cash used in financing activities of $9.9 million.
Issued but Not Adopted
In March 2017, the Financial Accounting Standards Board (FASB) issued ASU No. 2017-07,
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
, which requires an employer to report the service cost component in the same line item as other compensation costs arising from services rendered by the employee and requires the other components of net benefit cost to be reported outside the subtotal of operating income. ASU No. 2017-07 is effective for the Company as of January 1, 2018 and must be applied retrospectively. While the Company is evaluating the impact of the new guidance on the consolidated financial statements, it expects the application of this new guidance to decrease operating income. For details on the components of the Company’s annual net periodic benefit cost, see Note 10 to the Company’s audited consolidated financial statements included in the Company’s 2016 Annual Report.
In January 2017, the FASB issued ASU No. 2017-04,
Simplifying the Test of Goodwill Impairment
, which eliminates Step 2 from the goodwill impairment test. Under the new guidance, an entity will perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity will recognize a goodwill impairment charge for the excess of the reporting unit’s carrying amount over its fair value, up to the amount of goodwill allocated to that reporting unit. ASU No. 2017-04 is effective for the Company as of January 1, 2020 and early adoption is permitted. The Company is evaluating the impact of the new guidance on the consolidated financial statements and when it may be adopted.
In June 2016, the FASB issued ASU No. 2016-13,
Measurement of Credit Losses on Financial Instruments
. The new guidance replaces the current incurred loss method used for determining credit losses on financial assets, including trade receivables, with an expected credit loss method. ASU No. 2016-13 is effective for the Company as of January 1, 2020 and early adoption is permitted. The Company is evaluating the impact of the new guidance on the consolidated financial statements and when it may be adopted.
In February 2016, the FASB issued ASU No. 2016-02,
Leases
, which
supersedes the current leasing guidance in Topic 840,
Leases.
Under the new guidance, lessees are required to recognize assets and lease liabilities for the rights and obligations created by leased assets previously classified as operating leases
. ASU No. 2016-02 is effective for the Company as of January 1, 2019 and early adoption is permitted. The Company expects to adopt this new guidance as of January 1, 2019 and is evaluating the impact of the new guidance on the consolidated financial statements.
9
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, unless otherwise noted)
In January 2016, the FASB issued ASU No. 2016-01,
Recognition and Measurement of Financial A
ssets and Financial Liabilities
, which modifies how entities measure equity investments
(except those accounted for under the equity method of accounting)
and present changes in the fair value of financial liabilities; simplifies the impairment assessment
of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; changes presentation and disclosure requirements; and clarifies that an entity should evaluate the need for a valuation allowance o
n a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The guidance is effective for the Company as of January 1, 2018 and, with the exception of certain provisions, early adoption is not
permitted. The Company does not expect the new guidance to have a material impact on the consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
. The new accounting standard defines a single comprehensive model of accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the ASU is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The Company will be required to adopt the new standard, including subsequently issued clarifying guidance, as of January 1, 2018 using either: (i) full retrospective application to each prior reporting period presented; or (ii) modified retrospective application with the cumulative effect of initially applying the standard recognized at the date of initial application and providing certain additional required disclosures. The Company plans to adopt the new accounting model as of January 1, 2018 using the modified retrospective method.
The Company has completed an impact assessment and determined that adoption of the standard will likely result in an acceleration in the timing of when revenues are recognized for contracts containing multiple performance obligations. These contract revenues are currently accounted for using the multi-element guidance and are primarily for certain metro cell, distributed antenna system (DAS) and small cell solutions within the CommScope Mobility Solutions (CMS) segment. These multi-element revenue contracts represented less than 2% of total net sales for the three and six months ended June 30, 2017. Due to the short-term nature of most of the contracts, the ultimate impact to the Company’s consolidated financial statements at adoption will be based on customer-specific contract terms in effect at that time and could be significant.
The Company is in the process of implementing the necessary changes to its accounting policies, processes, internal controls and information systems that will be required to meet the new standard’s reporting and disclosure requirements.
2. ACQUISITIONS
On August 28, 2015, the Company acquired TE Connectivity’s BNS business for approximately $3.0 billion in an all-cash transaction. During the six months ended June 30, 2016, the Company received $6.3 million in net settlements for certain adjustments related to the BNS acquisition. Also during the three and six months ended June 30, 2016,
the Company recorded measurement period adjustments primarily related to the finalization of the valuation of inventory, intangible assets, plant and equipment, pension liabilities and deferred taxes. The impact of these measurement period adjustments was not material to the Company’s results.
3. GOODWILL
The following table presents goodwill by reportable segment (in millions):
|
|
CCS
|
|
|
CMS
|
|
|
Total
|
|
Goodwill, gross at December 31, 2016
|
|
$
|
2,077.5
|
|
|
$
|
901.8
|
|
|
$
|
2,979.3
|
|
Foreign exchange
|
|
|
40.6
|
|
|
|
1.8
|
|
|
|
42.4
|
|
Goodwill, gross at June 30, 2017
|
|
|
2,118.1
|
|
|
|
903.6
|
|
|
|
3,021.7
|
|
Accumulated impairment charges at December 31, 2016
and June 30, 2017
|
|
|
(51.5
|
)
|
|
|
(159.5
|
)
|
|
|
(211.0
|
)
|
Goodwill, net at June 30, 2017
|
|
$
|
2,066.6
|
|
|
$
|
744.1
|
|
|
$
|
2,810.7
|
|
10
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, unless otherwise noted)
4. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
Inventories
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
Raw materials
|
|
$
|
141,954
|
|
|
$
|
126,027
|
|
Work in process
|
|
|
118,000
|
|
|
|
135,848
|
|
Finished goods
|
|
|
269,650
|
|
|
|
211,392
|
|
|
|
$
|
529,604
|
|
|
$
|
473,267
|
|
Other Accrued Liabilities
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
Compensation and employee benefit liabilities
|
|
$
|
99,687
|
|
|
$
|
169,923
|
|
Deferred revenue
|
|
|
20,244
|
|
|
|
25,859
|
|
Product warranty accrual
|
|
|
20,283
|
|
|
|
21,631
|
|
Accrued interest
|
|
|
18,712
|
|
|
|
8,586
|
|
Restructuring reserve
|
|
|
29,756
|
|
|
|
30,438
|
|
Income taxes payable
|
|
|
18,544
|
|
|
|
49,984
|
|
Value-added taxes payable
|
|
|
12,960
|
|
|
|
14,885
|
|
Accrued professional fees
|
|
|
9,230
|
|
|
|
10,621
|
|
Other
|
|
|
78,929
|
|
|
|
97,470
|
|
|
|
$
|
308,345
|
|
|
$
|
429,397
|
|
11
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, unless otherwise noted)
Accumulated Other Comprehensive Loss
The following table presents changes in accumulated other comprehensive income (AOCI), net of tax, and accumulated other comprehensive loss (AOCL), net of tax:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(213,797
|
)
|
|
$
|
(114,336
|
)
|
|
$
|
(254,148
|
)
|
|
$
|
(160,620
|
)
|
Other comprehensive income (loss)
|
|
|
86,749
|
|
|
|
(46,897
|
)
|
|
|
126,833
|
|
|
|
(613
|
)
|
Amounts reclassified from AOCL
|
|
|
—
|
|
|
|
306
|
|
|
|
267
|
|
|
|
306
|
|
Balance at end of period
|
|
$
|
(127,048
|
)
|
|
$
|
(160,927
|
)
|
|
$
|
(127,048
|
)
|
|
$
|
(160,927
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plan activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(33,842
|
)
|
|
$
|
(18,298
|
)
|
|
$
|
(33,473
|
)
|
|
$
|
(17,567
|
)
|
Other comprehensive loss
|
|
|
—
|
|
|
|
(1,730
|
)
|
|
|
—
|
|
|
|
(1,730
|
)
|
Amounts reclassified from AOCL
|
|
|
(360
|
)
|
|
|
(674
|
)
|
|
|
(729
|
)
|
|
|
(1,405
|
)
|
Balance at end of period
|
|
$
|
(34,202
|
)
|
|
$
|
(20,702
|
)
|
|
$
|
(34,202
|
)
|
|
$
|
(20,702
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment hedge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(355
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other comprehensive loss
|
|
|
(2,996
|
)
|
|
|
—
|
|
|
|
(3,351
|
)
|
|
|
—
|
|
Balance at end of period
|
|
$
|
(3,351
|
)
|
|
$
|
—
|
|
|
$
|
(3,351
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
3,817
|
|
|
$
|
5,786
|
|
|
$
|
2,508
|
|
|
$
|
6,509
|
|
Other comprehensive income (loss)
|
|
|
1,616
|
|
|
|
(901
|
)
|
|
|
3,314
|
|
|
|
(1,395
|
)
|
Amounts reclassified from AOCI
|
|
|
(3,748
|
)
|
|
|
(510
|
)
|
|
|
(4,137
|
)
|
|
|
(739
|
)
|
Balance at end of period
|
|
$
|
1,685
|
|
|
$
|
4,375
|
|
|
$
|
1,685
|
|
|
$
|
4,375
|
|
Net AOCL at end of period
|
|
$
|
(162,916
|
)
|
|
$
|
(177,254
|
)
|
|
$
|
(162,916
|
)
|
|
$
|
(177,254
|
)
|
Amounts reclassified from net AOCL related to foreign currency translation and available-for-sale securities are recorded in other income (expense), net in the Condensed Consolidated Statements of Operations and Comprehensive Income. Defined benefit plan amounts reclassified from net AOCL are included in the computation of net periodic benefit cost (income) and are primarily recorded in cost of sales and selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income.
Cash Flow Information
|
|
Six Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Income taxes, net of refunds
|
|
$
|
77,318
|
|
|
$
|
38,308
|
|
Interest
|
|
$
|
105,376
|
|
|
$
|
138,462
|
|
12
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, unless otherwise noted)
5. FINANCING
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
5.00% senior notes due March 2027
|
|
$
|
750,000
|
|
|
$
|
—
|
|
6.00% senior notes due June 2025
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
5.50% senior notes due June 2024
|
|
|
650,000
|
|
|
|
650,000
|
|
5.00% senior notes due June 2021
|
|
|
650,000
|
|
|
|
650,000
|
|
4.375% senior secured notes due June 2020
|
|
|
—
|
|
|
|
500,000
|
|
Senior secured term loan due December 2022
|
|
|
1,096,250
|
|
|
|
1,234,375
|
|
Senior secured term loan due January 2018
|
|
|
—
|
|
|
|
111,875
|
|
Senior secured revolving credit facility expires May 2020
|
|
|
—
|
|
|
|
—
|
|
Total principal amount of debt
|
|
$
|
4,646,250
|
|
|
$
|
4,646,250
|
|
Less: Original issue discount, net of amortization
|
|
|
(4,555
|
)
|
|
|
(5,857
|
)
|
Less: Debt issuance costs, net of amortization
|
|
|
(71,728
|
)
|
|
|
(78,383
|
)
|
Less: Current portion
|
|
|
—
|
|
|
|
(12,500
|
)
|
Total long-term debt
|
|
$
|
4,569,967
|
|
|
$
|
4,549,510
|
|
See Note 6 in the Notes to Consolidated Financial Statements in the 2016 Annual Report for additional information on the terms and conditions of the 6.00% senior notes (the 2025 Notes), the 5.50% senior notes (the 2024 Notes), the 5.00% senior notes (the 2021 Notes), the 4.375% senior secured notes (the 2020 Notes) and the senior secured term loans and credit facility.
5.00% Senior Notes Due 2027
In March 2017, CommScope Technologies LLC (CommScope Technologies), a wholly owned subsidiary of the Company, issued $750.0 million of 5.00% Senior Notes due March 15, 2027 (the 2027 Notes). Interest is payable on the 2027 Notes semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2017. The Company used the proceeds of the issuance of the 2027 Notes, together with cash on hand, to (i) redeem all of the 2020 Notes, (ii) repay a portion of the outstanding borrowings under its senior secured term loans, including all $111.9 million of outstanding principal on the senior secured term loan due 2018 and $138.1 million of outstanding principal on the senior secured term loan due 2022 (the 2022 Term Loan), and (iii) pay related fees and expenses. The redemption of the 2020 Notes resulted in a $14.8 million charge which is reflected in other income (expense), net. In connection with the redemption of the 2020 Notes and prepayments of the senior secured term loans, $9.6 million of debt issuance costs and original issue discount were written off and included in interest expense.
CommScope, Inc., a wholly owned subsidiary of the Company, and each of CommScope, Inc.’s existing and future domestic subsidiaries (other than CommScope Technologies) that guarantee the senior secured credit facilities also guarantees the 2027 Notes on a senior unsecured basis, subject to certain exceptions. The 2027 Notes rank senior in right of payment with all of CommScope Technologies’ and the guarantors’ future subordinated indebtedness and equally in right of payment with all of CommScope Technologies’ and the guarantors’ existing and future senior indebtedness, including the senior secured credit facilities, the 2025 Notes, the 2024 Notes and the 2021 Notes. The 2027 Notes and guarantees are effectively junior to all of CommScope Technologies’ and the guarantors’ existing and future secured indebtedness, including the senior secured credit facilities, to the extent of the value of the assets securing such secured indebtedness. In addition, the 2027 Notes are structurally subordinated to all existing and future liabilities (including trade payables) of CommScope, Inc.’s subsidiaries that do not guarantee the 2027 Notes, including indebtedness incurred by certain of CommScope, Inc.’s non-U.S. subsidiaries under the revolving credit facility.
The 2027 Notes may be redeemed prior to maturity under certain circumstances. Upon certain change of control events, the 2027 Notes may be redeemed at the option of the holders at 101% of their principal amount, plus accrued and unpaid interest. The 2027 Notes may be redeemed on or after March 15, 2022 at the redemption prices specified in the indenture governing the 2027 Notes. Prior to March 15, 2022, the 2027 Notes may be redeemed at a redemption price equal to 100% of the aggregate principal amount of the 2027 Notes to be redeemed, plus a make-whole premium (as specified in the indenture governing the 2027 Notes), plus accrued and unpaid interest. At any time prior to March 15, 2020, CommScope Technologies may also redeem up to 40% of the aggregate principal amount of the 2027 Notes at a redemption price of 105%, plus accrued and unpaid interest, using the proceeds of certain equity offerings.
13
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, unless otherwise noted)
In connection with issuing the 2027 Notes, the Company paid $7.2 million of debt issuance costs during the six months ended June 30, 2017, which was recorded as a reduction of the carrying amou
nt of the debt and is being amortized over the term of the notes.
Senior Secured Credit Facilities
During May 2017, the Company amended the 2022 Term Loan to reduce the interest rate margin. The interest rate is, at the Company’s option, either (1) the base rate (as described in the credit agreement, as amended) plus a margin of 1.00% or (2) one-, two-, three- or six-month LIBOR or, if available from all lenders, twelve-month LIBOR (selected at the Company’s option) plus a margin of 2.00%. Before the amendment, the margin on the interest rate with respect to base rate loans was 1.50% and with respect to LIBOR loans was 2.50%. The amendment also reduced the 1.75% base rate floor to 1.00% and eliminated the 0.75% LIBOR floor. The amendment resulted in the repayment of $30.4 million to certain lenders under the senior secured credit facilities and the receipt of $30.4 million in proceeds from new lenders and existing lenders who increased their positions. In conjunction with the amendment, the Company recorded $1.1 million of debt modification costs in other income (expense), net.
No portion of the senior secured term loan was reflected as a current portion of long-term debt as of June 30, 2017 related to the potentially required excess cash flow payment because the amount that may be payable in 2018, if any, cannot currently be reliably estimated. There was no excess cash flow payment required in 2017 related to 2016.
During the six months ended June 30, 2017, the Company did not borrow under its revolving credit facility. As of June 30, 2017, the Company had availability of approximately $474.2 million under the asset-based revolving credit facility, after giving effect to borrowing base limitations and outstanding letters of credit.
Other Matters
The following table summarizes scheduled maturities of long-term debt as of June 30, 2017 (in millions):
|
|
Remainder
of 2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
Thereafter
|
|
Scheduled maturities of long-term debt
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
650.0
|
|
|
$
|
3,996.3
|
|
The Company’s non-guarantor subsidiaries held $2,581 million, or 36%, of total assets and $583 million, or 10%, of total liabilities as of June 30, 2017 and accounted for $471 million, or 40%, and $911 million, or 39%, of net sales for the three and six months ended June 30, 2017, respectively. As of December 31, 2016, the non-guarantor subsidiaries held $2,211 million, or 31%, of total assets and $615 million, or 11%, of total liabilities. For the three and six months ended June 30, 2016, the non-guarantor subsidiaries accounted for approximately $560 million, or 43%, and $1,060 million, or $43%, of net sales, respectively. All amounts presented exclude intercompany balances.
The weighted average effective interest rate on outstanding borrowings, including the amortization of debt issuance costs and original issue discount, was 5.36% and 5.24% at June 30, 2017 and December 31, 2016, respectively.
6. DERIVATIVES AND HEDGING ACTIVITIES
Derivatives Not Designated As Hedging Instruments
The Company uses forward contracts to hedge a portion of its balance sheet foreign exchange re-measurement risk and to hedge certain planned foreign currency expenditures. As of June 30, 2017, the Company had foreign exchange contracts outstanding with maturities of up to twelve months and aggregate notional values of $359 million (based on exchange rates as of June 30, 2017). Unrealized gains and losses resulting from these contracts are recognized in other income (expense), net and partially offset corresponding foreign exchange gains and losses on the balances and expenditures being hedged. These instruments are not held for speculative or trading purposes and are not designated as hedges for hedge accounting and are marked to market each period through earnings.
14
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, unless otherwise noted)
The following table presents the balance sheet location and fair value of the Company’s derivatives not designated as hedgin
g instruments:
|
|
|
|
Fair Value of Asset (Liability)
|
|
|
|
Balance Sheet Location
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
Foreign currency contracts
|
|
Prepaid expenses and other current assets
|
|
$
|
8,452
|
|
|
$
|
289
|
|
Foreign currency contracts
|
|
Other accrued liabilities
|
|
|
(513
|
)
|
|
|
(8,349
|
)
|
Total derivatives not designated as
hedging instruments
|
|
|
|
$
|
7,939
|
|
|
$
|
(8,060
|
)
|
The pretax impact of these foreign currency forward contracts, both matured and outstanding, on the Condensed Consolidated Statements of Operations and Comprehensive Income is as follows:
Foreign Currency Forward Contracts
|
|
Location of Gain (Loss)
|
|
Gain (Loss)
Recognized
|
|
Three Months Ended June 30, 2017
|
|
Other income (expense), net
|
|
$
|
12,553
|
|
Three Months Ended June 30, 2016
|
|
Other income (expense), net
|
|
$
|
(7,953
|
)
|
Six Months Ended June 30, 2017
|
|
Other income (expense), net
|
|
$
|
14,409
|
|
Six Months Ended June 30, 2016
|
|
Other income (expense), net
|
|
$
|
(6,789
|
)
|
Derivative Instruments Designated As Net Investment Hedge
During 2017, the Company entered into foreign exchange forward contracts that are designated as net investment hedges and are intended to mitigate a portion of the foreign currency risk on the Euro net investment in a foreign subsidiary. As of June 30, 2017, the Company held forward contracts with outstanding maturities of six months and aggregate notional values of $75.0 million.
Hedge effectiveness is assessed each quarter based on the net investment in the foreign subsidiary designated as the hedged item and the overall changes in the fair value of the forward contracts. For hedges that meet the effectiveness requirements, changes in fair value are recorded as a component of other comprehensive income (loss), net of tax. Any change in fair value that is the result of ineffectiveness is recognized immediately in earnings. As of June 30, 2017, there was no ineffectiveness on the instruments designated as net investment hedges.
The following table presents the balance sheet location and fair value of the derivatives designated as net investment hedges:
|
|
|
|
Fair Value of Asset (Liability)
|
|
|
|
Balance Sheet Location
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
Foreign currency contracts
|
|
Prepaid expenses and other current assets
|
|
$
|
—
|
|
|
$
|
—
|
|
Foreign currency contracts
|
|
Other accrued liabilities
|
|
|
(5,405
|
)
|
|
|
—
|
|
Total derivatives designated as net
investment hedging instruments
|
|
|
|
$
|
(5,405
|
)
|
|
$
|
—
|
|
The after tax impact of the effective portion of the forward contracts designated as net investment hedging instruments on the Condensed Consolidated Statements of Operations and Comprehensive Income is as follows:
Foreign Currency Forward Contracts
|
|
Location of Loss
|
|
Effective Portion
of Loss
Recognized
|
|
Three Months Ended June 30, 2017
|
|
Other comprehensive income (loss), net of tax
|
|
$
|
(2,996
|
)
|
Three Months Ended June 30, 2016
|
|
Other comprehensive income (loss), net of tax
|
|
|
—
|
|
Six Months Ended June 30, 2017
|
|
Other comprehensive income (loss), net of tax
|
|
$
|
(3,351
|
)
|
Six Months Ended June 30, 2016
|
|
Other comprehensive income (loss), net of tax
|
|
|
—
|
|
15
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, unless otherwise noted)
7. FAIR VALUE MEASUREMENTS
The Company’s financial instruments consist primarily of cash and cash equivalents, trade receivables, trade payables, available-for-sale securities, debt instruments and foreign currency contracts. For cash and cash equivalents, trade receivables and trade payables, the carrying amounts of these financial instruments as of June 30, 2017 and December 31, 2016 were considered representative of their fair values due to their short terms to maturity. The fair value of the Company’s available-for-sale securities was based on quoted market prices. The fair values of the Company’s debt instruments and foreign currency contracts were based on indicative quotes.
Fair value measurements using quoted prices in active markets for identical assets and liabilities fall within Level 1 of the fair value hierarchy, measurements using significant other observable inputs fall within Level 2, and measurements using significant unobservable inputs fall within Level 3.
The carrying amounts, estimated fair values and valuation input levels of the Company’s available-for-sale securities, foreign currency contracts and debt instruments as of June 30, 2017 and December 31, 2016, are as follows:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Valuation
Inputs
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
$
|
3,258
|
|
|
$
|
3,258
|
|
|
$
|
5,212
|
|
|
$
|
5,212
|
|
|
Level 1
|
Foreign currency contracts
|
|
|
8,452
|
|
|
|
8,452
|
|
|
|
289
|
|
|
|
289
|
|
|
Level 2
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.00% senior notes due 2027
|
|
|
750,000
|
|
|
|
748,125
|
|
|
|
—
|
|
|
|
—
|
|
|
Level 2
|
6.00% senior notes due 2025
|
|
|
1,500,000
|
|
|
|
1,610,550
|
|
|
|
1,500,000
|
|
|
|
1,585,350
|
|
|
Level 2
|
5.50% senior notes due 2024
|
|
|
650,000
|
|
|
|
677,430
|
|
|
|
650,000
|
|
|
|
673,530
|
|
|
Level 2
|
5.00% senior notes due 2021
|
|
|
650,000
|
|
|
|
667,030
|
|
|
|
650,000
|
|
|
|
669,500
|
|
|
Level 2
|
4.375% senior secured notes due 2020
|
|
|
—
|
|
|
|
—
|
|
|
|
500,000
|
|
|
|
513,100
|
|
|
Level 2
|
Senior secured term loan due 2022, at par
|
|
|
1,096,250
|
|
|
|
1,105,815
|
|
|
|
1,234,375
|
|
|
|
1,245,145
|
|
|
Level 2
|
Senior secured term loan due 2018, at par
|
|
|
—
|
|
|
|
—
|
|
|
|
111,875
|
|
|
|
112,364
|
|
|
Level 2
|
Foreign currency contracts
|
|
|
5,918
|
|
|
|
5,918
|
|
|
|
8,349
|
|
|
|
8,349
|
|
|
Level 2
|
These fair value estimates are based on pertinent information available to management as of the valuation date. Although management is not aware of any factors that would significantly affect these fair value estimates, such amounts have not been comprehensively revalued for purposes of these financial statements since those dates, and current estimates of fair value may differ significantly from the amounts presented.
16
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, unless otherwise noted)
8. SEGMENTS AND GEOGRAPHIC
INFORMATION
The CommScope Connectivity Solutions (CCS) segment provides connectivity and network intelligence for indoor and outdoor network applications. Indoor network solutions are found in commercial buildings and in the network core, which includes data centers, central offices and cable television headends. These solutions include optical fiber and twisted pair structured cabling solutions, intelligent infrastructure software, network rack and cabinet enclosures, patch cords and panels, complete cabling systems and cable assemblies, central office connectivity and equipment and headend solutions for the network core. Outdoor network solutions are found in both local-area and wide-area networks and “last-mile” fiber-to-the-home installations. These solutions support the multichannel video, voice and high-speed data services provided by telecommunications operators and multi-system operators. The Company’s fiber optic connectivity solutions are primarily comprised of hardened connector systems, fiber distribution hubs and management systems, couplers and splitters, “plug and play” multiport service terminals, hardened optical terminating enclosures, high density cable assemblies, splices and splice closures.
The CommScope Mobility Solutions (CMS) segment provides merchant radio frequency (RF) wireless network connectivity solutions as well as metro cell, DAS and small cell solutions to enable carriers’ 2G, 3G and 4G networks and to begin to prepare for their 5G needs. These solutions enable wireless operators to increase spectral efficiency and enhance cellular coverage and capacity in challenging network conditions such as commercial buildings, urban areas, stadiums and transportation systems. The CMS segment focuses on all aspects of the radio access network (RAN) from the macro through the metro, to the indoor layer. Macro cell solutions can be found at wireless tower sites and on rooftops and include base station antennas, microwave antennas, hybrid fiber-feeder and power cables, coaxial cables, connectors and filters. Metro cell solutions can be found on street poles and on other urban, outdoor structures and include RF delivery and connectivity solutions, equipment housing and concealment. These fully integrated outdoor systems comprise specialized antennas, filters/combiners, backhaul solutions, intra-system cabling and power distribution, all minimized to fit an urban environment.
The following table provides summary financial information by reportable segment (in millions):
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Identifiable segment-related assets:
|
|
|
|
|
|
|
|
|
CCS
|
|
$
|
4,562.5
|
|
|
$
|
4,507.5
|
|
CMS
|
|
|
2,081.5
|
|
|
|
2,159.4
|
|
Total identifiable segment-related assets
|
|
|
6,644.0
|
|
|
|
6,666.9
|
|
Reconciliation to total assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
484.5
|
|
|
|
428.2
|
|
Deferred income tax assets
|
|
|
47.5
|
|
|
|
46.9
|
|
Total assets
|
|
$
|
7,176.0
|
|
|
$
|
7,142.0
|
|
17
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, unless otherwise noted)
The following table provides net sales, adjusted operating income, depreciation expense and additions to property, plant
and equipment by reportable segment (in millions):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCS
|
|
$
|
725.7
|
|
|
$
|
778.0
|
|
|
$
|
1,407.3
|
|
|
$
|
1,465.0
|
|
CMS
|
|
|
448.4
|
|
|
|
528.8
|
|
|
|
904.1
|
|
|
|
985.8
|
|
Consolidated net sales
|
|
$
|
1,174.1
|
|
|
$
|
1,306.8
|
|
|
$
|
2,311.4
|
|
|
$
|
2,450.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment adjusted operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCS
|
|
$
|
146.3
|
|
|
$
|
168.5
|
|
|
$
|
261.6
|
|
|
$
|
303.3
|
|
CMS
|
|
|
96.1
|
|
|
|
122.5
|
|
|
|
198.1
|
|
|
|
199.1
|
|
Total segment adjusted operating income
|
|
|
242.4
|
|
|
|
291.0
|
|
|
|
459.7
|
|
|
|
502.4
|
|
Amortization of intangible assets
|
|
|
67.0
|
|
|
|
76.0
|
|
|
|
134.6
|
|
|
|
149.6
|
|
Restructuring costs, net
|
|
|
13.8
|
|
|
|
7.6
|
|
|
|
19.2
|
|
|
|
13.7
|
|
Equity-based compensation
|
|
|
11.2
|
|
|
|
9.4
|
|
|
|
20.6
|
|
|
|
18.2
|
|
Asset impairments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15.3
|
|
Integration and transaction costs
|
|
|
12.6
|
|
|
|
14.5
|
|
|
|
26.2
|
|
|
|
30.4
|
|
Purchase accounting adjustments
|
|
|
—
|
|
|
|
(0.4
|
)
|
|
|
—
|
|
|
|
0.6
|
|
Consolidated operating income
|
|
$
|
137.8
|
|
|
$
|
183.9
|
|
|
$
|
259.1
|
|
|
$
|
274.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCS
|
|
$
|
14.5
|
|
|
$
|
13.7
|
|
|
$
|
28.9
|
|
|
$
|
26.6
|
|
CMS
|
|
|
5.7
|
|
|
|
6.7
|
|
|
|
11.3
|
|
|
|
13.4
|
|
Consolidated depreciation expense
|
|
$
|
20.2
|
|
|
$
|
20.4
|
|
|
$
|
40.2
|
|
|
$
|
40.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCS
|
|
$
|
11.7
|
|
|
$
|
14.4
|
|
|
$
|
20.5
|
|
|
$
|
25.5
|
|
CMS
|
|
|
6.0
|
|
|
|
3.3
|
|
|
|
10.1
|
|
|
|
6.7
|
|
Consolidated additions to property, plant and equipment
|
|
$
|
17.7
|
|
|
$
|
17.7
|
|
|
$
|
30.6
|
|
|
$
|
32.2
|
|
Sales to customers located outside of the United States comprised 45.2% and 44.1% of total net sales for the three and six months ended June 30, 2017, respectively, compared to 45.7% and 47.0% for the three and six months ended June 30, 2016, respectively. Sales by geographic region, based on the destination of product shipments, were as follows (in millions):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
United States
|
|
$
|
643.9
|
|
|
$
|
710.2
|
|
|
$
|
1,292.2
|
|
|
$
|
1,299.0
|
|
Europe, Middle East and Africa
|
|
|
235.8
|
|
|
|
241.2
|
|
|
|
467.6
|
|
|
|
459.5
|
|
Asia Pacific
|
|
|
203.8
|
|
|
|
249.6
|
|
|
|
385.7
|
|
|
|
490.3
|
|
Central and Latin America
|
|
|
56.1
|
|
|
|
76.9
|
|
|
|
114.9
|
|
|
|
143.2
|
|
Canada
|
|
|
34.5
|
|
|
|
28.9
|
|
|
|
51.0
|
|
|
|
58.8
|
|
Consolidated net sales
|
|
$
|
1,174.1
|
|
|
$
|
1,306.8
|
|
|
$
|
2,311.4
|
|
|
$
|
2,450.8
|
|
18
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, unless otherwise noted)
9. RESTRUCTURING COSTS
Prior to the acquisition of the BNS business in 2015, the Company initiated restructuring actions to realign and lower its cost structure primarily through workforce reductions and other cost reduction initiatives, including the cessation of manufacturing operations at various facilities. Production capacity from these facilities has been shifted to other existing facilities or unaffiliated suppliers. These actions are referred to as cost alignment restructuring actions. Following the acquisition of BNS, the Company initiated a series of restructuring actions, which are currently ongoing, to integrate the BNS operations (BNS integration restructuring actions) to achieve cost synergies. All charges related to these restructuring actions are reported in restructuring costs, net.
The Company’s net pretax restructuring charges, by segment, were as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
CCS
|
|
$
|
9,596
|
|
|
$
|
6,591
|
|
|
$
|
14,352
|
|
|
$
|
7,700
|
|
CMS
|
|
|
4,177
|
|
|
|
1,014
|
|
|
|
4,809
|
|
|
|
5,977
|
|
Total
|
|
$
|
13,773
|
|
|
$
|
7,605
|
|
|
$
|
19,161
|
|
|
$
|
13,677
|
|
The liability for restructuring actions is composed of employee-related costs, lease termination costs and fixed asset related costs. Employee-related costs include the expected severance costs and related benefits as well as one-time severance benefits that are accrued over the remaining period employees are required to work in order to receive such benefits. Lease termination costs relate to the discounted cost of unused leased facilities, net of anticipated sub-rental income. Fixed asset related costs include non-cash impairments or fixed asset disposals associated with restructuring actions in addition to the cash costs to uninstall, pack, ship and reinstall manufacturing equipment and the costs to prepare the receiving facility to accommodate relocated equipment. Fixed asset related costs are expensed as incurred. Cash paid is net of proceeds received from the sale of related assets.
As a result of restructuring and consolidation actions, the Company owns unutilized real estate at various facilities in the U.S. and internationally. The Company is attempting to sell or lease this unutilized space. Additional impairment charges may be incurred related to these or other excess assets.
The activity within the liability established for the cost alignment restructuring actions was as follows:
|
|
Employee-
Related
Costs
|
|
|
Lease
Termination
Costs
|
|
|
Fixed Asset
Related
Costs
|
|
|
Total
|
|
Balance at March 31, 2017
|
|
$
|
315
|
|
|
$
|
5,874
|
|
|
$
|
—
|
|
|
$
|
6,189
|
|
Additional charge (credit) recorded
|
|
|
—
|
|
|
|
(306
|
)
|
|
|
—
|
|
|
|
(306
|
)
|
Cash paid
|
|
|
—
|
|
|
|
(249
|
)
|
|
|
—
|
|
|
|
(249
|
)
|
Consideration received
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Foreign exchange and other non-cash items
|
|
|
44
|
|
|
|
—
|
|
|
|
—
|
|
|
|
44
|
|
Balance at June 30, 2017
|
|
$
|
359
|
|
|
$
|
5,319
|
|
|
$
|
—
|
|
|
$
|
5,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
311
|
|
|
$
|
6,050
|
|
|
$
|
—
|
|
|
$
|
6,361
|
|
Additional charge (credit) recorded
|
|
|
—
|
|
|
|
(233
|
)
|
|
|
—
|
|
|
|
(233
|
)
|
Cash paid
|
|
|
—
|
|
|
|
(498
|
)
|
|
|
—
|
|
|
|
(498
|
)
|
Consideration received
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Foreign exchange and other non-cash items
|
|
|
48
|
|
|
|
—
|
|
|
|
—
|
|
|
|
48
|
|
Balance at June 30, 2017
|
|
$
|
359
|
|
|
$
|
5,319
|
|
|
$
|
—
|
|
|
$
|
5,678
|
|
The Company has recognized restructuring charges of $88.8 million since January 2011 for cost alignment restructuring actions. Additional pretax costs of up to $1.0 million are expected to be incurred to complete these previously announced initiatives. Cash payments of $1.0 million to $1.5 million are expected during the remainder of 2017 with additional payments of $4.5 million to $5.0 million between 2018 and 2022.
19
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, unless otherwise noted)
The activity within the liability established for the BNS integration restructuring actions was as follows:
|
|
Employee-
Related
Costs
|
|
|
Lease
Termination
Costs
|
|
|
Fixed Asset
Related
Costs
|
|
|
Total
|
|
Balance at March 31, 2017
|
|
$
|
29,063
|
|
|
$
|
565
|
|
|
$
|
—
|
|
|
$
|
29,628
|
|
Additional charge (credit) recorded
|
|
|
13,267
|
|
|
|
418
|
|
|
|
394
|
|
|
|
14,079
|
|
Cash paid
|
|
|
(10,989
|
)
|
|
|
(142
|
)
|
|
|
(306
|
)
|
|
|
(11,437
|
)
|
Consideration received
|
|
|
—
|
|
|
|
—
|
|
|
|
2,519
|
|
|
|
2,519
|
|
Foreign exchange and other non-cash items
|
|
|
39
|
|
|
|
—
|
|
|
|
(2,607
|
)
|
|
|
(2,568
|
)
|
Balance at June 30, 2017
|
|
$
|
31,380
|
|
|
$
|
841
|
|
|
$
|
—
|
|
|
$
|
32,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
32,740
|
|
|
$
|
371
|
|
|
$
|
—
|
|
|
$
|
33,111
|
|
Additional charge (credit) recorded
|
|
|
18,240
|
|
|
|
705
|
|
|
|
449
|
|
|
|
19,394
|
|
Cash paid
|
|
|
(19,686
|
)
|
|
|
(235
|
)
|
|
|
(525
|
)
|
|
|
(20,446
|
)
|
Consideration received
|
|
|
—
|
|
|
|
—
|
|
|
|
2,683
|
|
|
|
2,683
|
|
Foreign exchange and other non-cash items
|
|
|
86
|
|
|
|
—
|
|
|
|
(2,607
|
)
|
|
|
(2,521
|
)
|
Balance at June 30, 2017
|
|
$
|
31,380
|
|
|
$
|
841
|
|
|
$
|
—
|
|
|
$
|
32,221
|
|
The BNS integration actions include the announced closures or reduction in activities at various U.S. and international facilities as well as headcount reductions in sales, marketing and administrative functions. The Company has recognized restructuring charges of $85.9 million since the BNS acquisition for integration actions. No significant additional restructuring charges are expected to be incurred to complete the previously announced BNS integration initiatives. Cash payments of $13.5 million to $14.0 million are expected during the remainder of 2017 with additional payments of $18.5 million to $19.0 million between 2018 and 2020. Future BNS integration activities are expected to be identified and the resulting amounts may be material.
Restructuring reserves related to all actions were included in the Company’s Condensed Consolidated Balance Sheets as follows:
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
Other accrued liabilities
|
|
$
|
29,756
|
|
|
$
|
30,438
|
|
Other noncurrent liabilities
|
|
|
8,143
|
|
|
|
9,034
|
|
Total liability
|
|
$
|
37,899
|
|
|
$
|
39,472
|
|
20
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, unless otherwise noted)
10. EMPLOYEE BENEFIT PLANS
|
|
Pension Benefits
|
|
|
Other Postretirement Benefits
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
U.S. Plans
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Service cost
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,197
|
|
|
$
|
1,596
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Interest cost
|
|
|
1,490
|
|
|
|
1,620
|
|
|
|
1,312
|
|
|
|
1,745
|
|
|
|
67
|
|
|
|
135
|
|
Recognized actuarial loss (gain)
|
|
|
164
|
|
|
|
236
|
|
|
|
378
|
|
|
|
28
|
|
|
|
(198
|
)
|
|
|
(346
|
)
|
Amortization of prior service credit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,034
|
)
|
|
|
(1,055
|
)
|
Expected return on plan assets
|
|
|
(1,687
|
)
|
|
|
(1,750
|
)
|
|
|
(1,877
|
)
|
|
|
(2,286
|
)
|
|
|
—
|
|
|
|
—
|
|
Net periodic benefit cost (income)
|
|
$
|
(33
|
)
|
|
$
|
106
|
|
|
$
|
1,010
|
|
|
$
|
1,083
|
|
|
$
|
(1,165
|
)
|
|
$
|
(1,265
|
)
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
U.S. Plans
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Service cost
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,361
|
|
|
$
|
3,192
|
|
|
$
|
—
|
|
|
$
|
2
|
|
Interest cost
|
|
|
2,980
|
|
|
|
3,240
|
|
|
|
2,583
|
|
|
|
3,496
|
|
|
|
134
|
|
|
|
270
|
|
Recognized actuarial loss (gain)
|
|
|
328
|
|
|
|
472
|
|
|
|
745
|
|
|
|
56
|
|
|
|
(396
|
)
|
|
|
(692
|
)
|
Amortization of prior service credit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,068
|
)
|
|
|
(2,110
|
)
|
Expected return on plan assets
|
|
|
(3,374
|
)
|
|
|
(3,500
|
)
|
|
|
(3,696
|
)
|
|
|
(4,580
|
)
|
|
|
—
|
|
|
|
—
|
|
Net periodic benefit cost (income)
|
|
$
|
(66
|
)
|
|
$
|
212
|
|
|
$
|
1,993
|
|
|
$
|
2,164
|
|
|
$
|
(2,330
|
)
|
|
$
|
(2,530
|
)
|
The Company contributed $0.8 million and $1.6 million to its defined benefit pension plans and postretirement benefit plans during the three and six months ended June 30, 2017, respectively. During the remainder of 2017, the Company anticipates making additional contributions of approximately $7.0 million to its defined benefit plans.
11. STOCKHOLDERS’ EQUITY
Stock Repurchase Program
On February 23, 2017, the Company announced its Board of Directors had authorized the repurchase of up to $100.0 million of the Company’s outstanding common stock. During the six months ended June 30, 2017, the Company repurchased $100.0 million of its common stock, or 2.5 million shares at an average cost of $40.23 per share. The Company had no remaining authorization under this stock repurchase program as of June 30, 2017.
Equity-Based Compensation Plans
As of June 30, 2017, $84.5 million of unrecognized compensation costs related to unvested stock options, restricted stock units (RSUs) and performance share units (PSUs) are expected to be recognized over a remaining weighted average period of 1.5 years. There were no significant capitalized equity-based compensation costs at June 30, 2017.
21
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, unless otherwise noted)
The following table shows a summary of the equity-based compensation expense
included in the Condensed Consolidated Statements of Operations and Comprehensive Income:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Selling, general and administrative
|
|
$
|
8,517
|
|
|
$
|
7,178
|
|
|
$
|
15,676
|
|
|
$
|
13,894
|
|
Cost of sales
|
|
|
1,418
|
|
|
|
1,255
|
|
|
|
2,615
|
|
|
|
2,447
|
|
Research and development
|
|
|
1,251
|
|
|
|
978
|
|
|
|
2,307
|
|
|
|
1,905
|
|
Total equity-based compensation expense
|
|
$
|
11,186
|
|
|
$
|
9,411
|
|
|
$
|
20,598
|
|
|
$
|
18,246
|
|
Stock Options
Stock options are awards that allow the recipient to purchase shares of the Company’s common stock at a fixed price. Stock options are granted at an exercise price equal to the Company’s stock price at the date of grant. These awards generally vest over one to three years following the grant date and have a contractual term of ten years.
The following table summarizes the stock option activity (in thousands, except per share data):
|
|
Shares
|
|
|
Weighted
Average Option
Exercise Price
Per Share
|
|
|
Weighted
Average Remaining Contractual Term in Years
|
|
|
Aggregate
Intrinsic Value
|
|
Options outstanding at March 31, 2017
|
|
|
5,404
|
|
|
$
|
12.65
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3
|
|
|
$
|
42.32
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(385
|
)
|
|
$
|
6.65
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(32
|
)
|
|
$
|
28.16
|
|
|
|
|
|
|
|
|
|
Options outstanding at June 30, 2017
|
|
|
4,990
|
|
|
$
|
13.03
|
|
|
|
4.7
|
|
|
$
|
124,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2016
|
|
|
5,497
|
|
|
$
|
10.33
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
484
|
|
|
$
|
38.00
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(921
|
)
|
|
$
|
9.24
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(70
|
)
|
|
$
|
23.83
|
|
|
|
|
|
|
|
|
|
Options outstanding at June 30, 2017
|
|
|
4,990
|
|
|
$
|
13.03
|
|
|
|
4.7
|
|
|
$
|
124,780
|
|
Options exercisable at June 30, 2017
|
|
|
4,075
|
|
|
$
|
8.50
|
|
|
|
3.8
|
|
|
$
|
120,313
|
|
Options expected to vest at June 30, 2017
|
|
|
915
|
|
|
$
|
33.16
|
|
|
|
8.9
|
|
|
$
|
4,467
|
|
The exercise prices of outstanding options at June 30, 2017 were in the following ranges:
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of Exercise Prices
|
|
Shares
(in thousands)
|
|
|
Weighted Average
Remaining
Contractual Life
(in years)
|
|
|
Weighted
Average Exercise
Price Per Share
|
|
|
Shares
(in thousands)
|
|
|
Weighted
Average Exercise
Price Per Share
|
|
$2.96 to $5.35
|
|
|
337
|
|
|
|
1.7
|
|
|
$
|
2.96
|
|
|
|
337
|
|
|
$
|
2.96
|
|
$5.36 to $5.67
|
|
|
99
|
|
|
|
4.6
|
|
|
$
|
5.57
|
|
|
|
99
|
|
|
$
|
5.57
|
|
$5.68 to $8.54
|
|
|
2,277
|
|
|
|
3.6
|
|
|
$
|
5.74
|
|
|
|
2,277
|
|
|
$
|
5.74
|
|
$8.55 to $8.90
|
|
|
888
|
|
|
|
2.9
|
|
|
$
|
8.59
|
|
|
|
888
|
|
|
$
|
8.59
|
|
$8.91 to $23.00
|
|
|
186
|
|
|
|
6.6
|
|
|
$
|
22.88
|
|
|
|
186
|
|
|
$
|
22.88
|
|
$23.01 to $42.32
|
|
|
1,203
|
|
|
|
8.7
|
|
|
$
|
31.99
|
|
|
|
288
|
|
|
$
|
28.25
|
|
$2.96 to $42.32
|
|
|
4,990
|
|
|
|
4.7
|
|
|
$
|
13.03
|
|
|
|
4,075
|
|
|
$
|
8.50
|
|
22
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, unless otherwise noted)
The Company uses the Black-Scholes model to estimate the fair value of stock option awards at the date of grant. Key inputs and assumptions
used in the model include the grant date fair value of common stock, exercise price of the award, the expected option term, stock price volatility, the risk-free interest rate and the Company’s projected dividend yield. The risk-free interest rate reflects
the yield on zero-coupon U.S. treasury securities with a term equal to the option’s expected term. The expected life represents the period over which the Company’s employees are expected to hold their options. Expected volatility is derived based on the h
istorical Company volatility, as well as volatilities from publicly traded companies operating in the Company’s industry. The Company’s projected dividend yield is zero. The Company believes that the valuation technique and the approach utilized to develop
the underlying assumptions are appropriate in estimating the fair values of its stock options. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards. Subsequent eve
nts are not indicative of the reasonableness of the original estimates of fair value made by the Company.
The following table presents the weighted average assumptions used to estimate the fair value of stock option awards granted during the three and six months ended June 30, 2017 and 2016.
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
2017
|
|
|
2016
|
|
Expected option term (in years)
|
|
|
6.0
|
|
|
*
|
|
|
6.0
|
|
|
|
6.0
|
|
Risk-free interest rate
|
|
|
2.0
|
%
|
|
*
|
|
|
2.0
|
%
|
|
|
1.4
|
%
|
Expected volatility
|
|
|
40.0
|
%
|
|
*
|
|
|
40.0
|
%
|
|
|
50.0
|
%
|
Weighted average exercise price
|
|
$
|
42.32
|
|
|
*
|
|
$
|
38.00
|
|
|
$
|
24.94
|
|
Weighted average fair value at grant date
|
|
$
|
17.48
|
|
|
*
|
|
$
|
15.72
|
|
|
$
|
12.03
|
|
*
No stock options were granted during the three months ended June 30, 2016.
Restricted Stock Units
RSUs entitle the holder to shares of common stock after a vesting period that generally ranges from one to three years. The fair value of the awards is determined on the grant date based on the Company’s stock price.
The following table summarizes the RSU activity (in thousands, except per share data):
|
|
Restricted Stock
Units
|
|
|
Weighted
Average Grant
Date Fair Value
Per Share
|
|
Non-vested RSUs at March 31, 2017
|
|
|
2,495
|
|
|
$
|
31.65
|
|
Granted
|
|
|
33
|
|
|
$
|
36.09
|
|
Vested and shares issued
|
|
|
(33
|
)
|
|
$
|
29.45
|
|
Forfeited
|
|
|
(73
|
)
|
|
$
|
30.55
|
|
Non-vested RSUs at June 30, 2017
|
|
|
2,422
|
|
|
$
|
31.77
|
|
|
|
|
|
|
|
|
|
|
Non-vested RSUs at December 31, 2016
|
|
|
2,519
|
|
|
$
|
26.37
|
|
Granted
|
|
|
1,124
|
|
|
$
|
37.91
|
|
Vested and shares issued
|
|
|
(1,089
|
)
|
|
$
|
26.09
|
|
Forfeited
|
|
|
(132
|
)
|
|
$
|
27.91
|
|
Non-vested RSUs at June 30, 2017
|
|
|
2,422
|
|
|
$
|
31.77
|
|
23
CommScope Holding Company, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, unless otherwise noted)
Performance Share Units
PSUs are stock awards in which the number of shares ultimately received by the employee depends on Company performance against specified targets. Such awards typically vest over three years and the number of shares issued can vary from 0% to 150% of the number of PSUs granted, depending on performance. The fair value of each PSU is determined on the date of grant based on the Company’s stock price. The ultimate number of shares issued and the related compensation cost recognized will be based on the final performance metrics compared to the targets specified in the grants.
The following table summarizes the PSU activity (in thousands, except per share data):
|
|
Performance
Share Units
|
|
|
Weighted
Average Grant
Date Fair Value
Per Share
|
|
Non-vested PSUs at March 31, 2017
|
|
|
571
|
|
|
$
|
30.19
|
|
Granted
|
|
|
1
|
|
|
$
|
42.32
|
|
Vested and shares issued
|
|
|
-
|
|
|
$
|
-
|
|
Forfeited
|
|
|
(13
|
)
|
|
$
|
25.40
|
|
Non-vested PSUs at June 30, 2017
|
|
|
559
|
|
|
$
|
30.32
|
|
|
|
|
|
|
|
|
|
|
Non-vested PSUs at December 31, 2016
|
|
|
445
|
|
|
$
|
26.68
|
|
Granted
|
|
|
200
|
|
|
$
|
38.00
|
|
Vested and shares issued
|
|
|
(64
|
)
|
|
$
|
30.76
|
|
Forfeited
|
|
|
(22
|
)
|
|
$
|
25.22
|
|
Non-vested PSUs at June 30, 2017
|
|
|
559
|
|
|
$
|
30.32
|
|
12. SUBSEQUENT EVENTS
On August 1, 2017, the Company acquired Cable Exchange, a quick-turn supplier of fiber optic and copper assemblies for data, voice and video communications, for approximately $120 million. Cable Exchange will operate within the CCS segment. The acquisition was funded with cash on hand.
On August 2, 2017, the Company’s Board of Directors approved a new stock repurchase plan of up to $100 million. Any share repurchases under this authorization will be made in accordance with applicable securities laws in either open market or privately negotiated transactions. The authorization does not obligate the Company to acquire any particular amount of its common stock and expires July 31, 2018. The repurchase program may be extended, modified, suspended or discontinued at any time.
24