COMMSCOPE HOLDING COMPANY, INC. The following narrative is an analysis of the three and six months endedJune 30, 2022 compared to the three and six months endedJune 30, 2021 . The discussion is provided to increase the understanding of, and should be read in conjunction with, the unaudited condensed consolidated financial statements and accompanying notes included in this report as well as the audited consolidated financial statements, related notes thereto and management's discussion and analysis of financial condition and results of operations, including management's discussion and analysis regarding the application of critical accounting policies and the risk factors in our Annual Report on Form 10-K for the year endedDecember 31, 2021 (2021 Annual Report). We discuss certain financial measures in management's discussion and analysis of financial condition and results of operations, including adjusted EBITDA, that differ from measures calculated in accordance with generally accepted accounting principles (GAAP) inthe United States (U.S. ). See "Reconciliation of Non-GAAP Measures" included elsewhere in this quarterly report for more information about these non-GAAP financial measures, including our reasons for including the measures and material limitations with respect to the usefulness of the measures.
Overview
We are a global provider of infrastructure solutions for communication and entertainment networks. Our solutions for wired and wireless networks enable service providers including cable, telephone and digital broadcast satellite operators and media programmers to deliver media, voice, Internet Protocol (IP) data services and Wi-Fi to their subscribers and allow enterprises to experience constant wireless and wired connectivity across complex and varied networking environments. Our solutions are complemented by a broad array of services including technical support, systems design and integration. We are a leader in digital video and IP television distribution systems, broadband access infrastructure platforms and equipment that delivers data and voice networks to homes. Our global leadership position is built upon innovative technology, broad solution offerings, high-quality and cost-effective customer solutions, and global manufacturing and distribution scale. In 2021, we announced a transformation initiative called CommScope NEXT designed to drive shareholder value through three pillars: profitable growth, operational efficiency and portfolio optimization. We believe these efforts are critical to making us more competitive and allowing us to invest in growth and maximize stockholder and stakeholder value. We incurred$38.5 million and$50.6 million of restructuring costs and$14.9 million and$30.5 million of transaction, transformation and integration costs during the three and six months endedJune 30, 2022 , respectively. During the three and six months endedJune 30, 2021 , we incurred$58.9 million and$103.3 million , respectively, of restructuring costs and$21.0 million and$36.7 million , respectively, of transaction, transformation and integration costs. These costs were primarily related to CommScope NEXT. We expect to continue to incur restructuring costs and transaction, transformation and integration costs related to CommScope NEXT and such costs could be material. As a step to optimize our portfolio through CommScope NEXT, as ofJanuary 1, 2022 , we reorganized our internal management and reporting structure to align our portfolio of products and solutions more closely with the markets we serve and bring better performance clarity with our competitive peer set. The reorganization changed the information regularly reviewed by our chief operating decision maker for purposes of allocating resources and assessing performance. As a result, we are now reporting financial performance based on the following operating segments: Connectivity and Cable Solutions (CCS),Outdoor Wireless Networks (OWN), Networking, Intelligent Cellular and Security Solutions (NICS), Access Network Solutions (ANS) and Home Networks (Home). Prior to this change, we operated and reported four operating segments: Broadband Networks (Broadband), Outdoor Wireless Networks (OWN), Venue and Campus Networks (VCN) and Home Networks (Home). The Home segment was unchanged in this realignment. All prior period amounts have been recast to reflect these operating segment changes. Also as a step in our CommScope NEXT transformation plan, in 2021, we announced a plan to separate the Home Networks business via a spin-off transaction. Due to the impact of the uncertain supply chain environment on the Home Networks business, we have delayed our separation plan, but we continue to analyze the financial results of our "Core" business separately from Home. As such, below we refer to certain supplementary Core financial measures, which reflect the results of our CCS, OWN, NICS and ANS segments in the aggregate. See the Segment Results section below for the aggregation of our Core financial measures. 24 --------------------------------------------------------------------------------
Impacts of Supply Chain Constraints
The impact of the COVID-19 pandemic and measures taken to contain its spread remain dynamic. We continue to monitor the situation, particularly the impacts of new variants and resurgences in countries in which we do business, and actively assess further implications for our business, supply chain and customer demand. In the second quarter of 2022, we reopened most of our offices across the globe, but we continue to take meaningful precautions in accordance with relevant guidelines to protect the health and safety of our employees. Variants continue to emerge, efforts to mitigate or contain the impacts of the pandemic continue to evolve and the duration and severity of the impact of the pandemic on our business and results of operations in future periods remain uncertain. As in many industries, we have seen the negative impacts of COVID-19 recede and a recovery in demand for our products over the past year, but this has created negative indirect consequences such as inflation, shortages in materials and components and increased logistics costs. Prices for certain commodities that we use such as aluminum, copper, steel, silicon, fluoropolymers and certain other polymers have experienced significant volatility as a result of changes in the levels of global demand, supply disruptions, including port, transportation and distribution delays or interruptions, and other factors. As a result, we have seen a significant increase in costs that has negatively impacted our results of operations. We are also experiencing limited supply of memory devices, capacitors and silicon chips, which has increased our costs and has impacted our ability to deliver on a timely basis due to extended lead times. We are trying to mitigate our increasing component and logistics costs by implementing higher prices on our products and services. We are also mitigating certain shortages by purchasing components in advance and maintaining higher levels of inventory or finding alternate vendors for some components. We believe the global supply chain challenges and their adverse impact on our business and financial results will ease in the second half of 2022 but certain shortages are expected to continue for the remainder of 2022 and possibly into 2023.
For more discussion of the risks related to COVID-19 and the supply chain environment, see Part I, Item 1A, "Risk Factors" in our 2021 Annual Report.
25
--------------------------------------------------------------------------------CRITICAL ACCOUNTING POLICIES
There have been no changes in our critical accounting policies as disclosed in our 2021 Annual Report.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED
Three Months Ended
June 30,
2022 2021
% of Net % of Net %
Amount Sales Amount Sales Change Change
(dollars in millions, except per share amounts)
Net sales $ 2,300.2 100.0 % $ 2,185.3 100.0 % $ 114.9 5.3 %
Core net sales (1) 1,876.3 81.6 1,728.8 79.1 147.5 8.5
Gross profit 683.2 29.7 673.3 30.8 9.9 1.5
Operating income (loss) 63.1 2.7 (18.4 ) (0.8 ) 81.5 NM
Core operating income (1) 85.8 4.6 35.0 2.0 50.8 145.1
Non-GAAP adjusted EBITDA (2) 299.6 13.0 307.7 14.1 (8.1 ) (2.6 )
Core adjusted EBITDA (1) 286.8 15.3 293.1 17.0 (6.3 ) (2.1 )
Net loss (61.0 ) (2.7 ) (153.8 ) (7.0 ) 92.8 (60.3 )
Diluted loss per share $ (0.36 ) $ (0.82 ) $ 0.46 (56.1 )
Six Months Ended
June 30,
2022 2021
% of Net % of Net %
Amount Sales Amount Sales Change Change
(dollars in millions, except per share amounts)
Net sales $ 4,528.8 100.0 % $ 4,257.3 100.0 % $ 271.5 6.4 %
Core net sales (1) 3,609.2 79.7 3,299.8 77.5 309.4 9.4
Gross profit 1,319.5 29.1 1,345.5 31.6 (26.0 ) (1.9 )
Operating income (loss) 89.9 2.0 (9.5 ) (0.2 ) 99.4 NM
Core operating income (1) 126.4 3.5 75.4 2.3 51.0 67.6
Non-GAAP adjusted EBITDA (2) 552.9 12.2 597.4 14.0 (44.5 ) (7.4 )
Core adjusted EBITDA (1) 516.8 14.3 563.3 17.1 (46.5 ) (8.3 )
Net loss (200.9 ) (4.4 ) (251.4 ) (5.9 ) 50.5 (20.1 )
Diluted loss per share $ (1.11 ) $ (1.38 ) $ 0.27 (19.6 )
(1)
Core financial measures reflect the results of our CCS, OWN, NICS and ANS
segments, in the aggregate. Core financial measures exclude the results of our
Home segment. See the Segment Results section below for illustration of the
aggregation of our Core financial measures.
(2)
See "Reconciliation of Non-GAAP Measures."
Net sales
Three Months Ended Six Months Ended
June 30, % June 30, %
2022 2021 Change Change 2022 2021 Change Change
(dollars in millions)
Net sales $ 2,300.2 $ 2,185.3 $ 114.9 5.3 % $ 4,528.8 $ 4,257.3 $ 271.5 6.4 %
Domestic 1,424.3 1,254.2 170.1 13.6 2,771.4 2,446.1 325.3 13.3
International 875.9 931.1 (55.2 ) (5.9 ) 1,757.4 1,811.2 (53.8 ) (3.0 )
26
-------------------------------------------------------------------------------- Net sales for the three and six months endedJune 30, 2022 increased$114.9 million , or 5.3%, and$271.5 million , or 6.4%, respectively, compared to the prior year periods driven by higher pricing but partially offset by lower volumes. Core net sales for the three and six months endedJune 30, 2022 increased$147.5 million , or 8.5%, and$309.4 million , or 9.4%, respectively, compared to the prior year periods. The increase in core net sales for the three months endedJune 30, 2022 was driven by increases of$203.3 million in the CCS segment and$30.8 million in the OWN segment, partially offset by decreases of$68.3 million in the ANS segment and$18.3 million in the NICS segment. The increase in core net sales for the six months endedJune 30, 2022 was driven by increases of$364.4 million in the CCS segment and$96.7 million in the OWN segment, partially offset by decreases of$130.2 million in the ANS segment and$21.5 million in the NICS segment. For the three and six months endedJune 30, 2022 , net sales in the Home segment decreased$32.6 million and$37.9 million , respectively, compared to the prior year periods. We continued to experience supply shortages and extended lead times for certain materials that negatively affected our ability to meet customer demand for certain of our products during the three and six months endedJune 30, 2022 . We expect these shortages and delays to improve for certain components during the second half of the year but we may still experience shortages and delays for certain other components for the remainder of 2022 and into 2023. For further details by segment, see the discussion of Segment Results below. From a regional perspective, for the three months endedJune 30, 2022 compared to the prior year period, net sales increased in theU.S. by$170.1 million andCanada by$36.1 million , but these increases were partially offset by decreases in theCaribbean and Latin American (CALA) region of$39.9 million , theEurope ,Middle East andAfrica (EMEA) region of$30.4 million and theAsia Pacific (APAC) region of$21.0 million . For the six months endedJune 30, 2022 compared to the prior year period, net sales increased in theU.S. by$325.3 million andCanada by$68.6 million but these increases were partially offset by decreases in the CALA region of$69.7 million , the APAC region of$43.0 million and the EMEA region by$9.7 million . Foreign exchange rate changes impacted net sales unfavorably by approximately 2% and 1% for the three and six months endedJune 30, 2022 , respectively, compared to the same prior year periods. Net sales to customers located outside of theU.S. comprised 38.1% and 38.8% of total net sales for the three and six months endedJune 30, 2022 , respectively, compared to 42.6% and 42.5% for the three and six months endedJune 30, 2021 , respectively.
For additional information on regional sales by segment, see the discussion of Segment Results below and Note 7 in the Notes to Unaudited Condensed Consolidated Financial Statements included herein.
Gross profit, SG&A expense and R&D expense
Three Months Ended Six Months Ended
June 30, % June 30, %
2022 2021 Change Change 2022 2021 Change Change
(dollars in millions)
Gross profit
29.7 % 30.8 % 29.1 % 31.6 %
SG&A expense 277.2 302.3 (25.1 ) (8.3 ) 563.2 595.0 (31.8 ) (5.3 )
As a percent
of sales 12.1 % 13.8 % 12.4 % 14.0 %
R&D expense 165.4 176.3 (10.9 ) (6.2 ) 336.1 347.8 (11.7 ) (3.4 )
As a percent
of sales 7.2 % 8.1 % 7.4 % 8.2 %
Gross profit (net sales less cost of sales)
Gross profit increased for the three months endedJune 30, 2022 compared to the prior year period primarily due to higher net sales. Despite higher net sales, gross profit decreased for the six months endedJune 30, 2022 compared to the prior year period primarily due to higher material and freight costs. Gross profit as a percentage of sales decreased for both the three and six months endedJune 30, 2022 also due to higher material and freight costs. 27 --------------------------------------------------------------------------------
Selling, general and administrative expense
For the three and six months endedJune 30, 2022 , SG&A expense decreased by$25.1 million and$31.8 million , respectively, compared to the prior year periods. The decrease for the three months endedJune 30, 2022 was primarily due to cost savings initiatives but also a reduction of$6.1 million in transaction, transformation, and integration costs and a gain on the sale of patents of$4.3 million , net of fees. The decrease in SG&A for the six months endedJune 30, 2022 was primarily due to cost savings initiatives and a decrease in transaction, transformation, and integration costs of$6.2 million , a gain on the sale of patents of$4.3 million , net of fees, partially offset by higher bad debt expense of$9.3 million . The increase in bad debt expense for the six months endedJune 30, 2022 included$3.8 million related to the reassessment of the collectability of our outstanding accounts receivable from Russian customers in light of the ongoingRussia /Ukraine conflict. The remainder of the increase in bad debt expense compared to the prior year period was due to the decrease we recognized during the six months endedJune 30, 2021 with the improvement in the aging of our receivables. We expect to continue to incur transaction, transformation and integration costs related to CommScope NEXT and such costs are expected to be material.
Research and development expense
Research and development (R&D) expense decreased for the three and six months endedJune 30, 2022 compared to the prior year periods primarily due to lower spending on ANS, Home and OWN segment products. R&D activities generally relate to ensuring that our products are capable of meeting the evolving technological needs of our customers, bringing new products to market and modifying existing products to better serve our customers.
Amortization of purchased intangible assets, Restructuring costs, net
Three Months Ended Six Months Ended
June 30, % June 30, %
2022 2021 Change Change 2022 2021 Change Change
(dollars in millions)
Amortization of
purchased
intangible
assets $ 139.0 $ 154.2 $ (15.2 ) (9.9 )% $ 279.7 $ 308.9 $ (29.2 ) (9.5 )%
Restructuring
costs, net 38.5 58.9 (20.4 ) (34.6 ) 50.6 103.3 (52.7 ) (51.0 )
Amortization of purchased intangible assets
For the three and six months ended
Restructuring costs, net
The net restructuring costs (credits) recorded during the three and six months endedJune 30, 2022 included$38.7 million and$47.1 million , respectively, related to CommScope NEXT and$(0.2) million and$3.5 million , respectively, related to integrating the ARRIS business. From a cash perspective, we paid$18.7 million and$26.5 million to settle restructuring liabilities during the three and six months endedJune 30, 2022 , respectively, and expect to pay an additional$27.5 million by the end of 2022 and$52.1 million between 2023 and 2024 related to restructuring actions that have been initiated. The restructuring costs recorded during the three and six months endedJune 30, 2021 included$58.9 million and$92.2 million , respectively, related toCommScope NEXT. For the six months endedJune 30, 2021 , the restructuring costs recorded also reflected$11.1 million related to integrating the ARRIS business. Additional restructuring actions related to CommScope NEXT are expected to be identified and the resulting charges and cash requirements could be material. We do not expect to identify significant additional restructuring actions related to the ARRIS integration. Other income, net Three Months Ended
Six Months Ended
June 30, % June 30, %
2022 2021 Change Change 2022 2021 Change Change
(dollars in millions)
Foreign currency
gain (loss) $ 1.7 $ (1.2 ) $ 2.9 NM $ 1.5 $ (0.9 ) $ 2.4 NM
Other income
(expense), net (0.7 ) 2.7 (3.4 ) (125.9 )% (0.5 ) 3.4 (3.9 ) (114.7 )%
28
--------------------------------------------------------------------------------
Foreign currency gain (loss)
Foreign currency gain (loss) includes the net foreign currency gains and losses resulting from the settlement of receivables and payables, foreign currency contracts and short-term intercompany advances in a currency other than the subsidiary's functional currency. The change in foreign currency gain (loss) for the three and six months endedJune 30, 2022 compared to the prior year periods was primarily driven by certain unhedged currencies.
Other income (expense), net
The change in other income (expense), net for the three and six months endedJune 30, 2022 compared to the prior year periods was primarily due to higher gains on certain investments in the prior year periods.
Interest expense, Interest income and Income taxes
Three Months Ended Six Months Ended
June 30, % June 30, %
2022 2021 Change Change 2022 2021 Change Change
(dollars in millions)
Interest expense $ (140.1 ) $ (138.0 ) $ (2.1 ) 1.5 % $ (276.6 ) $ (275.5 ) $ (1.1 ) 0.4 %
Interest income 0.5 0.5 - - 1.2 1.0 0.2 20.0
Income tax
(expense) benefit 14.5 0.6 13.9 2,316.7 (16.4 ) 30.1 (46.5 ) (154.5 )
Interest expense and interest income
Interest expense increased slightly for the three and six months endedJune 30, 2022 compared to the prior year periods. The increase was driven by higher interest expense related to our senior secured term loan due 2026 (2026 Term Loan) due to the increased variable interest rate compared to the prior year period. This increase was partially offset by lower interest on our fixed rate debt due to the refinancing of our 5.50% senior secured notes dueMarch 2024 in the third quarter of 2021. We expect our interest expense to continue to increase as a result of theFederal Reserve's increase in interest rates in 2022 and the expectation that they will continue to raise interest rates further this year and into 2023. Our weighted average effective interest rate on outstanding borrowings, including the impact of the interest rate swap and the amortization of debt issuance costs and original issue discount, was 6.11% atJune 30, 2022 , 5.74% atDecember 31, 2021 and 5.81% atJune 30, 2021 .
Income tax (expense) benefit
For the three and six months endedJune 30, 2022 , we recognized a tax benefit of$14.5 million on a pretax loss of$75.5 million and$16.4 million of income tax expense on a pretax loss of$184.5 million , respectively. For the three and six months endedJune 30, 2022 , our change in income tax was driven by the unfavorable impacts ofU.S. anti-deferral provisions and non-creditable withholding taxes. These unfavorable impacts were offset partially by decreases in prior year uncertain tax positions. Our effective income tax rate was 0.4% and 10.7%, respectively, for the three and six months endedJune 30, 2021 . We recognized a tax benefit of$0.6 million on a pretax loss of$154.4 million and a tax benefit of$30.1 million on a pretax loss of$281.5 million , respectively. For the three and six months endedJune 30, 2021 , our tax benefit was unfavorably impacted by$37.3 million related to a foreign tax rate change as well as impacts of earnings in foreign jurisdictions that are taxed at rates higher than theU.S. statutory rate, foreign withholding taxes andU.S. anti-deferral provisions. These unfavorable impacts were partially offset by decreases in prior year uncertain tax positions and adjustments related to the finalization of the prior year's tax returns. 29
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Segment Results
Three Months Ended
June 30,
2022 2021
% of Net % of Net %
Amount Sales Amount Sales Change Change
(dollars in millions)
Net sales by segment:
CCS $ 986.7 42.9 % $ 783.4 35.8 % $ 203.3 26.0 %
OWN 390.9 17.0 360.1 16.5 30.8 8.6
NICS 205.4 8.9 223.7 10.2 (18.3 ) (8.2 )
ANS 293.3 12.8 361.6 16.5 (68.3 ) (18.9 )
Core net sales (1) 1,876.3 81.6 1,728.8 79.1 147.5 8.5
Home 423.9 18.4 456.5 20.9 (32.6 ) (7.1 )
Consolidated net sales $ 2,300.2 100.0 % $ 2,185.3 100.0 % $ 114.9 5.3 %
Operating income (loss) by
segment:
CCS $ 111.7 11.3 % $ 5.6 0.7 % $ 106.1 1,894.6 %
OWN 43.5 11.1 63.4 17.6 (19.9 ) (31.4 )
NICS (43.7 ) (21.3 ) (21.7 ) (9.7 ) (22.0 ) 101.4
ANS (25.7 ) (8.8 ) (12.3 ) (3.4 ) (13.4 ) 108.9
Core operating income
(1) 85.8 4.6 35.0 2.0 50.8 145.1
Home (22.7 ) (5.4 ) (53.4 ) (11.7 ) 30.7 (57.5 ) %
Consolidated operating
income (loss) $ 63.1 2.7 % $ (18.4 ) (0.8 ) % $ 81.5 NM
Adjusted EBITDA by
segment:
CCS $ 169.0 17.1 % $ 124.5 15.9 % $ 44.5 35.7 %
OWN 75.3 19.3 79.6 22.1 (4.3 ) (5.4 )
NICS (15.3 ) (7.4 ) 4.5 2.0 (19.8 ) (440.0 )
ANS 57.8 19.7 84.5 23.4 (26.7 ) (31.6 )
Core adjusted EBITDA (1) 286.8 15.3 293.1 17.0 (6.3 ) (2.1 )
Home 12.8 3.0 14.6 3.2 (1.8 ) (12.3 )
Non-GAAP consolidated
adjusted
EBITDA (2) $ 299.6 13.0 % $ 307.7 14.1 % $ (8.1 ) (2.6 ) %
30
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Six Months Ended
June 30,
2022 2021
% of Net % of Net %
Amount Sales Amount Sales Change Change
Net sales by segment:
CCS $ 1,824.7 40.3 % $ 1,460.3 34.3 % $ 364.4 25.0 %
OWN 781.0 17.2 684.3 16.1 96.7 14.1
NICS 393.4 8.7 414.9 9.7 (21.5 ) (5.2 )
ANS 610.1 13.5 740.3 17.4 (130.2 ) (17.6 )
Core net sales (1) 3,609.2 79.7 3,299.8 77.5 309.4 9.4
Home 919.6 20.3 957.5 22.5 (37.9 ) (4.0 )
Consolidated net sales
100.0 %
Operating income (loss) by segment: CCS$ 149.0 8.2 %$ 31.6 2.2 %$ 117.4 371.5 % OWN 96.4 12.3 114.2 16.7 (17.8 ) (15.6 ) NICS (86.7 ) (22.0 ) (82.1 ) (19.8 ) (4.6 ) 5.6 ANS (32.3 ) (5.3 ) 11.7 1.6 (44.0 ) (376.1 ) Core operating income (1) 126.4 3.5 75.4 2.3 51.0 67.6 Home (36.5 ) (4.0 ) (84.9 ) (8.9 ) 48.4 (57.0 ) % Consolidated operating income (loss)$ 89.9 2.0 %$ (9.5 ) (0.2 ) %$ 99.4 NM Adjusted EBITDA by segment: CCS$ 267.5 14.7 %$ 230.5 15.8 %$ 37.0 16.1 % OWN 146.3 18.7 153.2 22.4 (6.9 ) (4.5 ) NICS (29.1 ) (7.4 ) (12.9 ) (3.1 ) (16.2 ) 125.6 ANS 132.1 21.7 192.5 26.0 (60.4 ) (31.4 ) Core adjusted EBITDA (1) 516.8 14.3 563.3 17.1 (46.5 ) (8.3 ) Home 36.1 3.9 34.1 3.6 2.0 5.9 Non-GAAP consolidated adjusted EBITDA (2)$ 552.9 12.2 %$ 597.4 14.0 %$ (44.5 ) (7.4 ) %
Note: Components may not sum to total due to rounding.
(1)
Core financial measures reflect the results of our CCS, OWN, NICS and ANS segments, in the aggregate. Core financial measures exclude the results of our Home segment. (2) See "Reconciliation of Non-GAAP Measures."
Connectivity and Cable Solutions Segment
Net sales for the CCS segment increased for the three and six months endedJune 30, 2022 compared to the prior year periods due to increased demand for our products and services as service providers continued to enhance their networks to keep pace with increasing broadband demand. CCS segment net sales also benefitted from pricing increases as well as additional production enabled by our capacity expansion. We continue to experience supply shortages with certain of our network cable products, which hindered our ability to meet customer demand for our CCS segment products during the three and six months endedJune 30, 2022 , and these shortages could extend into the remainder of 2022. From a regional perspective, for the three months endedJune 30, 2022 , net sales increased in theU.S. by$185.1 million , the EMEA region by$7.3 million , the CALA region by$5.5 million andCanada by$5.4 million and were relatively unchanged in the APAC region compared to the prior year period. For the six months endedJune 30, 2022 , net sales increased in theU.S. by$324.9 million , the EMEA region by$17.2 million , the CALA region by$13.3 million andCanada by$12.9 million but decreased in the APAC region by$3.9 million compared to the prior year period. Foreign exchange rate changes impacted CCS segment net sales unfavorably by approximately 2% and 1% during the three and six months endedJune 30, 2022 , respectively, compared to the same prior year periods. 31 -------------------------------------------------------------------------------- For the three and six months endedJune 30, 2022 , CCS segment operating income and adjusted EBITDA both benefitted from pricing increases and higher sales volumes compared to the prior year periods. These benefits were partially offset by higher material and freight costs and increases in SG&A and R&D costs. For the three and six months endedJune 30, 2022 , CCS segment operating income was favorably impacted by a reduction of$47.0 million and$60.9 million , respectively, in restructuring expense and a reduction of$12.8 million and$23.7 million , respectively, in amortization expense. For the six months endedJune 30, 2022 , CCS operating income was unfavorably impacted by a$3.7 million net charge to establish an allowance against certain accounts receivable determined to be uncollectible as a result of theRussia /Ukraine conflict. Restructuring expense, amortization expense and the charge related to certain uncollectible accounts receivable resulting from theRussia /Ukraine conflict are not reflected in adjusted EBITDA. See "Reconciliation of Segment Adjusted EBITDA" below.
Outdoor Wireless Networks Segment
For the three months endedJune 30, 2022 , OWN segment net sales increased compared to the prior year period primarily due to favorable pricing impacts. For the six months endedJune 30, 2022 , OWN segment net sales increased due to increased pricing and increase in customer demand for both metro and macro cell solutions. From a regional perspective, for the three months endedJune 30, 2022 , OWN segment net sales increased in theU.S. by$59.8 million but decreased in the EMEA region by$18.8 million ,Canada by$5.2 million , the APAC region by$4.3 million and the CALA region by$0.7 million compared to the prior year period. For the six months endedJune 30, 2022 , net sales increased in theU.S. by$140.3 million but decreased in the APAC region by$18.2 million ,Canada by$11.5 million , the EMEA region by$10.8 million and the CALA region by$3.1 million compared to the prior year period. Foreign exchange rate changes impacted OWN segment net sales unfavorably by approximately 2% during both the three and six months endedJune 30, 2022 compared to the same prior year periods. For the three and six months endedJune 30, 2022 , OWN segment operating income and adjusted EBITDA decreased compared to the prior year periods mainly due to higher material and freight costs. For the three months endedJune 30, 2022 , these unfavorable impacts were partially offset by favorable pricing impacts, and for the six months endedJune 30, 2022 , they were partially offset by favorable pricing impacts and increased sales volumes. OWN segment operating income and adjusted EBITDA also benefitted from decreases in SG&A and R&D costs for the three and six months endedJune 30, 2022 . OWN segment operating income for the three and six months endedJune 30, 2022 was unfavorably impacted by increases of$16.8 million and$13.2 million , respectively, in restructuring expense which is not reflected in adjusted EBITDA. See "Reconciliation of Segment Adjusted EBITDA" below.
Networking, Intelligent Cellular and Security Solutions Segment
For the three and six months endedJune 30, 2022 , NICS segment net sales decreased compared to the prior year periods. Sales of our Ruckus products were unfavorably impacted by material shortages, but the decrease was partially offset by the favorable impacts of pricing. NICS segment net sales also benefitted from increased demand for our intelligent cellular networks products during the six months endedJune 30, 2022 . We believe the material shortages experienced by our Ruckus business should begin to improve in the second half of 2022. From a regional perspective, for the three months endedJune 30, 2022 , net sales decreased in the EMEA region by$22.0 million ,Canada by$0.2 million and were relatively unchanged in the APAC region but increased in the CALA region by$2.8 million and theU.S. by$1.1 million compared to the prior year period. For the six months endedJune 30, 2022 , net sales decreased in the EMEA region by$19.2 million andCanada by$4.7 million but increased in the CALA region by$1.7 million and the APAC region by$0.7 million compared to the prior year period. Foreign exchange rate changes impacted NICS segment net sales unfavorably by approximately 1% during both the three and six months endedJune 30, 2022 compared to the prior year periods. For the three and six months endedJune 30, 2022 , NICS segment operating loss increased and adjusted EBITDA decreased compared to the prior year periods primarily due lower sales volumes, higher material costs and higher R&D costs, partially offset by favorable pricing impacts on certain products, favorable product mix and lower SG&A costs. For the three months endedJune 30, 2022 , NICS segment operating loss was unfavorably impacted by an increase of$8.4 million in restructuring expense and for the three and six months endedJune 30,2022 , it was favorably impacted by a$2.8 million and$5.3 million reduction, respectively, in amortization expense. Neither of these items are reflected in adjusted EBITDA. See "Reconciliation of Segment Adjusted EBITDA" below. 32 --------------------------------------------------------------------------------
Access Network Solutions Segment
For the three and six months endedJune 30, 2022 , net sales decreased in the ANS segment due to the negative impact of supply shortages resulting in delays on our ability to meet customer demand and also due to projects in the first half of 2021 that did not recur in 2022. We believe our supply shortages should begin to improve in the second half of 2022. From a regional perspective, for the three months endedJune 30, 2022 , net sales decreased in the CALA region by$44.4 million , the APAC region by$16.2 million , the EMEA region by$7.0 million andCanada by$2.4 million but increased in theU.S. by$1.7 million compared to the prior year period. For the six months endedJune 30, 2022 , net sales decreased in theU.S. by$55.8 million , the CALA region by$50.4 million , the APAC region by$23.6 million and the EMEA region by$1.6 million but increased inCanada by$1.2 million compared to the prior year period. Foreign exchange rate changes impacted ANS segment net sales unfavorably by less than 1% during both the three and six months endedJune 30, 2022 compared to the prior year periods. For the three months endedJune 30, 2022 , ANS segment operating loss increased and adjusted EBITDA decreased compared to the prior year period primarily due to lower sales volumes and unfavorable geographic and product mix, partially offset by lower material and freight costs and lower R&D and SG&A costs. For the six months endedJune 30, 2022 , ANS segment operating income and adjusted EBITDA decreased primarily due to lower sales volumes and unfavorable geographic and product mix, partially offset by lower material and freight costs and lower R&D and SG&A costs. For the three and six months endedJune 30, 2022 , ANS segment operating loss was unfavorably impacted by$6.0 million and$9.8 million , respectively, of transformation costs related to the termination of a supply agreement as part of CommScope NEXT but was favorably impacted by a reduction of$20.0 million in intellectual property litigation settlement charges. Neither of these items is reflected in adjusted EBITDA. See "Reconciliation of Segment Adjusted EBITDA" below.
Home Networks Segment
Net sales for the Home segment decreased for the three and six months endedJune 30, 2022 compared to the prior year periods. While net sales of broadband solution products benefitted from favorable pricing impacts, these increases were more than offset by lower net sales volumes of our other Home products due to continued supply shortages, which delayed our ability to meet customer demand. Although we are working to secure components from key suppliers, we still expect to experience supply chain challenges through 2022 and possibly into 2023. From a regional perspective, for the three months endedJune 30, 2022 , net sales decreased in theU.S. by$77.6 million , the CALA region by$3.1 million and the APAC region by$0.5 million but increased inCanada by$38.5 million and the EMEA region by$10.1 million compared to the prior year period. For the six months endedJune 30, 2022 , net sales decreased in theU.S. by$84.1 million and the CALA region by$31.2 million but increased inCanada by$70.7 million , the EMEA region by$4.7 million and the APAC region by$2.0 million compared to the prior year period. Foreign exchange rate changes impacted Home segment net sales unfavorably by approximately 2% and 1% during the three and six months endedJune 30, 2022 , respectively, compared to the prior year periods. For the three and six months endedJune 30, 2022 , Home segment operating loss decreased compared to the prior year periods primarily due to favorable pricing impacts, benefits from cost savings initiatives, lower warranty costs and favorable product mix. These benefits were partially offset by higher component and freight costs and lower sales volumes. Adjusted EBITDA remained relatively flat. For the three and six months endedJune 30, 2022 , Home segment operating loss was favorably impacted by reductions of$1.6 million and$6.7 million , respectively, in restructuring expense,$10.2 million and$13.5 million , respectively, in transaction, transformation and integration costs and$19.0 million and$20.5 million , respectively, in intellectual property litigation settlement charges. None of these items are reflected in adjusted EBITDA. See "Reconciliation of Segment Adjusted EBITDA" below. 33 --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes certain key measures of our liquidity and capital resources (in millions, except percentage data).
June 30, December 31,
2022 2021 Change % Change
(dollars in millions)
Cash and cash equivalents $ 229.3 $ 360.3 $ (131.0 ) (36.4 ) %
Working capital (1), excluding cash
and cash
equivalents and current portion of
long-term debt 1,272.1 1,068.9 203.2 19.0
Availability under revolving credit
facility 671.1 684.1 (13.0 ) (1.9 )
Long-term debt, including current
portion 9,556.1 9,510.5 45.6 0.5
Total capitalization (2) 10,169.9 10,410.0 (240.1 ) (2.3 )
Long-term debt as a percentage of
total capitalization 94.0 % 91.4 %
(1) Working capital consisted of current assets of $3,633.0 million less current
liabilities of $2,163.6 million at June 30, 2022 . Working capital consisted of
current assets of $3,579.7 million less current liabilities of $2,182.5 million
at December 31, 2021 .
(2) Total capitalization includes long-term debt, including the current portion, Series A convertible preferred stock (the Convertible Preferred Stock) and stockholders' equity (deficit).
Our principal sources of liquidity on a short-term basis are cash and cash equivalents, cash flows provided by operations and availability under our credit facilities. On a long-term basis, our potential sources of liquidity also include raising capital through the issuance of additional equity and/or debt.
The primary uses of liquidity include debt service requirements, voluntary debt repayments or redemptions, working capital requirements, capital expenditures, business separation transaction costs, transformation costs, acquisition integration costs, dividends related to the Convertible Preferred Stock if we elect to pay such dividends in cash, litigation and claim settlements, income tax payments and other contractual obligations. We expect the interest payments on our 2026 Term Loan and our senior secured asset-based revolving credit facility (Revolving Credit Facility) to increase in 2022 as a result of theFederal Reserve's increase in interest rates in 2022 and the expectation that they will continue to raise interest rates further this year and into 2023. See Part II, Item 7A, "Quantitative and Qualitative Disclosure About Market Risk" in our 2021 Annual Report for further discussion of our interest rate risk. We believe that our existing cash, cash equivalents and cash flows from operations, combined with availability under our Revolving Credit Facility, will be sufficient to meet our presently anticipated future cash needs. We may experience volatility in cash flows between periods due to, among other reasons, variability in the timing of vendor payments and customer receipts. We may, from time to time, borrow additional amounts under our Revolving Credit Facility or issue debt or equity securities, if market conditions are favorable, to meet future cash needs or to reduce our borrowing costs. Although there are no financial maintenance covenants under the terms of our senior notes, there is a limitation, among other limitations, on certain future borrowings based on an adjusted leverage ratio or a fixed charge coverage ratio. These ratios are based on financial measures similar to non-GAAP adjusted EBITDA as presented in the "Reconciliation of Non-GAAP Measures" section below, but also give pro forma effect to certain events, including acquisitions, synergies and savings from cost reduction initiatives such as facility closures and headcount reductions. For the twelve months endedJune 30, 2022 , our non-GAAP pro forma adjusted EBITDA, as measured pursuant to the indentures governing our notes, was$1,158.3 million , which included annualized savings expected from cost reduction initiatives ($85.8 million ) so that the impact of cost reduction initiatives is fully reflected in the twelve-month period used in the calculation of the ratios. In addition to limitations under these indentures, our senior secured credit facilities contain customary negative covenants based on similar financial measures. We believe we are in compliance with the covenants under our indentures and senior secured credit facilities atJune 30, 2022 . Cash and cash equivalents decreased during the six months endedJune 30, 2022 primarily driven by cash used for operating activities of$109.1 million , capital expenditures of$55.1 million and tax withholding payments for vested equity-based compensation awards of$14.0 million , partially offset by net borrowings under our Revolving Credit Facility of$50.0 million . As ofJune 30, 2022 , approximately 70% of our cash and cash equivalents were held outside theU.S. 34
-------------------------------------------------------------------------------- Working capital, excluding cash and cash equivalents and the current portion of long-term debt, increased during the six months endedJune 30, 2022 primarily due to higher inventory balances as a result of rising material costs and increases in stock as we build inventory waiting for certain materials or components to complete our products for sale. During the six months endedJune 30, 2022 , we sold approximately$161 million of accounts receivable under customer-sponsored supplier financing agreements. Approximately$58 million of that amount impacted working capital, excluding cash and cash equivalents and the current portion of long-term debt, as ofJune 30, 2022 . Under these agreements, we are able to sell certain accounts receivable to a bank, and we retain no interest in and have no servicing responsibilities for the accounts receivable sold.
The net reduction in total capitalization during the six months ended
Cash Flow Overview
Six Months Ended
June 30, %
2022 2021 Change Change
(dollars in millions)
Net cash generated by (used in) operating activities $ (109.1 ) $ 67.6 $ (176.7 ) (261.4 )%
Net cash used in investing activities (39.2 ) (76.9 ) 37.7 (49.0 )
Net cash generated by (used in) financing activities 21.4 (65.4 ) 86.8 NM
Operating Activities
Six Months Ended
June 30,
2022 2021
(in millions)
Net loss $ (200.9 ) $ (251.4 )
Adjustments to reconcile net loss to net cash generated by
(used in) operating activities:
Depreciation and amortization 356.3 392.8
Equity-based compensation 28.9 40.0
Deferred income taxes (26.2 ) (81.1 )
Changes in assets and liabilities:
Accounts receivable (86.4 ) (173.9 )
Inventories (151.4 ) (64.9 )
Prepaid expenses and other assets 2.1 32.3
Accounts payable and other liabilities (28.8 )
169.0
Other (2.7 )
4.8
Net cash generated by (used in) operating activities
During the six months endedJune 30, 2022 , cash generated by (used in) operating activities deteriorated compared to the prior year period primarily as a result of higher inventory costs, increases in cash taxes paid of$33.8 million and increases in variable compensation payments, partially offset by higher collections. Investing Activities Six Months Ended June 30, 2022 2021 (in millions) Additions to property, plant and equipment$ (55.1 ) $ (60.2 ) Proceeds from sale of property, plant and equipment - 1.3 Payments upon settlement of net investment hedge - (18.0 ) Other 15.9 - Net cash used in investing activities$ (39.2 ) $ (76.9 ) During the six months endedJune 30, 2022 , the decrease in cash used in investing activities compared to the prior year period was primarily driven by proceeds of$6.9 million on the sale of an equity method investment, proceeds of$5.0 million on the sale of certain patents and a return of$4.5 million on equity method investments. 35
--------------------------------------------------------------------------------
Financing Activities
Six Months Ended
June 30,
2022 2021
(in millions)
Long-term debt repaid $ (176.0 ) $ (16.0 )
Long-term debt proceeds 210.0 -
Dividends paid on Series A convertible preferred stock - (28.7 )
Proceeds from the issuance of common shares under
equity-based compensation plans - 3.9
Tax withholding payments for vested equity-based compensation awards
(14.0 ) (24.6 )
Other 1.4 -
Net cash generated by (used in) financing activities$ 21.4
During the six months endedJune 30, 2022 , we borrowed$210.0 million and repaid$160.0 million under the Revolving Credit Facility. We also paid two quarterly scheduled amortization payments totaling$16.0 million on the 2026 Term Loan during the six months endedJune 30, 2022 .
As of
Also impacting cash generated by financing activities for the six months endedJune 30, 2022 , was a decrease of$28.7 million in cash dividends paid for the Convertible Preferred Stock. In the current period, the dividends were paid in additional shares of the Convertible Preferred Stock. During the six months endedJune 30, 2022 , employees surrendered shares of our common stock to satisfy their tax withholding requirements on vested restricted stock units and performance share units, which reduced cash flows by$14.0 million compared to$24.6 million in the prior year period. During the six months endedJune 30, 2021 , we received proceeds of$3.9 million related to the exercise of stock options. 36
--------------------------------------------------------------------------------
Reconciliation of Non-GAAP Measures
We believe that presenting certain non-GAAP financial measures enhances an investor's understanding of our financial performance. We further believe that these financial measures are useful in assessing our operating performance from period to period by excluding certain items that we believe are not representative of our core business. We also use certain of these financial measures for business planning purposes and in measuring our performance relative to that of our competitors. We believe these financial measures are commonly used by investors to evaluate our performance and that of our competitors. However, our use of the term non-GAAP adjusted EBITDA may vary from that of others in our 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 withU.S. GAAP as measures of operating performance, operating cash flows or liquidity. We also believe presenting these non-GAAP results for the twelve months endedJune 30, 2022 provides an additional tool for assessing our recent performance. Such amounts are unaudited and are derived by subtracting the data for the six months endedJune 30, 2021 from the data for the year endedDecember 31, 2021 and then adding the data for the six months endedJune 30, 2022 . Although there are no financial maintenance covenants under the terms of our senior notes, there is a limitation, among other limitations, on certain future borrowings based on an adjusted leverage ratio or a fixed charge coverage ratio. These ratios are based on financial measures similar to non-GAAP adjusted EBITDA as presented in this section, but also give pro forma effect to certain events, including acquisitions and savings from cost reduction initiatives such as facility closures and headcount reductions. Consolidated Three Months Six Months Year Twelve Months Ended Ended Ended Ended June 30, June 30, December 31, June 30, 2022 2021 2022 2021 2021 2022 (in millions) Net loss$ (61.0 ) $ (153.8 ) $ (200.9 ) $ (251.4 ) $ (462.6 ) $ (412.1 ) Income tax expense (benefit) (14.5 ) (0.6 ) 16.4 (30.1 ) (71.9 ) (25.4 ) Interest income (0.5 ) (0.5 ) (1.2 ) (1.0 ) (1.9 ) (2.1 ) Interest expense 140.1 138.0 276.6 275.5 561.2 562.3 Other (income) expense, net (1.0 ) (1.5 ) (1.0 ) (2.5 ) 23.8 25.3 Operating income (loss)$ 63.1 $ (18.4 ) $ 89.9 $ (9.5 ) $ 48.6 $ 148.0 Adjustments: Amortization of purchased intangible assets 139.0 154.2 279.7 308.9 613.0 583.8 Restructuring costs, net 38.5 58.9 50.6 103.3 91.9 39.2 Equity-based compensation 12.3 16.4 28.9 40.0 79.6 68.5 Asset impairments - - - - 13.7 13.7 Transaction, transformation and integration costs (1) 14.9 21.0 30.5 36.7 90.3 84.1 Acquisition accounting adjustments (2) 1.8 3.0 3.6 6.2 11.5 8.9 Patent claims and litigation settlements 1.0 40.0 2.2 41.5 31.7 (7.6 ) Reserve (recovery) of Russian accounts receivable (1.7 ) - 3.8 - - 3.8 Depreciation 30.7 32.6 63.7 70.3 136.7 130.1 Non-GAAP adjusted EBITDA$ 299.6 $ 307.7 $ 552.9 $ 597.4 $ 1,117.0 $ 1,072.5
Note: Components may not sum to total due to rounding.
(1)
In 2022, primarily reflects transformation costs related to CommScope NEXT and integration costs related to the ARRIS acquisition. In 2021, primarily reflects transaction costs related to the planned spin-off of the Home Networks business, transformation costs related to CommScope NEXT and integration costs related to the ARRIS acquisition.
(2)
In 2022 and 2021, reflects acquisition accounting adjustments related to reducing deferred revenue to its estimated fair value.
37
--------------------------------------------------------------------------------Reconciliation of Segment Adjusted EBITDA
Segment adjusted EBITDA is provided as a performance measure in Note 7 in the Notes to Unaudited Condensed Consolidated Financial Statements included herein. Below we reconcile segment adjusted EBITDA for each segment individually to operating income (loss) for that segment to supplement the reconciliation of the total segment adjusted EBITDA to consolidated operating loss in that footnote.
Connectivity and Cable Solutions Segment
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(in millions)
Operating income $ 111.7 $ 5.6 $ 149.0 $ 31.6
Adjustments:
Amortization of purchased intangible
assets 27.4 40.2 56.8 80.5
Restructuring costs, net 10.3 57.3 13.2 74.1
Equity-based compensation 3.0 4.1 7.0 9.8
Transaction, transformation and
integration costs 3.5 3.9 7.8 8.2
Patent claims and litigation
settlements - - 1.6 -
Reserve (recovery) of Russian accounts
receivable (1.2 ) - 3.7 -
Depreciation 14.3 13.3 28.4 26.3
Adjusted EBITDA $ 169.0 $ 124.5 $ 267.5 $ 230.5 Outdoor Wireless Networks Segment
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(in millions)
Operating income $ 43.5 $ 63.4 $ 96.4 $ 114.2
Adjustments:
Amortization of purchased intangible
assets 8.2 8.3 16.3 17.1
Restructuring costs, net 17.3 0.5 19.5 6.3
Equity-based compensation 1.4 1.8 3.4 4.2
Transaction, transformation and
integration costs 1.5 1.8 3.3 3.7
Recovery of Russian accounts receivable (0.1 ) - - -
Depreciation 3.6 3.8 7.4 7.7
Adjusted EBITDA $ 75.3 $ 79.6 $ 146.3 $ 153.2 Networking Intelligent Cellular and Security Solutions Segment
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(in millions)
Operating loss $ (43.7 ) $ (21.7 ) $ (86.7 ) $ (82.1 )
Adjustments:
Amortization of purchased intangible
assets 15.2 18.0 30.7 36.0
Restructuring costs (credits), net 5.8 (2.6 ) 9.4 8.6
Equity-based compensation 2.7 3.6 6.3 8.7
Transaction, transformation and
integration costs 1.0 1.3 2.2 2.7
Acquisition accounting adjustments 0.5 1.3 1.1 2.9
Patent claims and litigation
settlements - - - 0.3
Reserve (recovery) of Russian accounts
receivable (0.3 ) - 0.1 -
Depreciation 3.5 4.5 7.9 10.0
Adjusted EBITDA $ (15.3 ) $ 4.5 $ (29.1 ) $ (12.9 )
38
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Access Network Solutions Segment
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(in millions)
Operating income (loss) $ (25.7 ) $ (12.3 ) $ (32.3 ) $ 11.7
Adjustments:
Amortization of purchased intangible
assets 62.0 61.7 123.8 123.5
Restructuring costs, net 4.8 1.8 7.4 6.5
Equity-based compensation 3.2 4.3 7.3 10.6
Transaction, transformation and
integration costs 7.4 2.0 12.9 4.1
Acquisition accounting adjustments 0.8 1.2 1.7 2.4
Patent claims and litigation
settlements - 20.0 - 20.0
Depreciation 5.4 5.9 11.3 13.7
Adjusted EBITDA $ 57.8 $ 84.5 $ 132.1 $ 192.5
Home Networks Segment
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(in millions)
Operating loss $ (22.7 ) $ (53.4 ) $ (36.5 ) $ (84.9 )
Adjustments:
Amortization of purchased intangible
assets 26.2 26.0 52.2 51.9
Restructuring costs, net 0.3 1.9 1.1 7.8
Equity-based compensation 2.0 2.8 4.9 6.7
Transaction, transformation and
integration costs 1.6 11.8 4.3 17.8
Acquisition accounting adjustments 0.4 0.5 0.9 1.0
Patent claims and litigation
settlements 1.0 20.0 0.7 21.2
Depreciation 3.9 5.1 8.7 12.6
Adjusted EBITDA $ 12.8 $ 14.6 $ 36.1 $ 34.1 Note: Components may not sum to total due to rounding.
39
--------------------------------------------------------------------------------FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q 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 statements may discuss goals, intentions or expectations as to future plans, trends, events, results of operations or financial condition or otherwise, in each case, based on current beliefs and expectations of management, as well as assumptions made by, and information currently available to, management. These forward-looking statements are generally identified by their use of such terms and phrases as "intend," "goal," "estimate," "expect," "project," "projections," "plans," "potential," "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 forward-looking statements are subject to various risks and uncertainties, many of which are outside our control, including, without limitation, risks related to the successful execution of CommScope NEXT; changes in cost and availability of key raw materials, components and commodities and the potential effect on customer pricing and timing of delivery of products to customers; risks related to our ability to implement price increases on our products and services; risks associated with our dependence on a limited number of key suppliers for certain raw materials and components; potential difficulties in realigning global manufacturing capacity and capabilities among our global manufacturing facilities or those of our contract manufacturers that may affect our ability to meet customer demands for products; possible future restructuring actions; the risk that our manufacturing operations, including our contract manufacturers that we rely on, encounter capacity, production, quality, financial or other difficulties causing difficulty in meeting customer demands; substantial indebtedness and restrictive debt covenants; our ability to incur additional indebtedness; our ability to generate cash to service our indebtedness; the potential separation of the Home Networks business or any other potential separation, divestiture or discontinuance of a business or product line, including uncertainty regarding the timing of the separation, achieving the expected benefits and the potential disruption to the business; our ability to integrate and fully realize anticipated benefits from prior or future divestitures, acquisitions or equity investments; our dependence on customers' capital spending on data and communication systems, which could be negatively impacted by a regional or global economic downturn, among other factors; concentration of sales among a limited number of customers and channel partners; risks associated with our sales through channel partners; changes to the regulatory environment in which we and our customers operate; changes in technology; industry competition and the ability to retain customers through product innovation, introduction, and marketing; possible future impairment charges for fixed or intangible assets, including goodwill; our ability to attract and retain qualified key employees; labor unrest; product quality or performance issues, including those associated with our suppliers or contract manufacturers, and associated warranty claims; our ability to maintain effective management information technology systems and to successfully implement major systems initiatives; cyber-security incidents, including data security breaches, ransomware or computer viruses; the use of open standards; the long-term impact of climate change; significant international operations exposing us to economic risks like variability in foreign exchange rates and inflation as well as political and other risks, including the impact of wars, regional conflicts and terrorism; the potential impact of higher than normal inflation; our ability to comply with governmental anti-corruption laws and regulations and export and import controls and sanctions 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 inthe United States affecting trade, including the risk and uncertainty related to tariffs or potential trade wars and potential changes to laws and policies, that may impact our products; cost of protecting or defending intellectual property; costs and challenges of compliance with domestic and foreign environmental laws; the impact of litigation and similar regulatory proceedings that we are involved in or may become involved in, including the costs of such litigation; the scope, duration and impact of disease outbreaks and pandemics, such as COVID-19, on our business including employees, sites, operations, customers, supply chain logistics and the global economy; income tax rate variability and ability to recover amounts recorded as deferred tax assets; and other factors beyond our control. These and other factors are discussed in greater detail in our 2021 Annual Report and may be updated from time to time in our annual reports, quarterly reports, current reports and other filings we make with theSecurities and Exchange Commission . Although the information contained in this Quarterly Report on Form 10-Q 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.
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