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, 2002
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.)
1100 COMMSCOPE PLACE, SE
P.O. BOX 339
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, 2002 there were 61,762,667 shares of Common Stock outstanding.
COMMSCOPE, INC.
FORM 10-Q
JUNE 30, 2002
TABLE OF CONTENTS
Page No.
--------
Part I - Financial Information (Unaudited):
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Condensed Consolidated Statements of Stockholders'
Equity and Comprehensive Income (Loss) 6
Notes to Condensed Consolidated Financial Statements 7 - 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15 - 21
Part II - Other Information:
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. Exhibits and Reports on Form 8-K 23
Signature 24
2
COMMSCOPE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED--IN THOUSANDS, EXCEPT NET INCOME PER SHARE AMOUNTS)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net sales $ 155,014 $ 199,899 $ 314,765 $ 417,259
-------- -------- -------- --------
Operating costs and expenses:
Cost of sales 123,291 151,589 247,617 316,155
Selling, general and administrative 41,060 20,579 62,293 42,545
Research and development 1,783 2,145 3,778 3,625
Amortization of goodwill -- 1,341 -- 2,683
Impairment charges for fixed assets
and investments -- 12,615 -- 12,615
-------- -------- -------- --------
Total operating costs and expenses 166,134 188,269 313,688 377,623
-------- -------- -------- --------
Operating income (loss) (11,120) 11,630 1,077 39,636
Other income (expense), net 746 (306) 359 (131)
Interest expense (2,259) (2,052) (4,441) (4,074)
Interest income 566 217 1,006 375
-------- -------- -------- --------
Income (loss) before income taxes and equity
in losses of OFS BrightWave, LLC (12,067) 9,489 (1,999) 35,806
Provision for income tax benefit (expense) 4,465 (3,511) 740 (13,249)
-------- -------- -------- --------
Income (loss) before equity in losses of
OFS BrightWave, LLC (7,602) 5,978 (1,259) 22,557
Equity in losses of OFS BrightWave, LLC (34,889) -- (42,880) --
-------- -------- -------- --------
Net income (loss) $ (42,491) $ 5,978 $ (44,139) $ 22,557
======== ======== ======== ========
Net income (loss) per share:
Basic $ (0.69) $ 0.12 $ (0.71) $ 0.44
Assuming dilution $ (0.69) $ 0.11 $ (0.71) $ 0.43
Weighted average shares outstanding:
Basic 61,758 51,385 61,737 51,350
Assuming dilution 61,758 52,231 61,737 52,133
See notes to condensed consolidated financial statements.
3
COMMSCOPE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(Unaudited)
June 30, December 31,
2002 2001
--------- ---------
ASSETS
Cash and cash equivalents $ 114,972 $ 61,929
Accounts receivable, less allowance for doubtful accounts of
$13,191 and $12,599, respectively 88,042 105,402
Inventories 49,571 47,670
Prepaid expenses and other current assets 14,129 12,724
Deferred income taxes 18,586 18,143
--------- ---------
Total current assets 285,300 245,868
Property, plant and equipment, net 257,965 277,169
Goodwill, net of accumulated amortization of
$59,521 and $59,493, respectively 151,324 151,307
Other intangibles, net of accumulated amortization of
$38,676 and $37,421, respectively 10,089 11,344
Investment in and advances to OFS BrightWave, LLC 116,214 196,860
Other assets 10,688 6,457
--------- ---------
Total Assets $ 831,580 $ 889,005
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 20,043 $ 16,339
Other accrued liabilities 32,418 27,753
Current portion of long-term debt 2,974 2,651
--------- ---------
Total current liabilities 55,435 46,743
Long-term debt, less current portion 191,479 191,918
Deferred income taxes 2,184 22,899
Other noncurrent liabilities 23,668 20,931
--------- ---------
Total Liabilities 272,766 282,491
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value; Authorized shares:
20,000,000; Issued and outstanding shares: None at
June 30, 2002 and December 31, 2001 -- --
Common stock, $.01 par value; Authorized shares:
300,000,000; Issued and outstanding shares: 61,762,667
at June 30, 2002; 61,688,256 at December 31, 2001 618 617
Additional paid-in capital 382,995 381,823
Retained earnings 184,528 228,667
Accumulated other comprehensive loss (9,327) (4,593)
--------- ---------
Total Stockholders' Equity 558,814 606,514
--------- ---------
Total Liabilities and Stockholders' Equity $ 831,580 $ 889,005
========= =========
See notes to condensed consolidated financial statements.
4
COMMSCOPE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - IN THOUSANDS)
Six Months Ended
June 30,
----------------------
2002 2001
--------- ---------
OPERATING ACTIVITIES:
Net income (loss) $ (44,139) $ 22,557
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 18,279 20,108
Equity in losses of OFS BrightWave, LLC 68,146 --
Impairment charges for fixed assets and investments -- 12,615
Deferred income taxes (20,688) (4,235)
Tax benefit from stock option exercises 128 423
Changes in assets and liabilities:
Accounts receivable 17,061 37,259
Inventories (2,105) 9,489
Prepaid expenses and other current assets (1,880) 1,158
Accounts payable and other accrued liabilities 7,719 (16,160)
Other noncurrent liabilities 2,659 1,939
Other 112 757
--------- ---------
Net cash provided by operating activities 45,292 85,910
INVESTING ACTIVITIES:
Additions to property, plant and equipment (5,439) (45,996)
Investment in unconsolidated affiliate -- (328)
Proceeds from repayment of advance to OFS BrightWave, LLC 12,646 --
Proceeds from disposal of fixed assets 164 --
--------- ---------
Net cash provided by (used in) investing activities 7,371 (46,324)
FINANCING ACTIVITIES:
Repayments under revolving credit facility -- (30,000)
Principal payments on long-term debt (1,371) (640)
Debt issuance costs (336) --
Proceeds from exercise of stock options 1,029 1,913
--------- ---------
Net cash used in financing activities (678) (28,727)
Effect of exchange rate changes on cash 1,058 (655)
--------- ---------
Change in cash and cash equivalents 53,043 10,204
Cash and cash equivalents, beginning of period 61,929 7,704
--------- ---------
Cash and cash equivalents, end of period $ 114,972 $ 17,908
========= =========
See notes to condensed consolidated financial statements.
5
COMMSCOPE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED - IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Six Months Ended
June 30,
----------------------------
2002 2001
------------ ------------
Number of common shares outstanding:
Balance at beginning of period 61,688,256 51,263,703
Issuance of shares to nonemployee director 1,000 --
Issuance of shares for stock option exercises 73,411 149,117
------------ ------------
Balance at end of period 61,762,667 51,412,820
------------ ------------
Common stock:
Balance at beginning of period $ 617 $ 513
Issuance of shares for stock option exercises 1 1
------------ ------------
Balance at end of period $ 618 $ 514
------------ ------------
Additional paid-in capital:
Balance at beginning of period $ 381,823 $ 175,803
Issuance of shares to nonemployee director 16 --
Issuance of shares for stock option exercises 1,028 1,912
Tax benefit from stock option exercises 128 423
------------ ------------
Balance at end of period $ 382,995 $ 178,138
------------ ------------
Retained earnings:
Balance at beginning of period $ 228,667 $ 200,802
Net income (loss) (44,139) 22,557
------------ ------------
Balance at end of period $ 184,528 $ 223,359
------------ ------------
Accumulated other comprehensive loss:
Balance at beginning of period $ (4,593) $ (2,598)
Other comprehensive loss (4,734) (3,641)
------------ ------------
Balance at end of period $ (9,327) $ (6,239)
------------ ------------
Total stockholders' equity $ 558,814 $ 395,772
============ ============
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Comprehensive income (loss):
Net income (loss) $ (42,491) $ 5,978 $ (44,139) $ 22,557
Other comprehensive loss, net of tax:
Foreign currency translation gain (loss) -
foreign subsidiaries 2,119 (266) 2,136 (845)
Foreign currency transaction loss on long-term
intercompany loans - foreign subsidiaries (5,841) (1,421) (6,092) (3,886)
Hedging gain (loss) on nonderivative instrument (887) 325 (791) 956
Effect of adopting SFAS No. 133 -- -- -- 229
Gain (loss) on derivative financial instrument
designated as a cash flow hedge (47) 2 13 (95)
------------ ------------ ------------ ------------
Total other comprehensive loss, net of tax (4,656) (1,360) (4,734) (3,641)
------------ ------------ ------------ ------------
Total comprehensive income (loss) $ (47,147) $ 4,618 $ (48,873) $ 18,916
============ ============ ============ ============
See notes to condensed consolidated financial statements.
6
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 and equity method investee, operates in the cable manufacturing
business, with manufacturing facilities located in the United States, Europe
and Latin America. 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 coax (HFC) broadband networks. 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, 2002, and the
condensed consolidated statements of operations and comprehensive income
(loss) for the three and six months ended June 30, 2002 and 2001 and the
condensed consolidated statements of cash flows and stockholders' equity for
the six months ended June 30, 2002 and 2001 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. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
of America have been condensed or omitted. These interim condensed
consolidated financial statements should be read in conjunction with the
Company's December 31, 2001 audited consolidated financial statements and
notes thereto included in the Company's 2001 Annual Report on Form 10-K.
Accounts Receivable
During the quarter ended June 30, 2002, the Company wrote off $20.5 million
of Adelphia Communications Corporation ("Adelphia") receivables as a result
of Adelphia's Chapter 11 bankruptcy, which was announced by Adelphia in June
2002. The Company has reached agreement with Adelphia on the terms under
which the Company will do business after the Chapter 11 bankruptcy filing
date.
Goodwill and Other Intangible Assets
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 broadens the
criteria for recording intangible assets separate from goodwill. SFAS No.
142 uses a nonamortization approach to account for purchased goodwill and
certain intangible assets with indefinite useful lives and also requires at
least an annual assessment for impairment by applying a fair-value-based
test. Intangible assets with finite useful lives will continue to be
amortized over their useful lives.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED - IN THOUSANDS, UNLESS OTHERWISE NOTED)
Under SFAS No. 142, goodwill must be tested for impairment as of the
beginning of the year in which the statement is adopted in its entirety.
SFAS No. 142 allows six months from the date the statement is initially
applied to complete the transitional goodwill impairment test. CommScope has
completed the process of performing the transitional goodwill impairment test
as of January 1, 2002. As a result of the test performed, management
believes that goodwill was not impaired as of January 1, 2002. Goodwill will
be tested annually at the same time each year, and on an interim basis when
events or circumstances change. Subsequent impairment losses, if any, will be
reflected in operating income in the statement of operations.
The carrying value of other intangible assets as of June 30, 2002 in the
amount of $10.1 million, net of accumulated amortization of $38.7 million,
represents patented technology, with a carrying value of $0.1 million, and
customer relationship assets, with a carrying value of $10.0 million. These
intangible assets have been determined by management to meet the criterion
for recognition apart from goodwill and to have finite lives. CommScope did
not have any indefinite-lived intangible assets as of the January 1, 2002
transition date or the June 30, 2002 balance sheet date. Based on
management's analysis of all pertinent factors, no adjustments were necessary
to the remaining useful lives of these assets, which will continue to be
amortized on a straight-line basis through 2006. Amortization expense
associated with these intangible assets was $627 and $1.3 million for the
three and six months ended June 30, 2002, respectively and $656 and $1.3
million for the three and six months ended June 30, 2001, respectively.
Annual amortization expense for these intangible assets is expected to be
$2.5 million in 2002, $2.5 million in 2003, $2.4 million in 2004, $2.4
million in 2005 and $1.5 million in 2006.
The adoption of SFAS No. 142 effective January 1, 2002 resulted in the
elimination of pretax goodwill amortization expense in the amount of $1.3
million and $2.7 million for the three and six months ended June 30, 2002,
respectively. The following table provides a reconciliation of net income
(loss) and net income (loss) per share, reflecting the impact of the adoption
of SFAS No. 142 on a pro forma basis for the three and six months ended June
30, 2001:
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- ----------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Net income (loss) $ (42,491) $ 5,978 $ (44,139) $ 22,557
Elimination of goodwill amortization
expense, net of tax effects -- 845 -- 1,690
--------- --------- --------- ---------
Net income (loss) - pro forma for
2001 $ (42,491) $ 6,823 $ (44,139) $ 24,247
========= ========= ========= =========
Net income (loss) per share, basic -
pro forma for 2001 $ (0.69) $ 0.13 $ (0.71) $ 0.47
Net income (loss) per share, assuming
dilution - pro forma for 2001 $ (0.69) $ 0.13 $ (0.71) $ 0.47
Impact of Newly Issued Accounting Standards
In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 143, "Accounting for Obligations Associated with the Retirement of
Long-Lived Assets." SFAS No. 143 will require the accrual, at fair value, of
the estimated retirement obligation for tangible long-lived assets if the
Company is legally obligated to perform retirement activities at the end of
the related asset's life. The Company is currently assessing the impact of
this statement, which will be effective for the Company on January 1, 2003.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED - IN THOUSANDS, UNLESS OTHERWISE NOTED)
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No. 121,
"Accounting for the Impairment or Disposal of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," but retains many of its fundamental
provisions. Additionally, this statement expands the scope of discontinued
operations to include more disposal transactions. SFAS No. 144 was effective
for the Company on January 1, 2002. The initial adoption of this statement
did not have a material impact on the Company's financial statements.
However, the Company did reclassify the $4.3 million carrying value of its
idle Kings Mountain facility from property, plant and equipment to other
assets during 2002. Although this facility does not meet the requirements
under SFAS No. 144 for classification as held for sale, it has been
reclassified to other assets since it is not currently being, and has never
been, used in the Company's operations and is currently being actively
marketed for sale. In addition, the Company reclassified $550 from other
current assets to property, plant and equipment during 2002 relating to
assets previously classified as held for sale under SFAS No. 121, but which
do not meet the criteria for classification as held for sale under SFAS No.
144. Long-lived assets will be tested for recoverability in accordance with
SFAS No. 144 whenever events or changes in circumstances indicate that their
carrying amounts may not be recoverable.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." First, SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and
Losses from Extinguishment of Debt" and an amendment of that Statement, SFAS
No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements."
Because of the rescission of SFAS No. 4, the gains and losses from the
extinguishment of debt are no longer required to be classified as
extraordinary items. SFAS No. 64 amended SFAS No. 4 and is no longer needed
because SFAS No. 4 is rescinded. Second, SFAS No. 145 rescinds SFAS No. 44,
"Accounting for Intangible Assets of Motor Carriers." This statement was
originally issued to establish accounting requirements for the effects of
transition to the provisions of the Motor Carrier Act of 1980. As those
transitions are complete, SFAS No. 44 is no longer needed. Third, SFAS No.
145 amends SFAS No. 13, "Accounting for Leases," to require sale-leaseback
accounting for certain lease modifications that have economic effects that
are similar to sale-leaseback transactions. The amendment of SFAS No. 13 is
effective for transactions occurring after May 15, 2002. There has been no
impact on the Company due to the amendment of SFAS No. 13. Last, SFAS No.
145 makes various technical corrections to existing pronouncements that are
not substantive in nature. The Company is currently assessing the impact of
the rescission of SFAS No. 4, 44 and 64 and the other technical corrections
prescribed by the Statement, which will be effective for the Company on
January 1, 2003.
2. INVENTORIES
June 30, December 31,
2002 2001
-------- --------
Raw materials $ 20,221 $ 23,037
Work in process 12,672 9,688
Finished goods 16,678 14,945
-------- --------
$ 49,571 $ 47,670
======== ========
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED - IN THOUSANDS, UNLESS OTHERWISE NOTED)
3. LONG-TERM DEBT
June 30, December 31,
2002 2001
--------- ---------
Credit Agreement $ -- $ --
Convertible Notes 172,500 172,500
Eurodollar Credit Agreement 11,153 11,269
IDA Notes 10,800 10,800
--------- ---------
194,453 194,569
Less current portion (2,974) (2,651)
--------- ---------
$ 191,479 $ 191,918
========= =========
In June of 2002, the Company amended an operating lease for its corporate
office building, its eurodollar credit agreement and its revolving credit
agreement. These amendments, among other things, provide for the exclusion
of the noncash equity method income and losses of OFS BrightWave from the
definition of EBITDA, which is used to calculate compliance with certain
covenants. In addition, the size of the revolving credit agreement was
reduced from $350 million to $250 million. The amendments further limited
the Company's ability to make additional investments in, or guarantee the
obligations of, OFS BrightWave. Furthermore, the amendments reduced the
maximum amount of payments the Company may make for dividends and stock
repurchases from a total of $75 million to $50 million and included
additional investments in OFS BrightWave under this maximum payment
limitation. These amendments resolved potential covenant compliance issues
that were expected at the end of the second quarter of 2002 related to the
Company's equity in losses of OFS BrightWave.
4. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during the
applicable periods. Diluted net income (loss) per share is based on net
income (loss) 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.
On December 15, 1999, the Company issued $172.5 million in convertible
notes, which are convertible into shares of common stock at a conversion rate
of 20.7512 shares per $1,000 principal amount. The effect of the assumed
conversion of these notes was excluded from the calculation of net income
(loss) per share, assuming dilution, for the three and six months ended June
30, 2002 and 2001 because it would have been antidilutive in all periods.
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED - IN THOUSANDS, UNLESS OTHERWISE NOTED)
Below is a reconciliation of weighted average common shares outstanding for
basic net income (loss) per share to weighted average common and potential
common shares outstanding for diluted net income (loss) per share.
Three Months Six Months
Ended June 30, Ended June 30,
------------------- -------------------
2002 2001 2002 2001
-------- -------- -------- --------
NUMERATOR:
Net income (loss) for basic and
diluted net income (loss) per
share $(42,491) $ 5,978 $(44,139) $ 22,557
======== ======== ======== ========
DENOMINATOR:
Weighted average number of
common shares outstanding
for basic net income (loss)
per share 61,758 51,385 61,737 51,350
Effect of dilutive employee
stock options (A) -- 846 -- 783
-------- -------- -------- --------
Weighted average number of
common and potential common
shares outstanding for diluted
net income (loss) per share 61,758 52,231 61,737 52,133
======== ======== ======== ========
(A) Options to purchase approximately 3.5 million and 2 million common shares
were excluded from the computation of net loss per share, assuming
dilution, for the three and six months ended June 30, 2002, respectively,
because they would have been antidilutive in both periods. Options to
purchase approximately 738 thousand common shares, at prices ranging from
$19.94 to $47.06 per share, were excluded from the computation of net
income per share, assuming dilution, for the three and six months ended
June 30, 2001 because the exercise prices of such options were greater
than the average market price of the common shares during both periods.
5. EQUITY IN LOSSES OF OFS BRIGHTWAVE, LLC
Effective November 16, 2001, CommScope acquired an approximate 18.4%
ownership interest in OFS BrightWave, LLC ("OFS BrightWave"), an optical
fiber and fiber cable venture between CommScope and The Furukawa Electric
Co., Ltd. of Japan. CommScope's portion of the losses of OFS BrightWave for
the three and six months ended June 30, 2002 has been included in the
condensed consolidated financial statements of CommScope, Inc. for the
respective periods. These results are net of elimination of intercompany
profit in the amount of $21 and $52, net of tax, for the three and six months
ended June 30, 2002, respectively. This elimination relates to interest
payments received from OFS BrightWave under a $30 million revolving note.
OFS BrightWave has elected to be taxed as a partnership, therefore the
Company's income tax benefit from flow-through losses has been recorded using
the Company's tax rates. Income tax expense or benefit provided by OFS
BrightWave for income or losses generated by its c-corporation subsidiary
does not flow through to CommScope, and therefore does not impact CommScope's
income tax benefit from flow-through losses of OFS BrightWave. However, the
income tax expense or benefit provided for the income or loss generated by
OFS BrightWave's c-corporation subsidiary does impact CommScope's equity in
the net assets of OFS BrightWave, as shown in the reconciliation below.
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED - IN THOUSANDS, UNLESS OTHERWISE NOTED)
The following table provides summary financial information for OFS
BrightWave as of and for the three months and six months ended June 30, 2002:
As of
June 30,
2002
---------
Balance Sheet Data:
Current assets $ 152,136
Noncurrent assets 693,048
Current liabilities 123,511
Other noncurrent liabilities 137,105
Minority interests 45,483
Three Six
Months Months
Ended Ended
June 30, June 30,
2002 2002
--------- ---------
Income Statement Data:
Net revenues $ 22,039 $ 48,836
Gross profit (63,378) (111,811)
Loss from continuing operations (269,560) (338,643)
Net loss (269,560) (338,643)
OFS Brightwave incurred significant charges during the three months ended
June 30, 2002 related to the write-off of goodwill and certain fixed assets,
restructuring and cost reduction efforts, which totaled $211 million.
The reconciliation of CommScope's investment in and advances to OFS
BrightWave compared to CommScope's equity in the net assets of OFS BrightWave
as of June 30, 2002 was as follows:
Net assets of OFS BrightWave, LLC $ 539,085
CommScope ownership percentage 18.43225 %
---------
CommScope equity in net assets of
OFS BrightWave, LLC 99,365
Plus:
Advances, net of repayments 17,354
Direct costs of acquisition 4,763
Pushdown and other adjustments by
majority member in OFS BrightWave, LLC 458
Less:
Income tax benefit related to losses
generated by OFS BrightWave LLC's
c-corporation subsidiary (5,726)
---------
Investment in and advances to OFS
BrightWave, LLC $ 116,214
=========
12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED - IN THOUSANDS, UNLESS OTHERWISE NOTED)
6. INCOME TAXES RELATED TO OTHER COMPREHENSIVE LOSS
Three Months Six Months
Ended Ended
June 30, June 30,
------------- -------------
2002 2001 2002 2001
----- ----- ----- -----
Income tax (expense) benefit for
components of other comprehensive loss:
Hedging gain (loss) on nonderivative instrument $ 496 $(226) $ 499 $(561)
Effect of adopting SFAS No. 133 -- -- -- (135)
Gain (loss) on derivative financial
instrument designated as a cash flow hedge 28 (1) (7) 56
----- ----- ----- -----
Total income tax (expense) benefit for components
of other comprehensive loss $ 524 $(227) $ 492 $(640)
===== ===== ===== =====
7. DERIVATIVES AND HEDGING ACTIVITIES
The only derivative instrument outstanding for the three and six m onths
ended June 30, 2002 and 2001 was an interest rate swap, which effecti vely
converts the variable-rate eurodollar credit agreement to a fixed-rat e
basis. This interest rate swap is designated and documented as a cas h flow
hedge of the changes in the cash flows attributable to fluctuations i n the
variable benchmark interest rate associated with the underlying debt being
hedged. This hedging instrument was effective at the balance sheet d ate and
is expected to continue to be effective for the duration of the swap
contract, resulting in no anticipated hedge ineffectiveness. There w ere no
material reclassifications from other comprehensive income to earning s during
the three and six months ended June 30, 2002 and 2001 and the Company does
not anticipate any material reclassifications from accumulated other
comprehensive income during the next twelve months.
Also, the eurodollar credit agreement is designated and documented as a
partial hedge of the Company's net investment in its Belgian subsidiary.
This hedging instrument was effective at the balance sheet date, and is
expected to continue to be effective for the duration of the loan agreement,
resulting in no anticipated reclassifications from accumulated other
comprehensive income to earnings.
Activity in the accumulated net gain on derivative instrument included in
accumulated other comprehensive loss for the three and six months ended June
30, 2002 and 2001 consisted of the following:
Three Six
Months Months
Ended Ended
June 30, June 30,
------------ ------------
2002 2001 2002 2001
----- ----- ----- -----
Accumulated net gain on derivative $ 87 $ 132 $ 27 $ --
instrument, beginning of period
Net effect of adopting SFAS No. 133 -- -- -- 229
Net gain (loss) on derivative financial
instrument designated as a cash flow hedge (47) 2 13 (95)
----- ----- ----- -----
Accumulated net gain on derivative
instrument, end of period $ 40 $ 134 $ 40 $ 134
===== ===== ===== =====
13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED - IN THOUSANDS, UNLESS OTHERWISE NOTED)
8. COMMITMENTS AND CONTINGENCIES
As of June 30, 2002, the Company had committed funds of approximately $2.6
million under purchase orders and contracts related to vertical integration
projects and equipment and capacity upgrades to support cost reduction
efforts and meet current and anticipated future business demands.
9. SUPPLEMENTAL CASH FLOW INFORMATION
Six Months
Ended
June 30,
--------------------
2002 2001
-------- --------
Cash paid during the period for:
Income taxes $ 454 $ 15,694
Interest (net of capitalized
amounts) 4,143 4,435
14
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, 2001
included in our 2001 Annual Report on Form 10-K.
HIGHLIGHTS
For the quarter ended June 30, 2002, we incurred a net loss of $42.5
million, or $0.69 per share, compared to net income of $6.0 million, or $0.11
per diluted share, for the quarter ended June 30, 2001. Our second quarter
2002 results include after-tax charges of $12.9 million, or $0.21 per share,
related to the write off of Adelphia Communications Corporation ("Adelphia")
receivables. In addition, during the three months ended June 30, 2002, we
recognized $34.9 million, or $0.56 per share, of after-tax equity method
losses related to our 18.4% equity interest in OFS BrightWave, LLC ("OFS
BrightWave"), an optical fiber and fiber cable venture with The Furukawa
Electric Co., Ltd. of Japan ("Furukawa").
For the six months ended June 30, 2002, we incurred a net loss of $44.1
million, or $0.71 per share, compared to net income of $22.6 million, or
$0.43 per diluted share, for the six months ended June 30, 2001. Net income
for the six months ended June 30, 2002, includes $13.5 million, or $0.22 per
share, of after-tax charges related to the write off of Adelphia
receivables. In addition, during the six months ended June 30, 2002, we
recognized $42.9 million, or $0.69 per share, of after-tax equity method
losses related to our 18.4% equity interest in OFS BrightWave.
Net income for the quarter and six months ended June 30, 2001, included
charges of approximately $9.3 million, or $0.18 per diluted share, net of
tax, related to the impairment of certain assets. The impact of these second
quarter 2001 impairment charges includes a $1.4 million, or $0.03 per diluted
share, valuation allowance established for a deferred tax asset arising from
the impairment charge for an investment in a wireless infrastructure project
management company, which created a capital loss for tax purposes.
Additionally, net income for the quarter and six months ended June 30, 2001
included charges of $0.8 million and $1.7 million, respectively, of goodwill
amortization expense, net of related tax effects. We ceased amortization of
goodwill as of January 1, 2002 in accordance with Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets."
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE- AND SIX-MONTH PERIODS
ENDED JUNE 30, 2002 WITH THE THREE- AND SIX-MONTH PERIODS ENDED JUNE 30, 2001
Net sales
Net sales for the second quarter ended June 30, 2002 decreased
$44.9 million, or 22.5%, to $155.0 million, compared to the second quarter
ended June 30, 2001. Net sales for the six months ended June 30, 2002
decreased $102.5 million, or 24.6%, to $314.8 million, compared to the six
months ended June 30, 2001. The decrease in net sales was mainly due to the
challenging global business environment in telecommunications, which
continues to result in reduced demand and increased competitive pricing
pressures for some product lines both domestically and internationally.
Domestic sales decreased 22.4% to $121.1 million in the second quarter and
17.9% to $255.9 million in the six months ended June 30, 2002, compared to
the same periods in 2001. For the quarter ended June 30, 2002, international
15
sales decreased 22.8% to $33.9 million compared to the quarter ended June 30,
2001. International sales for the six months ended June 30, 2002 decreased
44.2% to $58.9 million compared to the same period in 2001. International
sales were down year over year in essentially all regions. The
year-over-year decreases in domestic and international sales were primarily
driven by declining demand for broadband products, particularly fiber optic
cable.
Net sales of broadband and other video distribution products
("Broadband/Video Products") for the second quarter of 2002 decreased $34.4
million, or 21.6%, to $125.2 million, compared to the same period in 2001. For
the six months ended June 30, 2002, net sales of Broadband/Video Products
decreased by $71.3 million, or 21.6%, to $258.3 million, compared to the same
period in 2001. The year-over-year decreases in net sales of Broadband/Video
Products were primarily due to lower volume and were significantly affected by
reduced demand for and increased pricing pressure in fiber optic cable products.
Additionally, sales of Broadband Products have been adversely affected by the
Adelphia Chapter 11 bankruptcy. We do not expect a significant recovery of
business with Adelphia in the near term. The ongoing slowdown in
telecommunications capital spending as well as the uncertain global business
conditions in telecommunications continues to affect sales of Broadband/Video
Products, including fiber optic cable for broadband applications. While we
believe that near term domestic and international sales will be depressed until
global business conditions in telecommunications improve, we remain optimistic
about the long-term global opportunities for broadband cable. We do not expect
any meaningful recovery in the market for fiber optic cable during 2002.
However, we believe that our ability to offer both coaxial and fiber optic cable
as well as other types of communications cable, continues to be an important
long-term competitive advantage.
Net sales of local area network and other data applications products ("LAN
Products") for the second quarter of 2002 decreased by $2.9 million, or
11.2%, to $22.9 million, compared to the same period in 2001. This
year-over-year decrease in the second quarter was primarily due to
competitive pricing pressures. For the six months ended June 30, 2002, sales
of LAN Products decreased by $7.1 million, or 14.2%, to $42.9 million,
compared to the same period in 2001. The year-over-year decrease in
year-to-date sales of LAN Products was primarily driven by lower volume and
was also impacted by pricing pressures on certain products. We expect sales
of our LAN Products to slow in the second half of 2002 primarily due to the
anticipated gradual loss of Graybar Electric Company, Inc. as one of our
leading distribution channels for LAN and other video-related products.
Net sales of wireless and other telecommunications products ("Wireless and
Other Telecom Products") for the second quarter of 2002 were $6.9 million
compared to $14.5 million in the same period last year, primarily due to the
combination of lower volume and pricing pressure. For the six months ended
June 30, 2002, sales of Wireless and Other Telecom Products were $13.6
million compared to $37.7 million in the same period last year. This
year-over-year decrease in year-to-date sales was primarily driven by a
significant decline in volume of Other Telecom Products. We expect ongoing
softness and significant competitive pressures for these Other Telecom
Products. In addition, the general slowdown in telecommunications capital
spending and the inability of certain customers to get financing for their
projects has had a significant impact on sales of our Wireless Products and
we continue to experience aggressive competition in the wireless market.
Gross profit (net sales less cost of sales)
Gross profit for the second quarter ended June 30, 2002 was $31.7 million,
compared to second quarter 2001 gross profit of $48.3 million, and second
quarter gross profit margin declined to 20.5% from 24.2%, year over year.
For the six months ended June 30, 2002, gross profit decreased to $67.1
million, compared to $101.1 million for the same period in 2001, with gross
profit margins of 21.3% and 24.2%, respectively. The year-over-year
16
decreases in gross profit and gross profit margin were primarily due to lower
sales volumes in essentially all product lines and increasing pricing
pressure, particularly in fiber, LAN and Other Telecom Products. The lower
sales volumes resulted in lower overhead absorption rates for many products.
In response to this difficult business environment, we have announced our
intention to reduce our workforce by approximately 250, or 8%, during the
third quarter of 2002. We expect to record charges of approximately $0.01 -
$0.02 per share, net of tax, for employee termination benefits in the third
quarter of 2002. We intend to continue evaluating all aspects of our
business and to take appropriate action to position us for long-term success
and strong competitiveness.
Selling, general and administrative
Selling, general and administrative ("SG&A") expense for the second quarter
ended June 30, 2002 was $41.1 million, or 26.5% of net sales, compared to
$20.6 million, or 10.3% of net sales, for the same period in 2001. For the
six months ended June 30, 2002, SG&A expense was $62.3 million or 19.8% of
sales, compared to $42.5 million, or 10.2% of sales, for the same period in
2001. The year-over-year increases in SG&A expense were primarily due to the
increase in bad debt expense related to the write off of Adelphia receivables
in 2002, which totaled $20.5 million in the second quarter of 2002 and $21.4
million for the six months ended June 30, 2002. Excluding the Adelphia write
off, SG&A expense was relatively stable year over year in the second quarter,
and declined slightly year over year for the six months ended June 30, 2002.
As a percent of sales, excluding the Adelphia write off, SG&A expense
increased year over year for both the quarter and six months ended June 30,
2002. These increases in SG&A expense as a percent of sales were primarily
due to sales declining faster than sales and marketing expense and ongoing
investment in our information technology infrastructure. We intend to
continue to fund domestic and international sales and marketing efforts in
order to enhance our competitive position around the world in anticipation of
improving global business conditions in telecommunications. We believe we
have taken appropriate charges for doubtful accounts as a result of the
difficult market environment based on our analysis of customer financial
difficulties, age of receivable balances and other relevant factors. We also
plan to continue investing in our information technology infrastructure in
order to support cost reduction efforts and to further differentiate our
service model through technology.
Research and development
Research and development ("R&D") expense decreased to $1.8 million, or 1.2%
of net sales, for the second quarter ended June 30, 2002 from $2.1 million,
or 1.1% of net sales, for the same period in 2001. For the six months ended
June 30, 2002, R&D expense increased to $3.8 million, or 1.2% of net sales,
compared to $3.6 million, or nearly 1% of net sales, for the same period in
2001. We expect R&D expense to remain at approximately 1% of net sales in
the near term.
Net interest expense
Net interest expense for the second quarter ended June 30, 2002 was $1.7
million, compared to $1.8 million for the same period in 2001. For the six
months ended June 30, 2002, net interest expense decreased to $3.4 million,
compared to $3.7 million for the same period in 2001. The decreases in net
interest expense were primarily due to interest earned on higher cash
balances and interest income, net of elimination of intercompany profit,
received from OFS BrightWave under a $30 million revolving note established
in the fourth quarter of 2001.
Income taxes
Our effective income tax rate was 37% for the second quarter and six months
ended June 30, 2002 and 2001.
17
Equity in losses of OFS BrightWave, LLC
For the three and six months ended June 30, 2002, our 18.4% equity
interest in the losses of OFS BrightWave was approximately $55.4 million,
pretax, and $68.2 million, pretax, respectively. Since OFS BrightWave has
elected to be taxed as a partnership, we recorded a tax benefit of
approximately $20.5 million and $25.3 million for the second quarter and six
months ended June 30, 2002, respectively, related to our 18.4% equity
interest in the flow-through losses. OFS BrightWave operates in many of the
same markets we do and its financial results were also adversely affected by
the ongoing slowdown in the global economy and the telecommunications
industry. Due to these conditions, OFS BrightWave incurred significant
charges during the second quarter of 2002 primarily related to the write off
of goodwill and certain fixed assets, restructuring and cost reduction
efforts. The total of these charges recognized by OFS BrightWave was $211
million, net of a $31 million tax benefit from losses generated by a
c-corporation subsidiary of OFS BrightWave.
In addition, OFS BrightWave is party to manufacturing and supply agreements
with OFS Fitel, LLC, which is wholly owned by Furukawa. As a result of
Furukawa's controlling interest in both ventures, it has significant
influence over the structure and pricing of these agreements. Future changes
in these terms, over which we have limited influence, could have a material
impact on the profitability of OFS BrightWave and ultimately on our results
of operations. Due primarily to the difficult market environment for certain
telecommunications products and challenging global business conditions in
telecommunications, we expect ongoing pricing pressure and weak demand
industry wide for fiber optic cable products during the remainder of 2002.
Based on these expectations, we expect that OFS BrightWave will incur losses
during the remainder of 2002 and that as a result we will continue to
recognize noncash equity method losses from our investment in OFS BrightWave
during the remainder of 2002. However, we can exercise our contractual right
to sell our ownership interest to Furukawa in 2004 for a cash payment to us
of our original $173.4 million capital investment and an acceleration of
repayment of the note receivable.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity both on a short-term and long-term basis
are cash and cash equivalents, cash flows provided by operations and
borrowing capacity under credit facilities. Reduced sales and profitability
could reduce cash provided by operations. In addition, increases in working
capital, excluding cash and cash equivalents, related to increasing sales
could reduce our operating cash flows in the short term until cash
collections of accounts receivable catch up to the higher level of billings.
Cash provided by operating activities was $45.3 million for the six months
ended June 30, 2002, compared to $85.9 million for the same period in 2001.
This year-over-year decrease in operating cash flow primarily resulted from
lower sales volume resulting in a proportionately smaller decrease in
accounts receivable during the six months ended June 30, 2002 as compared to
the six months ended June 30, 2001.
Working capital was $229.9 million at June 30, 2002, compared to
$199.1 million at December 31, 2001. This increase in working capital during
the six months ended June 30, 2002 primarily relates to an increase in our
cash balance of $53 million from December 31, 2001 to $115 million as of June
30, 2002, somewhat offset by a decrease in accounts receivable over the same
six-month period. The increase in cash during the six months ended June 30,
2002 was driven by net income from operations before noncash charges. In
addition, we received repayments, net of advances, of $12.6 million from OFS
BrightWave under a $30 million revolving note receivable during the six
months ended June 30, 2002. As of June 30, 2002, OFS BrightWave owed $17.4
million under this $30 million revolving note, and we are committed to
advance the remaining $12.6 million balance under the note when requested by
18
OFS BrightWave. We are not required to make any additional cash investments
in the form of loans or capital contributions to OFS BrightWave, other than
this revolving credit commitment.
During the six months ended June 30, 2002, we invested $5.4 million in
property, plant and equipment compared to $46.0 million during the same
period in 2001. As of June 30, 2002, we had committed funds of approximately
$2.6 million under purchase orders and contracts related to vertical
integration projects and equipment and capacity upgrades to support cost
reduction efforts and meet current and anticipated future business demands.
While we may place additional production capability in important
international markets, we expect capital expenditures to remain at a level
below depreciation and amortization expense for the next several years. We
currently expect capital expenditures to be in the range of $15 to $20
million in 2002, primarily for cost reduction efforts and information
technology initiatives, depending upon business conditions.
In June of 2002, we amended an operating lease for our corporate office
building, our eurodollar credit agreement and our revolving credit
agreement. These amendments, among other things, provide for the exclusion
of the noncash equity method income and losses of OFS BrightWave from the
definition of EBITDA, which is used to calculate compliance with certain
covenants. In addition, the size of the revolving credit agreement was
reduced from $350 million to $250 million. The amendments further limited
our ability to make additional investments in, or guarantee the obligations
of, OFS BrightWave. Furthermore, the amendments reduced the maximum amount
of payments we may make for dividends and stock repurchases from a total of
$75 million to $50 million and included additional investments in OFS
BrightWave under this maximum payment limitation. These amendments resolved
potential covenant compliance issues that were expected at the end of the
second quarter of 2002 related to our equity in losses of OFS BrightWave.
Our amended revolving credit agreement, which expires in December 2002,
currently provides a total of $250 million in revolving credit commitments in
the form of loans and letters of credit. Our available borrowing capacity
under the revolving credit agreement, determined on a quarterly basis, is
based on certain financial ratios which are affected by the level of
long-term debt outstanding and our profitability. As of June 30, 2002, we
had no outstanding indebtedness under this revolving credit agreement and our
borrowing capacity was approximately $36 million. We owed total long-term
debt of $194.5 million, including current portion, or 26% of our book capital
structure, defined as long-term debt, including current portion, and total
stockholders' equity, as of June 30, 2002, compared to $194.6 million,
including current portion, or 24% of our book capital structure as of
December 31, 2001. The change in long-term debt was minimal due to foreign
currency losses on our eurodollar credit agreement, included in accumulated
other comprehensive loss, which offset the decrease in debt from the
quarterly repayment of principal under this agreement.
Our revolving credit agreement, eurodollar credit agreement, and an
operating lease for our corporate office building contain covenants requiring
us to maintain a total debt to EBITDA ratio, a net worth maintenance ratio,
and an interest expense ratio. Our performance under these covenants could
impact our cost of funds and limit the funds available under the revolving
credit agreement. In addition, our noncompliance with these covenants could
create a default under these agreements, resulting in potential acceleration
of repayment of our obligations and inability to borrow under the revolving
credit agreement. We were in compliance with these covenants as of June 30,
2002.
As of June 30, 2002, we had $115 million in cash, no outstanding borrowings
under the revolving credit agreement, approximately $11 million in borrowings
outstanding under the eurodollar credit agreement, and approximately $13 million
in contractual cash obligations under an operating lease for our corporate
office building. Based on our current forecasted operating results, we believe
it is likely that we may not be in compliance with the amended total debt to
EBITDA covenant at the end of the third quarter of 2002. If we do not comply
with the amended total debt to EBITDA covenant at the end of the third quarter,
19
we intend either to further amend both the eurodollar credit agreement and the
operating lease agreement or to repay our obligations under these agreements
using current cash balances. In addition, we currently expect to replace our
revolving credit agreement, under which we currently have no outstanding
borrowings, during the fourth quarter of 2002. We do not currently anticipate
future borrowings under this existing revolving credit facility as we believe
that cash provided by our operations will be sufficient to meet our anticipated
working capital requirements during the remaining term of this facility, which
expires in December 2002. However, given the current credit environment and our
recent operating results, it is likely that the terms under which all three of
these existing agreements can be further amended or replaced, if at all, may be
less favorable to us than the current terms of these agreements.
MARKET RISK
As disclosed in our Annual Report on Form 10-K for the year ended December
31, 2001, 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 reasonable use
of derivative and nonderivative financial instruments primarily to manage our
exposure to these market risks. Our exposure associated with these market
risks has not materially changed since December 31, 2001. However, we did
repay approximately $1.4 million of variable rate debt on our eurodollar
credit agreement, somewhat reducing our exposure to interest rate risk. In
addition, we have not acquired any new derivative financial instruments since
December 31, 2001 or terminated any derivative financial instruments that
existed at that date.
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,"
"think," "thinks" and "scheduled" and similar expressions. These statements
are subject to various risks and uncertainties, many of which are outside our
control, including, without limitation, financial performance of OFS
BrightWave, product demand and industry excess capacity, competitive products
and pricing, , changes or fluctuations in global business conditions,
expected demand from AT&T Broadband, Adelphia and other major domestic MSOs,
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 operation of bimetal manufacturing and other vertical
integration activities, successful expansion and related operation of our
facilities, margin improvement, developments in technology, industry
competition and ability to retain customers, pricing and acceptance of our
products achievement of sales, growth, and earnings goals, ability of our
customers to secure adequate financing or to pay, regulatory changes
affecting our business, possible disruption of our business due to customer
or supplier bankruptcy, reorganization or restructuring, ability to obtain
financing and capital on commercially reasonable terms, ability to comply
with covenants in debt and lease agreements, foreign currency fluctuations,
technological obsolescence, the ability to achieve reductions in costs, the
ability to integrate acquisitions, our participation in joint ventures,
international economic and political uncertainties, possible disruption due
to terrorist activity or armed conflict 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 business conditions, acquisitions of telecommunications
20
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 99.1 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, and are not undertaking any
duty or obligation, to update this information to reflect developments or
information obtained after the date of this report.
21
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 3, 2002. Proxies for the Meeting were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended.
A total of 61,717,159 shares of Common Stock with one vote each were
entitled to vote at the Meeting and holders of 55,257,989 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 2005 Annual Meeting of Stockholders by
the vote set forth below:
Name of Director Votes For Votes Withheld
Edward D. Breen 49,930,912 5,327,077
James N. Whitson 53,620,004 1,637,985
On August 8, 2002, the Company's board of directors accepted the
resignation of Mr. Breen, who resigned due to his new commitments as
Chairman and Chief Executive Officer of Tyco International Ltd. and to
avoid any appearance of conflict of interest. Mr. Breen indicated
that his resignation was not the result of any disagreements with the
Company. In order that the three classes of directors be as nearly
equal in number as possible, as required by the Company's Certificate
of Incorporation, the board also accepted the resignation of June E.
Travis as a Class I director and appointed Ms. Travis as a Class II
director to fill the vacancy in that class. Following the resignation
of Mr. Breen and the appointment of Ms. Travis as a Class II director,
the board of directors reduced the size of the board to six members.
The Company's directors, whose terms of office continue after the
Meeting with terms expiring at the annual meetings in parentheses
after their names, are Frank M. Drendel (2003), Duncan M. Faircloth
(2003), Boyd L. George (2004), George N. Hutton (2004), James N. Whitson
(2005) and June E. Travis (2005). Additionally, on August 8, 2002,
the board of directors expanded both the audit and compensation
committees of the board to include all five nonemployee directors on
each committee.
A proposal to approve an amendment and restatement of the amended and
restated CommScope, Inc. 1997 Long-term Incentive Plan to, among other
things, increase the shares reserved for issuance thereunder by an
additional 3 million shares was approved by 47,647,812 votes cast in
favor, 7,508,257 votes cast against and 101,920 votes abstaining.
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 2002 fiscal year was approved by 53,021,627 votes cast
in favor, 2,165,016 votes cast against and 71,346 votes abstaining.
22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.7.3 Third Amendment to the Credit Agreement, dated as of June
26, 2002, among CommScope, Inc. of North Carolina,
JPMorgan Chase Bank, as Administrative Agent, and the
Banks from time to time parties thereto, and the financial
institutions named therein as the co-agents for the Banks.
10.11.3 Third Amendment to the Credit Agreement, dated as of June
26, 2002, between Wachovia Bank, N.A. and CommScope, Inc.
of North Carolina.
99.1 Forward-Looking Information
(b) Reports on Form 8-K filed during the three months ended June 30,
2002:
On April 29, 2002, we filed a current report on Form 8-K
announcing our first quarter 2002 results.
23
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 13, 2002 /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
24