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 March 31, 2001
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, P.O. BOX 339
HICKORY, NORTH CAROLINA
(Address of principal executive offices)
28603
(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 April 30, 2001 there were 51,373,894 shares of Common Stock
outstanding.
COMMSCOPE, INC.
FORM 10-Q
MARCH 31, 2001
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 Statements of Stockholders'
Equity and Comprehensive Income 6
Notes to Condensed Consolidated Financial Statements 7 - 11
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Position 12 - 16
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
2
COMMSCOPE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED--IN THOUSANDS, EXCEPT NET INCOME PER SHARE AMOUNTS)
Three Months Ended
March 31,
---------------------------
2001 2000
----------- -----------
Net Sales $ 217,360 $ 203,939
----------- -----------
Operating costs and expenses:
Cost of sales (Note 7) 164,566 151,586
Selling, general and administrative 21,966 18,397
Research and development 1,480 3,638
Amortization of goodwill 1,342 1,343
----------- -----------
Total operating costs and expenses 189,354 174,964
----------- -----------
Operating income 28,006 28,975
Other income (expense), net 175 (15)
Interest expense (2,022) (2,388)
Interest income 158 392
----------- -----------
Income before income taxes 26,317 26,964
Provision for income taxes (9,738) (10,237)
----------- -----------
Net income $ 16,579 $ 16,727
=========== ===========
Net income per share (Note 4):
Basic $ 0.32 $ 0.33
Assuming dilution $ 0.32 $ 0.32
Weighted average shares outstanding (Note 4):
Basic 51,315 50,935
Assuming dilution 52,028 52,500
See notes to condensed consolidated financial statements
3
COMMSCOPE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(Unaudited)
March 31, December 31,
2001 2000
----------- -----------
ASSETS
Cash and cash equivalents $ 7,045 $ 7,704
Accounts receivable, less allowance for
doubtful accounts of $11,062 and $9,187,
respectively 181,589 197,536
Inventories (Note 2) 61,956 63,763
Prepaid expenses and other current assets 2,506 3,364
Deferred income taxes 17,608 17,296
----------- -----------
Total current assets 270,704 289,663
Property, plant and equipment, net 263,744 251,356
Goodwill, net of accumulated amortization of
$55,469 and $54,140, respectively 155,328 156,685
Other intangibles, net of accumulated
amortization of $35,452 and $34,796,
respectively 13,313 13,969
Other assets (Note 5) 9,501 9,509
----------- -----------
Total Assets $ 712,590 $ 721,182
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 35,947 $ 39,958
Other accrued liabilities (Note 7) 47,626 38,481
Current portion of long-term debt (Note 3) 2,634 2,120
----------- -----------
Total current liabilities 86,207 80,559
Long-term debt, less current portion (Note 3) 193,836 225,316
Deferred income taxes 24,317 24,006
Other noncurrent liabilities 17,765 16,781
----------- -----------
Total Liabilities 322,125 346,662
Commitments and contingencies (Note 8)
Stockholders' Equity:
Preferred stock, $.01 par value; Authorized
shares: 20,000,000; Issued and outstanding
shares: None at March 31, 2001 and
December 31, 2000 -- --
Common stock, $.01 par value; Authorized
shares: 300,000,000; Issued and outstanding
shares: 51,370,195 at March 31, 2001;
51,263,703 at December 31, 2000 514 513
Additional paid-in capital 177,449 175,803
Retained earnings 217,381 200,802
Accumulated other comprehensive loss (Note 5) (4,879) (2,598)
----------- -----------
Total Stockholders' Equity 390,465 374,520
----------- -----------
Total Liabilities and Stockholders' Equity $ 712,590 $ 721,182
=========== ===========
See notes to condensed consolidated financial statements.
4
COMMSCOPE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - IN THOUSANDS)
Three Months Ended
March 31,
---------------------------
2001 2000
----------- -----------
OPERATING ACTIVITIES:
Net income $ 16,579 $ 16,727
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 9,940 8,176
Deferred income taxes (372) (827)
Tax benefit from stock option exercises 287 1,343
Changes in assets and liabilities:
Accounts receivable 14,851 (36,343)
Inventories 1,282 (21,031)
Prepaid expenses and other current assets 791 (295)
Accounts payable and other accrued liabilities 5,691 22,791
Other noncurrent liabilities 983 674
Other 464 (84)
----------- -----------
Net cash provided by (used in) operating
activities 50,496 (8,869)
INVESTING ACTIVITIES:
Additions to property, plant and equipment (22,226) (20,858)
Other -- 228
----------- -----------
Net cash used in investing activities (22,226) (20,630)
FINANCING ACTIVITIES:
Net repayments under revolving credit facility (30,000) --
Proceeds from exercise of stock options 1,360 1,653
----------- -----------
Net cash provided by (used in) financing
activities (28,640) 1,653
Effect of exchange rate changes on cash (289) (99)
----------- -----------
Change in cash and cash equivalents (659) (27,945)
Cash and cash equivalents, beginning of period 7,704 30,323
----------- -----------
Cash and cash equivalents, end of period $ 7,045 $ 2,278
=========== ===========
See notes to condensed consolidated financial statements.
5
COMMSCOPE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(UNAUDITED - IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Three Months Ended
March 31,
---------------------------
2001 2000
----------- -----------
Number of common shares outstanding:
Balance at beginning of period 51,263,703 50,889,208
Issuance of shares for stock option exercises 106,492 128,134
----------- -----------
Balance at end of period 51,370,195 51,017,342
----------- -----------
Common stock:
Balance at beginning of period $ 513 $ 509
Issuance of shares for stock option exercises 1 1
----------- -----------
Balance at end of period $ 514 $ 510
----------- -----------
Additional paid-in capital:
Balance at beginning of period $ 175,803 $ 166,875
Issuance of shares for stock option exercises 1,359 1,652
Tax benefit from stock option exercises 287 1,343
----------- -----------
Balance at end of period $ 177,449 $ 169,870
----------- -----------
Retained earnings:
Balance at beginning of period $ 200,802 $ 115,915
Net income 16,579 16,727
----------- -----------
Balance at end of period $ 217,381 $ 132,642
----------- -----------
Accumulated other comprehensive loss:
Balance at beginning of period $ (2,598) $ (1,955)
Other comprehensive loss (2,281) (553)
----------- -----------
Balance at end of period $ (4,879) $ (2,508)
----------- -----------
Total stockholders' equity $ 390,465 $ 300,514
=========== ===========
Comprehensive income:
Net income $ 16,579 $ 16,727
Other comprehensive loss, net of tax:
Foreign currency translation loss -
foreign subsidiaries (579) (463)
Foreign currency translation loss on long-
term intercompany loans - foreign
subsidiaries (2,465) (558)
Hedging gain on nonderivative instruments,
net of tax expense of $335 and $293,
respectively 631 468
Effect of adopting SFAS No. 133, net of tax
expense of $135 (Note 5) 229 --
Loss on derivative financial instruments
designated as cash flow hedges, net of tax
benefit of $57 (Note 5) (97) --
----------- -----------
Total other comprehensive loss, net of tax (2,281) (553)
----------- -----------
Total comprehensive income $ 14,298 $ 16,174
=========== ===========
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, 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 coax (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 March 31, 2001, the
condensed consolidated statements of income, cash flows, stockholders'
equity and comprehensive income for the three months ended March 31, 2001
and 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. 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, 2000 audited consolidated financial statements and
notes thereto included in the Company's 2000 Annual Report on Form 10-K.
GOODWILL
When events or changes in circumstances, such as significant
forecasted operating losses or a significant adverse change in legal
factors or business climate, indicate that the carrying amount of goodwill
may not be recoverable, the asset is reviewed by management for impairment.
An impairment loss is recognized if the carrying value exceeds the
forecasted, undiscounted operating cash flows of the operating assets
related to the goodwill being evaluated. The impairment loss to be
recognized is measured as the amount by which the carrying value exceeds
fair value, estimated based on forecasted operating cash flows, discounted
using a discount rate commensurate with the risks involved. After the
impairment loss is recognized, the reduced carrying amount is accounted for
as the new cost and amortized over the remaining useful life, which is also
revised, if appropriate. There were no events or changes in circumstances
during the quarter ended March 31, 2001 that would indicate that the
carrying amount of goodwill may not be recoverable.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED - IN THOUSANDS, UNLESS OTHERWISE NOTED)
SHIPPING AND HANDLING COSTS
Amounts billed to a customer in a sale transaction related to shipping
costs are included in net sales. All shipping costs incurred to transport
products to the customer are recorded in cost of sales. Internal handling
costs, which relate to activities to prepare goods for shipment, are
recorded in selling, general and administrative expense and were not
material for the quarters ended March 31, 2001 or 2000.
2. INVENTORIES
March 31, December 31,
2001 2000
---------- ----------
Raw materials $ 27,767 $ 28,382
Work in process 13,246 11,124
Finished goods 20,943 24,257
---------- ----------
$ 61,956 $ 63,763
========== ==========
3. LONG-TERM DEBT
March 31, December 31,
2001 2000
---------- ----------
Credit Agreement $ -- $ 30,000
Convertible Notes 172,500 172,500
Eurodollar Credit Agreement 13,170 14,136
IDA Notes 10,800 10,800
---------- ----------
196,470 227,436
Less current portion (2,634) (2,120)
---------- ----------
$ 193,836 $ 225,316
========== ==========
4. 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.
8
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 per share to weighted average common and
potential common shares outstanding for diluted net income per share.
Three Three
Months Months
Ended Ended
March 31, March 31,
2001 (A) 2000 (A)
---------- ----------
NUMERATOR:
Net income for basic net income per share $ 16,579 $ 16,727
Convertible debt interest and amortization,
net of tax -- --
---------- ----------
Net income available to common stockholders
for diluted net income per share $ 16,579 $ 16,727
========== ==========
DENOMINATOR:
Weighted average number of common shares
outstanding for basic net income per share 51,315 50,935
Effect of dilutive securities:
Employee stock options 713 1,565
Convertible debt -- --
---------- ----------
Weighted average number of common and
potential common shares outstanding for
diluted net income per share 52,028 52,500
========== ==========
(A) 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 per share, assuming dilution, for the three
months ended March 31, 2001 and 2000 because it would have been
antidilutive in both periods.
5. EFFECT OF ADOPTING SFAS NO. 133
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 137, Accounting
for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date for FASB Statement No. 133 and SFAS No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging Activities. SFAS No.
133, as amended, establishes accounting and reporting standards for
derivative financial instruments, including certain derivative instruments
embedded in other host contracts (collectively referred to as embedded
derivatives) and for hedging activities. The new standards require an
entity to recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value.
CommScope is exposed to various risks resulting from adverse
fluctuations in commodity prices, interest rates, and foreign currency
exchange rates. CommScope's risk management strategy includes the use of
derivative and nonderivative financial instruments primarily as hedges of
these risks in accordance with the requirements of SFAS No. 133, whenever
management determines their use to be reasonable and practical. This
strategy does not permit
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED - IN THOUSANDS, UNLESS OTHERWISE NOTED)
the use of derivative financial instruments for trading purposes, nor does
it allow for speculation. A hedging instrument may be designated as a fair
value hedge to manage exposure to risks related to a firm commitment for
the purchase of raw materials or a foreign-currency-denominated firm
commitment for the purchase of equipment, or it may be designated as a cash
flow hedge to manage exposure to risks related to a forecasted purchase of
raw materials, variable interest rate payments, or a forecasted
foreign-currency-denominated sale of product. In addition, the use of
nonderivative financial instruments is limited to hedging fair value risk
related to a firm commitment or a net investment in a foreign subsidiary.
The Company's risk management strategy permits the reasonable and
practical use of derivative hedging instruments such as forward contracts,
options, cross currency swaps, certain interest rate swaps, caps and
floors, and nonderivative hedging instruments such as
foreign-currency-denominated loans. All hedging instruments are designated
and documented, in accordance with SFAS No. 133, as either a fair value
hedge or a cash flow hedge at inception. The effectiveness of designated
hedging relationships is tested and documented on at least a quarterly
basis. Any ineffectiveness of cash flow or net investment hedges is
recognized currently in earnings.
The only derivative instrument identified in the implementation of
SFAS No. 133 was an interest rate swap, which effectively converts the
variable-rate Eurodollar Credit Agreement to a fixed-rate basis. As of
January 1, 2001, this interest rate swap was designated and documented as a
cash flow hedge of the risk of changes in the cash flows attributable to
fluctuations in the variable benchmark interest rate associated with the
underlying debt being hedged. This hedging instrument was effective at the
transition date to SFAS No. 133, and at the balance sheet date, and is
expected to continue to be effective for the duration of the swap contract,
resulting in no anticipated reclassifications from other comprehensive
income to earnings. The transition adjustment as of January 1, 2001 was
recorded as a change in accounting principle to accumulated other
comprehensive loss and other assets on the balance sheet and did not have a
material impact on the Company's consolidated results of operations,
financial position, and cash flows.
Also, as of January 1, 2001, the Eurodollar Credit Agreement was
designated and documented as a hedge of the Company's net investment in its
Belgian subsidiary. Since this loan agreement bears a variable rate of
interest, its value on the balance sheet is representative of its fair
value. As a result, there was no adjustment required under SFAS No. 133 as
of January 1, 2001 related to this net investment hedge. This hedging
instrument was effective at the transition date to SFAS No. 133, and 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 other comprehensive income to earnings. In addition,
the Company does not currently intend to repatriate the earnings of this
subsidiary in the foreseeable future.
Activity in the accumulated net gain on derivative instruments
included in accumulated other comprehensive loss as of March 31, 2001
consists of the following:
March 31,
2001
--------
Accumulated net gain on derivative $ --
instruments, beginning of year
Net effect of adopting SFAS No. 133 229
Net loss on derivative financial
instruments designated as cash flow
hedges (97)
--------
Accumulated net gain on derivative
instruments, end of period $ 132
========
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED - IN THOUSANDS, UNLESS OTHERWISE NOTED)
6. EMPLOYEE BENEFIT PLANS
Effective January 1, 2001, the Company amended and restated its
nonqualified unfunded supplemental executive retirement plan that provides
certain key executives with defined pension benefits. The amended and
restated plan (the "Restated Plan"), by its terms, does not affect the
benefits and rights of participants who were retired as of December 31,
2000. All other eligible participants will receive benefits under the
Restated Plan, which is a noncontributory unfunded defined contribution
plan. Under the Restated Plan, the Company will credit each participant's
account with contributions and earnings on the accumulated balance thereof,
as outlined in the plan, but the Company is not required to make any
payments until the participant is eligible to receive retirement benefits
under the Restated Plan. The amendment and restatement of this plan had no
material effect on the consolidated financial statements of the Company
upon adoption.
7. EMPLOYEE TERMINATION BENEFITS
At the end of March, 2001, the Company eliminated 482 permanent
positions and recorded a liability for employee termination benefits in the
amount of $632, pretax (or $0.01 per share, after tax), which was
recognized in cost of sales. The affected employees were non-exempt, hourly
manufacturing employees located in three of the Company's North Carolina
facilities. The affected employees were notified of the termination on or
prior to March 31, 2001 and were given sufficient information to allow them
to calculate the termination benefits to be received. The liability for
employee termination benefits related solely to severance pay and will be
paid in full during the second quarter of 2001.
8. COMMITMENTS AND CONTINGENCIES
As of March 31, 2001, the Company had committed funds of approximately
$11 million under purchase orders and contracts related to capacity
expansion projects.
9. SUPPLEMENTAL CASH FLOW INFORMATION
Quarter Ended
March 31,
----------------
2001 2000
-------- -------
Cash paid during the period for:
Income Taxes $ 102 $ 61
Interest 616 533
11
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, 2000
included in our Annual Report on Form 10-K.
HIGHLIGHTS
Net income was $17 million, or $0.32 per basic and diluted share, for
the quarter ended March 31, 2001. Net income for the quarter ended March
31, 2000 was also $17 million, or $0.33 per basic share and $0.32 per
diluted share. Net income for the current quarter included charges of
approximately $0.01 per share for employee termination benefits related to
a previously announced workforce reduction.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH
31, 2001 WITH THE THREE MONTH PERIOD ENDED MARCH 31, 2000
Net Sales
Net sales for the first quarter ended March 31, 2001 increased $13
million or 7% to $217 million, over the same period in 2000. This increase
was primarily driven by sales of cable for Hybrid Fiber Coax (HFC)
applications and price increases on certain HFC products. Domestic sales
rose approximately 1% to $156 million in the first quarter of 2001, over
the same period in 2000.
For the first quarter ended March 31, 2001, international sales were
nearly $62 million, an increase of 23% over the same period in 2000. Strong
sales to the Latin American market contributed to this growth by more than
doubling year over year.
Net sales to broadband and other video distribution markets
("Broadband/Video Products") for the first quarter ended March 31, 2001
increased approximately $22 million or 15% to $170 million, over the same
period in 2000. We have not changed the composition of this product group,
but have changed the name from CATV/Video to Broadband/Video in order to
reflect the ongoing convergence of video, voice and data. The increase in
sales of Broadband/Video Products was primarily driven by price increases
for certain HFC-related products and a favorable shift in product mix,
resulting from sales of fiber optic cable which grew to more than 10% of
total net sales in the current quarter. First quarter domestic
Broadband/Video sales grew approximately 11%, year over year, led by fiber
optic cable sales which offset a significant decrease in broadband cable
sales to AT&T and alternate service providers. We believe that our ability
to offer both coaxial and fiber optic cable continues to be an important
competitive advantage.
Net sales for local area network and other data applications ("LAN
Products") for the first quarter ended March 31, 2001 decreased
approximately $1 million or 3% to $24 million, from the same period in
2000. We believe the comprehensive performance improvement plan implemented
for our LAN Products group beginning in the fourth quarter of 2000 laid a
12
solid foundation for improvement in our LAN business. Sales of LAN Products
in the current quarter increased 64% over the fourth quarter 2000 levels,
primarily due to increased volume.
Net sales for wireless and other telecommunications products
("Wireless and Other Telecom Products") for the first quarter ended March
31, 2001 were $23 million compared to approximately $32 million in the same
period last year. The decrease in sales of Wireless and Other Telecom
Products was primarily driven by lower volume. Sales of Wireless Products
weakened due primarily to the slowdown in domestic wireless infrastructure
spending, triggered in part by tight credit markets. Sales of Other Telecom
Products, which primarily represent coaxial cables designed for switching
and transmission applications for enhanced telecommunications services,
declined due primarily to lower capital spending for telephone central
office applications and increasing competitive pressures.
Gross Profit (Net Sales Less Cost of Sales)
Gross profit for the first quarter ended March 31, 2001 was
approximately $53 million, a slight increase over first quarter 2000 gross
profit of $52 million. However, first quarter gross profit margin declined
to 24.3% from 25.7% year over year. The decline in gross profit margin was
due primarily to increased overhead costs associated with capacity
expansion, shifting product mix and costs associated with a workforce
reduction. In response to the recent slowdown in market demand, we
eliminated 482 permanent positions, or about 12% of our worldwide
workforce, in late March 2001. Charges related to this workforce reduction,
included in cost of sales, were approximately $0.01 per share, after-tax.
We intend to continue evaluating all aspects of our business and closely
manage costs. However, despite these efforts, we expect continued margin
compression during the second quarter of 2001, primarily as a result of
lower prices for certain products, flat-to-potentially lower sales volumes,
and shifting product mix.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expense for the first
quarter ended March 31, 2001 was $22 million, compared to $18 million for
the same period in 2000. As a percentage of net sales, SG&A expense was 10%
for the first quarter ended March 31, 2001, up slightly over 9% for the
same period in 2000, due mainly to increases in bad debt expense resulting
from a more difficult collection environment.
Research and Development
Research and development expense as a percentage of net sales
decreased, as expected, to 1% for the first quarter ended March 31, 2001
from 2% for the same period in 2000. This decrease was due primarily to the
completion of certain vertical integration projects for bimetallic wire
fabrication and fine wire drawing. We have ongoing programs to develop new
products and market opportunities for our products and core capabilities
and new manufacturing technologies to achieve cost reductions.
Net Interest Expense
Net interest expense for the first quarter ended March 31, 2001 was
$1.9 million, which was not a significant change from $2.0 million for the
same period in 2000.
13
Income Taxes
Our effective tax rate was 37% for the first quarter ended March 31,
2001 and 38% for the same period in 2000. This decrease in our effective
tax rate was due mainly to specific tax savings strategies implemented late
in 2000.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was approximately $50 million
for the first quarter ended March 31, 2001, compared to cash used by
operating activities of $9 million for the same period in 2000. This
increase in current quarter operating cash flow was mainly due to the
decrease in accounts receivable and inventories from December 31, 2000
levels.
Working capital was $184 million at March 31, 2001, compared to $209
million at December 31, 2000. The decrease relates primarily to lower
accounts receivable due to lower sequential sales and higher income taxes
payable due to the timing of tax payments. We believe that working capital
levels are appropriate to support current levels of orders and backlog.
During the first quarter ended March 31, 2001, we invested $22 million
in property, plant and equipment compared to $21 million during the same
period in 2000. As of March 31, 2001, we had committed funds of
approximately $11 million under purchase orders and contracts related to
capacity expansion projects. In response to current market conditions, we
intend to continue evaluating all aspects of our business, including the
timing and location of capacity needs. We currently expect capital
expenditures for equipment and facilities in 2001 to be approximately
$80-$90 million, with the majority of funds expected to be invested in
global capacity expansion projects.
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 $350 million of available
borrowing capacity under our revolving credit agreement, which expires in
December 2002. We owed long-term debt of $196 million, or 33% of our book
capital structure, defined as long-term debt and total stockholders'
equity, as of March 31, 2001, compared to $227 million, or 38% of our book
capital structure as of December 31, 2000. The decrease in long-term debt
is due mainly to the repayment of $30 million under our revolving credit
agreement and partly to the favorable impact of foreign exchange rate
fluctuations on our 15 million eurodollar term loan.
Based upon our 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. 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.
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MARKET RISK
Effective January 1, 2001, we adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, Accounting for Derivative Financial
Instruments and Hedging Activities, as amended by SFAS No. 137 and 138. The
adoption of SFAS No. 133, as amended, did not have a material impact on our
consolidated results of operations, financial position, and cash flows as
of January 1, 2001. SFAS No. 133 establishes accounting and reporting
standards for derivative financial instruments, including certain
derivative instruments embedded in other host contracts and for hedging
activities.
As disclosed in our Annual Report on Form 10-K for the year ended
December 31, 2000, 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 and nonderivative financial instruments
primarily to manage our exposure to these market risks in accordance with
the requirements of SFAS No. 133, whenever management determines their use
to be reasonable and practical. Our exposure associated with these market
risks has not materially changed since December 31, 2000. However, we did
repay $30 million of variable rate debt on our revolving credit agreement
in the first quarter of 2001, somewhat reducing our exposure to interest
rate risk. In addition, we have not acquired any new derivative financial
instruments since December 31, 2000 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, expected demand from our customers, 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,
conditions of excess capacity, the ability to implement cost reductions in
a timely manner and the success of those actions, 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 continue to integrate acquisitions, international economic and
political uncertainties and other factors discussed. Actual results may
also differ due to changes in communications industry capital spending,
which is affected by a variety of factors, including, without limitation,
general economic conditions, acquisitions of communications companies by
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others, consolidation within the communications industry, the financial
condition of communications companies and their access to financing,
competition among communications companies, technological developments, and
new legislation and regulation of communications companies. These and other
factors are discussed in greater detail in Exhibit 99 to our Form 10-K for
the period ending December 31, 2000. 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 are not undertaking any duty or 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.
10.15+ CommScope, Inc. Supplemental Executive Retirement
Plan, as amended and restated effective January 1, 2001
(b) Reports on Form 8-K filed during the three months ended
March 31, 2001:
On February 6, 2001 we filed a current report on Form 8-K
announcing our financial results for the full-year 2000.
On March 7, 2001 we filed a current report on Form 8-K
providing our updated outlook for first quarter 2001
results.
-------------------------
+ Management Compensation.
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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.
May 10, 2001 /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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