What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-26 compared with 2024-02-29 · 166 added, 180 removed, 342 unchanged (50% of the section changed)

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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.

We completed the acquisition of certain assets of Casa Systems, Inc.

and its subsidiaries (Casa) on June 7, 2024 (the Casa Transaction).

As part of the Casa Transaction, we acquired certain assets (the Casa Assets) and assumed certain specified liabilities (the Casa Liabilities) of Casa.

The sale was conducted pursuant to the bid procedures (the Bid Procedures) established in the chapter 11 cases of Casa Systems, Inc.

and certain affiliates in the U.S.

Bankruptcy Court for the District of Delaware (the Bankruptcy Court).

Pursuant to the Bid Procedures, we were designated as the successful bidder following an auction held on May 29, 2024.

On June 5, 2024, the Bankruptcy Court entered an order authorizing the sale of the Casa Assets to us pursuant to section 363 of the U.S.

Bankruptcy Code (subject to the terms thereof).

The sale closed on June 7, 2024 and, at such time, we funded the purchase price of $45.1 million and settled certain assumed Casa Liabilities, with cash on hand.

We are integrating this strategic acquisition into our Access Network Solutions (ANS) segment and expect the acquisition to strengthen our ANS segment’s position by enhancing its virtual cable modem termination systems and passive optical network product offerings, which will enable customers to migrate to distributed access architecture solutions at their own speed, and further grow our customer base.

We recorded $1.4 million of transaction and integration costs for the year ended December 31, 2024 related to the Casa Transaction, and these costs were recognized in selling, general and administrative expense in the Condensed Consolidated Statements of Operations.

See Note 3 in the Notes to Unaudited Condensed Consolidated Financial Statements for further discussion of the Casa Transaction.

CommScope NEXT

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In 2022, CommScope NEXT generated positive impacts on net sales, profitability and cash flow from our execution on pricing initiatives, capacity expansion and operational efficiencies.

In 2023, we experienced headwinds related to a slow-down in spending by our customers as discussed further below, but we continued to execute under CommScope NEXT to improve our profitability and cash flows by continuing to drive operational efficiencies and focusing on portfolio optimization that should enable us to take advantage of the expected recovery in demand in the second half of 2024.

In 2023, we experienced headwinds related to a slow-down in spending by our customers as discussed further below, but we continued to execute under CommScope NEXT to improve our profitability and cash flows by continuing to drive operational efficiencies and focusing on portfolio optimization, all of which is enabling us to take advantage of the recovery in demand that we began to see in late 2024.

To that end, we incurred $36.7 million, $25.1 million and $41.8 million of net restructuring costs and $63.4 million, $27.1 million and $35.1 million of transaction, transformation and integration costs during the years ended December 31, 2024, 2023 and 2022, respectively, primarily related to CommScope NEXT initiatives.

We expect to continue to incur such costs during 2024 as we continue executing on CommScope NEXT initiatives, and the resulting charges and cash requirements could be material.

In 2021, as a step in our CommScope NEXT transformation plan, we announced a plan to separate the Home Networks (Home) segment and began analyzing the financial results of our “Core” business separately from Home.

On October 2, 2023, we entered into a Call Option Agreement with Vantiva SA, a société anonyme organized under the Laws of France (Vantiva), pursuant to which we granted Vantiva a binding call option to acquire our Home segment and substantially all of the associated segment assets and liabilities (Home business), which was subsequently exercised and a Purchase Agreement signed on December 7, 2023.

The transaction closed on January 9, 2024.

We determined the anticipated sale of our Home business met the “held for sale” criteria and the “discontinued operations” criteria in accordance with Accounting Standards Codification (ASC) No.

We expect to continue to incur such costs in 2025 as we continue executing on CommScope NEXT initiatives, and the resulting charges and cash requirements could be material.

On January 31, 2025, we completed the previously announced sale of our Outdoor Wireless Networks (OWN) segment and the Distributed Antenna Systems (DAS) business unit of our Networking, Intelligent Cellular & Security Solutions (NICS) segment to Amphenol Corporation (Amphenol), pursuant to the Purchase Agreement dated July 18, 2024, in exchange for approximately $2.1 billion in cash.

In the third quarter of 2024, we determined the sale of our OWN segment and DAS business unit met the “held for sale” criteria and the “discontinued operations” criteria in accordance with Accounting Standards Codification (ASC) No.

360-10, Impairment and Disposal of Long–Lived Assets , and ASC No.

205-20, Presentation of Financial Statements:

Discontinued Operations in the fourth quarter of 2023 due to its relative size and strategic rationale.

For all periods presented, amounts have been recast to reflect the discontinuation of our Home business in accordance with ASC 205-20.

Discontinued Operations, due to its relative size and strategic rationale.

For all periods presented, amounts in these consolidated financial statements have been recast to reflect the discontinuation of our OWN segment and DAS business unit in accordance with guidance.

All discussions and results related to our NICS segment exclude the DAS business unit, since the DAS business unit was moved to held for sale in the third quarter of 2024.

On January 9, 2024, we completed the sale of our Home Networks (Home) segment and substantially all of the associated segment assets and liabilities (Home business) to Vantiva SA (Vantiva) pursuant to the Call Option Agreement entered into on October 2, 2023 and the Purchase Agreement dated as of December 7, 2023.

In the fourth quarter of 2023, we determined the sale of our Home business met the “held for sale” criteria and the “discontinued operations” criteria in accordance with accounting guidance.

All prior period amounts have been recast to reflect the discontinuation of our Home business.

Our continuing operations results include general corporate costs that were previously allocated to the OWN segment, DAS business unit and Home segment.

These indirect costs, reflected on the corporate and other line item within our segment information below, are classified as continuing operations, since they were not directly attributable to these discontinued operations.

Beginning in the first quarter of 2024, the corporate and other costs related to the Home segment have been reallocated to our remaining segments and partially offset by income from our transition services agreement with Vantiva.

The corporate and other costs related to the OWN segment and DAS business will be reallocated to our remaining segments beginning in the first quarter of 2025.

Additionally, below we refer to certain supplementary Core financial measures, which reflect the results of the CCS, NICS excluding DAS, and ANS segments, in the aggregate, and exclude general corporate costs that were previously allocated to the OWN segment, DAS business unit and Home segment, since these costs were not directly attributable to the discontinued operations.

The Core results represent the business results as currently managed and reported by the Company.

Future results and the composition of any business divested in the future may vary and differ materially from the presentation of the Core financial measures.

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

Unless otherwise noted, the following discussions relate solely to our continuing operations.

For further discussion of the discontinued operation related to our Home business, see Note 3 in the Notes to Consolidated Financial Statements included elsewhere in the Annual Report on Form 10-K.

The results of our recast continuing operations do not align with our historical “Core” measures, which excluded the Home segment.

Our continuing operations results include general corporate costs that were previously allocated to the Home segment.

In future years, these costs will be reallocated to our remaining segments and will be at least partially offset by income from our transition services agreement with Vantiva or eliminated with future restructuring actions.

As a result of the divestiture of the Home business, we are now reporting financial performance based on the following remaining four operating segments, which excludes our Home segment:

Connectivity and Cable Solutions (CCS), Outdoor Wireless Networks (OWN), Networking, Intelligent Cellular and Security Solutions (NICS) and Access Network Solutions (ANS).

For all periods presented, amounts have been recast to reflect these operating segment changes.

As a result, we are reporting financial performance based on the following remaining three operating segments, which excludes the OWN segment, DAS business unit in NICS and Home business:

Connectivity and Cable Solutions (CCS), NICS and ANS.

For further discussion of the discontinued operations related to our OWN segment, DAS business unit and Home business, see Note 4 in the Notes to Consolidated Financial Statements included elsewhere in the Annual Report on Form 10-K.

As of January 1, 2024, we shifted certain product lines from our CCS segment to our ANS segment to better align with how the businesses are managed.

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

Impacts of Current Economic Conditions

In 2023, macroeconomic factors such as higher interest rates and concerns about continued inflation and a global economic slow-down softened demand for our products, with certain customers reducing purchases as they right-sized their inventories and others pausing capital spending.

This negatively impacted net sales in our CCS, OWN and ANS segments for the year ended December 31, 2023 and may continue to have a material negative impact on net sales into at least the first half of 2024.

Conversely, in our NICS segment, we saw higher demand and favorable pricing impacts that partially offset the impact of lower demand in our other segments for the full year of 2023.

However, NICS segment net sales were down in the fourth quarter of 2023 as we saw order rates decline as channel partners paused to digest inventory.

We saw lower input costs across most of our segments as inflation settled during the year.

We proactively implemented cost savings initiatives that favorably impacted our profitability for the year ended December 31, 2023 and should enable us to take advantage of the expected recovery in demand in the second half of 2024.

If the expected recovery in demand of our products does not occur in 2024, our outlook will be materially impacted.

In 2023, macroeconomic factors such as higher interest rates, inflation and concerns about a global economic slow-down softened demand for our products, with certain customers reducing purchases as they right-sized their inventories and others pausing capital spending.

This industry recession has continued to negatively impact our net sales in all markets except data centers, which saw increased investment during 2024.

We are beginning to see a recovery in demand in certain businesses and expect to see additional recovery in demand in 2025.

In 2023, we also began implementing additional cost savings initiatives to improve profitability, and we continued to implement further initiatives during 2024.

These initiatives should enable us to take advantage of the expected recovery in demand in 2025.

If this expected recovery does not occur in 2025, our outlook will be materially impacted.

For more discussion on risks related to our customers, see Part I, Item 1A, “Risk Factors” elsewhere in this Annual Report on Form 10-K.

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(dollars in millions, except per share amounts)

Operating loss

Core segment adjusted EBITDA (1)

Operating income (loss)

Core operating income (loss) (1)

Non-GAAP adjusted EBITDA (2)

Core adjusted EBITDA (1)

Loss from continuing operations

Diluted loss from continuing operations

(1) Core segment adjusted EBITDA reflects the results of our CCS, OWN, NICS and ANS segments, in the aggregate, and excludes general corporate costs that were previously allocated to the Home segment and are now classified as continuing operations, since the costs were not directly attributable to the discontinued operations of the Home segment.

See the Segment Results section below for illustration of the aggregation of Core segment adjusted EBITDA.

NM – Not meaningful

(1) Core financial measures reflect the results of the CCS, NICS and ANS segments, in the aggregate, and exclude general corporate costs that were previously allocated to the OWN segment, DAS business unit and Home segment, since these costs were not directly attributable to these discontinued operations.

Beginning in the first quarter of 2024, these costs related to the Home segment have been reallocated to our remaining segments.

These costs related to the OWN segment and DAS business unit will be reallocated to our remaining segments beginning in the first quarter of 2025.

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

(2) See “Reconciliation of Non-GAAP Measures” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, below.

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International

Net sales in 2023 decreased $1,735.5 million, or 23.1%, compared to the prior year primarily driven by decreased sales volumes as certain customers reduced purchases as they right-size their inventories and others paused capital spending, partially offset by higher pricing.

The decrease was driven by lower net sales in the CCS segment of $1,079.4 million, the OWN segment of $587.9 million and the ANS segment of $246.2 million, partially offset by higher net sales of $178.0 million in the NICS segment.

Net sales in 2024 decreased $359.4 million, or 7.9%, compared to the prior year primarily driven by decreased sales volumes as certain customers reduced purchases as they right-size their inventories and others paused capital spending and lower pricing.

The decrease was driven by lower net sales in the ANS segment of $260.5 million and the NICS segment of $220.7 million, partially offset by higher net sales of $121.8 million in the CCS segment.

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

From a regional perspective in 2024, net sales decreased in the U.S.

by $1,268.1 million, the Europe, Middle East and Africa (EMEA) region by $184.4 million, the Asia Pacific (APAC) region by $114.0 million, the Caribbean and Latin American (CALA) region by $106.9 million, and Canada by $62.1 million.

by $248.1 million, the Caribbean and Latin American (CALA) region by $78.0 million and the Europe, Middle East and Africa (EMEA) region by $43.1 million, and increased in Canada by $7.5 million and the Asia Pacific (APAC) region by $2.3 million.

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

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For additional information on regional sales by segment, see discussion of Segment Results below and Note 18 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

Gross profit, SG&A expense and R&D expense

Gross profit, TSA income, SG&A expense and R&D expense

Year Ended December 31,

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As a percent of sales

NM – Not meaningful

Gross profit (net sales less cost of sales)

Gross profit decreased in 2023 compared to the prior year primarily due to lower net sales volumes, partially offset by lower freight and material costs and favorable product mix.

Gross profit decreased in 2024 compared to the prior year primarily due to lower net sales volumes, lower pricing and higher input costs, partially offset by favorable product mix.

Transition service agreement income

Transition service agreement (TSA) income is related to the TSA we entered into with Vantiva in conjunction with the closing of the transaction to divest of the Home business in January 2024.

Under the TSA agreement, we provided (and in some instances received) certain post-closing support on a transitional basis.

As of the end of 2024, the services for Vantiva have ceased.

Selling, general and administrative expense

For 2023, selling, general and administrative (SG&A) expense decreased by $167.6 million compared to 2022, primarily due to cost saving initiatives, lower variable incentive compensation expense of $59.3 million and lower bad debt expense.

Bad debt expense in 2022 was driven by a $20.9 million reserve related to an OWN segment customer.

Although our transaction, transformation, and integration costs have decreased year-over-year, we expect to continue to incur these costs in 2024 due to ongoing CommScope NEXT initiatives, and the resulting charges and cash requirements could be material.

We also incurred costs of $5.5 million in 2023 related to the identification, investigation, defense, recovery efforts and litigation claims connected to a cyber incident that occurred in late March of 2023.

The incident resulted in minimal impact to our business operations, and we do not expect significant additional costs related to the recovery effort.

For 2024, selling, general and administrative (SG&A) expense decreased by $27.7 million compared to 2023, primarily due to cost saving initiatives and lower bad debt expense of $11.6 million, partially offset by higher transaction, transformation, and integration costs of $36.2 million and higher variable incentive compensation expense of $14.3 million.

We expect to continue to incur transaction, transformation and integration costs in 2025 and the resulting charges and cash requirements could be material.

Research and development expense

Research and development (R&D) expense for 2023 decreased by $83.9 million primarily due to lower spending across all segments.

Research and development (R&D) expense for 2024 decreased by $66.9 million compared to the prior year primarily due to lower spending within all segments.

R&D activities generally involve 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 net restructuring costs recorded in 2023 were primarily related to CommScope NEXT and reflected a gain of $33.9 million, primarily related to selling owned properties, including an international manufacturing facility, along with U.S.

office and warehouse facilities.

We received proceeds of $67.6 million related to these sales.

Excluding the impacts of these facility sales, our restructuring costs were $63.6 million, and we paid $110.8 million to settle restructuring liabilities.

We expect to pay an additional $11.7 million in 2024 related to the restructuring actions that have been initiated.

The net restructuring costs recorded in 2024 were primarily related to CommScope NEXT.

For the year ended December 31, 2024, our net restructuring costs were $36.7 million and we paid $28.9 million to settle restructuring liabilities.

We expect to make cash payments of $4.0 million in 2025 to settle CommScope NEXT restructuring actions.

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

Asset impairments

We did not record any asset impairment charges during the year ended December 31, 2024.

We recorded goodwill impairment charges of $472.3 million and $99.1 million in 2023 related to our ANS and Building Data Center Connectivity (BDCC) reporting units, respectively.

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See the discussion below under “Critical Accounting Policies and Estimates” for more information regarding the goodwill impairment tests performed during 2024.

We recorded goodwill impairment charges of $1,119.6 million in 2022 related to our ANS reporting unit.

Other income (expense), net

Other income, net

Year Ended December 31,

(dollars in millions)

Foreign currency loss

Foreign currency gain (loss)

Other income, 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 change in foreign currency loss in 2023 compared to 2022 was primarily driven by certain unhedged currencies.

Foreign currency gain (loss)

Foreign currency gain (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 change in foreign currency gain (loss) in 2024 compared to 2023 was primarily driven by certain unhedged currencies.

Other income, net

The change in other income, net in 2023 compared to 2022 was primarily driven by a gain of $74.3 million on the early extinguishment of debt related to our debt repurchases as further discussed in Note 8 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

The change in other income, net in 2024 compared to 2023 was primarily driven by a gain of $74.3 million on the early extinguishment of debt related to our debt repurchases in 2023 and $6.4 million of debt issuance costs related to the debt refinancing transactions in December 2024.

See Note 9 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further discussion of the 2024 debt refinancing transactions.

Interest expense, Interest income and Income taxes

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Interest income

Income tax (expense) benefit

Income tax expense

Interest expense and Interest income

The increase in interest expense in 2023 compared to 2022 was driven by the increased variable interest rate on our senior secured term loan due 2026 (2026 Term Loan) as a result of the Federal Reserve’s increases in interest rates.

Interest expense for the year ended December 31, 2024 increased $11.1 million compared to the prior year primarily due to the write-off of $16.2 million of existing debt issuance costs and original issuance discount associated with the redemption of our senior unsecured notes due June 15, 2025 (2025 Notes) and the refinancing of our existing senior secured term loan due 2026 (2026 Term Loan) as further discussed in Note 9 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

The increase was partially offset by favorable impacts from lower long-term balances as a result of the debt repurchases in 2023.

Our weighted average effective interest rate on outstanding borrowings, including the impact of the interest rate swap contracts and the amortization of debt issuance costs and original issue discount, was 8.09% at December 31, 2024 and 7.22% at December 31, 2023.

Our interest expense will continue to increase if the Federal Reserve raises interest rates.

Income tax (expense) benefit

Our interest expense and payments on our variable rate debt could increase if the Federal Reserve increases interest rates in 2025.

Income tax expense

For 2024, we recognized income tax expense of $51.7 million on a pretax loss of $409.3 million.

Our tax expense on a pretax loss was less than the statutory rate of 21.0% in 2023 primarily due to the unfavorable impact related to a goodwill impairment charge of $571.4 million, for which minimal tax benefits were recorded.

Our tax expense was also unfavorably impacted by an additional net $165.4 million of valuation allowance recorded during the year.

Our tax expense on a pretax loss was less than the statutory rate of 21.0% in 2024 primarily due to the unfavorable impact related to an additional net $135.2 million of valuation allowance recorded during the year.

Our tax expense was also impacted unfavorably by the U.S.

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

See Note 13 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for more discussion of our income tax (expense) benefit.

For 2022, we recognized an income tax benefit of $15.0 million on a pretax loss of $1,199.7 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 14 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for more discussion of our income tax expense.

For 2023, we recognized income tax expense of $97.4 million on a pretax loss of $998.4 million.

Our tax expense was more than the statutory rate of 21.0% in 2023 primarily due to the unfavorable impact related to a net $165.4 million of valuation allowance recorded during the year and a goodwill impairment charge of $571.4 million, for which minimal tax benefits were recorded.

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

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

Segment Results

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Operating income (loss) by segment:

Core segment operating income (loss) (1)

Core operating income (loss) (1)

Corporate and other (2)

Consolidated operating loss

Consolidated operating income (loss)

Adjusted EBITDA by segment:

Core segment adjusted EBITDA (1)

Core adjusted EBITDA (1)

Corporate and other (2)

Non-GAAP consolidated adjusted

Non-GAAP consolidated adjusted EBITDA (3)

NM – Not meaningful

(1) Core financial measures reflect the results of our CCS, OWN, NICS and ANS segments, in the aggregate, and exclude general corporate costs that were previously allocated to the Home segment reflected on the corporate and other line item.

These indirect costs are classified as continuing operations since they were not directly attributable to the discontinued operations of the Home segment.

(2) The corporate and other line item above reflects general corporate costs that were previously allocated to the OWN segment, DAS business unit and Home segment.

These indirect expenses have been classified as continuing operations, since the costs were not directly attributable to these discontinued operations.

Beginning in the first quarter of 2024, the corporate and other costs related to the Home segment have been reallocated to our remaining segments and partially offset by income from the Vantiva TSA.

The corporate and other costs related to the OWN segment and DAS business unit will be reallocated to our remaining segments beginning in the first quarter of 2025.

(3) See “Reconciliation of Non-GAAP Measures” within this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Connectivity and Cable Solutions Segment

Net sales for the CCS segment decreased in 2023 compared to the prior year primarily due to lower sales volumes as certain customers paused spending as they right-size their inventory levels.

From a regional perspective in 2023, net sales decreased in the U.S.

by $783.2 million, the EMEA region by $169.9 million, the APAC region by $50.0 million, Canada by $43.4 million and the CALA region by $32.9 million compared to the prior year.

Net sales for the CCS segment increased in 2024 compared to the prior year primarily due to higher sales volumes in the Enterprise business, partially offset by lower outdoor network solutions sales volumes in the first half of the year as certain customers paused spending as they right-sized their inventory levels.

From a regional perspective in 2024, net sales increased in the U.S.

by $115.5 million, the EMEA region by $36.7 million, the APAC region by $13.5 million and Canada by $6.3 million, but decreased in the CALA region by $50.2 million compared to the prior year.

Foreign exchange rate changes did not have a material impact on CCS segment net sales during 2024.

For 2023, CCS segment operating income and adjusted EBITDA were unfavorably impacted by lower sales volumes, partially offset by lower SG&A, material, freight and R&D costs, and favorable product mix.

The reductions in SG&A costs impacting both operating income and adjusted EBITDA were primarily due to lower variable incentive compensation expense and cost savings initiatives, partially offset by higher bad debt expense.

In 2023, CCS segment operating income was unfavorably impacted by a goodwill impairment charge of $99.1 million, but this was partially offset by a reduction of $24.0 million in amortization expense, a gain on the sale of an international manufacturing facility of $20.2 million that was recorded as a reduction to restructuring costs, a reduction of $8.9 million in transaction, transformation and integration costs and a $2.0 million recovery of accounts receivable that we had previously reserved during the prior year for $2.7 million when we determined they were uncollectible due to the Russia/Ukraine conflict.

Goodwill impairment charges, amortization expense, restructuring costs, transaction, transformation and integration costs and the charges and recoveries related to accounts receivable that were determined to be uncollectible as a result of the Russia/Ukraine conflict are not reflected in adjusted EBITDA.

See the discussion below under “Critical Accounting Policies and Estimates” for more information regarding the annual goodwill impairment test performed during 2023.

Also see “Reconciliation of Segment Adjusted EBITDA” within this Management’s Discussion and Analysis of Financial Condition and Results of Operations, below.

Outdoor Wireless Networks Segment

For 2023, OWN segment net sales decreased compared to the prior year primarily due to lower sales volumes as a result of reductions in spending by certain North American operators.

From a regional perspective in 2023, OWN segment net sales decreased in the U.S.

by $513.0 million, the APAC region by $23.7 million, Canada by $24.5 million, the CALA region by $15.6 million and the EMEA region by $11.1 million compared to the prior year.

Foreign exchange rate changes did not have a material impact on OWN segment net sales during 2023.

For 2023, OWN segment operating income and adjusted EBITDA decreased compared to the prior year primarily due to lower sales volumes and unfavorable product mix, partially offset by lower freight, material, SG&A and R&D costs.

The reductions in SG&A costs impacting both operating income and adjusted EBITDA were primarily due to lower bad debt expense, lower variable incentive compensation expense and cost savings initiatives.

The bad debt expense in 2022 was driven by a $20.9 million reserve related a distributor customer.

OWN segment operating income was favorably impacted by a reduction of $15.8 million in restructuring costs, a reduction of $12.0 million in amortization expense and a reduction of $3.9 million in transaction, transformation and integration costs.

Amortization expense, restructuring costs and transaction, transformation and integration costs are not reflected in adjusted EBITDA.

For 2024, CCS segment operating income and adjusted EBITDA increased compared to the prior year primarily due to higher sales volumes, favorable product mix and lower input costs, partially offset by higher SG&A costs.

The increases in SG&A costs were primarily due to higher variable incentive compensation expense, partially offset by lower bad debt expense and cost savings initiatives.

In 2024, compared to the prior year, CCS segment operating income was favorably impacted by a reduction to impairment charges resulting from the prior year goodwill impairment charge of $99.1 million, a reduction of $12.6 million in restructuring costs and a reduction of $3.2 million in amortization expense, partially offset by an increase of $13.9 million in transaction, transformation and integration costs.

Goodwill impairment charges, restructuring costs, amortization expense and transaction, transformation and integration costs are 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.

Networking, Intelligent Cellular and Security Solutions Segment

Net sales for the NICS segment increased in 2023 compared to the prior year primarily due to higher sales volumes of our Ruckus products as well as our distributed antenna systems products and was favorably impacted by pricing, although to a lesser degree than volume.

From a regional perspective in 2023, net sales increased in the U.S.

by $124.1 million, the EMEA region by $35.5 million, the APAC region by $13.8 million, Canada by $4.5 million and the CALA region by $0.1 million compared to the prior year.

Net sales for the NICS segment decreased in 2024 compared to the prior year primarily due to lower sales volumes of our Ruckus products driven by lower demand and channel inventory digestion.

From a regional perspective in 2024, net sales decreased in the U.S.

by $140.2 million, the EMEA region by $47.8 million, the APAC region by $27.0 million and Canada by $8.7 million, but increased in the CALA region by $3.0 million compared to the prior year.

Foreign exchange rate changes did not have a material impact on NICS segment net sales during 2024.

For 2023, NICS segment operating income and adjusted EBITDA increased compared to the prior year primarily due to higher sales volumes, increased pricing and lower freight, R&D, material and SG&A costs.

NICS segment operating income was unfavorably impacted by $4.0 million in higher transaction, transformation and integrations cost but was favorably impacted by a gain of $3.5 million related to the settlement of an intellectual property litigation claim.

Transaction, transformation and integration costs and intellectual property litigation costs are not reflected in adjusted EBITDA.

For 2024, NICS segment operating income and adjusted EBITDA decreased compared to the prior year primarily due to lower sales volumes and E&O reserves recorded for excess inventory, partially offset by lower R&D costs and favorable product mix.

In 2024, compared to the prior year, NICS segment operating income was unfavorably impacted by an increase of $3.2 million in transaction, transformation and integrations costs and a reduction of $3.5 million in gains related to the settlement of an intellectual property litigation claim received in the prior year.

These unfavorable impacts were partially offset by a reduction of $4.6 million in restructuring costs.

Transaction, transformation and integration costs, intellectual property litigation costs and restructuring costs are 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 for our ANS segment decreased in 2023 due to lower sales volume as a result of a pause in customer spending.

Net sales for our ANS segment decreased in 2024 compared to the prior year primarily due to lower sales volume as certain customers have paused spending as they right-size their inventory levels.

From a regional perspective in 2024, net sales decreased in the U.S.

by $96.0 million, the CALA region by $58.5 million, the APAC region by $54.1 million and the EMEA region by $38.9 million but increased in Canada by $1.3 million compared to the prior year.

by $223.4 million, the EMEA region by $32.0 million and the CALA region by $30.8 million, but increased in the APAC region by $15.8 million and Canada by $9.9 million compared to the prior year.

Foreign exchange rate changes did not have a material impact on ANS segment net sales during 2024.

In 2023, ANS segment operating loss and adjusted EBITDA were impacted unfavorably by lower sales volumes but benefited from lower freight, SG&A and R&D costs compared to the prior year.

The reductions in SG&A costs impacting both operating income and adjusted EBITDA were primarily due to cost savings initiatives and lower variable incentive compensation expense.

For 2023, ANS segment operating loss was negatively impacted by a goodwill impairment charge of $472.3 million, and an increase of $3.3 million in transaction, transformation and integration costs.

These negative impacts were partially offset by a decrease of $18.2 million in restructuring costs and reductions of $73.3 million in amortization expense in 2023.

The reduction in restructuring costs reflects a gain on the sale of a U.S.

warehouse facility of $19.4.

Goodwill impairment charges, transaction, transformation and integration costs, amortization expense and restructuring expense are not reflected in adjusted EBITDA.

See the discussion below under “Critical Accounting Policies and Estimates” for more information regarding the annual goodwill impairment test performed during 2023.

Excluding the prior year goodwill impairment charge of $472.3 million from operating loss, for 2024, ANS segment operating loss and adjusted EBITDA were negatively impacted by lower sales volumes and unfavorable product mix, partially offset by benefits from lower SG&A, input and R&D costs, compared to the prior year.

The reductions in SG&A costs were primarily due to cost savings initiatives.

ANS segment operating loss was favorably impacted by a reduction of $63.1 million in amortization expense, partially offset by an increase of $37.8 million in restructuring costs.

Also see “Reconciliation of Segment Adjusted EBITDA” within this Management’s Discussion and Analysis of Financial Condition and Results of Operations, below.

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Cash and cash equivalents (1)

Working capital, net of assets and liabilities held for sale (1) and

excluding cash and cash equivalents and current portion

of long-term debt

Working capital, net of assets and liabilities held for

sale (2) and excluding cash and cash equivalents and

current portion of long-term debt

Availability under Revolving Credit Facility

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Long-term debt as a percentage of total capitalization

(1) Includes cash and cash equivalents in assets held for sale of $98.4 million and $43.5 million as of December 31, 2024 and 2023, respectively.

(2) Working capital is net of assets and liabilities held for sale and consists of current assets of $2,127.0 million less current liabilities of $984.4 million as of December 31, 2024 and current assets of $2,118.0 million less current liabilities of $925.6 million as of December 31, 2023.

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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.

In the second quarter of 2023, we amended our 2026 Term Loan to replace LIBOR with an adjusted Secured Overnight Financing Rate as administered by the Federal Reserve Bank of New York (SOFR) as the reference interest rate in anticipation of the cessation of LIBOR.

The changes were effective July 1, 2023 and 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.

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.

As of December 31, 2024, we have repaid the $1.27 billion previously outstanding on our 2025 Notes.

We currently 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.

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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, seek to obtain alternative sources of financing, by borrowing additional amounts under our senior secured asset-based revolving credit facility (Revolving Credit Facility), issuing debt or equity securities or incurring other indebtedness, if market conditions are favorable, utilizing trade credit, selling assets (including businesses or business lines) or securitizing receivables to meet future cash needs or to reduce our borrowing costs.

We may, from time to time, seek to obtain alternative sources of financing, by borrowing additional amounts under our Revolving Credit Facility, issuing debt or equity securities or incurring other indebtedness, if market conditions are favorable, utilizing trade credit, selling assets (including businesses or business lines) or securitizing receivables to meet future cash needs or to reduce our borrowing costs.

Any issuance of equity or debt may be for cash or in exchange for our outstanding securities or indebtedness, or a combination thereof.

Our outstanding debt securities and debt under our credit facilities are currently trading at substantial discounts to their respective principal amounts.

2 In connection with the repayment of all outstanding amounts under our Revolving Credit Facility on January 31, 2025, the committed amount thereunder was reduced to $750.0 million, subject to borrowing base limitations.

Certain of our outstanding debt securities and debt under our credit facilities are currently trading at discounts to their respective principal amounts.

In order to reduce future cash interest payments, as well as future amounts due at maturity or upon redemption, we may, from time to time, purchase such debt for cash, in exchange for common or preferred stock or debt, or for a combination thereof, in each case in open-market purchases and/or privately negotiated transactions, tender offers or exchange offers and upon such terms and at such prices as we may determine.

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Our interest payments on long-term debt are expected to total $2,906.8 million over the duration of the debt, with $613.5 million due in 2025 (assuming interest rates in effect as of December 31, 2024 on our variable rate debt).

In 2023, the interest payments on our variable rate debt increased as a result of the Federal Reserve’s increase in interest rates.

Our interest payments on our variable rate debt will continue to increase if the Federal Reserve continues to increase rates.

In 2024, the interest payments on our variable rate debt were higher than the prior year as a result of the Federal Reserve maintaining higher interest rates throughout most of the year.

While the Federal Reserve ended 2024 with several rate cuts, our interest payments on our variable debt could increase if the Federal Reserve chooses to raise interest rates in future periods.

For additional information regarding our long-term debt obligations, see Note 9 in the Notes to Consolidated Financial Statements and our discussion of our interest rate risk in Item 7A.

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See Note 14 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 to support performance obligations of a third-party contractor that totaled $35.9 million as of December 31, 2023.

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.

We believe the likelihood of having to perform under these guarantees is remote.

There were no material amounts recorded in our consolidated financial statements related to third-party guarantee agreements as of December 31, 2023 or 2022.

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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As of December 31, 2024, approximately 42% of our cash and cash equivalents were held outside the U.S.

Working capital, net of assets and liabilities held for sale and excluding cash and cash equivalents and the current portion of long-term debt, decreased during 2023 primarily due to lower accounts receivable with unfavorable operating performance driving lower net sales and lower inventory due to inventory reduction initiatives.

These were partially offset by reductions in current liabilities with unfavorable operating performance driving lower accounts payable and lower accrued liabilities due to the pay out of our 2022 variable incentive compensation and a reduced 2023 incentive.

Working capital, net of assets and liabilities held for sale and excluding cash and cash equivalents and the current portion of long-term debt, decreased during 2024 compared to the prior year primarily due to lower inventory driven by inventory reduction initiatives, higher accounts payable due to timing of payments and higher accrued expenses including a higher variable incentive compensation expense in 2024.

These impacts were partially offset by higher accounts receivable due to timing of collections.

During 2024, we sold accounts receivable under customer-sponsored supplier financing agreements.

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Accordingly, the following cash flow overview includes the results of continuing and discontinued operations.

Cash and cash equivalents increased during 2023 primarily driven by cash generated by operating activities of $289.9 million and proceeds from the sale of property, plant and equipment of $71.2 million, partially offset by cash paid for debt repurchases of $142.6 million and capital expenditures of $53.3 million.

The proceeds on the sale of property, plant and equipment primarily relate to selling an international manufacturing facility, along with U.S.

office and warehouse facilities that were closed and consolidated into other locations as part of CommScope NEXT.

Cash and cash equivalents increased during 2024 primarily driven by cash generated by operating activities of $273.1 million, partially offset by net cash paid for the debt refinancing transaction of $57.1 million, amortization payments totaling $24.0 million related to the 2026 Term Loan, cash paid related to the Casa Transaction of $45.1 million and capital expenditures of $26.2 million.

For additional discussion related to the debt refinancing transactions, see Note 9 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

Year Ended December 31,

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Net cash used in financing activities

NM – Not meaningful

Operating Activities

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Net cash generated by operating activities

During 2023, the increase in cash generated by operating activities compared to the prior year was primarily driven by reduced inventory purchases, the impacts of cost saving initiatives and lower cash paid for taxes, partially offset by higher interest payments.

During 2024, the decrease in cash generated by operating activities compared to the prior year was primarily driven by lower operating performance, partially offset by decreases in working capital in the current year due to a reduction in net sales driving lower inventory purchases and lower accounts receivable.

For information on significant non-cash operating activities related to our discontinued operations, see Note 4 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

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Proceeds from sale of property, plant and equipment

Acquisition of a business

Net cash generated by (used in) investing activities

During 2023, the increase in cash used generated by (used in) investing activities compared to the prior year was primarily driven by $71.2 million of proceeds from the sale of property, plant and equipment and a $48.0 decrease in capital expenditures.

Capital expenditures related to our discontinued operations were $2.4 million in 2023 and $4.0 million in 2022.

The current period proceeds on the sale of property, plant and equipment primarily relate to the sales of an international manufacturing facility as well as U.S.

office and warehouse facilities that were closed as part of CommScope NEXT.

Cash generated by other investing activities was favorably impacted in the current year by proceeds of $11.1 million related to the sale of an equity investment and proceeds of $9.3 million on the sale of certain nonfinancial assets.

Cash used in other investing activities in the prior year period was favorably impacted by proceeds of $6.9 million related to the sale of an equity method investment, a return of $4.5 million on equity method investments and proceeds of $5.0 million on the sale of certain nonfinancial assets.

During 2024, the decrease in cash generated by investing activities compared to the prior year was primarily due to lower cash of $71.0 million driven by proceeds collected in the prior year on the sale of property, plant and equipment and cash paid of $45.1 million in the current year related to the Casa Transaction, partially offset by higher cash of $35.4 million driven by a reduction of capital expenditures in the current year.

Capital expenditures related to our discontinued operations were $0.7 million in 2024 compared to $5.2 million in the prior year.

Cash generated by other investing activities in the current year included proceeds of $13.0 million on the sale of certain nonfinancial assets.

Cash generated by other investing activities in the prior year period included proceeds of $11.1 million related to the sale of an equity investment and proceeds of $9.3 million on the sale of certain nonfinancial assets.

Financing Activities

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Long-term debt proceeds

Cash paid for debt discount

Debt issuance costs

Dividends paid on Series A convertible preferred stock

Tax withholding payments for vested equity-based compensation awards

Net cash used in financing activities

In 2023, we repurchased $133.1 million aggregate principal amount of our 8.25% senior notes due 2027, $58.4 million aggregate principal amount of our 7.125% senior notes due 2028 and $25.4 million aggregate principal amount of our 6.00% senior notes due 2025, for total cash consideration paid of $142.6 million.

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

We did not borrow under our Revolving Credit Facility during 2023.

As of December 31, 2023, we had no outstanding borrowings under the Revolving Credit Facility and the remaining availability was $688.0 million, reflecting a borrowing base subject to maximum capacity of $785.9 million reduced by $97.9 million of letters of credit issued under the Revolving Credit Facility.

In the future, the availability under our Revolving Credit Facility will likely be lower with the closing of the divestiture transaction for the Home business and the sale of the related assets.

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

In 2024, we completed certain refinancing transactions including the issuance of $1,000 million in aggregate principal amount of 9.500% senior secured notes due 2031 and entry into the new senior secured term loan facility due December 2029 with an initial aggregate principal amount of $3,150.0 million.

We used the net proceeds, together with cash on hand and $200.0 million of borrowings under our asset-based revolving credit facility (Revolving Credit Facility) , to refinance in full the Company’s existing 2026 Term Loan and redeem all of the approximately $1,274.6 million in outstanding aggregate principal amount of our 2025 Notes.

In connection with the refinancing transactions, we paid approximately $59.4 million of original issuance discount and $33.1 million of debt issuance costs.

In 2024, we paid quarterly scheduled amortization payments totaling $24.0 million on the 2026 Term Loan prior to the refinancing.

As of December 31, 2024, we had $200.0 million of outstanding borrowings and the remaining availability was $449.3 million, reflecting a borrowing base subject to maximum capacity of $719.2 million reduced by $69.9 million of letters of credit issued under our Revolving Credit Facility.

In 2023, we repurchased $133.1 million aggregate principal amount of our 8.25% senior notes due 2027, $58.4 million aggregate principal amount of our 7.125% senior notes due 2028 and $25.4 million aggregate principal amount of our 2025 Notes, for total cash consideration paid of $142.6 million.

We also paid four quarterly scheduled amortization payments totaling $32.0 million on our 2026 Term Loan during 2023.

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

We did not borrow under our Revolving Credit Facility during 2023.

In 2024, we paid dividends of $65.2 million in additional shares due under 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.

During 2023, 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 $9.1 million compared to $14.8 million in the prior year.

In 2023, we paid dividends of $61.8 million in additional shares due under the Convertible Preferred Stock.

During 2024, employees surrendered shares of our common stock to satisfy their tax withholding requirements on vested restricted stock units (RSUs) and performance share units (PSUs), which reduced cash flows by $1.9 million compared to $9.1 million in the prior year.

Reconciliation of Non-GAAP Measures

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Interest expense

Other (income) expense, net

Other income, net

Operating income (loss)

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Patent claims and litigation settlements

Reserve (recovery) of Russian accounts receivable

Recovery of Russian accounts receivable

Cyber incident costs (3)

Non-GAAP adjusted EBITDA

(1) In 2023, primarily reflects transaction costs related to certain CommScope NEXT initiatives.

In 2022, primarily reflects transformation costs related to CommScope NEXT and integration costs related to the ARRIS International plc (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.

(2) In 2023, 2022 and 2021, reflects ARRIS acquisition accounting adjustments related to reducing deferred revenue to its fair value.

(1) In 2024 and 2023, primarily reflects transaction costs related to certain CommScope NEXT initiatives.

In 2022, primarily reflects transformation costs related to certain CommScope NEXT initiatives and integration costs related to the ARRIS International plc (ARRIS) acquisition.

(2) In 2023 and 2022, reflects ARRIS acquisition accounting adjustments related to reducing deferred revenue to its estimated fair value.

(3) In 2023, primarily reflects costs of the identification, investigation, defense, recovery and litigation efforts related to a cyber incident that occurred in late March of 2023.

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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 income (loss) in that footnote.

The corporate and other line item as presented in Note 17 in the Notes to Consolidated Financial Statements represents general corporate costs that were previously allocated to the Home segment.

These indirect costs are classified as continuing operations since they were not directly attributable to the discontinued operations of the Home business.

The corporate and other line item as presented in Note 18 in the Notes to Consolidated Financial Statements represents general corporate costs that were previously allocated to the OWN segment, DAS business unit and Home segment.

These indirect costs are classified as continuing operations since they were not directly attributable to these discontinued operations.

Beginning in the first quarter of 2024, the corporate and other costs related to the Home segment have been reallocated to the Company’s remaining segments and partially offset by income from the Vantiva TSA.

The corporate and other costs related to the OWN segment and DAS business unit will be reallocated to our remaining segments beginning in the first quarter of 2025.

Connectivity and Cable Solutions Segment

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Patent claims and litigation settlements

Reserve (recovery) of Russian accounts receivable

Cyber incident costs

Adjusted EBITDA

Outdoor Wireless Networks Segment

Year Ended December 31,

(in millions)

Operating income

Amortization of purchased intangible assets

Restructuring costs, net

Equity-based compensation

Transaction, transformation and integration costs

Recovery of Russian accounts receivable

Cyber incident costs

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(in millions)

Operating income (loss)

Operating loss

Amortization of purchased intangible assets

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Acquisition accounting adjustments

Patent claims and litigation settlements

Cyber incident costs

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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.

During the third quarter of 2023, we concluded that a triggering event occurred, primarily due to a sustained decrease in the market value of our debt and common stock affecting the overall business and changes in expected future cash flows due to reduced earnings forecasts and current macroeconomic conditions, including a rising interest rate environment.

We performed an interim quantitative goodwill impairment test for our ANS and BDCC reporting units, which were most sensitive to negative performance and outlook, to compare the fair value of the reporting unit to their carrying amounts, including the goodwill.

The ANS reporting unit is the same as the ANS segment, and the BDCC reporting unit is part of the CCS segment.

The fair value of the reporting unit was determined using a DCF model and a guideline public company approach, with 75% of the value determined using the DCF model and 25% of the value determined using the guideline public company approach.

Under the DCF method, the fair value of a reporting unit is based on the present value of estimated future cash flows.

To determine the fair value of our ANS and BDCC reporting units, we developed a revised forecast for 2023 and updated the annual forecasts for the years beyond 2023.

We used a discount rate of 15% for the ANS reporting unit, which reflects increased risk from our 2022 annual test due to higher market uncertainty, and 12% for the BDCC reporting unit.

Under the guideline public company method, the fair value is based upon market multiples of revenue and earnings derived from publicly-traded companies with similar operating and investment characteristics as the reporting unit.

As a result of our interim goodwill impairment test, we recorded a goodwill impairment charge of $425.9 million during the third quarter of 2023 to partially write down the carrying amount of the ANS reporting unit goodwill.

There was no impairment identified in our BDCC reporting unit in the Q3 2023 interim goodwill impairment test.

As of January 1, 2024, we assessed goodwill for impairment due to changes in the composition of certain reporting units and performed impairment testing immediately before and after the change once goodwill was reallocated and determined that no goodwill impairment existed.

During the third quarter of 2024, we completed an impairment analysis for goodwill recorded within the NICS reporting unit, which is impacted by the divestiture of the DAS business.

The quantitative assessment was used, and the Company determined that the fair value of the impacted reporting unit exceeded the carrying value and that no impairment existed immediately prior to or subsequent to allocating goodwill to the disposal group that includes our DAS business.

The annual test of goodwill impairment was performed for each of the reporting units with goodwill balances as of October 1, 2024.

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The range of discount rates used in our annual tests was 9.5% to 14.5% for 2024.

The Company determined the goodwill balance in the ANS and BDCC reporting units was impaired and recorded partial impairment charges of $46.3 million and $99.1 million, respectively.

The impairment charges resulted from the Company's assessment in the fourth quarter of further lower revenue growth and EBITDA margins, due to adverse impacts of market conditions on the current year profitability and estimated future business results and cash flows.

We used a discount rate of 15% for the ANS reporting unit and 12% for the BDCC reporting unit, which were consistent with the Q3 2023 interim test.

Considering the low headroom going forward for each of the ANS and BDCC reporting units, there is a risk for future impairment in the event of further 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 the 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.

We determined that the fair value of the reporting units exceeded the carrying value and that no impairment existed.

Considering the low headroom going forward for the ANS reporting unit, there is a risk for future impairment in the event of further 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 the ANS reporting unit is 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, 2024 that have the lowest level of headroom.

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Key Assumptions

Deficit of Fair Value to Carrying Value

Balance at December 31, 2023

Result of Annual Goodwill Test as of October 1, 2023

Excess of Fair Value to Carrying Value

(dollars in millions)

Balance as of December 31, 2024

Result of Interim Goodwill Test as of October 1, 2024

Decrease of 10% in Cash Flows

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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 loss from continuing operations.

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 gain (loss) from continuing operations.

We recognize income tax benefits related to particular tax positions only when it is considered more likely than not that the tax position will be sustained if examined on its technical merits by tax authorities.

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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 7. Management’s Discussion and Analysis