CommScope Holding Company Inc

1. BACKGROUND AND BASIS OF PRESENTATION

Background

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

On July 18, 2024, the Company entered into a definitive agreement with Amphenol Corporation, a Delaware corporation (Amphenol), pursuant to which Amphenol has agreed to acquire the Company’s Outdoor Wireless Networks (OWN) segment and the Distributed Antenna Systems (DAS) business unit of its Networking, Intelligent Cellular & Security Solutions (NICS) segment in exchange for approximately $2.1 billion in cash, to be paid by Amphenol upon closing. The sale is expected to close within the first quarter of 2025, subject to customary closing conditions, including receipt of applicable regulatory approvals. The Company determined the anticipated sale of the OWN segment and DAS business unit met the “held for sale” criteria and the “discontinued operations” criteria in accordance with Accounting Standards Codification (ASC) No. 360-10, Impairment and Disposal of Long–Lived Assets, and ASC No. 205-20, Presentation of Financial Statements: Discontinued Operations, in the third quarter of 2024 due to its relative size and strategic rationale. For all periods presented, amounts in these consolidated financial statements have been recast to reflect the discontinuation of the OWN segment and DAS business unit in accordance with guidance.

The Company completed the acquisition of certain assets of Casa Systems, Inc. and its subsidiaries (Casa) on June 7, 2024 (the Casa Transaction). As part of the Casa Transaction, the Company acquired certain assets (the Casa Assets) and assumed certain specified liabilities (the Casa Liabilities) of Casa. The sale was conducted pursuant to the bid procedures (the Bid Procedures) established in the chapter 11 cases of Casa Systems, Inc. and certain affiliates in the United States (U.S.) Bankruptcy Court for the District of Delaware (the Bankruptcy Court). Pursuant to the Bid Procedures, the Company was designated as the successful bidder following an auction held on May 29, 2024. On June 5, 2024, the Bankruptcy Court entered an order authorizing the sale of the Casa Assets to the Company pursuant to section 363 of the U.S. Bankruptcy Code (subject to the terms thereof). The sale closed on June 7, 2024 and, at such time, the Company funded the purchase price of $45.1 million and settled certain assumed Casa Liabilities, with cash on hand. The Company plans to integrate this strategic acquisition into its Access Network Solutions (ANS) segment and expects the acquisition to strengthen its ANS segment’s position by enhancing itsvirtual cable modem termination systems ( CMTS) and passive optical network (PON) product offerings, which will enable customers to migrate to distributed access architecture (DAA) solutions at their own speed, and further grow its customer base. See Note 2 for additional discussion of the Casa Transaction.

On January 9, 2024, the Company completed the sale of its Home Networks (Home) segment and substantially all of the associated segment assets and liabilities (Home business) to Vantiva SA (Vantiva) pursuant to the Call Option Agreement entered into on October 2, 2023 and Purchase Agreement dated as of December 7, 2023. In the fourth quarter of 2023, the Company determined the sale of the Home business met the “held for sale” criteria and the “discontinued operations” criteria in accordance with accounting guidance. All prior period amounts in these condensed consolidated financial statements have been recast to reflect the discontinuation of the Home business.

The discussions in these condensed consolidated financial statements relate solely to the Company’s continuing operations, unless otherwise noted. As a result, the Company is reporting financial performance based on the following remaining three operating segments, which excludes the OWN segment, DAS business unit in NICS and Home business: Connectivity and Cable Solutions (CCS), NICS (excluding DAS) and ANS. See Note 3 for further discussion of the discontinued operations related to the OWN segment, DAS business unit and Home business.

Basis of Presentation

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

As of January 1, 2024, management shifted certain product lines from the Company’s CCS segment to its ANS segment to better align with how the businesses are managed. All prior period amounts in these condensed consolidated financial statements have been recast to reflect these operating segment changes.

The unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the U.S. for interim financial information and are presented in accordance with the applicable requirements of Regulation S-X. Accordingly, these financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the 2023 Annual Report). The significant accounting policies followed by the Company are set forth in Note 2 within the Company’s audited consolidated financial statements included in the 2023 Annual Report. There were no material changes in the Company’s significant accounting policies during the three or nine months ended September 30, 2024.

Liquidity

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of September 30, 2024, the Company has $1.27 billion outstanding on its 6.00% senior unsecured notes that mature on June 15, 2025 (the 2025 Notes), which is less than a year from the date that these condensed consolidated financial statements are issued for the quarter ended September 30, 2024. The Company does not currently have sufficient cash or liquidity to repay the 2025 Notes when they mature on June 15, 2025.

Proceeds of approximately $2.1 billion from the pending sale of the Company’s OWN segment and DAS business unit may be used under certain circumstances to retire the 2025 Notes due to the flexibility under the Company’s debt documents. The Company believes this is probable of occurring and will alleviate substantial doubt about the Company’s ability to operate as a going concern.

Concurrently, the Company is negotiating with creditors to explore both restructuring and/or refinancing of the 2025 Notes. No commitments have been obtained regarding this alternative as of the filing date, although it remains part of the Company’s plans to mitigate conditions that give rise to substantial doubt about the Company’s ability to operate as a going concern.

Management has assessed its plan to mitigate the conditions that give rise to substantial doubt and, considering the pending sale of the Company’s OWN segment and DAS business unit, management believes such plan is probable and will alleviate substantial doubt about the Company’s ability to operate as a going concern.

Concentrations of Risk and Related Party Transactions

No direct customer accounted for 10% or more of the Company’s total net sales during the three or nine months ended September 30, 2024. Net sales to Charter Communications, Inc. (Charter) accounted for 13% of the Company’s total net sales during the three months ended September 2023. During the nine months ended September 30, 2023, Comcast Corporation and affiliates (Comcast) and Charter each accounted for 11% of the Company’s total net sales. Accounts receivable from Comcast and Anixter International Inc. and its affiliates (Anixter) represented approximately 11% and 10%, respectively, of accounts receivable as of September 30, 2024. Other than Comcast and Anixter, no direct customer accounted for 10% or more of the Company’s accounts receivable.

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

As of September 30, 2024, funds affiliated with Carlyle Partners VII S1 Holdings, L.P. (Carlyle) owned 100% of the Company's Series A convertible preferred stock (the Convertible Preferred Stock), which was sold to Carlyle to fund a portion of the acquisition of ARRIS International plc (ARRIS) in 2019. See Note 11 for further discussion of the Convertible Preferred Stock. Other than transactions related to the Convertible Preferred Stock and the Company’s continuing involvement with Vantiva discussed in Note 3, there wereno material related party transactions for thethree or nine months ended September 30, 2024.

Commitments and Contingencies

Product Warranties

The Company recognizes a liability for the estimated claims that may be paid under its customer assurance-type warranty agreements to remedy potential deficiencies of quality or performance of the Company’s products. These product warranties extend over various periods, depending on the product subject to the warranty and the terms of the individual agreements. The Company records a provision for estimated future warranty claims as cost of sales based upon the historical relationship of warranty claims to sales and specifically identified warranty issues. The Company bases its estimates on assumptions that are believed to be reasonable under the circumstances and revises its estimates, as appropriate, when events or changes in circumstances indicate that revisions may be necessary. Such revisions may be material.

The following table summarizes the activity in the product warranty accrual, included in accrued and other liabilities and other noncurrent liabilities on the Condensed Consolidated Balance Sheets:

Non-cancellable Purchase Obligations

In the third quarter of 2023, the Company entered into a long-term supply contract with a third-party to secure the supply of certain raw materials. Under the terms of the contract, the Company will make advance payments through 2026 totaling $120.0 million (undiscounted), and such advance payments will be credited and applied to future orders on a quarterly basis beginning in 2027 through 2031 based on the ability to meet certain minimum purchase requirements. Advance payments of $45.0 million and $30.0 million are capitalized as other noncurrent assets in the Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023, respectively. Under this agreement, the Company committed to purchases of raw materials that began in 2023, growing to a level of approximately $137 million per year by 2026 and continuing through 2032.

Legal Proceedings

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

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

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 material adverse effect on the Company’s financial condition or results of operations.

Asset Impairments

Goodwill

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. As of January 1, 2024, the Company assessed goodwill for impairment due to a change in the composition of reporting units as a result of the new segment structure and certain other intrasegment realignments. The Company performed impairment testing immediately before and after the change and determined that no goodwill impairment existed. As of the most recent impairment test on January 1, 2024, the implied fair value of the Enterprise and ANS reporting units exceeded its respective carrying amount by 8% and 7%, respectively. There wereno goodwill impairments identified during thethree or nine months ended September 30, 2024. See Note 4 for further discussion.

During the third quarter of 2023, the Company concluded that a triggering event occurred, primarily due to a sustained decrease in the market value of the Company’s debt and common stock affecting the overall business and changes in expected future cash flows due to reduced earnings forecasts and current macroeconomic conditions, including a rising interest rate environment. The Company performed an interim quantitative goodwill impairment test as of September 30, 2023 for its ANS and Building and Data Center Connectivity (BDCC) reporting units, which were most sensitive to negative performance and outlook, to compare the fair values of the reporting units to their carrying amounts, including the goodwill. As a result, for the three and nine months ended September 30, 2023, the Company recorded a goodwill impairment charge of $425.9 million in asset impairments in the Condensed Consolidated Statements of Operations to partially write down the carrying amount of the ANS reporting unit goodwill. As of September 30, 2023, there was no impairment identified in the BDCC reporting unit within the CCS reportable segment. See Note 4 for further discussion.

Subsequently, the Company’s ANS and BDCC reporting units failed the annual goodwill impairment test, and partial impairments were recorded as of October 1, 2023.

As a result of the new segment structure and certain other intrasegment realignments, as of January 1, 2024, the BDCC and Network Cable and Connectivity (NCC) reporting units are being referred to as Enterprise and Broadband, respectively, which are both in the CCS reportable segment.

Considering the low headroom going forward for each of the ANS and Enterprise reporting units, there is a risk for future impairment in the event of declines in general economic, market or business conditions or any significant unfavorable change in the forecasted cash flows, weighted average cost of capital or growth rates. If current and long-term projections for the ANS and Enterprise reporting units are not realized or decrease materially, the Company may be required to recognize additional goodwill impairment charges, and these charges could be material to the Company’s results of operations.

Long-lived Assets

Long-lived assets, which include property, plant and equipment, intangible assets with finite lives and right of use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable, based on the undiscounted cash flows expected to be derived from the use and ultimate disposition of the assets. Assets identified as impaired are adjusted to estimated fair value. Equity investments without readily determinable fair values are evaluated each reporting period for impairment based on a qualitative assessment and are then measured at fair value if an impairment is determined to exist. Other than certain assets impaired as a result of restructuring actions and as part of discontinued operations, there wereno definite-lived intangible or other long-lived asset impairments identified during thethree or nine months ended September 30, 2024 or 2023.

Income Taxes

For the three and nine months ended September 30, 2024, the Company recognized income tax expense of $26.7 million on a pretax loss of $70.0 million and income tax expense of $41.2 million on a pretax loss of $356.7 million, respectively. The Company’s income taxes for the three and nine months ended September 30, 2024, were unfavorably impacted by $35.9 million and $103.7 million, respectively, of additional valuation allowance related to current year federal and state interest limitation carryforwards and U.S. anti-deferral provisions, partially offset by tax benefits related to federaltax credits. For the three and nine months ended September 30, 2024, the Company used a discrete calculation to compute the net tax benefit associated with external interest. Using the estimated annual tax rate for this component of income would have produced significant variability in the estimated annual effective tax rate, and use of the discrete method for this component results in the best estimate of the estimated annual effective tax rate.

For the three and nine months ended September 30, 2023, the Company recognized an income tax benefit of $34.5 million ona pretax loss of $568.3 million and an income tax benefit of $74.4 million ona pretax loss of $756.3 million, respectively. The Company’s tax benefit for the three and nine months ended September 30, 2023, wasunfavorably impacted by a goodwill impairment charge of $425.9 million for which minimal tax benefits were recorded. The Company’s tax benefit was favorably impacted by $4.1 million related to tax law changes for the three and nine months ended September 30, 2023. In addition to the unfavorable impact of the goodwill impairment charge mentioned above, for the nine months ended September 30, 2023, the Company’s tax benefit was also unfavorably impacted by excess tax costs of $7.1 million related to equity compensation awards but favorably impacted by $9.6 million related to the release of various uncertain tax positions.

Earnings (Loss) Per Share

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

Basic EPS from discontinued operations is computed by dividing income (loss) from discontinued operations, net of income taxes by the weighted average number of common shares outstanding during the period. The numerator in diluted EPS from discontinued operations is the same as the basic EPS from discontinued operations numerator. The denominator used in diluted EPS from discontinued operations is based on the basic EPS computation plus the effect of potentially dilutive common shares related to the Convertible Preferred Stock and equity-based compensation plans, subject to antidilution requirements.

For the three and nine months ended September 30, 2024,18.7 million and 18.6 million shares, respectively, of outstanding equity-based compensation awards were not included in the computation of diluted EPS because the effect was antidilutive or the performance conditions were not met. Of those amounts, for thethree and nine months ended September 30, 2024,7.0 million and 3.4 million shares, respectively, would have been considered dilutive if the Company had not been in a loss from continuing operations position. For thethree and nine months ended September 30, 2023,18.9 million and 17.2 million shares, respectively, of outstanding equity-based compensation awards were not included in the computation of diluted EPS because the effect was antidilutive or the performance conditions were not met. Of those amounts, for thethree and nine months ended September 30, 2023,0.6 million and 2.0 million shares, respectively, would have been considered dilutive if the Company had not been in a loss from continuing operations position.

For the three and nine months ended September 30, 2024,43.4 million and 42.8 million, respectively, of as-if converted shares related to the Convertible Preferred Stock were excluded from the diluted share count because they were antidilutive. For thethree and nine months ended September 30, 2023,41.1 million and 40.6 million, respectively, of as-if converted shares related to the Convertible Preferred Stock were excluded from the diluted share count because they were antidilutive; however, they may have been considered dilutive if the Company had not been in a loss from continuing operations position.

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

Recent Accounting Pronouncements

Adopted During the Nine Months Ended September 30, 2024

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

Issued but Not Adopted

In December 2023, the Financial Accounting Standards Board (FASB) issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The new guidance is expected to improve income tax disclosures by requiring additional information related to the rate reconciliation and income taxes paid, including 1) consistent categories and greater disaggregation of information in the rate reconciliation and 2) disaggregation of income taxes paid by jurisdiction. The guidance is effective for the Company on a prospective basis, although retrospective application is permitted, as of January 1, 2025 for the annual period. Early adoption is permitted. The Company is currently evaluating the impact of the new guidance on the condensed consolidated financial statements.

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The new guidance is expected to improve reportable segment disclosure requirements primarily through enhanced disclosures for significant segment expenses. The guidance is effective for the Company on a retrospective basis as of January 1, 2024 for the annual period and January 1, 2025 for the interim periods. Early adoption is permitted. The Company is currently evaluating the impact of the new guidance on the condensed consolidated financial statements.

2. ACQUISITIONS

On June 7, 2024, the Company completed the acquisition of certain assets of Casa Systems, Inc. and its subsidiaries (Casa), which provides telecommunication infrastructure equipment and software-centric infrastructure solutions that allow cable service providers to deliver voice, video and data services over a single platform. The acquired assets included, among other things, accounts receivable, specified inventory, intellectual property and intellectual property rights, certain specified contracts, including facility leases, equipment and other personal property (collectively, the Casa Assets). As part of the Casa Transaction, the Company assumed certain specified liabilities, including certain cure costs related to assumed contracts and liabilities under such contracts and relating to the employment of continuing employees, in each case, arising after the consummation of the acquisition (collectively, the Casa Liabilities).

The sale was conducted pursuant to the Bid Procedures established in the chapter 11 cases of Casa Systems, Inc. and certain affiliates in the Bankruptcy Court. Pursuant to the Bid Procedures, the Company was designated as the successful bidder following an auction held on May 29, 2024. On June 5, 2024, the Bankruptcy Court entered an order authorizing the sale of the Casa Assets to the Company pursuant to section 363 of the U.S. Bankruptcy Code (subject to the terms thereof). The sale closed on June 7, 2024 and, at such time, the Company funded the purchase price of $45.1 million and settled certain assumed Casa Liabilities, with cash on hand.

The Company plans to integrate this strategic acquisition into its ANS segment and expects the acquisition to strengthen its ANS segment’s position by enhancing its virtual CMTS and PON product offerings, which will enable customers to migrate to DAA solutions at their own speed, and further grow its customer base.

The Company recorded the purchase of the Casa Transaction using the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations, and, accordingly, recognized the assets acquired and liabilities assumed at their fair values as of the date of acquisition. As of September 30, 2024, the valuation studies necessary to determine the fair market value of the assets acquired and liabilities assumed are preliminary, including the validation of the underlying cash flows used to determine the fair value of the identified intangible assets. The final determination of the fair value of certain assets and liabilities will be completed within the one-year measurement period from the date of acquisition, which is necessary to adequately analyze all the factors used in establishing the asset and liability fair values as of the acquisition date, including, but not limited to intangible assets, accounts receivable, inventory and personal property.

The following amounts represent the preliminary determination of the fair value of identifiable assets acquired and liabilities assumed in the Casa Transaction as of the acquisition date:

(1)

The fair value of accounts receivable, net is $5.2 million with a gross contractual amount of $12.2 million. The Company expects $7.0 million to be uncollectible.

The impact of measurement period adjustments to the Condensed Consolidated Statements of Operations was immaterial for the three and nine months ended September 30, 2024.

The goodwill arising from the Casa Transaction is believed to result from the company’s reputation in the marketplace and assembled workforce and is expected to be fully deductible for income tax purposes.

Various valuation techniques which use significant unobservable inputs, or Level 3 inputs as defined by the fair value hierarchy, were used to estimate the fair value of the assets acquired and the liabilities assumed. Using these valuation approaches requires the Company to make certain estimates and assumptions. The estimated fair values are expected to change as the Company completes its valuation analyses of the assets acquired and liabilities assumed.

The table below summarizes the preliminary valuations of the intangible assets acquired that were determined by management to meet the criteria for recognition apart from goodwill and determined to have finite lives. The values presented below are preliminary estimates and are subject to change as management completes its valuation of the Casa Transaction:

The Company recorded $4.3 million of net sales included in the Condensed Consolidated Statements of Operations related to the Casa business for both thethree and nine months ended September 30, 2024.

The Company recognized $0.4 million and $1.4 million of transaction and integration-related costs related to the Casa Transaction for the three and nine months ended September 30, 2024, respectively, and these costs were recognized in selling, general and administrative expense in the Condensed Consolidated Statementsof Operations.

3. DISCONTINUED OPERATIONS

On July 18, 2024, the Company entered into a definitive agreement with Amphenol, pursuant to which Amphenol has agreed to acquire the Company’s OWN segment and the DAS business unit of its NICS segment in exchange for approximately $2.1 billion in cash, to be paid by Amphenol upon closing.

The OWN segment and DAS business unit qualified as “held for sale” per ASC 360-10 in the third quarter of 2024 and were classified as a discontinued operation per ASC 205-20, as the Company determined, qualitatively and quantitatively, that this transaction represents a strategic shift that has or will have a major effect on the Company’s operations and financial results. As such, activity directly attributable to the OWN segment and DAS business unit has been removed from continuing operations and presented in income (loss) from discontinued operations, net of income taxes, on the Condensed Consolidated Statements of Operations for all periods presented. In addition, all assets and liabilities of the OWN segment and DAS business unit were classified as assets and liabilities held for sale on the Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023.

On January 9, 2024, the Company completed the sale of the Home business to Vantiva pursuant to the Call Option Agreement entered into on October 2, 2023 and the Purchase Agreement dated as of December 7, 2023, in exchange for (i)134,704,669 shares of Vantiva common stock representing a 24.73% equity stake in Vantiva (determined on a fully diluted basis), (ii) $250,465 in cash (in addition to cash paid in exchange for the cash on the Home business companies’ balance sheets) and (iii) an earn-out of up to $100 million in the aggregate. The earn-out payments are contingent upon Vantiva achieving adjusted EBITDA equal to or greater than €400 million for one or more of Vantiva’s first five fiscal years following the closing of the transaction. The earn-out payment with respect to any fiscal year will be subject to an additional annual cap, the amount of which will depend on certain elections made by the Company following Vantiva reaching the €400 million adjusted EBITDA threshold for the first time, and on Vantiva’s maintenance of certain liquidity levels (after giving effect to such payment).

The Home business qualified as “held for sale” per ASC 360-10 in the fourth quarter of 2023 and was classified as a discontinued operation per ASC 205-20, as the Company determined, qualitatively and quantitatively, that this transaction represents a strategic shift that has or will have a major effect on the Company’s operations and financial results. As such, activity directly attributable to the Home business has been removed from continuing operations and presented in income (loss) from discontinued operations, net of income taxes, on the Condensed Consolidated Statements of Operations for all periods presented. In addition, all assets and liabilities of the Home business were classified as assets and liabilities held for sale on the Consolidated Balance Sheets as of December 31, 2023, and in connection with the “held for sale” classification, the Company recognized a loss on classification as held for sale of $177.0 million in the fourth quarter of 2023. Upon the closing of the transaction on January 9, 2024, the Company recognized an additional loss of $75.3 million, which was included in income (loss) from discontinued operations, net of income taxes, on the Condensed Consolidated Statements of Operations for thenine months ended September 30, 2024.

In conjunction with the closing of the Home business transaction, the Company entered into a transition service agreement with Vantiva (Vantiva TSA), whereby the Company provides and receives certain post-closing support on a transitional basis which is included in continuing operations in transition service agreement income. The terms of the Vantiva TSA vary based on the services provided thereunder, with the longest such term having a duration of sixteen months. The Vantiva TSA provides options to extend services for up to two renewal terms of three months each. Following the closing of the transaction, the Company also entered into a Supply Agreement with Vantiva (Vantiva Supply Agreement), whereby the Company sells certain retained inventory at cost, or market price if below cost, for a period of two years. The Company’s investment in Vantiva is accounted for using the equity method of accounting, and the carrying value of the investment is included in other noncurrent assets in the Condensed Consolidated Balance Sheets. The Company recognized a loss on its investment of $17.0 million in the second quarter of 2024, as a result of recording its proportionate share of loss on its equity investment, which is recorded on a one-quarter lag basis in discontinued operations in the Condensed Consolidated Statements of Operations beginning in the second quarter of 2024. The investment in the ordinary shares is subject to a lock-up period, until the earlier of eighteen months, or the occurrence of a change of control or the entry into an agreement that would result in a change of control, following closing.

During the first quarter of 2024, the Company recorded a $48.3 million loss on disposal of the Home business, with an incremental $5.5 million loss on disposal related to settlements of certain retained obligations recognized during the third quarter. During the second quarter of 2024, the Company recognized a loss on impairment of $17.2 million, based on Level 3 valuation inputs which included contractual payment amounts and market comparable information, related to Home business patents. In addition, during the first quarter of 2024, the Company recorded a loss on disposal of the Home business. The losses were recorded in income (loss) from discontinued operations, net of income taxes on the Condensed Consolidated Statements of Operations.

The following table presents the summarized components of income (loss) from discontinued operations, net of income taxes for the three months ended September 30, 2023 and 2024:

The following table presents the summarized components of income (loss) from discontinued operations, net of income taxes for the nine months ended September 30, 2023 and 2024:

(1)

Cost of sales includes a charge of $19.5 million for excess and obsolete inventory related to the Home business during thenine months ended September 30, 2024.

(2)

Other income (expense), net includes a loss on equity investment of $17.0 million for thenine months ended September 30, 2024.

The following table presents balance sheet information for assets and liabilities held for sale related to the discontinued operations:

The following table presents the details of the loss on disposal of Home business:

The cash flows related to discontinued operations have not been segregated in the Condensed Consolidated Statements of Cash Flows, and accordingly, they include the results from continuing and discontinued operations. The Company’s cash inflows related to the Vantiva TSA and inventory sales resulting from the Home business transaction, as described above, were $7.4 million and $12.5 million, respectively, for the three months ended September 30, 2024, and $19.9 million and $30.7 million, respectively, for thenine months ended September 30, 2024. The following table summarizes significant non-cash operating items of the discontinued operations included in the Condensed Consolidated Statements of Cash Flows:

The Company also recorded a partial impairment of $469.2 million related to the Home segment's intangible assets during the third quarter of 2023. The Company estimated the fair value of the asset group using Company-specific inputs, including estimates of consideration to be received upon the impending divestiture, as well as other market participant assumptions. The determination of the impairment charge was based on Level 3 valuation inputs.

4. GOODWILL

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

Goodwill at December 31, 2023 reflects the reorganization of the Company’s segment structure, as disclosed in Note 1. As a result of the new segment structure and certain other intrasegment realignments, as of January 1, 2024, the Company assessed goodwill for impairment due to changes in the composition of certain reporting units. The Company performed impairment testing immediately before the change and after the change once goodwill was reallocated and determined that no goodwill impairment existed.

Additional goodwill of $4.3 million resulting from the Casa acquisition is included in the other activity above as of September 30, 2024.

For the quarter ended September 30,2024, the Company completed an impairment analysis for goodwill recorded within the NICS reporting unit, which is impacted by the pending divestiture of the DAS business. The quantitative assessment was used, and the Company determined that the fair value of the impacted reporting unit exceeded the carrying value and thatno impairment existed immediately prior to or subsequent to allocating goodwill to the disposal group that includes our DAS business. The Company allocated $113.5 million of goodwill to the disposal group based on the relative fair value of the DAS business as compared to the NICS reporting unit, along with $504.3 million of goodwill that was entirely attributable to its OWN reporting unit. Total goodwill for the disposal group of $617.8 million has been classified as held for sale as of September 30, 2024.

During the third quarter of 2023, the Company concluded that a triggering event occurred, primarily due to a sustained decrease in the market value of the Company’s debt and common stock affecting the overall business and changes in expected future cash flows due to reduced earnings forecasts and current macroeconomic conditions, including a rising interest rate environment. As a result, the Company performed an interim quantitative goodwill impairment test as of September 30, 2023 for its ANS and BDCC reporting units and recorded a goodwill impairment charge of $425.9 million in asset impairments in the Condensed Consolidated Statements of Operations to partially write down the carrying amount of the goodwill in the ANS reporting unit. As of September 30, 2023, there wasno impairment identified in the BDCC reporting unit within the CCS reportable segment.

5. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregated Net Sales

See Note 9 for the presentation of net sales by segment and geographic region.

Allowance for Doubtful Accounts

Customer Contract Balances

The following table provides the balance sheet location and amounts of contract assets, or unbilled accounts receivable, and contract liabilities, or deferred revenue, from contracts with customers:

There were no material changes to contract asset balances for the nine months ended September 30, 2024 as a result of changes in estimates or impairments. The change in the contract liability balance from December 31, 2023 to September 30, 2024 was primarily due to upfront support billings to be recognized over the support term. During the three and nine months ended September 30, 2024, the Company recognized $18.4 million and $69.1 million, respectively, of revenue related to contract liabilities recorded as of December 31, 2023.

6. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION

Accounts Receivable

Inventories

Accrued and Other Liabilities

Operating Lease Information

Accumulated Other Comprehensive Loss

The following table presents changes in accumulated other comprehensive loss (AOCL), net of tax:

During the nine months ended September 30, 2024, the amount reclassified from net AOCL related to foreign currency translation was recorded in the loss on disposal of the Home business, included in income (loss) from discontinued operations, net of income taxes, on the Condensed Consolidated Statements of Operations.

Cash Flow Information

7. FINANCING

The 2025 Notes will mature in less than twelve months and have been reclassified to the current portion of long-term debt from long-term debt in the Condensed Consolidated Balance Sheets as of September 30, 2024. See Note 8 within the Company’s audited consolidated financial statements included in the 2023 Annual Report for additional information on the terms and conditions of the Company’s debt obligations.

Senior Secured Credit Facilities

During the three and nine months ended September 30, 2024, the Company made the quarterly scheduled amortization payments totaling $8.0 million and $24.0 million, respectively, on the Company’s senior secured term loan due 2026 (the 2026 Term Loan). The current portion of long-term debt reflects repayments due under the 2026 Term Loan of $32.0 million and the 2025 Notes as described above.

As of September 30, 2024, the Company did not reflect any portion of the 2026 Term Loan as a current portion of long-term debt related to the potentially required excess cash flow payment because the amount that may be payable in 2024, if any, cannot currently be reliably estimated. There is no excess cash flow payment required in 2024 related to 2023.

During the nine months ended September 30, 2024, the Company didnot borrow under the Revolving Credit Facility. As of September 30, 2024, the Company hadno outstanding borrowings under the Revolving Credit Facility and had availability of $567.9 million, after giving effect to borrowing base limitations and outstanding letters of credit.

Other Matters

The Company’s non-guarantor subsidiaries held $2,781 million, or 32%, of total assets and $660 million, or 6%, of total liabilities as of September 30, 2024 and accounted for $409 million, or 29%, and $1,211 million, or 30%, of net sales for thethree and nine months ended September 30, 2024, respectively. All amounts presented exclude intercompany balances.

The weighted average effective interest rate on outstanding borrowings, including the impact of the interest rate swap contracts and the amortization of debt issuance costs and original issue discount, was 7.09% and 7.22% as of September 30, 2024 and December 31, 2023, respectively.

8. FAIR VALUE MEASUREMENTS

The Company’s financial instruments consist primarily of cash and cash equivalents, trade receivables, trade payables, debt instruments, interest rate swap contracts and foreign currency contracts. For cash and cash equivalents, trade receivables and trade payables, the carrying amounts of these financial instruments as of September 30, 2024 and December 31, 2023 were considered representative of their fair values due to their short terms to maturity. The fair values of the Company’s debt instruments, interest rate swap contracts 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 debt instruments, interest rate swap contracts and foreign currency contracts as of September 30, 2024 and December 31, 2023, are as follows:

Non-Recurring Fair Value Measurements

The Company recorded the assets acquired and liabilities assumed from the Casa Transaction during the second quarter of 2024, as well as the respective measurement adjustments in the third quarter of 2024. The fair values were determined using Level 3 valuation inputs. See Note 2 in these unaudited condensed consolidated financial statements.

During the first quarter of 2024, the Company recognized a loss on impairment of unutilized real estate within restructuring costs, net on the Condensed Consolidated Statements of Operations. The fair value was determined using Level 3 valuation inputs. See Note 10 in these unaudited condensed consolidated financial statements.

In the third quarter of 2023, a goodwill impairment charge of $425.9 million was recorded related to the ANS reporting unit within the ANS segment. The fair value was determined using Level 3 valuation inputs. See Note 1 and Note 4 in these unaudited condensed consolidated financial statements.

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.

9. SEGMENTS AND GEOGRAPHIC INFORMATION

As a result of the pending sale of the OWN segment and DAS business unit, and the divestiture of the Home business, the Company is reporting financial performance based on the following remaining three operating segments: CCS, NICS (excluding DAS) and ANS. In addition, as of January 1, 2024, management shifted certain product lines from the Company’s CCS segment to its ANS segment to better align with how the businesses are managed. For all periods presented, amounts have been recast to reflect these operating segment changes.

The CCS segment provides fiber optic and copper connectivity and cable solutions for use in telecommunications, cable television, residential broadband networks, data centers and business enterprises. The CCS portfolio includes network solutions for indoor and outdoor network applications. Indoor network solutions include optical fiber and twisted pair structured cable solutions, intelligent infrastructure management hardware and software and network rack and cabinet enclosures. Outdoor network solutions are used in both local-area and wide-area networks and “last mile” fiber-to-the-home installations, including deployments of fiber-to-the-node, fiber-to-the-premises and fiber-to-the-distribution point to homes, businesses and cell sites.

The NICS segment provides wireless networks for enterprises and service providers. Product offerings include indoor cellular solutions such as public key infrastructure solutions, indoor and outdoor Wi-Fi and long-term evolution (LTE) access points, access and aggregation switches; an Internet of Things suite; on-premises and cloud-based control and management systems; and software and software-as-a-service applications addressing security, location, reporting and analytics.

The ANS segment’s product solutions include cable modem termination systems, video infrastructure, distribution and transmission equipment and cloud solutions that enable facility-based service providers to construct a state-of-the-art residential and metro distribution network.

The following table provides summary financial information by reportable segment:

The Home business assets line item above reflects certain assets retained by the Company related to the Home business, with the primary asset being net inventory related to the Home business in the amount of $24.4 million and $88.0 million as of September 30, 2024 and December 31, 2023, respectively. The Company entered into the Vantiva Supply Agreement, pursuant to which the Company will sell the retained inventory to Vantiva at cost, or market price if below cost, for a period of two years following the close of the transaction.

The Company’s measurement of segment performance is adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization). The Company defines adjusted EBITDA as operating income (loss), adjusted to exclude depreciation, amortization of intangible assets, restructuring costs, asset impairments, equity-based compensation, transaction, transformation and integration costs and other items that the Company believes are useful to exclude in the evaluation of operating performance from period to period because these items are not representative of the Company’s recurring business.

The following table provides net sales, adjusted EBITDA, depreciation expense and additions to property, plant and equipment by reportable segment:

(1)

The corporate and other line item above reflects general corporate costs that were previously allocated to the OWN segment, DAS business unit and Home segment. These indirect expenses have been classified as continuing operations, since the costs were not directly attributable to these discontinued operations. Beginning in the first quarter of 2024, the corporate and other costs related to the Home segment have been reallocated to the Company’s remaining segments and partially offset by income from the Vantiva TSA. The corporate and other costs related to the OWN segment and DAS business unit will be reallocated to the Company’s remaining segments beginning in the first quarter of 2025.

Sales to customers located outside of the U.S. comprised 34.0% and 34.6% of total net sales for the three and nine months ended September 30, 2024, respectively, compared to 34.2% and 33.7% of total net sales for the three and nine months ended September 30, 2023, respectively. Sales by geographic region, based on the destination of product shipments or service provided, were as follows:

10. RESTRUCTURING COSTS (CREDITS), NET

The Company incurs costs associated with restructuring initiatives intended to improve overall operating performance and profitability. The costs related to restructuring actions are generally cash-based and primarily consist of employee-related costs, which include severance and other one-time termination benefits.

In addition to the employee-related costs, the Company records other costs associated with restructuring actions, such as the gain or loss on the sale of facilities and impairment costs arising from unutilized real estate or equipment. The Company attempts to sell or lease this unutilized space, but additional impairment charges may be incurred related to these or other excess assets.

The Company’s net pretax restructuring activity included inrestructuring costs (credits), net on the Condensed Consolidated Statements of Operations, by segment, was as follows:

The corporate and other line item above reflects general corporate restructuring costs that were previously allocated to the OWN segment, DAS business unit and Home segment. These indirect expenses have been classified as continuing operations, since the costs were not directly attributable to these discontinued operations. Beginning in the first quarter of 2024, the corporate and other costs related to the Home segment have been reallocated to the Company’s remaining segments. The corporate and other costs related to the OWN segment and DAS business unit will be reallocated to the Company’s remaining segments beginning in the first quarter of 2025.

Restructuring liabilities were included in the Company’s Condensed Consolidated Balance Sheets as follows:

CommScope NEXT Restructuring Actions

In the first quarter of 2021, the Company announced and began implementing a business transformation initiative called CommScope NEXT. This initiative is designed to drive shareholder value through three pillars: profitable growth, operational efficiency and portfolio optimization. The activity within the liability established for CommScope NEXT restructuring actions was as follows:

(1)

Reflects the reimbursement of severance and other costs from a third-party, for which the Company is obligated to pay.

CommScope NEXT actions to date have included the closure of manufacturing, administration and warehouse facilities, as well as headcount reductions in other manufacturing locations and engineering, marketing, sales and administrative functions, and asset impairments associated with restructuring-related actions. During the three and nine months ended September 30, 2024, additional expenses were recorded for employee-related costs for severance. Other costs included the impairment of idled administration and engineering facilities during the three and nine months ended September 30, 2024.

The Company has recognized restructuring charges of $204.8 million to date related to CommScope NEXT actions. The Company expects to make cash payments of $2.9 million during the remainder of 2024 to settle CommScope NEXT restructuring actions. Additional restructuring actions related to CommScope NEXT are expected to be identified, and the resulting charges and cash requirements could be material.

11. SERIES A CONVERTIBLE PREFERRED STOCK

On April 4, 2019, the Company issued and sold 1,000,000 shares of the Convertible Preferred Stock to Carlyle for $1.0 billion, or $1,000 per share, pursuant to an Investment Agreement between the Company and Carlyle, dated November 8, 2018. The Convertible Preferred Stock is convertible, at the option of the holders, at any time into shares of CommScope common stock at an initial conversion rate of 36.3636 shares of common stock per share of the Convertible Preferred Stock (equivalent to $27.50 per common share). The conversion rate is subject to customary antidilution and other adjustments. As of September 30, 2024, the Company had authorized 1,400,000 shares of the Convertible Preferred Stock.

Holders of the Convertible Preferred Stock are entitled to a cumulative dividend at the rate of 5.5% per year, payable quarterly in arrears. Dividends can be paid in cash, in-kind through the issuance of additional shares of the Convertible Preferred Stock or any combination of the two, at the Company’s option. During thethree and nine months ended September 30, 2024 and 2023, the Company paid dividends in-kind of $16.4 million and $48.6 million, respectively, and $15.5 million and $45.9 million, respectively, which were recorded as additional Convertible Preferred Stock in the Condensed Consolidated Balance Sheets.