What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2023-02-23 compared with 2022-02-17 · 224 added, 213 removed, 366 unchanged (54% of the section changed)

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included in the 2021 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 17, 2022.

We are a global provider of infrastructure solutions for communication and entertainment networks.

We are a global provider of infrastructure solutions for communication, data center and entertainment networks.

Our 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.

Our solutions are complemented by a broad array of services including technical support, systems design and integration.

Our solutions are complemented by services including technical support, systems design and integration.

We are a leader in digital video and IP Television distribution systems, broadband access infrastructure platforms and equipment that delivers data and voice networks to homes.

Our global leadership position is built upon innovative technology, broad solution offerings, high-quality and cost-effective customer solutions, and global manufacturing and distribution scale.

In the first quarter of 2021, we announced a transformation initiative referred to as CommScope NEXT designed to drive shareholder value through three pillars:

In 2021, we announced a transformation initiative referred to as CommScope NEXT designed to drive shareholder value through three pillars:

profitable growth, operational efficiency and portfolio optimization.

We believe these efforts are critical to making us more competitive and allowing us to invest in growth and maximize stockholder and stakeholder value.

We have incurred $91.9 million of restructuring costs and $90.3 million of transaction, transformation and integration costs during the year ended December 31, 2021, both primarily related to CommScope NEXT.

We expect to continue to incur restructuring costs and transaction, transformation and integration costs related to CommScope NEXT and such costs could be material.

As a step in the CommScope NEXT transformation plan, in April 2021, we announced a plan to spin-off the Home Networks business in 2022.

After thorough consideration of the current supply chain environment and its impact on the Home Networks business, we have decided to delay the execution of the spin-off.

We remain committed to the spin-off of the Home Networks business from CommScope, but we currently do not have a firm timeline for restarting the plan.

Accordingly, management now analyzes the financial results of our "Core" business separately from Home Networks.

These supplementary Core financial measures reflect the results of our Broadband Networks (Broadband), Outdoor Wireless Networks (OWN) and Venue and Campus Networks (VCN) segments, in the aggregate.

Our Core financial measures exclude the results and performance of our Home Networks (Home) segment.

See the Segment Results section below for illustration of the aggregation of our Core financial measures.

These metrics represent the business segments as we have reported them.

However, the ultimate definition of the Home Networks business that we expect to separate may vary, and future results may differ materially.

In the second quarter of 2021, we shifted certain product lines from our Broadband segment to our Home segment to better align with how those businesses are being managed.

We believe these efforts are critical to making us more competitive and allowing us to invest in growth, de-leverage and maximize stockholder and other stakeholder value.

We have incurred $62.9 million and $91.9 million of restructuring costs and $38.2 million and $90.3 million of transaction, transformation and integration costs during the years ended December 31, 2022 and 2021, respectively, primarily related to CommScope NEXT.

We expect to continue to incur restructuring costs and transaction, transformation and integration costs related to CommScope NEXT in 2023 and such costs could be material.

As a step to optimize our portfolio through CommScope NEXT, as of January 1, 2022, we reorganized our internal management and reporting structure to align our portfolio of products and solutions more closely with the markets we serve and provide better performance comparability with our competitive peer set across our businesses.

The reorganization changed the information regularly reviewed by our chief operating decision maker for purposes of allocating resources and assessing performance.

As a result, we are 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).

Prior to this change, we operated and reported four operating segments:

Broadband Networks, Outdoor Wireless Networks, Venue and Campus Networks and Home Networks.

The Home segment was unchanged in this realignment.

All prior period amounts have been recast to reflect these operating segment changes.

COVID-19 Update

The COVID-19 outbreak had an adverse impact on our financial performance in 2020 primarily related to decreased demand, supply constraints due to the temporary shutdown of certain of our facilities and increased business continuity costs.

We took a variety of actions in 2020 to help mitigate the financial impacts such as headcount reductions, lower capital spending and lower discretionary spending.

The negative impact of COVID-19 on our financial performance has eased during 2021, with network strain driving increased demand for our Broadband segment products in particular.

The recovery in demand has also indirectly had unfavorable business impacts, including commodity inflation (primarily copper and resins), logistics cost increases, extended lead times and certain component part shortages.

We expect certain of these unfavorable impacts to continue into 2022.

The extent of the negative impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic, including new variants, the effectiveness and adoption of vaccines and related actions taken by domestic and international jurisdictions to maintain and prevent disease spread, and the extent of any financial recession resulting from the pandemic, all of which are uncertain and cannot be predicted.

Also as a step in our CommScope NEXT transformation plan, in 2021, we announced a plan to separate the Home Networks business.

Due to the impact of the uncertain supply chain environment, capital spending patterns of customers and other macroeconomic factors related to the Home Networks business, we have delayed our separation plan, but we continue to analyze the financial results of our "Core" business separately from Home.

As such, below we refer to certain supplementary Core financial measures, which reflect the results of our CCS, OWN, NICS and ANS segments in the aggregate.

See the Segment Results section below for the aggregation of our Core financial measures.

Impacts of Supply Chain Constraints and Inflation

As in many industries, we have seen the negative impacts of COVID-19 recede and a recovery in demand for our products over the past year, but this has created negative indirect consequences such as inflation, shortages in materials and components and increased logistics costs.

Prices for certain commodities and other raw materials that we use have experienced significant volatility as a result of changes in the levels of global demand, supply disruptions, including port, transportation and distribution delays or interruptions, and other factors.

As a result, we have seen a significant increase in costs that has negatively impacted our results of operations.

We are also experiencing limited supply of memory devices, capacitors and silicon chips, which has increased our costs and has impacted our ability to deliver products on a timely basis due to extended lead times.

We have mitigated some of our increased component and logistics costs by implementing higher prices on our products and services.

We are also mitigating certain shortages by purchasing components in advance and maintaining higher levels of inventory, finding alternate vendors for some components or in certain cases, product redesign.

We believe the global supply chain challenges and their adverse impact on our business and financial results will continue to improve in 2023 but certain shortages could continue throughout 2023.

We also believe certain macroeconomic pressures in the U.S.

and the global economy, such as rising interest rates and energy prices as well as customer concern about an economic slow-down, could impact the timing and amount of capital spending by our customers in 2023, which could negatively impact our results of operations.

For more discussion, see Part I, Item 1A, "Risk Factors" elsewhere in this Annual Report on Form 10-K.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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2022 Interim and Annual Goodwill Analysis

During the second quarter of 2021, we realigned certain of our product lines that changed the composition of our reporting units and resulted in the reallocation of $13.7 million of goodwill from the Network and Cloud (N&C) reporting unit to the Home Networks reporting unit.

Goodwill was assessed for impairment due to a change in the composition of reporting units.

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.

We 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.

We performed impairment testing immediately before and after the change and determined that no goodwill impairment existed.

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The range of discount rates used in our annual tests were 10.0% to 12.0% for 2022.

During the annual impairment test performed in the fourth quarter of 2021 and in conjunction with the development of our 2022 and long range plans, we identified further weakness in our Home Networks reporting unit forecast resulting from a continuing decline in demand for video products from both U.S.

and international service providers as well as the negative impact of supply shortages and delays on our ability to meet customer demand for video products.

As a result, we determined the goodwill balance in the Home Networks reporting unit was impaired and recorded a $13.7 million impairment charge.

See Note 3 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further discussion.

During the annual impairment test performed in the fourth quarter of 2022 and in conjunction with the development of our 2023 and long-range plans, we identified changes in our ANS reporting unit's expected future cash flows due to various market trends expected to affect the business, including technology shifts affecting hardware sales, trends affecting bandwidth growth and other operational challenges, as well as an increase in the cost of capital.

As a result, we determined the goodwill balance in the ANS reporting unit was partially impaired and recorded a $1,119.6 million impairment charge.

The ANS reporting unit has remaining goodwill allocated of $734.0 million as of October 1, 2022.

The ANS reporting unit is the same as our ANS reportable segment.

As discussed, our ANS reporting unit failed the annual goodwill impairment test and a partial impairment was recorded as of October 1, 2022.

Also, the amount by which our Building and Data Center Connectivity (BDCC) reporting unit's fair value exceeded its carrying value was lower year over year.

The BDCC reporting unit is in our CCS reportable segment.

Considering the headroom going forward for each of the ANS and BDCC reporting units, there is a risk for future impairment in the event of declines in general economic, market or business conditions or any significant unfavorable change in the forecasted cash flows, weighted average cost of capital or growth rates.

If current and long-term projections for our ANS and BDCC reporting units are not realized or decrease materially, we may be required to recognize additional goodwill impairment charges and these charges could be material to our results of operations.

The following table provides summary information regarding our reporting units with goodwill balances as of December 31, 2022 that have the lowest level of headroom.

The table presents key assumptions used in our annual goodwill analysis, along with sensitivity analysis showing the effect of a change in certain key assumptions, assuming all other assumptions remain constant, to the resulting fair value using an income approach.

Accordingly, if performance is worse than anticipated for these reporting units, future impairment tests could result in impairment charges that could be material to our results of operations.

The Enterprise reporting unit is in our VCN segment and the N&C reporting unit is in our Broadband segment.

Key Assumptions

Excess of Fair Value to Carrying Value

Excess (Deficit) of Fair Value to Carrying Value

Balance at December 31, 2022

Result of Annual Goodwill Test as of October 1, 2022

Decrease of 10%

in Cash Flows

Decrease of 10% in Cash Flows

Decrease of 0.5% in Long-term Growth Rate

Increase of 0.5%

in Discount Rate

Increase of 0.5% in Discount Rate

Definite-Lived Intangible Assets and Other Long-Lived Assets

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If the forecasted net cash flows are less than the carrying value, then the asset is written down to its estimated fair value.

Other than certain assets impaired as a result of restructuring actions, we did not identify any impairments of definite-lived intangible assets or other long-lived assets in 2021, including the finite lived assets in our Home Network reporting unit for which a goodwill impairment was recognized in the fourth quarter of 2021.

Changes in the estimates of forecasted net cash flows may result in future asset impairments that could be material to our results of operations.

We performed a recoverability test for our ANS reporting unit because of the goodwill impairment recognized in the fourth quarter of 2022.

Our Home Networks reporting unit also had an indicator of impairment as its carrying amount exceeded its estimated fair value.

We did not identify any impairments of definite-lived intangible assets as a result of these tests.

Changes in the estimates of forecasted net cash flows or changes in classification from held for use may result in future asset impairments that could be material to our results of operations.

We impaired certain other long-lived assets as a result of restructuring actions in 2022.

Revenue Recognition

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We also generate revenue from custom design and installation services as well as bundled sales arrangements that include product, software and services.

Revenue is recognized when performance obligations in a contract are satisfied through the transfer of control of the good or service at the amount of consideration expected to be received.

The following are required before revenue is recognized:

Identify the contract with the customer.

A variety of arrangements are considered contracts;

however, contracts typically take the form of a master purchase agreement or customer purchase orders.

We apply a five-step approach as defined in ASC 606, Revenue from Contracts with Customers , in determining the amount and timing of revenue to be recognized:

(1) identify the contract with a customer;

(2) identify the performance obligations in the contract;

Performance obligations are identified as promised goods or services that are distinct within an arrangement.

(3) determine the transaction price;

The transaction price is the amount of consideration we expect to receive in exchange for transferring the promised goods or services.

The consideration may include fixed or variable amounts or both.

Allocate the transaction price to the performance obligations.

The transaction price is allocated to the performance obligations on a relative standalone selling price basis.

Recognize revenue as the performance obligations are satisfied.

Revenue is recognized when transfer of control of the promised goods or services has occurred.

This is either at a point in time or over time.

Product sales represent over 90% of our revenue.

For these sales, revenue is recognized when control of the product has transferred to the customer, which is generally at the point in time when products have been shipped, right to payment has been obtained and risk of loss has been transferred.

(4) allocate the transaction price to the performance obligations in the contract;

and (5) recognize revenue when a corresponding performance obligation is satisfied.

Most contracts with customers are to provide distinct products or services within a single contract.

However, if a contract is separated into more than one performance obligation, the total transaction price is allocated to each performance obligation in an amount based on the estimated relative standalone selling price.

Product sales, to end-customers or distributors, represent over 90% of our revenue and are recognized at a point-in-time, which is generally at the point in time when products have been shipped, right to payment has been obtained and risk of loss has been transferred.

Certain of our product performance obligations include proprietary operating system software, which typically is not considered separately identifiable.

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Functional intellectual property licenses do not meet the criteria for revenue to be recognized over time and revenue is most commonly recognized upon delivery of the license/software to the customer.

Certain customer transactions may be project based and include multiple performance obligations based on the bundling of equipment, software and services.

When a multiple performance obligation arrangement exists, the transaction price is allocated to the performance obligations based on the relative standalone selling price, and revenue is recognized upon transfer of control of each deliverable.

To determine the standalone selling price, we first look to establish the standalone selling price through an observable price when the good or service is sold separately in similar circumstances.

If the standalone selling price cannot be established through an observable price, we will make an estimate based on market conditions, customer specific factors and customer class.

We may use a combination of approaches to estimate the standalone selling price.

Other customer contract types include a variety of post-contract support service offerings, which are generally recognized over time as the services are provided, including the following:

The Company has service arrangements where net sales are recognized over time.

These arrangements include a variety of post-contract support service offerings, which are generally recognized over time as the services are provided, including the following:

maintenance and support services provided under annual service-level agreements;

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and installation services related to the routine installation of equipment ordered by the customer at the customer’s site.

For performance obligations recognized over time, judgment is required to evaluate assumptions, including the total estimated costs to determine progress towards completion of the performance obligation and to calculate the corresponding amount of revenue to recognize.

If estimated total costs on any contract are greater than the net contract revenues, the entire estimated loss is recognized in the period the loss becomes known.

The cumulative effects on revenue from revisions to total estimated costs are recorded in the period in which the revisions to estimates are identified and the amounts can be reasonably estimated.

Revenue is measured based on the consideration to which we expect to be entitled based on customer contracts.

For sales to distributors, system integrators and value-added resellers, revenue is adjusted for variable consideration amounts, including but not limited to estimated discounts, returns, rebates and distributor price protection programs.

Sales are adjusted for variable consideration amounts, including but not limited to estimated discounts, rebates, distributor price protection programs and returns.

These estimates are determined based upon historical experience, contract terms, inventory levels in the distributor channel and other related factors.

Adjustments to variable consideration estimates are recorded when circumstances indicate revisions may be necessary.

Variable consideration is primarily related to sales to our distributors, system integrators and value-added resellers.

A contract liability for deferred revenue is recorded when consideration is received or is unconditionally due from a customer prior to transferring control of goods or services to the customer under the terms of a contract.

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Unbilled receivables are recorded when revenues are recognized in advance of invoice issuance.

A contract asset is any portion of unbilled receivables for which the right to consideration is conditional on a factor other than the passage of time, which is common for certain performance obligations related to project contracts.

These assets are presented on a combined basis with accounts receivable and are converted to accounts receivable once our right to the consideration becomes unconditional, which varies by contract but is generally based on achieving certain acceptance milestones.

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If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability.

Gain contingencies are recognized when they are realized.

Litigation outcomes are difficult to predict and are often resolved over long periods of time, making our estimates highly judgmental.

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We also establish allowances related to value-added and similar recoverable taxes when it is considered probable that those assets are not recoverable.

Changes in the probability of recovery or in the estimates of the amount recoverable are recognized in the period such determination is made and may be material to our net income (loss).

Changes in the probability of recovery or in the estimates of the amount recoverable are recognized in the period such determination is made and may be material to our net loss.

RESULTS OF OPERATIONS

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Operating income (loss)

Core operating income (1)

Core operating income (loss) (1)

Non-GAAP adjusted EBITDA (2)

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Diluted loss per share

Not meaningful

(1) Core financial measures reflect the results of our Broadband, OWN and VCN segments, in the aggregate.

Core financial measures exclude the results of our Home segment.

(1) Core financial measures reflect the results of our CCS, OWN, NICS and ANS segments, in the aggregate, and exclude the results of our Home segment.

See the Segment Results section below for illustration of the aggregation of our Core financial measures.

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International

Net sales in 2021 increased $150.8 million, or 1.8%, compared to the prior year.

Core net sales in 2021 increased $709.0 million, or 11.8%, compared to the prior year with increases in the Broadband segment of $300.6 million, the VCN segment of $241.9 million and the OWN segment of $166.5 million.

Net sales in 2022 increased $641.4 million, or 7.5%, compared to the prior year driven by higher pricing.

Core net sales in 2022 increased $787.3 million, or 11.7%, compared to the prior year with increases in the CCS segment of $735.8 million, the NICS segment of $77.8 million and the OWN segment of $50.8 million, partially offset by a decrease of $77.1 million in the ANS segment.

Net sales in 2022 in the Home segment decreased $145.9 million compared to the prior year.

In 2021, all of our segments experienced supply shortages and extended lead times for certain materials that negatively affected our ability to meet customer demand for our products.

We expect these shortages and delays to persist into 2022.

In addition, our Broadband segment faced capacity constraints that negatively affected net sales in 2021.

During 2022, we continued to experience supply shortages and extended lead times for certain materials that negatively affected our ability to meet customer demand for certain of our products.

We expect these shortages and delays to improve for some components, but we expect to continue to experience shortages and delays for others into 2023.

For further details by segment, see the discussion of Segment Results below.

From a regional perspective, net sales increased in 2021 in the Asia Pacific (APAC) region by $141.4 million, the Europe, Middle East and Africa (EMEA) region by $90.4 million, the Caribbean and Latin America (CALA) region by $88.7 million and Canada by $55.1 million.

The increases in international net sales in 2021 were partially offset by a decrease of $224.8 million in the U.S.

From a regional perspective in 2022, net sales increased in the U.S.

by $790.0 million and Canada by $94.4 million, but these increases were partially offset by decreases in the Asia Pacific (APAC) region of $114.1 million, the Caribbean and Latin American (CALA) region of $103.3 million and the Europe, Middle East and Africa (EMEA) region of $25.6 million.

Net sales to customers located outside of the U.S.

comprised 42.2% for 2021 compared to 38.5% for 2020.

Foreign exchange rate changes impacted net sales favorably by approximately 1% for 2021 compared to the prior year.

comprised 38% of total net sales for 2022 compared to 42% for 2021.

Foreign exchange rate changes impacted net sales unfavorably by approximately 2% for 2022 compared to the prior year.

For additional information on regional sales by segment, see discussion of Segment Results below and Note 16 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

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Gross profit (net sales less cost of sales)

Despite higher consolidated net sales, gross profit decreased in 2021 compared to the prior year primarily due to significantly higher material and freight costs.

We also experienced substantial sales volume declines in our Home segment and pricing pressures related to certain of our OWN segment products.

Increased pricing on certain of our VCN segment products more than offset the OWN segment pricing pressures.

In addition, we recorded charges of $48.6 million that reduced gross profit in 2021 related to the settlement of intellectual property assertions, but these charges were partially offset by the recovery of $17.1 million related to a warranty indemnification litigation matter of ARRIS International plc (ARRIS), which was acquired by CommScope in 2019.

Gross profit increased in 2022 compared to the prior year primarily due to higher net sales, partially offset by higher material and freight costs and unfavorable product mix.

Selling, general and administrative expense

In the first quarter of 2021, we announced a transformation initiative called CommScope NEXT, and as a step in our transformation, we announced our commitment to spin-off our Home Networks business from CommScope.

As a result of these transformation and separation efforts, we incurred $90.3 million of transaction, transformation and integration costs during 2021 that were recorded in selling, general and administrative (SG&A) expense.

During 2020, we incurred $24.9 million of transaction, transformation and integration costs that were mainly focused on the integration of the ARRIS business.

We continue to focus on integrating the ARRIS business, including our work to combine our enterprise resource planning systems.

We expect to continue to incur transaction, transformation and integration costs related to CommScope NEXT, the spin-off of the Home Networks business from CommScope, and the integration of the ARRIS business, and such costs could be material.

For 2021, excluding transaction, transformation and integration costs, SG&A expense decreased by $2.4 million compared to 2020.

The decrease was primarily due to cost savings initiatives, but the favorable impact of cost savings initiatives was partially offset by higher variable incentive compensation expense of $13.5 million and higher bad debt expense, which was driven by a $30.3 million charge related to a certain value-added reseller customer in the Home segment.

We reserved the entire balance due from this customer due to changes in their risk profile, and we are pursuing legal action.

Excluding transaction, transformation and integration costs, SG&A as a percentage of net sales was 13.3% and 13.6% for 2021 and 2020, respectively.

For 2022, selling, general and administrative (SG&A) expense decreased by $98.9 million compared to 2021, primarily due to a decrease in transaction, transformation, and integration costs of $52.1 million and cost savings initiatives.

We expect to continue to incur transaction, transformation and integration costs related to CommScope NEXT in 2023 and such costs could be material.

Also included in 2022 SG&A expense is $20.9 million of bad debt expense related to deterioration in the credit profile of a certain distributor in the OWN segment;

and similarly, in 2021, we recorded bad debt expense of $30.3 million related to the credit deterioration of a specific Home segment value added reseller.

Research and development expense

Research and development (R&D) expense for 2021 decreased due to lower spending on Home segment products that was partially offset by increased spending on Core segment products.

Research and development (R&D) expense for 2022 decreased primarily due to lower spending on ANS segment products of $27.3 million.

Spending on OWN and Home segment products also declined but was offset by higher spending on CCS and NICS segment products.

R&D activities generally relate to ensuring that our products are capable of meeting the evolving technological needs of our customers, bringing new products to market and modifying existing products to better serve our customers.

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Restructuring costs, net

The restructuring costs recorded in 2021 reflected actions initiated during 2021 and included $90.7 million related to CommScope NEXT and $1.2 million related to integrating the ARRIS business.

The restructuring costs recorded during 2020 were primarily related to integrating the ARRIS business.

From a cash perspective, we paid $31.6 million to settle restructuring liabilities during 2021 and expect to pay an additional $69.0 million between 2022 and 2023 related to restructuring actions that have been initiated.

The net restructuring costs recorded in 2022 included $59.3 million related to CommScope NEXT.

From a cash perspective, we paid $49.4 million to settle CommScope NEXT restructuring liabilities during 2022 and expect to pay an additional $58.2 million in 2023 and $0.5 million in 2024 related to restructuring actions that have been initiated.

The net restructuring costs recorded in 2021 included $90.7 million related to CommScope NEXT.

Additional restructuring actions related to CommScope NEXT are expected to be identified and the resulting charges and cash requirements could be material.

The Company does not expect to identify significant additional restructuring actions related to the ARRIS integration.

Asset impairments

We recorded goodwill impairment charges of $13.7 million and $206.7 million during 2021 and 2020, respectively, related to our Home Networks reporting unit within our Home segment.

See the discussion above under "Critical Accounting Policies" for more information regarding the annual goodwill impairment test performed during 2021.

We recorded goodwill impairment charges of $1,119.6 million in 2022 related to our ANS reporting unit which is the same as our ANS segment.

See the discussion above under “Critical Accounting Policies”

for more information regarding the annual goodwill impairment test performed during 2022.

We recorded goodwill impairment charges of $13.7 million during 2021 related to our Home Networks reporting unit within our Home segment.

Other expense, net

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Foreign currency loss

Other expense, net

Other income (expense), net

NM - Not meaningful

Foreign currency loss

Foreign currency loss includes the net foreign currency gains and losses resulting from the settlement of receivables and payables, foreign currency contracts and short-term intercompany advances in a currency other than the subsidiary’s functional currency.

The foreign currency loss in 2020 was primarily driven by certain unhedged currencies.

Other expense, net

For 2021, other expense, net was driven by the redemption fee of $34.4 million related to the refinancing of our 5.50% senior secured notes due March 2024 (the 2024 Secured Notes) as further described in Note 7 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

The redemption fee was partially offset by income of $8.1 million on equity method investments and other miscellaneous investments.

We also recognized a gain of $2.9 million during the year ended December 31, 2021 related to the sale of an investment accounted for under the cost method.

In addition, we recognized a curtailment gain in other expense, net of $2.5 million reflecting the impacts of a restructuring action on an international defined benefit plan.

For 2020, other expense, net was driven by redemption fees of $17.9 million related to the refinancing of our 5.00% senior notes due 2021 (the 2021 Notes) and 5.50% senior notes due June 2024 (the 2024 Notes) and the redemption of $100.0 million of our 6.00% senior notes due 2025 (the 2025 Notes), offset partially by income on equity method investments and other miscellaneous investments.

The change in foreign currency loss in 2022 compared to 2021 was not significant.

Other income (expense), net

The change in other income (expense), net in 2022 compared to 2021 was primarily due to a redemption fee paid in 2021 of $34.4 million related to the refinancing of our 5.50% senior secured notes due March 2024 (2024 Secured Notes).

The remaining change is due to changes in income derived from equity method investments and other miscellaneous investments.

Interest expense, Interest income and Income taxes

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Interest expense and Interest income

In 2021, we wrote off $9.9 million of debt issuance costs related to the refinancing of the 2024 Secured Notes as further described in Note 7 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

For 2020, we wrote off $7.6 million related to the refinancing of the 2021 Notes and 2024 Notes and the partial redemption of the 2025 Notes.

Excluding the write-off of debt issuance costs, interest expense decreased in 2021 due to lower variable interest rates on our senior secured term loan due 2026 (the 2026 Term Loan).

Our weighted average effective interest rate on outstanding borrowings, including the impact of interest rate swaps and the amortization of debt issuance costs and original issue discount, was 5.74% at December 31, 2021 and 5.86% at December 31, 2020.

Interest expense increased in 2022 compared to 2021.

The increase was driven by higher interest expense related to our senior secured term loan due 2026 (2026 Term Loan) due to the increased variable interest rate compared to 2021.

This increase was partially offset by lower interest on our fixed rate debt due to the refinancing of our 2024 Secured Notes in 2021.

We expect our interest expense will increase in 2023 as a result of the Federal Reserve's increase in interest rates in 2022 and the expectation that they will continue to raise interest rates into 2023.

Our weighted average effective interest rate on outstanding borrowings, including the impact of the interest rate swap and the amortization of debt issuance costs and original issue discount, was 6.91% at December 31, 2022 and 5.74% at December 31, 2021.

Income tax benefit

For 2021, our effective tax rate was 13.5% and we recognized a tax benefit of $71.9 million on a pretax loss of $534.5 million.

Our tax benefit was lower than the statutory rate of 21.0% in 2021 primarily due to the impact of $37.4 million of tax expense related to a foreign tax rate change.

For 2022, we recognized an income tax benefit of $13.1 million on a pretax loss of $1,300.0 million.

Our tax benefit was less than the statutory rate of 21.0% in 2022 primarily due to a goodwill impairment charge of $1,119.6 million, for which minimal tax benefits were recorded.

Our tax benefit was also impacted by the unfavorable impacts of U.S.

anti-deferral provisions and non-creditable withholding taxes, partially offset by tax benefit related to federal tax credits.

See Note 12 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for more discussion of our income tax benefit.

For 2020, our effective tax rate was 12.4% and we recognized a tax benefit of $81.1 million on a pretax loss of $654.5 million.

Our tax benefit was less than the statutory rate primarily due to a goodwill impairment charge of $206.7 million, for which minimal tax benefits were recorded.

Our tax rate was also impacted unfavorably by excess tax costs of $14.0 million related to equity compensation awards as well as U.S.

anti-deferral provisions and foreign withholding taxes.

These unfavorable impacts were offset partially by favorable impacts related to federal tax credits and foreign tax rate changes.

For 2021, our effective tax rate was 13.5% and we recognized an income tax benefit of $71.9 million on a pretax loss of $534.5 million.

Our tax benefit was less than the statutory rate primarily due to the impact of $37.4 million of tax expense related to a foreign tax rate change.

Segment Results

Year Ended December 31,

(dollars in millions)

Net sales by segment:

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Consolidated net sales

Operating income (loss) by

Core operating income (1)

Operating income (loss) by segment:

Core operating income (loss) (1)

Consolidated operating income (loss)

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Core adjusted EBITDA (1)

Non-GAAP consolidated

adjusted EBITDA (2)

Not meaningful

(1) Core financial measures reflect the results of our Broadband, OWN and VCN segments, in the aggregate.

Core financial measures exclude the results of our Home segment.

Non-GAAP consolidated adjusted

NM - Not meaningful

(1) Core financial measures reflect the results of our CCS, OWN, NICS and ANS segments, in the aggregate, and exclude the results of our Home segment.

(2) See “Reconciliation of Non-GAAP Measures”

within this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Broadband Networks Segment

Net sales increased in 2021 compared to the prior year due to increased demand for our products and services as service providers enhanced their networks to keep pace with broadband demand.

We are experiencing capacity constraints and supply shortages with certain of our network cable products, which hindered our ability to meet customer demand for our Broadband segment products in 2021.

We are investing to alleviate our capacity constraints and began to see benefits from the expanded capacity in the fourth quarter of 2021.

We expect the supply shortages to extend into 2022.

Connectivity and Cable Solutions Segment

Net sales for the CCS segment increased in 2022 compared to the prior year primarily due to increased demand for our products and services as service providers continued to enhance their networks to keep pace with increasing broadband demand.

We were able to meet this increased demand with the additional production enabled by our capacity expansion.

CCS segment net sales also significantly benefitted from pricing increases.

The supply shortages with certain of our network cable products experienced during the first half of the year eased in the second half and are expected to continue to improve into 2023.

From a regional perspective in 2022, net sales increased in the U.S.

by $137.8 million, the CALA region by $111.2 million, the EMEA region by $62.6 million and Canada by $6.3 million but decreased in the APAC region by $17.3 million.

Foreign exchange rate changes impacted Broadband segment net sales favorably by approximately 1% during 2021 compared to the prior year.

For 2021, Broadband segment operating income and adjusted EBITDA both benefitted from increased sales volumes and favorable geographic and product mix.

However, these benefits were largely offset by higher material and freight costs and increased expenses to expand capacity to meet demand.

Compared to 2020, Broadband segment operating income in 2021 was unfavorably impacted by a $52.0 million increase in restructuring expense related to the planned closure of an international manufacturing facility and an intellectual property litigation settlement charge of $20.0 million.

The intellectual property litigation settlement was partially offset by the recovery of $17.1 million related to a warranty indemnification litigation matter.

Restructuring expense and litigation settlements are not reflected in adjusted EBITDA.

by $690.0 million, the EMEA region by $23.9 million, Canada by $20.1 million and the CALA region by $10.2 million but decreased in the APAC region by $8.4 million compared to the prior year.

Foreign exchange rate changes impacted CCS segment net sales unfavorably by approximately 2% during 2022.

For 2022, CCS segment operating income and adjusted EBITDA both benefitted from pricing increases, higher sales volumes and operational efficiencies compared to the prior year.

These benefits were partially offset by higher material costs, unfavorable product mix, increases in SG&A costs, higher freight costs and increases in R&D costs.

In 2022, CCS segment operating income was favorably impacted by reductions of $57.2 million in amortization expense, $44.9 million in restructuring expense and $7.9 million in transaction, transformation and integration costs but was unfavorably impacted by a $2.7 million net charge to establish an allowance against certain accounts receivable determined to be uncollectible as a result of the Russia/Ukraine conflict.

Amortization expense, restructuring expense, transaction, transformation and integration costs and the charge related to certain uncollectible accounts receivable resulting from the Russia/Ukraine conflict are not reflected in adjusted EBITDA.

See “Reconciliation of Segment Adjusted EBITDA”

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Outdoor Wireless Networks Segment

For 2021, OWN segment net sales increased compared to the prior year primarily due to an increase in customer spending on both macro and metro cell solutions.

Although OWN segment net sales increased year over year for 2021, net sales were negatively affected by supply shortages of certain materials that hindered our ability to meet customer demand.

For 2022, OWN segment net sales increased compared to the prior year primarily due to favorable pricing impacts.

From a regional perspective in 2022, OWN segment net sales increased in the U.S.

by $71.3 million, the APAC region by $58.3 million, the EMEA region by $25.1 million and Canada by $21.4 million but decreased in the CALA region by $9.6 million.

Foreign exchange rate changes impacted OWN segment net sales favorably by approximately 1% during 2021 compared to the prior year.

For 2021, OWN segment operating income increased by $17.9 million but adjusted EBITDA decreased by $10.6 million compared to the prior year.

Both operating income and adjusted EBITDA for the OWN segment benefitted from increased sales volumes, but this favorable impact was more than offset by pricing pressures on certain products and higher freight and material costs.

In addition, OWN segment operating income for 2021 increased as a result of a $12.3 million reduction in amortization expense and a $12.2 million reduction in restructuring expense compared to the prior year.

Amortization expense and restructuring expense are not reflected in adjusted EBITDA.

by $168.3 million but decreased in the EMEA region by $54.4 million, the APAC region by $29.9 million, Canada by $21.4 million and the CALA region by $11.8 million.

Foreign exchange rate changes impacted OWN segment net sales unfavorably by approximately 2% during 2022.

For 2022, OWN segment operating income decreased and adjusted EBITDA increased compared to the prior year.

Both operating income and adjusted EBITDA benefitted from favorable pricing impacts, favorable product mix and benefits from decreases in selling and marketing and R&D costs, but these were partially offset by higher material and freight costs and higher bad debt expense, driven by a $20.9 million reserve related to a distribution customer.

In addition, OWN segment operating income for 2022 was unfavorably impacted by an increase of $18.8 million in restructuring expense which is not reflected in adjusted EBITDA.

See “Reconciliation of Segment Adjusted EBITDA”

within this Management’s Discussion and Analysis of Financial Condition and Results of Operations, below.

Venue and Campus Networks Segment

For 2021, VCN segment net sales increased compared to the prior year as higher net sales of our Building and Data Center Connectivity and Ruckus products were partially offset by lower net sales of our Indoor Cellular Networks products.

Net sales of Ruckus products were unfavorably impacted in 2021 due to shortages of certain materials that negatively affected our ability to meet customer demand.

We expect this supply shortage to continue into 2022.

From a regional perspective, in 2021, net sales for the VCN segment were higher across all regions with increases in the U.S.

of $90.7 million, the APAC region of $60.6 million, the EMEA region of $51.8 million, the CALA region of $27.3 million and Canada of $11.5 million.

Foreign exchange rate changes impacted VCN segment net sales favorably by approximately 1% during 2021 compared to the prior year.

For 2021, VCN segment operating loss decreased and adjusted EBITDA increased compared to the prior year primarily due to favorable pricing impacts on certain products and higher sales volumes.

These benefits were partially offset by higher material and freight costs and higher selling expenses.

In addition, VCN segment operating loss for 2021 benefitted from a $14.9 million reduction in restructuring expense and a $13.4 million reduction in intellectual property litigation charges compared to the prior year.

Restructuring expense and intellectual property litigation charges are not reflected in adjusted EBITDA.

Networking, Intelligent Cellular and Security Solutions Segment

Net sales increased in 2022 compared to the prior year primarily due to the impacts of favorable pricing and to a lesser extent increases in sales volumes particularly in the second half of the year.

We experienced material shortages related to our Ruckus products during the first half of 2022 which negatively impacted our sales volumes for the year.

We saw some improvement in material shortages in the second half of 2022, but we expect certain shortages to continue into 2023.

From a regional perspective in 2022, net sales increased in the U.S.

by $49.1 million, the EMEA region by $12.5 million, the APAC region by $11.6 million, Canada by $2.6 million and the CALA region by $2.0 million compared to the prior year.

Foreign exchange rate changes impacted NICS segment net sales unfavorably by approximately 2% during 2022.

For 2022, NICS segment operating loss decreased and adjusted EBITDA increased compared to the prior year and both benefitted from favorable pricing impacts on certain products, higher sales volumes, lower SG&A costs and lower freight costs.

These favorable impacts were partially offset by higher material costs and higher R&D costs.

For 2022, NICS segment operating loss was favorably impacted by reductions of $12.3 million in amortization expense which is not reflected in adjusted EBITDA.

See “Reconciliation of Segment Adjusted EBITDA”

within this Management’s Discussion and Analysis of Financial Condition and Results of Operations, below.

Access Network Solutions Segment

Net sales decreased in 2022 compared to the prior year primarily due to lower volumes related to the negative impact of supply constraints and also due to projects in the first half of 2021 that did not recur in 2022.

These unfavorable impacts to net sales were partially offset by pricing increases on ANS segment products.

From a regional perspective in 2022, net sales decreased in the CALA region by $82.5 million, the APAC region by $52.2 million and the EMEA region by $22.5 million but increased in the U.S.

by $77.9 million and Canada by $2.2 million compared to the prior year.

Foreign exchange rate changes impacted ANS segment net sales unfavorably by approximately 1% during 2022.

In 2022, ANS segment operating loss increased and adjusted EBITDA decreased compared to the prior year period.

Both ANS segment operating loss and adjusted EBITDA were unfavorably impacted by product mix and decreased sales volumes, but these negative impacts were partially offset by favorable pricing impacts and lower R&D and SG&A costs.

For 2022, ANS segment operating loss was unfavorably impacted by a goodwill impairment charge of $1,119.6 million, an increase of $4.6 million of transaction, transformation and integration costs mostly related to the termination of a supply agreement as part of CommScope NEXT and an increase of $3.0 million in restructuring expense but was favorably impacted by a reduction of $2.9 million in intellectual property litigation settlement charges.

Goodwill impairment charges, transaction, transformation and integration costs, restructuring expense and intellectual property litigation settlement charges are not reflected in adjusted EBITDA.

See the discussion above under "Critical Accounting Policies" for more information regarding the annual goodwill impairment test performed during 2022.

Also see “Reconciliation of Segment Adjusted EBITDA”

within this Management’s Discussion and Analysis of Financial Condition and Results of Operations, below.

Home Networks Segment

Net sales for the Home segment decreased in 2021 primarily due to the continuing decline in demand for video products from both U.S.

and international service providers as well as the negative impact of supply shortages and delays on our ability to meet customer demand.

Net sales for the Home segment decreased in 2022 compared to the prior year.

While net sales of broadband and video products benefitted from favorable pricing impacts, these increases were more than offset by lower net sales volumes across all our Home segment products primarily due to continued supply shortages.

Although we are working to secure components from key suppliers, we still expect to experience some supply chain challenges into 2023 for our Home segment products.

From a regional perspective in 2022, net sales decreased in the U.S.

by $524.6 million, the EMEA region by $49.1 million and the CALA region by $40.2 million and increased in the APAC region by $39.8 million and Canada by $15.9 million.

Foreign exchange rate changes impacted Home segment net sales favorably by approximately 1% during 2021 compared to the prior year.

Excluding goodwill impairment charges in 2021 and 2020 of $13.7 million and $206.7 million, respectively, Home segment operating loss increased and adjusted EBITDA decreased in 2021 compared to the prior year primarily due to lower sales volumes.

The Home segment also experienced higher material costs and higher bad debt expense, driven by a $30.3 million reserve related to a certain value-added reseller customer.

These higher costs were partially offset by favorable pricing impacts on certain products and benefits from cost savings initiatives in R&D.

Home segment operating loss was also unfavorably impacted in 2021 by increases of $41.6 million in transaction, transformation and integration costs and $28.8 million in intellectual property litigation charges, but these were partially offset by a decrease of $21.4 in restructuring expense compared to the prior year.

During 2020, the Home segment benefitted from the release of a $23.6 million accrual related to an intellectual property royalty matter that was settled for less than anticipated.

Of the $23.6 million accrual release in the prior year, $15.1 million related to pre-acquisition sales and was excluded from the calculation of adjusted EBITDA;

the remaining $8.5 million release provided a benefit to Home segment adjusted EBITDA in 2020.

Home segment transaction, transformation and integration costs were primarily related to the announced commitment to separate the Home Networks business from CommScope.

Transaction, transformation and integration costs, restructuring expense and intellectual property settlements are not reflected in adjusted EBITDA.

by $195.3 million, the APAC region by $35.2 million and the CALA region by $21.2 million but increased in Canada by $90.9 million and the EMEA region by $14.9 million compared to the prior year.

Foreign exchange rate changes impacted Home segment net sales unfavorably by approximately 2% during 2022.

Home segment operating loss decreased and adjusted EBITDA increased in 2022 compared to the prior year.

Both benefitted from favorable pricing impacts, lower bad debt expense and lower warranty costs, but these were partially offset by increased material costs and lower sales volumes.

In 2021, Home segment bad debt expense was driven by a $30.3 million charge related to a value-added reseller customer.

Home segment operating loss was favorably impacted in 2022 by reductions of $41.6 million in transaction, transformation and integration costs and $7.3 million in restructuring expense.

Home segment operating loss in 2021 also included a goodwill impairment charge of $13.7 million.

Transaction, transformation and integration costs, restructuring expense and goodwill impairment charges are not reflected in adjusted EBITDA.

See “Reconciliation of Segment Adjusted EBITDA”

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(1) Working capital consists of current assets of $3,726.2 million less current liabilities of $2,107.5 million as of December 31, 2022 and current assets of $3,579.7 million less current liabilities of $2,182.5 million as of December 31, 2021.

(2) Total capitalization includes long-term debt, including the current portion, Series A convertible preferred stock (the Convertible Preferred Stock) and stockholders’

(2) Total capitalization includes long-term debt, including the current portion, Series A convertible preferred stock (Convertible Preferred Stock) and stockholders’

equity (deficit).

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On a long-term basis, our potential sources of liquidity also include raising capital through the issuance of additional equity and/or debt.

The primary uses of liquidity include debt service requirements, voluntary debt repayments or redemptions, working capital requirements, capital expenditures, business separation transaction costs, transformation costs, acquisition integration costs, dividends related to the Convertible Preferred Stock if we elect to pay such dividends in cash, litigation settlements, income tax payments and other contractual obligations.

Our interest payments on long-term debt are expected to total $2,564.2 million over the duration of the debt, with $505.1 million due in 2022.

On October 19, 2022, we completed the refinancing of our senior secured asset-based revolving credit facility (Revolving Credit Facility), the main result of which was to extend the maturity to September 30, 2027.

We continue to have borrowing capacity up to $1.0 billion, subject to certain limitations, but we have added additional assets under the borrowing base which increases our availability.

The interest rate in the amended Revolving Credit Agreement is an adjusted Secured Overnight Financing Rate as administered by the Federal Reserve Bank of New York (SOFR) with a spread of 1.25% to 1.50%.

In the first half of 2023, we expect to amend our 2026 Term Loan to replace LIBOR with SOFR as the reference interest rate in anticipation of the cessation of LIBOR in 2023.

We do not anticipate a material impact on our results of operations or cash flows with the transition to SOFR in our variable rate debt, but the impact is still uncertain.

The primary uses of liquidity include debt service requirements, voluntary debt repayments, redemptions or purchases on the open market, working capital requirements, capital expenditures, business separation transaction costs, transformation costs, restructuring costs, dividends related to the Convertible Preferred Stock if we elect to pay such dividends in cash, litigation settlements, income tax payments and other contractual obligations.

We believe that our existing cash, cash equivalents and cash flows from operations, combined with availability under our Revolving Credit Facility, will be sufficient to meet our presently anticipated future cash needs.

We may experience volatility in cash flows between periods due to, among other reasons, variability in the timing of vendor payments and customer receipts.

We may, from time to time, borrow additional amounts under our Revolving Credit Facility or issue debt or equity securities, if market conditions are favorable, to meet future cash needs or to reduce our borrowing costs.

Our interest payments on long-term debt are expected to total $2,466.4 million over the duration of the debt, with $635.8 million due in 2023 (assuming interest rates in effect as of December 31, 2022 on our variable rate debt).

In 2022, the interest payments on our 2026 Term Loan and our Revolving Credit Facility increased as a result of the Federal Reserve's increase in interest rates in 2022, and we expect that they will continue to raise interest rates into 2023.

For additional information regarding our long-term debt obligations, see Note 7 in the Notes to Consolidated Financial Statements and our discussion of our interest rate risk in Item 7A.

Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this Annual Report on Form 10-K.

For additional information regarding our obligations under our operating lease and restructuring agreements, see Notes 5 and 10, respectively, in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

For information on our obligations related to our Convertible Preferred Stock, see Note 13 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

We periodically enter into sell / buy transactions with our contract manufacturers, where we sell certain component inventory to them for use in our finished goods.

We are obligated to subsequently repurchase this inventory either as a finished good or the original component inventory if not used after a specific period of time.

We record an accounts receivable and a contract manufacturer inventory repurchase liability related to these transactions.

We do not record a sale upon shipment of the inventory to the contract manufacturer and the original value of the inventory remains in our inventory balance.

Our current accrued liability related to these transactions is $79.1 million as of December 31, 2022, and we expect to repurchase a portion of this inventory either as a finished good or the original component inventory in 2023.

During the normal course of business, to manage manufacturing lead times and help ensure adequate component supply, we enter into agreements with our contract manufacturers and suppliers that allow them to produce and procure inventory based upon our forecasted requirements.

We estimate our obligations under these agreements to be $415.7 million due in 2022.

We estimate our obligations under these agreements to be $340.0 million as of December 31, 2022.

While we believe we have adequate liabilities recorded related to our excess inventory under these purchase commitments, unexpected changes to projected demand may result in us being committed to purchase additional excess inventory to satisfy these commitments and the related charges could be material.

We have $124.0 million in unrecognized tax benefits;

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See Note 12 in the Notes to Consolidated Financial Statements included elsewhere in the Annual Report on Form 10-K for further discussion.

We are contingently liable under open standby letters of credit issued by our banks in favor of third parties that totaled $50.0 million as of December 31, 2021.

These letters of credit primarily support performance obligations of a third-party contractor.

We are contingently liable under open standby letters of credit issued by our banks to support performance obligations of a third-party contractor that totaled $44.0 million as of December 31, 2022.

These amounts represent our estimate of the maximum amounts we would expect to incur upon the contractual non-performance of the contractor, but we also have cross-indemnities in place that may enable us to recover some or all of our losses in the event of the contractor's non-performance.

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There were no material amounts recorded in our consolidated financial statements related to third-party guarantee agreements as of December 31, 2022 or 2021.

We believe that our existing cash, cash equivalents and cash flows from operations, combined with availability under our senior secured revolving credit facilities (the Revolving Credit Facility), will be sufficient to meet our presently anticipated future cash needs.

We may experience volatility in cash flows between periods due to, among other reasons, variability in the timing of vendor payments and customer receipts.

We may, from time to time, borrow additional amounts under the Revolving Credit Facility or issue debt or equity securities, if market conditions are favorable, to meet future cash needs or to reduce our borrowing costs.

Although there are no financial maintenance covenants under the terms of our senior notes, there is a limitation, among other limitations, on certain future borrowings based on an adjusted leverage ratio or a fixed charge coverage ratio.

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section below, but also give pro forma effect to certain events, including acquisitions, synergies and savings from cost reduction initiatives such as facility closures and headcount reductions.

For the year ended December 31, 2021, our non-GAAP pro forma adjusted EBITDA, as measured pursuant to the indentures governing our notes, was $1,182.6 million, which included annualized synergies expected to be realized within the next year ($2.6 million) and annualized savings expected from cost reduction initiatives ($63.0 million) so that the impact of the synergies and cost reduction initiatives is fully reflected in the twelve-month period used in the calculation of the ratios.

For the year ended December 31, 2022, our non-GAAP pro forma adjusted EBITDA, as measured pursuant to the indentures governing our notes, was $1,327.3 million, which included annualized savings expected from cost reduction initiatives of $50.6 million so that the impact of cost reduction initiatives is fully reflected in the twelve-month period used in the calculation of the ratios.

In addition to limitations under these indentures, our senior secured credit facilities contain customary negative covenants based on similar financial measures.

We believe we are in compliance with the covenants under our indentures and senior secured credit facilities at December 31, 2022.

Cash and cash equivalents decreased during 2021 primarily driven by cash paid for capital expenditures of $131.4 million, costs related to the debt refinancing of $46.4 million, cash dividends paid for the Convertible Preferred Stock of $43.0 million, tax withholding payments for vested equity-based compensation awards of $26.4 million and a payment to settle a net investment hedge of $18.0 million, partially offset by cash generated from operating activities of $122.3 million.

Cash and cash equivalents increased during 2022 primarily driven by cash generated by operating activities of $190.0 million and proceeds from other investing activities of $19.1 million, partially offset by capital expenditures of $101.3 million, our required amortization payments on our 2026 Term Loan totaling $32.0 million, cash dividends paid for the Convertible Preferred Stock of $14.9 million and tax withholding payments for vested equity-based compensation awards of $14.8 million.

As of December 31, 2022, approximately 49% of our cash and cash equivalents were held outside the U.S.

Working capital, excluding cash and cash equivalents and the current portion of long-term debt, increased during 2021 primarily due to higher inventory balances as a result of rising material costs and increases in stock as we build inventory waiting for certain materials or components to complete our products for sale.

Partially offsetting the increase in inventory was an increase in accounts payable mainly driven by higher inventory balances.

During 2021, we sold approximately $45 million of accounts receivable under customer-sponsored supplier financing agreements;

however, only $14.0 million of that amount impacted working capital, excluding cash and cash equivalents and the current portion of long-term debt, as of December 31, 2021.

Working capital, excluding cash and cash equivalents and the current portion of long-term debt, increased during 2022 primarily due to higher inventory balances as a result of rising material costs and increases in stock as we build inventory waiting for certain materials or components to complete our products for sale and lower accounts payable due to the timing of payments.

During 2022, we sold accounts receivable under customer-sponsored supplier financing agreements.

This had an impact of approximately $78 million on working capital, excluding cash and cash equivalents and the current portion of long-term debt, as of December 31, 2022.

Under these agreements, we are able to sell accounts receivable to a bank, and we retain no interest in and have no servicing responsibilities for the accounts receivable sold.

The net reduction in total capitalization during 2021 reflected the net loss for the year and foreign currency translation losses.

The net reduction in total capitalization during 2022 reflected the net loss for the year.

Cash Flow Overview

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Accounts payable and other accrued liabilities

Other noncurrent liabilities

Other noncurrent assets

Other noncurrent liabilities

Net cash generated by operating activities

During 2021, operating cash flows decreased compared to the prior year primarily as a result of lower operating performance and increases in working capital in the current year due to improved net sales, higher inventory costs and the building of inventory as we wait for certain materials or components to complete our products for sale.

During 2022, cash generated by operating activities increased compared to the prior year primarily as a result of better operating performance and lower payments of litigation settlements of $35.1 million, partially offset by higher interest paid of $37.3 million and higher taxes paid of $51.3 million.

Investing Activities

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Proceeds from sale of property, plant and equipment

Cash paid for Cable Exchange acquisition

Payments upon settlement of net investment hedge

Net cash used in investing activities

During 2021, the increase in cash used in investing activities was driven by a payment made to settle a net investment hedge of $18.0 million and an increase of $10.2 million in our investment in property, plant and equipment that primarily related to supporting improvements in manufacturing operations, including expanding production capacity and investing in information technology, including software developed for internal use.

These were partially offset by an increase in proceeds from the sale of property, plant and equipment mainly driven by proceeds of $10.5 million related to the sale of a manufacturing location.

During 2022, the decrease in cash used in investing activities compared to the prior year was primarily driven by lower capital expenditures in the current year and a payment of $18.0 million to settle a net investment hedge in the prior year that did not recur.

The increased capital expenditures in 2021 related to the capacity expansion in our CCS segment.

Our investments in property, plant and equipment generally relate to supporting improvements and expanding production capacity in manufacturing operations and investing in information technology.

Cash used in investing activities was also favorably impacted in the current year by proceeds of $8.2 million on the sale of certain nonfinancial assets, $6.9 million related to the sale of an equity method investment and a return of $4.5 million on equity method investments.

Financing Activities

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Net cash used in financing activities

In 2022, we borrowed $333.0 million and repaid $333.0 million under the Revolving Credit Facility.

We also paid four quarterly scheduled amortization payments totaling $32.0 million on our 2026 Term Loan during 2022.

As of December 31, 2022, we had no outstanding borrowings under the Revolving Credit Facility and the remaining availability was $908.8 million, reflecting a borrowing base subject to maximum capacity of $1,000.0 million reduced by $91.2 million of letters of credit issued under the Revolving Credit Facility.

In connection with the refinancing of our Revolving Credit Facility in October 2022, we paid $7.2 million of debt issuance costs.

We may continue to look for favorable opportunities to refinance portions of our existing debt to lower borrowing costs, extend the term or adjust the total amount of fixed-rate or floating-rate debt.

In 2021, we issued $1,250.0 million of 4.75% senior secured notes due 2029 (the 2029 Secured Notes) and used the net proceeds from the offering, together with cash on hand, to redeem and retire $1,250.0 million outstanding under the 2024 Secured Notes.

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We paid a redemption premium of $34.4 million to retire the 2024 Secured Notes.

We also paid four quarterly scheduled amortization payments totaling $32.0 million on the senior secured term loan due in 2026 (the 2026 Term Loan).

In 2020, we issued $700.0 million of 7.125% senior notes due 2028 (the 2028 Notes) and used the net proceeds from the offering to redeem and retire the $700.0 million outstanding under the 2021 Notes and the 2024 Notes.

We incurred $11.7 million of debt issuance costs in connection with the issuance of the 2028 Notes.

In addition, we redeemed $100.0 million aggregate principal amount of the 2021 Notes, redeemed $100.0 million aggregate principal amount of the 2025 Notes and paid four quarterly scheduled amortization payments totaling $32.0 million on the 2026 Term Loan.

We paid redemption premiums of $11.9 million to retire the 2024 Notes and $6.0 million to partially redeem the 2025 Notes.

Also during 2020, we borrowed and repaid $250.0 million under our senior secured asset-based revolving credit facility (the Revolving Credit Facility).

As of December 31, 2021, we had no outstanding borrowings under the Revolving Credit Facility and the remaining availability was $684.1 million, reflecting a borrowing base of $777.6 million reduced by $93.5 million of letters of credit issued under the Revolving Credit Facility.

Also impacting cash used in financing activities for the year ended December 31, 2021 was the increase of $28.7 million in cash dividends paid for the Convertible Preferred Stock.

In 2021, the dividends for the Convertible Preferred Stock were paid in cash for three of the four quarters, while in the prior year, the dividends were paid in additional shares of the Convertible Preferred Stock for three of the four quarters.

During 2021, we received proceeds of $5.6 million related to the exercise of stock options compared to $9.0 million in the prior year.

We also paid four quarterly scheduled amortization payments totaling $32.0 million on our 2026 Term Loan.

Also impacting cash used in financing activities for 2022 was a decrease of $28.1 million in cash dividends paid for the Convertible Preferred Stock.

In 2022, we paid cash dividends of $14.9 million and paid $44.1 million of dividends in additional shares of the Convertible Preferred Stock.

In 2021, we paid cash dividends of $43.0 million and paid $14.3 million of dividends in additional shares of the Convertible Preferred Stock.

During 2022, employees surrendered shares of our common stock to satisfy their tax withholding requirements on vested restricted stock units and performance share units which reduced cash flows by $14.8 million compared to $26.4 million in the prior year.

During 2022, we received proceeds of $0.1 million related to the exercise of stock options compared to $5.6 million in the prior year.

Reconciliation of Non-GAAP Measures

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Executive severance

Reserve of Russian accounts receivable

Non-GAAP adjusted EBITDA

(1) In 2021, primarily reflects transaction separation costs related to the planned spin-off of the Home Networks business from CommScope, transformation costs related to CommScope NEXT and integration costs related to the ARRIS acquisition.

In 2020, primarily reflects integration costs related to the ARRIS acquisition and in 2019, primarily reflects transaction and integration costs related to the ARRIS acquisition.

(2) In 2021 and 2020, reflects acquisition accounting adjustments related to reducing deferred revenue to its estimated fair value.

In 2019, reflects acquisition accounting adjustments of $218.8 million related to the mark up of inventory to its estimated fair value and acquisition accounting adjustments of $45.4 million related to reducing deferred revenue to its estimated fair value.

(1) In 2022, primarily reflects transformation costs related to CommScope NEXT and integration costs related to the ARRIS acquisition.

In 2021, primarily reflects transaction separation costs related to the planned separation of the Home segment from CommScope, transformation costs related to CommScope NEXT and integration costs related to the ARRIS acquisition.

In 2020, primarily reflects integration costs related to the ARRIS acquisition.

(2) In 2022, 2021 and 2020, reflects ARRIS acquisition accounting adjustments related to reducing deferred revenue to its estimated fair value.

Reconciliation of Segment Adjusted EBITDA

Segment adjusted EBITDA is provided as a performance measure in Note 16 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

Below we reconcile segment adjusted EBITDA for each segment individually to operating income (loss) for that segment to supplement the reconciliation of the total segment adjusted EBITDA to consolidated operating (loss) in that footnote.

Broadband Networks Segment

Connectivity and Cable Solutions Segment

Year Ended December 31,

(in millions)

Operating income (loss)

Operating income

Amortization of purchased intangible assets

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Equity-based compensation

Asset impairments

Transaction, transformation and integration costs

Acquisition accounting adjustments

Patent claims and litigation settlements

Executive severance

Reserve of Russian accounts receivable

Adjusted EBITDA

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Transaction, transformation and integration costs

Patent claims and litigation settlements

Executive severance

Adjusted EBITDA

Venue and Campus Networks Segment

Networking, Intelligent Cellular and Security Solutions Segment

Year Ended December 31,

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Equity-based compensation

Transaction, transformation and integration costs

Acquisition accounting adjustments

Patent claims and litigation settlements

Executive severance

Adjusted EBITDA

Access Network Solutions Segment

Year Ended December 31,

(in millions)

Operating income (loss)

Amortization of purchased intangible assets

Restructuring costs, net

Equity-based compensation

Asset impairments

25 unchanged sentences

As a result, we have adjusted our prices for certain products and may have to adjust prices again in the future.

To the extent that we are unable to pass on cost increases to customers without a significant decrease in sales volume or must implement price reductions in response to a rapid decline in raw material costs, these cost changes could have a material adverse impact on the results of our operations.

To the extent that we are unable to pass on cost increases to customers quickly and without a significant decrease in sales volume or must implement price reductions in response to a rapid decline in raw material costs, these cost changes could have a material adverse impact on the results of our operations.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity