Background and Basis of Presentation | 1. BACKGROUND AND BASIS OF PRESENTATION Background CommScope Holding Company, Inc., along with its direct and indirect subsidiaries (CommScope or the Company), is a global provider of infrastructure solutions for communication and entertainment networks. The Company’s solutions for wired and wireless networks enable service providers including cable, telephone and digital broadcast satellite operators and media programmers to deliver media, voice, Internet Protocol (IP) data services and Wi-Fi to their subscribers and allow enterprises to experience constant wireless and wired connectivity across complex and varied networking environments. The Company’s solutions are complemented by a broad array of services including technical support, systems design and integration. CommScope is a leader in digital video and IP television distribution systems, broadband access infrastructure platforms and equipment that delivers data and voice networks to homes. CommScope’s global leadership position is built upon innovative technology, broad solution offerings, high-quality and cost-effective customer solutions, and global manufacturing and distribution scale. As of January 1, 2022, the Company reorganized its internal management and reporting structure to align its portfolio of products and solutions more closely with the markets it serves and bring better performance clarity with its competitive peer set. The reorganization changed the information regularly reviewed by the Company’s chief operating decision maker for purposes of allocating resources and assessing performance. As a result, the Company is now reporting financial performance based on the following operating segments: Connectivity and Cable Solutions (CCS), Outdoor Wireless Networks (OWN), Networking, Intelligent Cellular and Security Solutions (NICS), Access Network Solutions (ANS) and Home Networks (Home). These five segments represent non-aggregated reportable operating segments. Prior to this change, the Company operated and reported four operating segments: Broadband Networks (Broadband), Outdoor Wireless Networks (OWN), Venue and Campus Networks (VCN) and Home Networks (Home). All prior period amounts in these condensed consolidated financial statements have been recast to reflect these operating segment changes. Basis of Presentation The accompanying condensed consolidated financial statements are unaudited and reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for a fair presentation of the interim period financial statements. The results of operations for these interim periods are not necessarily indicative of the results of operations to be expected for any future period or the full fiscal year. Certain prior year amounts have been reclassified to conform to the current year presentation. The unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States (U.S.) for interim financial information and are presented in accordance with the applicable requirements of Regulation S-X. Accordingly, these financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the 2021 Annual Report). The significant accounting policies followed by the Company are set forth in Note 2 within the Company’s audited consolidated financial statements included in the 2021 Annual Report. There were no material changes in the Company’s significant accounting policies during the three or six months ended June 30, 2022 . Concentrations of Risk and Related Party Transactions No direct customer accounted for 10 % or more of the Company’s total net sales during the three or six months ended June 30, 2022 or 2021. As of June 30, 2022, no direct customer accounted for 10 % or more of the Company’s accounts receivable. The Company relies on sole suppliers or a limited group of suppliers for certain key components, subassemblies and modules and a limited group of contract manufacturers to manufacture a significant portion of its products. Any disruption or termination of these arrangements could have a material adverse impact on the Company’s results of operations. As of June 30, 2022 , funds affiliated with Carlyle Partners VII S1 Holdings, L.P. (Carlyle) owned 100 % of the Series A convertible preferred stock (the Convertible Preferred Stock), which was sold to Carlyle to fund a portion of the acquisition of ARRIS International plc (ARRIS) in 2019. See Note 9 for further discussion of the Convertible Preferred Stock. Other than transactions related to the Convertible Preferred Stock, there were no material related party transactions for the three or six months ended June 30, 2022 . Commitments and Contingencies Product Warranties The Company recognizes a liability for the estimated claims that may be paid under its customer warranty agreements to remedy potential deficiencies of quality or performance of the Company’s products. These product warranties extend over various periods depending upon the product subject to the warranty and the terms of the individual agreements . The Company records a provision for estimated future warranty claims as cost of sales based upon the historical relationship of warranty claims to sales and specifically identified warranty issues. The Company bases its estimates on assumptions that are believed to be reasonable under the circumstances and revises its estimates, as appropriate, when events or changes in circumstances indicate that revisions may be necessary. Such revisions may be material. The following table summarizes the activity in the product warranty accrual, included in accrued and other liabilities and other noncurrent liabilities on the Condensed Consolidated Balance Sheets: Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 Product warranty accrual, beginning of period $ 66.0 $ 62.1 $ 66.8 $ 59.5 Provision for warranty claims 7.1 12.6 12.2 23.2 Warranty claims paid ( 11.7 ) ( 5.4 ) ( 17.7 ) ( 13.1 ) Foreign exchange ( 0.5 ) 0.2 ( 0.4 ) ( 0.1 ) Product warranty accrual, end of period $ 60.9 $ 69.5 $ 60.9 $ 69.5 Third Party Guarantees The Company was contingently liable under open standby letters of credit issued by its banks in favor of third parties that totaled $ 42.5 million as of June 30, 2022. These letters of credit primarily support performance obligations of a third-party contractor. These amounts represent an estimate of the maximum amounts the Company would expect to incur upon the contractual non-performance of the third-party contractor, but the Company also has cross-indemnities in place that may enable it to recover amounts in the event of non-performance by the third-party contractor. The Company believes the likelihood of having to perform under these guarantees is remote. There were no material amounts recorded in the condensed consolidated financial statements related to third-party guarantee agreements as of or for the three or six months ended June 30, 2022. As of June 30, 2022, these instruments reduced the available borrowings under the senior secured asset-based revolving credit facility (the Revolving Credit Facility). Legal Proceedings The Company is party to certain intellectual property claims and periodically receives notices asserting that its products infringe on another party’s patents and other intellectual property rights. These claims and assertions, whether against the Company directly or against its customers, could require the Company to pay damages, incur royalties, stop offering the relevant products and/or cease other activities. The Company may also be called upon to indemnify certain customers for costs related to claims made regarding certain products sold to such customers. From time to time, the Company may also be involved as a plaintiff involving intellectual property claims. The outcome of these claims and assertions is uncertain and a reasonable estimate of the loss from unfavorable outcomes in certain of these matters either cannot be determined or is estimated at the minimum amount of a range of estimates. The actual loss could be material and may vary significantly from the Company's estimates. Gain contingencies, if any, are recognized when they are realized. The Company had liabilities of $ 22.3 million and $ 24.6 million as of June 30, 2022 and December 31, 2021, respectively, recorded in accrued and other liabilities and noncurrent liabilities on the Condensed Consolidated Balance Sheets related to certain intellectual property claims and assertions. Charges related to these intellectual property claims and assertions were no t material for the three or six months ended June 30, 2022. For the three and six months ended June 30, 2021, the Company recorded a charge to cost of sales in the Condensed Consolidated Statements of Operations of $ 40.0 million and $ 41.5 million, respectively, related to these intellectual property claims and assertions. These amounts are reflected in the results of the Home, ANS and NICS segments for the prior year periods. The Company paid $ 2.7 million and $ 9.8 million during the three and six months ended June 30, 2022, respectively, and paid $ 4.0 million during the three and six months ended June 30, 2021 to settle intellectual property claims and assertions. The Company is either a plaintiff or a defendant in certain other pending legal matters in the normal course of business. Management believes none of these other pending legal matters will have a material adverse effect on the Company’s business or financial condition upon final disposition. In addition, the Company is subject to various federal, state, local and foreign laws and regulations governing the use, discharge, disposal and remediation of hazardous materials. Compliance with current laws and regulations has not had, and is not expected to have, a materially adverse effect on the Company’s financial condition or results of operations. Asset Impairments Goodwill is tested for impairment annually or at other times if events have occurred or circumstances exist that indicate the carrying value of the reporting unit may exceed its fair value. T he Company assessed goodwill for impairment due to a change in the composition of certain reporting units resulting from the new segment structure as of January 1, 2022. The Company performed impairment testing immediately before and after the change and determined that no goodwill impairment existed. See Note 2 for further discussion. There were no goodwill impairments identified during the three or six months ended June 30, 2022 or 2021. Property, plant and equipment, intangible assets with finite lives and right of use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable, based on the undiscounted cash flows expected to be derived from the use and ultimate disposition of the assets. Assets identified as impaired are adjusted to estimated fair value. Equity investments without readily determinable fair values are evaluated each reporting period for impairment based on a qualitative assessment and are then measured at fair value if an impairment is determined to exist. Other than certain assets impaired as a result of restructuring actions, there were no definite-lived intangible or other long-lived asset impairments identified during the three or six months ended June 30, 2022 or 2021 . Income Taxes For the three and six months ended June 30, 2022, the Company recognized a tax benefit of $ 14.5 million on a pretax loss of $ 75.5 million and $ 16.4 million of income tax expense on a pretax loss of $ 184.5 million, respectively. For the three and six months ended June 30, 2022, the Company’s change in income tax was driven by the unfavorable impacts of U.S. anti-deferral provisions and non-creditable withholding taxes. These unfavorable impacts were offset partially by decreases in prior year uncertain tax positions. For the three and six months ended June 30, 2021, the Company’s effective tax rate was 0.4 % and 10.7 %, respectively, and the Company recognized a tax benefit of $ 0.6 million on a pretax loss of $ 154.4 million and a tax benefit of $ 30.1 million on a pretax loss of $ 281.5 million, respectively. For the three and six months ended June 30, 2021, the Company’s tax benefit was unfavorably impacted by $ 37.3 million related to a foreign tax rate change as well as impacts of earnings in foreign jurisdictions that are taxed at rates higher than the U.S. statutory rate, foreign withholding taxes and U.S. anti-deferral provisions. These unfavorable impacts were partially offset by decreases in prior year uncertain tax positions and adjustments related to the finalization of the prior year’s tax returns. Earnings (Loss) Per Share Basic earnings (loss) per share (EPS) is computed by dividing net income (loss), less any dividends and deemed dividends related to the Convertible Preferred Stock, by the weighted average number of common shares outstanding during the period. The numerator in diluted EPS is based on the basic EPS numerator adjusted to add back any dividends and deemed dividends related to the Convertible Preferred Stock, subject to antidilution requirements. The denominator used in diluted EPS is based on the basic EPS computation plus the effect of potentially dilutive common shares related to the Convertible Preferred Stock and equity-based compensation plans, subject to antidilution requirements. For the three and six months ended June 30, 2022 , 12.3 million and 11.9 million shares, respectively, of outstanding equity-based compensation awards were not included in the computation of diluted EPS because the effect was antidilutive or the performance conditions were not met. Of those amounts, for the three and six months ended June 30, 2022 , 1.1 million and 2.4 million shares, respectively, would have been considered dilutive if the Company had not been in a net loss position. For the three and six months ended June 30, 2021, 10.4 million and 12.9 million shares, respectively, of outstanding equity-based compensation awards were not included in the computation of diluted EPS because the effect was antidilutive or the performance conditions were not met. Of those amounts, for the three and six months ended June 30, 2021, 4.4 million and 5.4 million shares, respectively, would have been considered dilutive if the Company had not been in a net loss position. For the three and six months ended June 30, 2022 , 38.9 million and 38.7 million, respectively, of as-if converted shares related to the Convertible Preferred Stock were excluded from the diluted share count because they were antidilutive. For both the three and six months ended June 30, 2021, 37.9 million of as-if converted shares related to the Convertible Preferred Stock were excluded from the diluted share count because they were antidilutive. These shares may have been considered dilutive if the Company had not been in a net loss position. The following table presents the basis for the EPS computations (in millions, except per share data): Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 Numerator: Net loss $ ( 61.0 ) $ ( 153.8 ) $ ( 200.9 ) $ ( 251.4 ) Dividends on Series A convertible preferred stock ( 14.7 ) ( 14.3 ) ( 29.2 ) ( 28.7 ) Net loss attributable to common stockholders $ ( 75.7 ) $ ( 168.1 ) $ ( 230.1 ) $ ( 280.1 ) Denominator: Weighted average common shares outstanding – basic 207.6 204.1 206.5 202.9 Dilutive effect of as-if converted Series A convertible preferred stock — — — — Dilutive effect of equity-based awards — — — — Weighted average common shares outstanding – diluted 207.6 204.1 206.5 202.9 Loss per share: Basic $ ( 0.36 ) $ ( 0.82 ) $ ( 1.11 ) $ ( 1.38 ) Diluted $ ( 0.36 ) $ ( 0.82 ) $ ( 1.11 ) $ ( 1.38 ) Recent Accounting Pronouncements Adopted During the Six Months Ended June 30, 2022 On January 1, 2022, the Company adopted Accounting Standards Update (ASU) No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity . The new guidance simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and convertible preferred stock and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions and requires the application of the if-converted method for calculating diluted earnings per share, along with expanded disclosures. The impact of adopting this new guidance was not material to the condensed consolidated financial statements. On January 1, 2022, the Company early adopted ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new guidance is expected to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability, as well as payment terms which affect subsequent revenue recognized by the acquirer. According to the guidance, at the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if the acquirer had originated the contracts. The impact of this guidance will depend on future business combinations and will be applied prospectively to business combinations occurring on or after the adoption date. The adoption of this new guidance had no impact to the condensed consolidated financial statements. Issued but Not Adopted In March 2020 and January 2021, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and ASU No. 2021-01 , Reference Rate Reform (Topic 848): Scope , respectively. Together, the ASUs provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity. The Company can elect to apply the amendments through December 31, 2022. As of June 30, 2022, the Company had not utilized any of the expedients discussed within this ASU; however, management continues to assess the Company's agreements to determine whether the expedients would be utilized through the remainder of 2022. |