UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 001-12929
CommScope, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-4135495
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1375 Lenoir-Rhyne Boulevard, Hickory, North Carolina
(Address of principal executive offices)
28602
(Zip Code)
(828) 324-2200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
As of July 31, 2000 there were 51,223,201 shares of Common Stock
outstanding.
<PAGE>
CommScope, Inc.
Form 10-Q
June 30, 2000
Table of Contents
Page No.
----------
Part I - Financial Information (Unaudited):
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Statements of Income 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Condensed Consolidated Statement of Stockholders' Equity 6
Notes to Condensed Consolidated Financial Statements 7 - 9
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Position 10 - 15
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
2
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<TABLE>
<CAPTION>
CommScope, Inc.
Condensed Consolidated Statements of Income
(Unaudited--in thousands, except net income per share amounts)
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Net sales $ 241,244 $ 186,882 $ 445,183 $ 334,953
Operating costs and expenses:
Cost of sales 176,863 137,022 328,449 248,258
Selling, general and administrative 20,080 17,330 38,477 31,899
Research and development 4,955 1,945 8,593 3,434
Amortization of goodwill 1,342 1,347 2,685 2,594
--------- --------- --------- ---------
Total operating costs and expenses 203,240 157,644 378,204 286,185
--------- --------- --------- ---------
Operating income 38,004 29,238 66,979 48,768
Other income (expense), net 495 (17) 480 (7)
Interest expense (2,588) (2,567) (4,976) (5,365)
Interest income 53 111 445 250
--------- --------- --------- ---------
Income before income taxes 35,964 26,765 62,928 43,646
Provision for income taxes (13,671) (9,673) (23,908) (15,794)
--------- --------- --------- ---------
Net income $ 22,293 $ 17,092 $ 39,020 $ 27,852
========= ========= ========= =========
Net income per share (Note 3):
Basic $ 0.44 $ 0.34 $ 0.76 $ 0.55
Assuming dilution $ 0.42 $ 0.33 $ 0.74 $ 0.54
Weighted average shares outstanding (Note 3):
Basic 51,151 50,650 51,046 50,527
Assuming dilution 56,249 51,906 56,167 51,613
See notes to condensed consolidated
financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
CommScope, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
<S> <C> <C>
(Unaudited)
June 30, December 31,
2000 1999
--------- ---------
Assets
Cash and cash equivalents $ 3,716 $ 30,223
Accounts receivable, less allowance for doubtful accounts of
$5,848 and $4,838, respectively 198,210 127,018
Inventories (Note 2) 64,986 40,208
Prepaid expenses and other current assets 2,692 2,376
Deferred income taxes 17,147 15,354
--------- ---------
Total current assets 286,751 215,179
Property, plant and equipment, net 220,015 181,488
Goodwill, net of accumulated amortization of
$51,457 and $48,777, respectively 159,373 162,075
Other intangibles, net of accumulated amortization of
$33,425 and $32,055, respectively 15,340 16,710
Other assets 6,451 7,083
--------- ---------
Total Assets $ 687,930 $ 582,535
========= =========
Liabilities and Stockholders' Equity
Accounts payable $ 55,434 $ 29,179
Other accrued liabilities 40,082 39,048
Current portion of long-term debt (Note 4) 716 --
--------- ---------
Total current liabilities 96,232 68,227
Long-term debt (Note 4) 226,906 198,402
Deferred income taxes 21,108 20,346
Other noncurrent liabilities 15,664 14,216
--------- ---------
Total Liabilities 359,910 301,191
Commitments and contingencies -- --
Stockholders' Equity:
Preferred stock, $.01 par value; Authorized shares: 20,000,000;
Issued and outstanding shares: None at June 30, 2000 and
December 31, 1999 -- --
Common stock, $.01 par value; Authorized shares: 300,000,000;
Issued and outstanding shares: 51,212,934 at June 30, 2000;
50,889,208 at December 31, 1999 512 509
Additional paid-in capital 174,873 166,875
Retained earnings 154,935 115,915
Accumulated other comprehensive loss (2,300) (1,955)
--------- ---------
Total Stockholders' Equity 328,020 281,344
--------- ---------
Total Liabilities and Stockholders' Equity $ 687,930 $ 582,535
========= =========
See notes to condensed consolidated
financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
CommScope, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited - in thousands)
<S> <C> <C>
Six Months Ended
June 30,
-----------------------------
2000 1999
-------- --------
Operating Activities:
Net income $ 39,020 $ 27,852
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 16,894 14,077
Deferred income taxes (1,331) (1,411)
Changes in assets and liabilities:
Accounts receivable (71,435) (34,628)
Inventories (25,037) (837)
Prepaid expenses and other current assets (326) 1,576
Accounts payable and other accrued liabilities 31,553 28,857
Other noncurrent liabilities 1,447 893
Other 35 (165)
-------- --------
Net cash provided by (used in) operating activities (9,180) 36,214
Investing Activities:
Additions to property, plant and equipment (51,619) (15,018)
Acquisition of business in Seneffe, Belgium -- (17,023)
Sale of property, plant and equipment 353 172
-------- --------
Net cash used in investing activities (51,266) (31,869)
Financing Activities:
Net borrowings (repayments) under revolving credit facility 30,000 (25,000)
Proceeds from term loan facility for acquisition of business
in Seneffe, Belgium -- 16,353
Proceeds from exercise of stock options 4,065 6,060
-------- --------
Net cash provided by (used in) financing activities 34,065 (2,587)
Effect of exchange rate changes on cash (126) (150)
-------- --------
Change in cash and cash equivalents (26,507) 1,608
Cash and cash equivalents, beginning of period 30,223 4,129
-------- --------
Cash and cash equivalents, end of period $ 3,716 $ 5,737
======== ========
See notes to condensed consolidated
financial statements.
</TABLE>
5
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<TABLE>
<CAPTION>
CommScope, Inc.
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited - in thousands, except share amounts)
Six Months Ended June 30, 2000
<S> <C> <C> <C> <C> <C> <C>
Accumulated
Number of Additional Other Total
Common Shares Common Paid-in Retained Comprehensive Stockholders'
Outstanding Stock Capital Earnings Loss Equity
---------- ---------- ---------- ---------- ---------- ----------
Balance December 31, 1999 50,889,208 $ 509 $ 166,875 $ 115,915 $ (1,955) $ 281,344
Issuance of shares for stock
option exercises 323,726 3 4,062 -- -- 4,065
Tax benefit from stock option
exercises -- -- 3,936 -- -- 3,936
Comprehensive income:
Net income -- -- -- 39,020 -- 39,020
Other comprehensive loss -- -- -- -- (345) (345)
---------- ---------- ---------- ---------- ---------- ----------
Total comprehensive income -- -- -- 39,020 (345) 38,675
---------- ---------- ---------- ---------- ---------- ----------
Balance June 30, 2000 51,212,934 $ 512 $ 174,873 $ 154,935 $ (2,300) $ 328,020
========== ========== ========== ========== ========== ==========
See notes to condensed consolidated
financial statements.
</TABLE>
6
<PAGE>
CommScope, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited - In Thousands, Unless Otherwise Noted)
1. BACKGROUND AND BASIS OF PRESENTATION
Background
CommScope, Inc. ("CommScope" or the "Company"), through its wholly
owned subsidiaries, operates in the cable manufacturing business. CommScope
is a leading worldwide designer, manufacturer and marketer of a wide array
of broadband coaxial cables and other high-performance electronic and fiber
optic cable products for cable television, telephony, Internet access and
wireless communications. Management believes CommScope is the world's
largest manufacturer of coaxial cable for hybrid fiber coaxial (HFC) cable
television systems. CommScope is also a leading supplier of coaxial,
twisted pair, and fiber optic cables for premise wiring (local area
networks), wireless and other communication applications.
Basis of Presentation
The condensed consolidated balance sheet as of June 30, 2000, the
condensed consolidated statements of income for the three months and six
months ended June 30, 2000 and 1999, the condensed consolidated statements
of cash flows for the six months ended June 30, 2000 and 1999, and the
condensed consolidated statement of stockholders' equity for the six months
ended June 30, 2000 are unaudited and reflect all adjustments of a normal
recurring nature which are, in the opinion of management, necessary for a
fair presentation of the interim period financial statements. There were no
adjustments of a nonrecurring nature recorded during the three months and
six months ended June 30, 2000 or 1999. The results of operations for the
interim period are not necessarily indicative of the results of operations
to be expected for the full year.
The unaudited interim condensed consolidated financial statements of
CommScope have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). Accordingly, certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These interim condensed
consolidated financial statements should be read in conjunction with the
Company's December 31, 1999 audited consolidated financial statements and
notes thereto included in the Company's 1999 Annual Report on Form 10-K.
2. SUPPLEMENTAL BALANCE SHEET INFORMATION
Inventories consist of:
June 30, December 31,
2000 1999
------------ ------------
Raw materials $ 25,715 $ 16,597
Work in process 11,920 9,942
Finished goods 27,351 13,669
------------ ------------
$ 64,986 $ 40,208
============ ============
7
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3. NET INCOME PER SHARE
Below is a reconciliation of weighted average common shares
outstanding for basic net income per share to weighted average common and
potential common shares outstanding for diluted net income per share. Basic
net income per share is computed by dividing net income by the weighted
average number of common shares outstanding during the applicable periods.
Diluted net income per share is based on net income adjusted for after-tax
interest and amortization of debt issuance costs related to convertible
debt, if dilutive, divided by the weighted average number of common shares
outstanding adjusted for the dilutive effect of stock options and
convertible securities. The diluted net income per share calculation
assumes the exercise of stock options using the treasury stock method.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Six Months
Ended June 30, Ended June 30,
----------------------- -----------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Numerator:
Net income for basic net income per share $ 22,293 $ 17,092 $ 39,020 $ 27,852
Convertible debt interest and amortization,
net of tax 1,179 -- 2,361 --
----------- ----------- ----------- -----------
Net income available to common stockholders
for diluted net income per share $ 23,472 $ 17,092 $ 41,381 $ 27,852
=========== =========== =========== ===========
Denominator:
Weighted average number of common shares
outstanding for basic net income per share 51,151 50,650 51,046 50,527
Effect of dilutive securities:
Employee stock options 1,518 1,256 1,541 1,086
Convertible debt 3,580 -- 3,580 --
----------- ----------- ----------- -----------
Weighted average number of common and
potential common shares outstanding for
diluted net income per share 56,249 51,906 56,167 51,613
=========== =========== =========== ===========
</TABLE>
4. LONG-TERM DEBT
Long-term debt consisted of the following:
June 30, December 31,
2000 1999
------------ ------------
Credit Agreement $ 30,000 $ --
Convertible Notes 172,500 172,500
Eurodollar Credit Agreement 14,322 15,102
IDA Notes 10,800 10,800
------------ ------------
227,622 198,402
Less: current portion (716) --
------------ ------------
$ 226,906 $ 198,402
============ ============
Principal payments on the Eurodollar Credit Agreement are due in 20
equal quarterly installments of 750 euros beginning June 1, 2001.
8
<PAGE>
5. NEWLY ISSUED ACCOUNTING GUIDANCE
The SEC has issued Staff Accounting Bulletin No. 101 ("SAB 101"), as
amended on June 26, 2000, titled "Revenue Recognition in Financial
Statements." SAB 101 provides SEC guidance on the recognition, presentation
and disclosure of revenue in accordance with generally accepted accounting
principles in the financial statements. The Company must implement any
applicable provisions of SAB 101 no later than the fourth quarter of the
current fiscal year. The Company has determined that implementation of the
applicable provisions of SAB 101 will not have a material effect on the
Company's financial statements and current disclosures. However, the SEC
has recently indicated that it intends to issue further guidance with
respect to adoption of specific issues addressed by SAB 101. Until such
time as this additional guidance is issued, the Company is unable to assess
the impact, if any, it may have on the Company's financial statements and
current disclosures.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis 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 document as well as the audited consolidated financial statements,
related notes thereto and management's discussion and analysis of financial
condition and results of operations for the year ended December 31, 1999
included in our Annual Report on Form 10-K. Unless otherwise specified,
capitalized terms used herein are used as defined in our audited
consolidated financial statements for the year ended December 31, 1999 or
in the unaudited condensed consolidated financial statements included in
this document.
Highlights
For the second quarter ended June 30, 2000, we reported net income of
$22 million, or $0.42 per diluted share. These results reflect an increase
in net income of $5 million, or 30%, compared to the second quarter ended
June 30, 1999 net income of $17 million, or $0.33 per diluted share.
For the six months ended June 30, 2000, we reported net income of $39
million, or $0.74 per diluted share. These results reflect an increase in
net income of $11 million, or 40%, compared to the six months ended June
30, 1999 net income of $28 million, or $0.54 per diluted share.
Comparison of results of operations for the three and six month periods
ended June 30, 2000 with the three and six month periods ended June 30,
1999
Net Sales
Net sales for the second quarter ended June 30, 2000 increased $54
million, or 29%, to $241 million, compared to the second quarter ended June
30, 1999. Net sales for the six months ended June 30, 2000 increased $110
million, or 33%, to $445 million, compared to the six months ended June 30,
1999. This increase in net sales was primarily driven by strong domestic
broadband cable sales and robust international sales. Domestic sales rose
26% to $180 million in the second quarter and 34% to $334 million in the
six months ended June 30, 2000, compared to the same periods in 1999.
For the second quarter of 2000, international sales increased 41% to
$61 million compared to the same period in 1999. International sales for
the six months ended June 30, 2000 increased 30% to $111 million compared
to the same period in 1999. This performance reflects strong growth across
all regions led by a 60% year over year increase in second quarter sales to
the Asia/Pacific Rim region.
Net sales to cable television and other video distribution markets
("CATV/Video Products") for the second quarter of 2000 increased $39
million, or 27%, to $182 million, compared to the same period in 1999. For
the six months ended June 30, 2000, net sales of CATV/Video Products
increased $70 million, or 27%, to $332 million, compared to the same period
in 1999. These increases in sales of CATV/Video Products were led by strong
sales of broadband cable to Multiple System Operators ("MSOs"). Second
quarter domestic CATV/Video sales grew approximately 21%, year over year,
reflecting a strong increase in sales of fiber optic cable, despite tight
supplies of fiber during the second quarter of 2000. We believe that our
unique ability to offer both coaxial and fiber optic cable continues to be
an important competitive advantage. Sales in our portfolio of broadband
Hybrid Fiber Coaxial (HFC) products for last-mile communications
10
<PAGE>
continue to accelerate and interest continues to grow in the area of
residential cabling solutions for in-home video, voice and high-speed
Internet access.
Net sales for local area network and other data applications ("LAN
Products") for the second quarter of 2000 increased $2 million, or 10%, to
$25 million, compared to the same period in 1999. For the six months ended
June 30, 2000, sales of LAN Products increased $12 million, or 32%, to $50
million, compared to the same period in 1999. While demand for gigabit
network infrastructure systems remains strong for high-performance
products, competition has increased in the LAN Products market. We are
experiencing difficult pricing patterns at essentially all performance
levels and expect ongoing pricing pressure to continue.
Net sales for wireless and other telecommunications products
("Wireless and Other Products") for the second quarter of 2000 increased
$13 million, or 64%, to nearly $35 million, compared to the same period in
1999. For the six months ended June 30, 2000, sales of Wireless and Other
Products increased $28 million, or 79%, to $64 million, compared to the
same period in 1999. This substantial year over year increase reflects
strong growth in both sales of Cell Reach(R) for wireless applications and
sales of other telecommunications products. Other telecommunications
products primarily represent cables designed for switching and transmission
applications for enhanced telecommunications services. We have achieved
robust growth in sales of our Cell Reach products, and with our expanded
product line we have the capability to support mobile wireless and wireless
local loop applications. As a result of this growth, we are adding
significant wireless capacity during the second half of 2000. In addition,
we have established a full-service distribution facility in Sparks, Nevada
that is intended to support our ability to serve large wireless buildouts
across the United States. While we expect Cell Reach to be a substantial
contributor to CommScope's long-term growth, we anticipate increasing
pricing pressure and aggressive competition in the wireless market.
Gross Profit (Net Sales Less Cost of Sales)
Gross profit for the second quarter ended June 30, 2000 was
approximately $64 million, compared to almost $50 million for the same
period in 1999, and gross profit margin remained flat at 26.7% for both
periods. For the six months ended June 30, 2000, gross profit increased to
$117 million, compared to $87 million for the same period in 1999. Our
first quarter 2000 price increases contributed to the slight increase in
gross profit margin to 26.2% for the six months ended June 30, 2000,
compared to 25.9% for the same period in 1999. These price increases also
resulted in an increase in gross profit margin of approximately 1% for the
second quarter of 2000 compared to the first quarter. However, year over
year growth in the second quarter was constrained primarily by the rising
cost of key materials which offset the favorable effect of the first
quarter 2000 price increases.
While the tight supply and rising cost of key materials are expected
for the remainder of the year, we continue to make progress on capacity and
material supply issues. A major focus during the second half of 2000 will
be to accelerate the internal production of bimetallic center conductors
for coaxial cables. Although we produced small quantities during the second
quarter of 2000, the ramp up of production has progressed slower than
anticipated. In order to enhance our ability to meet the strong demand for
broadband coaxial cables, we have allocated additional resources to this
vertical integration project and we have an ongoing supply arrangement for
bimetallic center conductors with our current supplier through the end of
2000. In response to the rapid rise in the cost of materials, we intend to
raise prices for essentially all HFC-related cable products by
approximately 6% with implementation beginning in mid-September.
11
<PAGE>
Selling, General and Administrative
Selling, general and administrative ("SG&A") expense for the second
quarter ended June 30, 2000 was $20 million, or 8.3% of sales, compared to
$17 million, or 9.3% of sales, for the same period in 1999. For the six
months ended June 30, 2000, SG&A expense was $38 million, or 8.6% of sales,
compared to $32 million, or 9.5% of sales, for the same period in 1999.
SG&A expense as a percent of sales decreased approximately 1% year over
year mainly because general and administrative expenses did not grow at the
same rate as sales and the associated selling expenses. We expect SG&A
expense to be in the range of 8.5% to 9.0% of sales over the longer term.
Research and Development
Research and development ("R&D") expense rose to nearly $5 million, or
2% of sales, for the second quarter ended June 30, 2000, compared to $2
million, or 1% of sales, for the same period in 1999. For the six months
ended June 30, 2000, R&D expense rose to almost $9 million, or 2% of sales,
compared to just over $3 million, or 1% of sales, for the same period in
1999. This increase was due primarily to our vertical integration projects
for bimetal wire fabrication and fine wire drawing. We expect the level of
R&D expense to remain at around 2% of sales for the remainder of 2000 due
primarily to these ongoing vertical integration projects and programs to
develop new products.
Other Income (Expense), Net
Other income (expense), net for the three months and six months ended
June 30 ,2000 includes a one-time pretax gain of $517 thousand related to
the final liquidation of a closed Australian joint venture. We anticipate
no third party claims and no additional gains or losses related to this
joint venture. In addition, we expect this joint venture to be completely
dissolved by or around the end of 2000 once the deregistration period
required by Australian legal authorities is complete.
Net Interest Expense
Net interest expense was flat at $2.5 million for the second quarters
ended June 30, 2000 and 1999. For the six months ended June 30, 2000, net
interest expense decreased to $4.5 million, compared to $5.1 million for
the same period in 1999. Our weighted average effective interest rate
decreased from June 30, 1999 to June 30, 2000, during a period of rising
market interest rates, due mainly to the favorable impact of the issuance
of our 4% fixed rate convertible subordinated notes in December 1999. All
outstanding borrowings under our revolving credit agreement, which carries
a variable interest rate, were repaid in December 1999 with proceeds from
the issuance of our convertible notes. However, we borrowed an additional
$30 million under the revolving credit agreement during the first six
months of 2000. During the quarter ended June 30, 2000, the favorable
impact of the convertible notes was somewhat offset by the increase in the
variable interest rate on our revolving credit agreement, compared to the
same period in 1999.
Income Taxes
Our effective tax rate was 38% for the second quarter and six months
ended June 30, 2000, compared to 36% for the same periods in 1999. This
fluctuation in our effective tax rate was mainly due to the strength in
domestic versus international sales, which diluted the impact of our
foreign sales corporation tax benefit during 2000.
12
<PAGE>
Liquidity and Capital Resources
Cash used in operating activities was approximately $9 million for the
six months ended June 30, 2000, compared to cash provided by operating
activities of $36 million for the same period in 1999. This decrease in
operating cash flow was primarily due to an increase in non-cash components
of working capital.
Working capital was $191 million at June 30, 2000, compared to $147
million at December 31, 1999. The increase in inventories during the six
months ended June 30, 2000, resulting from higher production levels, was
more than offset by an increase in accounts payable. The increase in
accounts receivable was due primarily to higher sales volume, but was also
impacted by an increase in our days sales outstanding. We expect days sales
outstanding to improve modestly over the remainder of 2000, based on
improvements in the efficiency of operating the accounts receivable related
modules of our new information management system.
During the six months ended June 30, 2000, we invested $52 million in
property, plant and equipment compared to $15 million during the same
period in 1999. We have increased capital spending during 2000 to support
vertical integration projects, capacity expansion and equipment upgrades to
meet increased current and anticipated future business demands. We expect
capital expenditures for equipment and facilities in 2000 to be
approximately $90 to $100 million.
We utilized an additional $17 million during the six months ended June
30, 1999 to acquire Alcatel's coaxial cable business in Seneffe, Belgium.
Our principal sources of liquidity both on a short-term and long-term
basis are cash flows provided by operations and funds available under
long-term credit facilities. We currently have $320 million of available
borrowing capacity under our revolving credit agreement, which expires in
December 2002. We had long-term debt of $228 million, or 41% of our book
capital structure, defined as long-term debt and total stockholders'
equity, as of June 30, 2000, compared to $198 million, or 41% of our book
capital structure as of December 31, 1999. The increase in long-term debt
during the six months ended June 30, 2000 was due to additional borrowing
under our revolving credit agreement to finance working capital needs and
increased capital expenditures necessary to support vertical integration
projects, expand capacity and upgrade equipment.
Based upon analysis of our consolidated financial position and the
expected results of our operations in the future, we believe that we will
have sufficient cash flows from future operations and the financial
flexibility to attract both short-term and long-term capital on acceptable
terms as may be needed to fund operations, capital expenditures and other
growth objectives and to support principal and interest payment
requirements on our outstanding long-term indebtedness. There can be no
assurance, however, that future industry-specific developments, general
economic trends or other situations will not adversely affect our
operations or ability to meet cash requirements.
Market Risk
As disclosed in our Annual Report on Form 10-K for the year ended
December 31, 1999, our major market risk exposure relates to adverse
fluctuations in commodity prices, interest rates and foreign currency
exchange rates. We have established a risk management strategy that
includes the use of derivative financial instruments primarily to reduce
our exposure to these market risks.
13
<PAGE>
Our exposure associated with these market risks has not materially changed
since December 31, 1999. During the first six months of 2000, we borrowed
an additional $30 million under our revolving credit agreement, which bears
interest at a variable rate. However, we do not believe that the market
risk associated with this debt is material to our financial position and
results of operations. In addition, we have not acquired any new derivative
financial instruments since that date or terminated any derivative
financial instruments that existed at that date.
Information Management System
On January 2, 2000, we began the implementation of a new integrated
information management system. Our goal for this new computer-based system
is to help us improve business practices, allow faster access to
information and, among other things, ultimately enable us to service our
customers better in the future.
However, during January 2000 we experienced some delays in certain
shipments in connection with the transition to this new information system.
During the first quarter of 2000, we worked diligently to resolve these
transition issues and to increase shipping efforts to reduce the
system-related backlogs. During the first six months of 2000, the
transition also contributed to an increase in accounts receivable (see
"Liquidity and Capital Resources"). We do not believe that these transition
issues will have a material impact on our results of operations, liquidity,
or financial condition for the full year 2000. We have made progress
incorporating our new information system into our business model and expect
to reap its full benefits over the longer term. However, we cannot assure
you that we will incur no future issues with this system.
Newly Issued Accounting Guidance
The Securities and Exchange Commission ("SEC") has issued Staff
Accounting Bulletin No. 101 ("SAB 101"), as amended on June 26, 2000,
titled "Revenue Recognition in Financial Statements." SAB 101 provides SEC
guidance on the recognition, presentation and disclosure of revenue in
accordance with generally accepted accounting principles in the financial
statements. We must implement any applicable provisions of SAB 101 no later
than the fourth quarter of the current fiscal year. We have determined that
implementation of the applicable provisions of SAB 101 will not have a
material effect on our financial statements and current disclosures.
However, the SEC has recently indicated that it intends to issue further
guidance with respect to adoption of specific issues addressed by SAB 101.
Until such time as this additional guidance is issued, we are unable to
assess the impact, if any, it may have on our financial statements and
current disclosures.
Forward-Looking Statements
Certain statements in this Form 10-Q that are other than historical
facts are intended to be "forward-looking statements" within the meaning of
the Securities Exchange Act of 1934, the Private Securities Litigation
Reform Act of 1995 and other related laws and include but are not limited
to those statements relating to sales and earnings expectations, cost and
availability of key raw materials, internal production capacity and
expansion, competitive pricing, relative market position and outlook. While
we believe such statements are reasonable, the actual results and effects
could differ materially from those currently anticipated. These
forward-looking statements are identified, including, without limitation,
by their use of such terms and phrases as "intends," "intend," "intended,"
"goal," "estimate," "estimates," "expects," "expect," "expected,"
"project," "projects," "projected," "projections," "plans," "anticipates,"
"anticipated," "should," "designed to," "foreseeable future," "believe,"
"believes" and "scheduled" and similar expressions. These statements are
subject to various risks and uncertainties, many of which are outside our
control, including, without limitation, cost and availability of key raw
materials (including without limitation bimetallic center conductors,
optical fibers, fine aluminum wire and fluorinated-ethylene-propylene which
are available only from limited sources), successful implementation of
internal bimetal production and other vertical integration activities,
pricing and acceptance of our products, successful expansion and related
operation of
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our facilities, margin improvement, effective implementation of our
integrated information management system, developments in technology,
industry competition, achievement of sales, growth, and earnings goals,
regulatory changes affecting our business, worldwide economic conditions,
foreign currency fluctuations, technological obsolescence, the ability to
achieve reductions in costs and to continue to integrate acquisitions,
international economic and political uncertainties and other factors
discussed. Actual results may also differ due to changes in
telecommunications industry capital spending, which is affected by a
variety of factors, including without limitation, general economic
conditions, acquisitions of telecommunication companies by others,
consolidation within the telecommunications industry, the financial
condition of telecommunications companies and their access to financing,
competition among telecommunications companies, technological developments,
and new legislation and regulation of telecommunications companies. These
and other factors are discussed in greater detail in Exhibit 99 to this
Form 10-Q. The information contained in this Form 10-Q represents our best
judgment at the date of this report based on information currently
available. However, we do not intend to update this information to reflect
developments or information obtained after the date of this report and
disclaim any legal obligation to do so.
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders (the
"Meeting") on May 5, 2000. Proxies for such meeting were
solicited pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended. A total of 50,995,406
shares of Common Stock with one vote each were entitled to
vote at the Meeting and holders of 46,427,463 shares voted in
person or by proxy, constituting a quorum.
At the Meeting, two of the Company's directors were elected
for three year terms ending at the 2003 Annual Meeting of
Stockholders by the vote set forth below:
Name of Director Votes For Votes Withheld
Frank M. Drendel 45,858,121 569,342
Duncan M. Faircloth 45,818,547 608,916
The Company's other four directors, whose terms of office continue
after the Meeting, are Edward D. Breen, Boyd L. George, George N.
Hutton, Jr., and James N. Whitson.
A proposal to ratify the appointment by the board of
directors of the Company of Deloitte & Touche LLP as
independent auditors for the Company for the 2000 fiscal year
was approved by 46,331,210 votes cast in favor, 37,681 votes
cast against and 58,572 votes abstaining.
In addition, a proposal to ratify an amendment to the Amended
and Restated CommScope, Inc. 1997 Long-term Incentive Plan
was approved by 30,622,879 votes cast in favor, 15,665,290
votes cast against and 139,294 votes abstaining. The
amendment provides for an increase in the shares reserved for
issuance under the Plan by an additional 2,000,000 shares.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO.
10.7.2 Second Amendment to the Credit Agreement, dated
as of April 27, 2000 to the Credit Agreement
dated as of July 23, 1997, among CommScope, Inc.
of North Carolina, The Chase Manhattan Bank, as
Administrative Agent, and the Banks from time to
time parties thereto, and the financial
institutions named therein as co-agents for the
Banks.
10.11.2 Second Amendment to the Credit Agreement, dated
as of June 28, 2000 to the Credit Agreement
dated as of February 26, 1999, between First
Union National Bank and CommScope, Inc. of North
Carolina.
27. Financial Data Schedule
99. Forward-Looking Information
(b) Reports on Form 8-K filed during the three months ended June
30, 2000:
On April 20, 2000 we filed a current report on Form
8-K announcing our financial results for the first
quarter ended March 31, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMSCOPE, INC.
August 14, 2000 /s/ Jearld L. Leonhardt
---------------- ----------------------------------------------------
Date Jearld L. Leonhardt
Executive Vice President and Chief Financial Officer
Signing both in his capacity as Executive Vice
President on behalf of the Registrant and as
Chief Financial Officer of the Registrant
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