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 September 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 October 31, 2000 there were 51,241,101 shares of Common Stock
outstanding.
<PAGE>
CommScope, Inc.
Form 10-Q
September 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 6. Exhibits and Reports on Form 8-K 16
Signatures 17
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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
--------- --------- --------- ---------
Net sales $ 256,873 $ 202,315 $ 702,056 $ 537,268
Operating costs and expenses:
Cost of sales 190,608 147,782 519,057 396,040
Selling, general and administrative 20,105 16,830 58,582 48,729
Research and development 5,158 2,106 13,751 5,540
Amortization of goodwill 1,341 1,347 4,026 3,941
--------- --------- --------- ---------
Total operating costs and expenses 217,212 168,065 595,416 454,250
--------- --------- --------- ---------
Operating income 39,661 34,250 106,640 83,018
Other income (expense), net 12 (1) 492 (8)
Interest expense (2,635) (2,424) (7,611) (7,789)
Interest income 39 57 484 307
--------- --------- --------- ---------
Income before income taxes 37,077 31,882 100,005 75,528
Provision for income taxes (14,089) (12,144) (37,997) (27,938)
--------- --------- --------- ---------
Net income $ 22,988 $ 19,738 $ 62,008 $ 47,590
========= ========= ========= =========
Net income per share (Note 3):
Basic $ 0.45 $ 0.39 $ 1.21 $ 0.94
Assuming dilution $ 0.43 $ 0.38 $ 1.17 $ 0.92
Weighted average shares outstanding (Note 3):
Basic 51,229 50,775 51,106 50,611
Assuming dilution 55,972 52,273 56,108 51,861
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
CommScope, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
<S> <C> <C>
(Unaudited)
September 30, December 31,
2000 1999
--------- ---------
Assets
Cash and cash equivalents $ 5,698 $ 30,223
Accounts receivable, less allowance for doubtful accounts of
$7,482 and $4,838, respectively 201,583 127,018
Inventories (Note 2) 60,959 40,208
Prepaid expenses and other current assets 3,086 2,376
Deferred income taxes 19,367 15,354
--------- ---------
Total current assets 290,693 215,179
Property, plant and equipment, net 240,300 181,488
Goodwill, net of accumulated amortization of
$52,788 and $48,777, respectively 158,011 162,075
Other intangibles, net of accumulated amortization of
$34,110 and $32,055, respectively 14,886 16,710
Other assets 9,893 7,083
--------- ---------
Total Assets $ 713,783 $ 582,535
========= =========
Liabilities and Stockholders' Equity
Accounts payable $ 59,521 $ 29,179
Other accrued liabilities 47,757 39,048
Current portion of long-term debt (Note 4) 1,323 --
--------- ---------
Total current liabilities 108,601 68,227
Long-term debt (Note 4) 216,204 198,402
Deferred income taxes 22,285 20,346
Other noncurrent liabilities 16,267 14,216
--------- ---------
Total Liabilities 363,357 301,191
Commitments and contingencies (Note 5) -- --
Stockholders' Equity:
Preferred stock, $.01 par value; Authorized shares: 20,000,000;
Issued and outstanding shares: None at September 30, 2000 and
December 31, 1999 -- --
Common stock, $.01 par value; Authorized shares: 300,000,000;
Issued and outstanding shares: 51,241,014 at September 30, 2000;
50,889,208 at December 31, 1999 512 509
Additional paid-in capital 175,456 166,875
Retained earnings 177,923 115,915
Accumulated other comprehensive loss (3,465) (1,955)
--------- ---------
Total Stockholders' Equity 350,426 281,344
--------- ---------
Total Liabilities and Stockholders' Equity $ 713,783 $ 582,535
========= =========
See notes to condensed consolidated financial statements.
</TABLE>
4
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<TABLE>
<CAPTION>
CommScope, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited - in thousands)
<S> <C> <C>
Nine Months Ended
September 30,
2000 1999
-------- --------
Operating Activities:
Net income $ 62,008 $ 47,590
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 25,831 21,207
Deferred income taxes (2,790) (1,705)
Tax benefit from stock option exercises 4,138 2,171
Changes in assets and liabilities:
Accounts receivable (75,607) (48,952)
Inventories (21,532) (1,644)
Prepaid expenses and other current assets (767) 1,203
Accounts payable and other accrued liabilities 39,800 34,208
Other noncurrent liabilities 2,052 1,370
Other (72) 86
-------- --------
Net cash provided by operating activities 33,061 55,534
Investing Activities:
Additions to property, plant and equipment (79,455) (28,860)
Acquisition of business in Seneffe, Belgium -- (17,023)
Investment in unconsolidated affiliate (3,750) --
Sale of property, plant and equipment 470 21
-------- --------
Net cash used in investing activities (82,735) (45,862)
Financing Activities:
Net borrowings (repayments) under revolving credit facility 21,000 (30,000)
Proceeds from term loan facility for acquisition of business
in Seneffe, Belgium -- 16,353
Proceeds from exercise of stock options 4,446 6,849
-------- --------
Net cash provided by (used in) financing activities 25,446 (6,798)
Effect of exchange rate changes on cash (297) (180)
-------- --------
Change in cash and cash equivalents (24,525) 2,694
Cash and cash equivalents, beginning of period 30,223 4,129
-------- --------
Cash and cash equivalents, end of period $ 5,698 $ 6,823
======== ========
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)
Nine Months Ended September 30, 2000
<S> <C> <C> <C> <C> <C> <C>
Number of Accumulated
Common Additional Other Total
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 351,806 3 4,443 -- -- 4,446
Tax benefit from stock option
exercises -- -- 4,138 -- -- 4,138
Comprehensive income:
Net income -- -- -- 62,008 -- 62,008
Other comprehensive loss -- -- -- -- (1,510) (1,510)
---------- ---------- ---------- ---------- ---------- ----------
Total comprehensive income -- -- -- 62,008 (1,510) 60,498
---------- ---------- ---------- ---------- ---------- ----------
Balance September 30, 2000 51,241,014 $ 512 $ 175,456 $ 177,923 $ (3,465) $ 350,426
========== ========== ========== ========== ========== ==========
See notes to condensed consolidated financial statements.
</TABLE>
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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 September 30, 2000, the
condensed consolidated statements of income for the three months and nine months
ended September 30, 2000 and 1999, the condensed consolidated statements of cash
flows for the nine months ended September 30, 2000 and 1999, and the condensed
consolidated statement of stockholders' equity for the nine months ended
September 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. 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.
Certain prior year amounts have been reclassified to conform to the 2000
presentation.
2. SUPPLEMENTAL BALANCE SHEET INFORMATION
Inventories consist of:
September 30, December 31,
2000 1999
------------ ------------
Raw materials $ 30,187 $ 16,597
Work in process 11,348 9,942
Finished goods 19,424 13,669
------------ ------------
$ 60,959 $ 40,208
============ ============
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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 Nine Months
Ended Ended
September 30, September 30,
----------------- -----------------
2000 1999 2000 1999
------- ------- ------- -------
Numerator:
Net income for basic net income per share $22,988 $19,738 $62,008 $47,590
Convertible debt interest and amortization,
net of tax 1,177 -- 3,538 --
------- ------- ------- -------
Net income available to common stockholders
for diluted net income per share $24,165 $19,738 $65,546 $47,590
======= ======= ======= =======
Denominator:
Weighted average number of common shares
outstanding for basic net income per share 51,229 50,775 51,106 50,611
Effect of dilutive securities:
Employee stock options 1,163 1,498 1,422 1,250
Convertible debt 3,580 -- 3,580 --
------- ------- ------- -------
Weighted average number of common and
potential common shares outstanding for
diluted net income per share 55,972 52,273 56,108 51,861
======= ======= ======= =======
</TABLE>
4. LONG-TERM DEBT
Long-term debt consisted of the following:
September 30, December 31,
2000 1999
------------ ------------
Credit Agreement $ 21,000 $ --
Convertible Notes 172,500 172,500
Eurodollar Credit Agreement 13,227 15,102
IDA Notes 10,800 10,800
------------ ------------
217,527 198,402
Less: current portion (1,323) --
------------ ------------
$ 216,204 $ 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. COMMITMENTS AND CONTINGENCIES
At September 30, 2000, the Company had commitments outstanding for capital
expenditures under purchase orders and contracts of approximately $11.6 million.
These commitments relate to ongoing capacity expansion projects.
6. 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.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." In June 2000, the FASB issued
SFAS No. 138, which amends certain provisions of SFAS No. 133 to clarify four
areas causing difficulties in implementation. The amendment included expanding
the normal purchases and sales exemption for supply contracts, permitting the
offsetting of certain intercompany foreign currency derivatives, permitting
hedge accounting for foreign currency denominated assets and liabilities, and
redefining interest rate risk to reduce sources of ineffectiveness. The Company
has begun identifying derivative instruments as defined in SFAS No. 133,
reviewing contracts for embedded derivatives, and evaluating the need for
recognition and disclosure of any derivatives identified. In addition, the
Company has begun developing policies and procedures with respect to overall
risk management, hedge designation and effectiveness, ongoing review of
contracts for derivative implications, and various other SFAS No. 133 issues. In
conjunction with this process, the Company is also evaluating the impact of SFAS
No. 133, as amended by SFAS No. 138, on CommScope's consolidated results of
operations, financial position, and cash flows. The Company will adopt SFAS No.
133 and the amendments provided by SFAS No. 138 on January 1, 2001.
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 third quarter ended September 30, 2000, we reported net income of $23
million, or $0.43 per diluted share. These results reflect an increase in net
income of $3 million, or 16%, compared to the third quarter ended September 30,
1999 net income of $20 million, or $0.38 per diluted share.
For the nine months ended September 30, 2000, we reported net income of $62
million, or $1.17 per diluted share. These results reflect an increase in net
income of $14 million, or 30%, compared to the nine months ended September 30,
1999 net income of $48 million, or $0.92 per diluted share.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIODS ENDED
SEPTEMBER 30, 2000 WITH THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30,
1999
Net Sales
Net sales for the third quarter ended September 30, 2000 increased $55
million, or 27%, to $257 million, compared to the third quarter ended September
30, 1999. Net sales for the nine months ended September 30, 2000 increased $165
million, or 31%, to $702 million, compared to the nine months ended September
30, 1999. This performance was primarily driven by a strong increase in sales of
broadband cable for Hybrid Fiber Coaxial ("HFC") applications. Higher sales
volume, combined with price increases on certain products, accounted for the
majority of these increases. Domestic sales rose 27% to $197 million in the
third quarter of 2000 and 31% to $532 million in the nine months ended September
30, 2000, compared to the same periods in 1999.
For the third quarter of 2000, international sales increased 29% to $60
million compared to the same period in 1999. International sales for the nine
months ended September 30, 2000 increased 29% to $170 million compared to the
same period in 1999. This performance reflects robust international demand for
HFC products, especially in Latin America where third quarter sales nearly
doubled year over year.
Net sales to cable television and other video distribution markets
("CATV/Video Products") for the third quarter of 2000 increased $49 million, or
33%, to $198 million, compared to the same period in 1999. For the nine months
ended September 30, 2000, net sales of CATV/Video Products increased $119
million, or 29%, to $529 million, compared to the same period in 1999. These
increases reflect accelerating worldwide demand for our portfolio of HFC
products, including fiber optic cable. Sales of our fiber optic cable increased
more than 50% year over year for the third quarter and nine months ended
September 30, 2000, despite the ongoing tight supply of fiber. Third quarter
10
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domestic CATV/Video sales grew approximately 36%, year over year, led by strong
growth in sales of broadband cable to Multiple System Operators ("MSOs"). We
believe that our unique ability to offer both coaxial and fiber optic cable
continues to be an important competitive advantage.
Net sales for wireless and other telecommunications products ("Wireless and
Other Products") for the third quarter of 2000 increased $7 million, or 24%, to
$38 million, compared to the same period in 1999. For the nine months ended
September 30, 2000, sales of Wireless and Other Products increased $35 million,
or 53%, to $102 million, compared to the same period in 1999. We are in the
process of expanding our wireless capabilities and recently began production
testing of newly installed wireless equipment. While we expect our Cell Reach(R)
product for wireless applications to be a substantial contributor to our
long-term growth, we continue to experience pricing pressure and aggressive
competition in the wireless market. We also expect ongoing competitive pressures
for our other telecommunications products, which primarily represent coaxial
cables designed for switching and transmission applications for enhanced
telecommunications services.
Net sales for local area network and other data applications ("LAN Products")
for the third quarter of 2000 decreased $2 million, or 9%, to $21 million,
compared to the same period in 1999. For the nine months ended September 30,
2000, sales of LAN Products increased $10 million, or 17%, to $71 million,
compared to the same period in 1999. We are implementing a comprehensive
performance improvement plan for our LAN Products group, which includes
reorganizing sales and operational management and working with distributors to
reduce inventories, which we believe are too high. We expect this process to
have a negative impact on sales and orders of LAN Products during the fourth
quarter of 2000.
Gross Profit (Net Sales Less Cost of Sales)
Gross profit for the third quarter ended September 30, 2000 was approximately
$66 million, compared to almost $55 million for the same period in 1999, however
gross profit margin for the third quarter of 2000 decreased to 25.8% from 27.0%
for the same period in 1999. For the nine months ended September 30, 2000, gross
profit increased to $183 million, compared to $141 million for the same period
in 1999, while gross profit margin for the nine months ended September 30, 2000
decreased slightly to 26.1% compared to 26.3% for the same period in 1999. Price
increases for HFC products and favorable product mix had a positive effect on
gross profit margin during 2000, but were more than offset by the combination of
lower prices for LAN Products, the rising cost of key materials, and reduced
manufacturing efficiency resulting from capacity expansions, resulting in the
overall decline in gross profit margin, year over year. In response to rising
costs, we implemented a 6% price increase for HFC products in mid-September of
2000. While this price increase did not materially impact third quarter results,
it is expected to provide significant sequential improvement in gross profit
margin in the fourth quarter of 2000.
Due to the strong demand for broadband cables, we expect supplies of key
materials, such as bimetallic center conductors and optical fiber, to be tight
for the remainder of 2000. A major focus for us continues to be the acceleration
of internal production of bimetallic center conductors for coaxial cables. While
we have made progress improving output in this project, the ramp up of
production has progressed slower than anticipated. As a result, we have
allocated additional resources to this strategic vertical integration project.
In addition, we have secured a supply arrangement with our current supplier for
a fixed amount of bimetallic center conductors for calendar year 2001 and are
working toward a longer-term arrangement with them.
11
<PAGE>
Selling, General and Administrative
Selling, general and administrative ("SG&A") expense for the third quarter
ended September 30, 2000 was $20 million, or 7.8% of sales, compared to $17
million, or 8.3% of sales, for the same period in 1999. For the nine months
ended September 30, 2000, SG&A expense was $59 million, or 8.3% of sales,
compared to $49 million, or 9.1% of sales, for the same period in 1999. SG&A
expense as a percent of sales decreased slightly year over year mainly because
general and administrative expenses did not grow at the same rate as sales and
the associated selling expenses.
Research and Development
Research and development ("R&D") expense rose to $5 million, or 2% of sales,
for the third quarter ended September 30, 2000, compared to $2 million, or 1% of
sales, for the same period in 1999. For the nine months ended September 30,
2000, R&D expense rose to almost $14 million, or 2% of sales, compared to just
over $5 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.
Other Income (Expense), Net
Other income (expense), net for the nine months ended September 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 the end of
2000 once the deregistration period required by Australian legal authorities is
complete.
Net Interest Expense
Net interest expense was $2.6 million for the third quarter ended September
30, 2000, compared to $2.4 million for the same period in 1999. For the nine
months ended September 30, 2000, net interest expense decreased to $7.1 million,
compared to $7.5 million for the same period in 1999. Our weighted average
effective interest rate decreased from September 30, 1999 to September 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 $21 million, net of repayments, under the revolving credit agreement
to primarily fund capacity expansion projects and support working capital
requirements during the first nine months of 2000. The year over year increase
in net interest expense during the third quarter was due primarily to the
increase in total borrowings outstanding during the period. Also, the favorable
impact of the convertible notes was somewhat offset by the increase in the
variable interest rate on our revolving credit agreement from the same period in
1999.
Income Taxes
Our effective tax rate was 38% for the third quarter and nine months ended
September 30, 2000, compared to 38% for the quarter ended September 30, 1999 and
37% for the nine months ended September 30, 1999. We increased our effective tax
rate from 36% to 38% in the third quarter of 1999 to reflect an adjustment for
the strength in our domestic versus international sales, which diluted the
impact of our foreign sales corporation tax benefit during 1999 and 2000.
12
<PAGE>
Liquidity and Capital Resources
Cash provided by operating activities was approximately $33 million for the
nine months ended September 30, 2000, compared to $56 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 $182 million at September 30, 2000, compared to $147
million at December 31, 1999. The increase in inventories during the nine months
ended September 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.
During the nine months ended September 30, 2000, we invested $79 million in
property, plant and equipment compared to $29 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. As of September 30,
2000, we had committed funds of approximately $11.6 million under purchase
orders and contracts related to these projects. We expect capital expenditures
for equipment and facilities in 2000 to be approximately $100 to $110 million.
During the quarter ended September 30, 2000, we made an investment of
approximately $4 million in a wireless infrastructure project management
company. We utilized an additional $17 million during the nine months ended
September 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 $329 million of available borrowing capacity under
our revolving credit agreement, which expires in December 2002. We had total
long-term debt of $218 million, or 38% of our book capital structure, defined as
long-term debt and total stockholders' equity, as of September 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 nine months ended September
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
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<PAGE>
financial instruments primarily to reduce our exposure to these market risks.
Our exposure associated with these market risks has not materially changed since
December 31, 1999. During the first nine months of 2000, we borrowed an
additional $21 million, net of repayments, 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 nine 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.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." In June 2000, the FASB issued
SFAS No. 138, which amends certain provisions of SFAS No. 133 to clarify four
areas causing difficulties in implementation. The amendment included expanding
the normal purchases and sales exemption for supply contracts, permitting the
offsetting of certain intercompany foreign currency derivatives, permitting
hedge accounting for foreign currency denominated assets and liabilities, and
redefining interest rate risk to reduce sources of ineffectiveness. We have
begun identifying derivative instruments as defined in SFAS No. 133, reviewing
contracts for embedded derivatives, and evaluating the need for recognition and
disclosure of any derivatives identified. In addition, we have begun developing
policies and procedures with respect to overall risk management, hedge
designation and effectiveness, ongoing review of contracts for derivative
implications, and various other SFAS No. 133 issues. In conjunction with this
process, we are also evaluating the impact of SFAS No. 133, as amended by SFAS
No. 138, on our consolidated results of operations, financial position, and cash
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flows. We will adopt SFAS No. 133 and the amendments provided by SFAS No. 138 on
January 1, 2001.
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, expected demand, 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 our
facilities, margin improvement, effective implementation of our integrated
information management system, developments in technology, industry competition,
achievement of sales, growth, and earnings goals, ability of our customers to
secure adequate financing, 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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO.
27. Financial Data Schedule
99. Forward-Looking Information
(b) Reports on Form 8-K filed during the three months ended September
30, 2000:
On July 20, 2000 we filed a current report on Form 8-K announcing
our financial results for the second quarter ended June 30, 2000.
On August 14, 2000 we filed a current report on Form 8-K
commenting on our financial outlook for the third quarter ended
September 30, 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.
November 13, 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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