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What changed in Vistance Networks, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Vistance Networks, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+476 added−512 removedSource: 10-K (2024-02-29) vs 10-K (2023-02-23)

Top changes in Vistance Networks, Inc.'s 2023 10-K

476 paragraphs added · 512 removed · 347 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

106 edited+33 added−35 removed40 unchanged
Biggest changeOur management team has a strong track record of improving operational efficiency and successfully executing on formalized annual profit improvement plans, cost-savings initiatives and working capital improvements to drive future profitability and cash flow. 8 Portfolio Optimization As discussed above, in addition to optimizing our portfolio with our commitment to separate the Home Networks business from Core CommScope, we reorganized our internal management and reporting structure as of January 1, 2022 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.
Biggest changeOur management team has a strong track record of improving operational efficiency and successfully executing on formalized annual profit improvement plans, cost-savings initiatives and working capital improvements to drive future profitability and cash flow. Portfolio Optimization We utilize a general management model in our segments.
The funds from these programs and initiatives to build more equitable access—in particular, in the United States (U.S.), the Rural Digital Opportunity Fund (RDOF), American Rescue Plan Act (ARPA), and the Broadband Equity, Access, and Deployment (BEAD) Program—are expected to drive technology and device sales across the board.
The funds from these programs and initiatives to build more equitable access—in particular, in the United States (U.S.), the Broadband Equity, Access, and Deployment (BEAD) Program, American Rescue Plan Act (ARPA) and Rural Digital Opportunity Fund (RDOF)—are expected to drive technology and device sales across the board.
We continuously evaluate and adjust operations to improve service, lower cost and improve the return on our capital investments, and we expect to continue modifying our global operations to adapt to changing product demand and business conditions. Raw Materials and Components Our products are manufactured or assembled from both standard components and parts that are unique to our specifications.
We continuously evaluate and adjust operations to improve service, lower cost and improve the return on our capital investments, and we expect to continue modifying our global operations to adapt to changing product demand and business conditions. 12 Raw Materials and Components Our products are manufactured or assembled from both standard components and parts that are unique to our specifications.
Our solutions for wired and wireless networks enable service providers, including cable, telephone, data center 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 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.
We believe our scale, stability and quality make us an attractive strategic partner to our large global customers, and we have been repeatedly recognized by key customers for these attributes. 11 Our manufacturing and distribution facilities are strategically located to optimize service levels and product delivery times.
We believe our scale, stability and quality make us an attractive strategic partner to our large global customers, and we have been repeatedly recognized by key customers for these attributes. Our manufacturing and distribution facilities are strategically located to optimize service levels and product delivery times.
We consider our patents and trademarks to be valuable assets, and although no single patent is material to our overall operations, we believe the COMMSCOPE, ARRIS, SURFBOARD, RUCKUS, SYSTIMAX, NETCONNECT, NOVUX, ERA, ONECELL and HELIAX trade names and related trademarks are critical assets to our business.
We consider our patents and trademarks to be valuable assets, and although no single patent is material to our overall operations, we believe the COMMSCOPE, ARRIS, RUCKUS, SYSTIMAX, NETCONNECT, NOVUX, ERA, ONECELL and HELIAX trade names and related trademarks are critical assets to our business.
It may be more meaningful to focus on our annual rather than interim results. Patents and Trademarks We pursue an active policy of seeking intellectual property protection, including patents and registered trademarks, for new products and designs.
It may be more meaningful to focus on our annual rather than interim results. 13 Patents and Trademarks We pursue an active policy of seeking intellectual property protection, including patents and registered trademarks, for new products and designs.
We intend to focus our major R&D activities on high-growth opportunities such as fiber optic connectivity for fiber-to-the-x (FTTX) and data centers, Wi-Fi 6E and 6GHz, CCAP, DAA, DOCSIS 4.0, gigabit passive optical network (GPON), active and passive base-station antennas and metro cell and small cell wireless solutions.
We intend to focus our major R&D activities on high-growth opportunities such as fiber optic connectivity for fiber-to-the-x (FTTX) and data centers, Wi-Fi 7 and 6GHz, CCAP, DAA, DOCSIS 4.0, gigabit passive optical network (GPON), active and passive base-station antennas and metro cell and small cell wireless solutions.
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 have a team of over 30,000 people who serve our customers in over 150 countries through a network of world-class manufacturing and distribution facilities strategically located around the globe.
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 have a team of over 20,000 people who serve our customers in over 150 countries through a network of world-class manufacturing and distribution facilities strategically located around the globe.
Available Information Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our web site at www.commscope.com under Company — Investor Relations as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.
Available Information Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our website at www.commscope.com under Company — Investor Relations as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.
Sometimes, unfilled orders may be canceled prior to shipment of goods, but cancellations historically have not been material. However, our current order backlog may not guarantee future demand. We expect a majority of our backlog as of December 31, 2022 to be recognized as revenue during 2023.
Sometimes, unfilled orders may be canceled prior to shipment of goods, but cancellations historically have not been material. However, our current order backlog may not guarantee future demand. We expect a majority of our backlog as of December 31, 2023 to be recognized as revenue during 2024.
Our plan to achieve our growth opportunities are driven by five themes: • Become more market and customer centric – work to truly understand the needs of our customers and applications for data and video networking solutions. • Expand to service providers outside of North America – expand market share with service providers in the rest of the world. • Expand Enterprise sales coverage – enhance sales coverage in historically underpenetrated top metropolitan statistical areas and verticals within the North American region, as well as targeted country/vertical combinations around the world. • Introduce new products and scale software solutions – build and scale our differentiated products, software and technology. • Investment in capacity – expand capacity for products with high backlog, fast-growth and long-term demand visibility.
Our plan to achieve our growth opportunities are driven by five themes: • Become more market and customer centric – work to truly understand the needs of our customers and applications for data and video networking solutions. • Expand to service providers outside of North America – expand market share with service providers in the rest of the world. • Expand enterprise sales coverage – enhance sales coverage in historically underpenetrated top metropolitan statistical areas and verticals in North America, as well as targeted country/vertical combinations around the world. • Introduce new products and scale software solutions – build and scale our differentiated products, software and technology. • Invest in capacity – expand capacity for products with high backlog, fast growth and long-term demand visibility.
Products from our CCS segment are primarily sold directly to cable television system operators, broadband operators and other service providers that deploy broadband networks. CCS segment products are also sold through independent distributors or system integrators for large telecommunication operators.
Products from our CCS segment are primarily sold directly to cable television system operators, broadband operators and other service providers that deploy broadband networks. CCS segment products are also sold through independent distributors or system integrators for large telecommunications operators.
We believe that with CommScope NEXT, we will achieve the following: • Deliver organic growth • Create a well-positioned comprehensive portfolio of products and services • Stimulate market leading innovation, delivering powerful software and services • Maintain world class operational efficiency and cost structures • Architect a simplified organization, with more accountability, responsibility and visibility With CommScope NEXT, we are transforming our organization into one that has better operational efficiency, speed and resilience and one that can better service our existing customers, as well as new ones.
With CommScope NEXT, we are striving to achieve the following: • Deliver organic growth • Create a well-positioned comprehensive portfolio of products and services • Stimulate market leading innovation, delivering powerful software and services • Maintain world class operational efficiency and cost structures • Architect a simplified organization, with more accountability, responsibility and visibility With CommScope NEXT, we are transforming our organization into one that has better operational efficiency, speed and resilience and one that can better service our existing customers, as well as new ones.
This moves some of the processing from the head end to the node and virtualizes the rest on traditional switches and servers. 5) Low Latency Services: To support the increased demands of a growing game-playing subscriber base, all operators are seeking new ways to reduce the latency and jitter of the gaming packet streams.
This moves some of the processing from the head end to the node and virtualizes the rest on traditional switches and servers. 5) Low Latency Services: To support the increased demands of a growing game-playing subscriber base, all operators are continuing to seek new ways to reduce the latency and jitter of the gaming packet streams.
CommScope’s compensation plans and programs strive to attract and retain skilled, high-performing individuals; pay base salaries that are competitive in our industry and the local markets in each country where we operate; and provide short- and long-term incentives (when appropriate) that are tied to superior employee and company performance.
CommScope’s compensation plans and programs strive to: attract and retain skilled, high-performing individuals; pay base salaries and provide benefits that are competitive in our industry and the local markets in each country where we operate; and provide short- and long-term incentives (when appropriate) that are tied to exceptional employee and Company performance.
The market for our products is highly competitive and subject to rapid technological change. We encounter significant domestic and international competition across all segments of our business. Our competitors include large, diversified companies some of whom have substantially more assets and greater financial resources than we do.
The market for our products is also subject to rapid technological change. We encounter significant domestic and international competition across all segments of our business. Our competitors include large, diversified companies some of whom have substantially more assets and greater financial resources than we do.
Due to huge increases in data traffic and migration of applications to the cloud, enterprises are also shifting spending toward multi-tenant (co-located) data centers and hyperscale cloud service providers, which offer cloud data center services as a replacement for in-house corporate data centers. Multi-tenant and hyperscale data center managers are focused on ultra-low loss, high density, scalable fiber connectivity solutions.
Due to huge increases in data traffic and migration of applications to the cloud, enterprises continue to shift spending toward multi-tenant (co-located) data centers and hyperscale cloud service providers, which offer cloud data center services as a replacement for in-house corporate data centers. Multi-tenant and hyperscale data center managers are focused on ultra-low loss, high density, scalable fiber connectivity solutions.
New antenna equipment will be needed for this expansion. 7) Government-sponsored Broadband Improvements : Several government-sponsored programs aimed at improving the Broadband infrastructure connecting to rural and other under-served areas launched in the second half of 2022.
New antenna equipment is needed for this expansion. 7) Government-Sponsored Broadband Improvements : Several government-sponsored programs aimed at improving the Broadband infrastructure connecting to rural and other under-served areas launched in the second half of 2022.
These networks use the capabilities of fiber to enable consumers access to content at higher speeds with improved network response time. As networks improve and deliver higher speed and greater reliability, many operators are choosing to provide both residential and business services over a common physical layer infrastructure, saving them time and money.
These networks use the capabilities of fiber to enable consumers access to content at higher speeds with improved network response time. As networks improve and deliver higher speed and greater reliability, many operators have chosen to provide both residential and business services over a common physical layer infrastructure, saving them time and money.
In addition, with the deployments of metro cells, outdoor small cells and fixed wireless broadband to the home, these same service providers are planning to utilize this common physical layer infrastructure to provide connectivity to these wireless access points.
In addition, with the deployments of metro cells, outdoor small cells and fixed wireless broadband to the home, these same service providers are utilizing this common physical layer infrastructure to provide connectivity to these wireless access points.
We intend to rely on our intellectual property rights, including our proprietary knowledge, trade secrets and continuing technological innovation, to develop and maintain our competitive position. From time to time there are disputes with respect to the ownership of the technology used in our industry and accusations of patent infringements.
We intend to rely on our intellectual property rights, including our proprietary knowledge, trade secrets and continuing technological innovation, to develop and maintain our competitive position. From time to time there are disputes with respect to the ownership of the technology used in our industry and accusations of patent infringements. We will continue to protect our key intellectual property rights.
The segment includes base station antennas, radio frequency (RF) filters, tower connectivity, microwave antennas, metro cell products, cabinets, steel, accessories and our wireless spectrum management business, Comsearch. NICS Segment (2022 Net Sales of $0.9 billion) Our NICS segment provides wireless networks for enterprises and service providers.
The segment includes base station antennas, radio frequency (RF) filters, tower connectivity, microwave antennas, metro cell products, cabinets, steel, accessories and our wireless spectrum management business, Comsearch. NICS Segment (2023 Net Sales of $1.1 billion) Our NICS segment provides wireless networks for enterprises and service providers.
Our solutions are complemented by services including technical support, systems design and integration. We are a leader in digital video and IP television (IPTV) distribution systems, broadband access infrastructure platforms and equipment that delivers data and voice networks to homes.
Our solutions are complemented by services including technical support, systems design and integration. We are a leader in digital video and IP television (IPTV) distribution systems, broadband access infrastructure platforms and equipment that delivers data and voice networks to homes including fiber to the home technologies (FTTH).
Outdoor network solutions are used in both local-area and wide-area networks and “last mile” fiber-to-the-home installations, including deployments of fiber-to-the-node, fiber-to-the-premises and fiber-to-the-distribution point to homes, businesses and cell sites. OWN Segment (2022 Net Sales of $1.5 billion) Our OWN segment focuses on the macro and metro cell markets.
Outdoor network solutions are used in both local-area and wide-area networks and “last mile” fiber-to-the-home installations, including deployments of fiber-to-the-node, fiber-to-the-premises and fiber-to-the-distribution-point to homes, businesses and cell sites. OWN Segment (2023 Net Sales of $0.9 billion) Our OWN segment focuses on the macro and metro cell markets.
Some of this spectrum will be at much higher frequencies and will use new technologies to deliver exceptional amounts of bandwidth to subscribers. 5G also requires significant fiber infrastructure to connect wireless access points to each other to improve the response time of the network.
Some of this spectrum is at much higher frequencies and uses new technologies to deliver exceptional amounts of bandwidth to subscribers. 5G also requires significant fiber infrastructure to connect wireless access points to each other to improve the response time of the network.
In addition to investment required by wireless operators, the transition to 5G could also spark an investment cycle by cable operators as they upgrade their networks to compete with fixed wireless broadband, which is becoming a viable alternative to traditional broadband internet access.
In addition to investment required by wireless operators, the continued transition to 5G also creates an investment cycle by cable operators as they upgrade their networks to compete with fixed wireless broadband, which is a viable alternative to traditional broadband internet access.
Capacity will also be increased via the increased use of the spectrally-efficient DOCSIS 3.1 orthogonal frequency-division multiplexing (OFDM) and orthogonal frequency-division multiple access (OFDMA) channels within the cable spectrum. Additionally, some operators will begin their upgrade path to DOCSIS 4.0 in certain regions of their networks. New DOCSIS equipment will be needed for this expansion.
Capacity is also increasing via the increased use of the spectrally-efficient DOCSIS 3.1 orthogonal frequency-division multiplexing (OFDM) and orthogonal frequency-division multiple access (OFDMA) channels within the cable spectrum. Additionally, some operators are beginning their upgrade path to DOCSIS 4.0 in certain regions of their networks. New DOCSIS equipment is needed for this expansion.
We generally have no minimum purchase commitments from any of our distributors, system integrators, channel partners, value-added resellers, wireless operators or OEM customers, and our contracts with these parties generally do not prohibit them from purchasing from our competitors or offering products or services that compete with ours.
We sell these products to most of the wireline and satellite operators globally. 10 We generally have no minimum purchase commitments from any of our distributors, system integrators, channel partners, value-added resellers, wireless operators or OEM customers, and our contracts with these parties generally do not prohibit them from purchasing from our competitors or offering products or services that compete with ours.
Rather than building upon independent wireline and wireless networks, operators are shifting toward networks that combine voice, video and data communications into a single converged data network for wired and wireless services. 2) Continued Disruption by Over-the-Top TV: Although content consumption continues to increase, subscriptions to pay TV continue declining.
Rather than building upon independent wireline and wireless networks, operators are utilizing networks that combine voice, video and data communications into a single converged data network for wired and wireless services. 5 2) Continued Disruption by OTT TV: Although content consumption continues to increase, subscriptions to pay TV continue declining.
While past data trends have been defined by rapid growth in the downlink, more interactive experiences and IoT will drive the need for major network change in the uplink. 3) Densification : As wireless operators work to meet consumer demand, cell splitting, in the form of densification, is expected to be a key driver for fulfilling the promise of 5G networks.
While past data trends have been defined by rapid growth in the downlink, more interactive experiences and IoT are driving the need for major network change in the uplink. 3) Densification : As wireless operators work to meet consumer demand, cell splitting, in the form of densification, is a key driver for continuing to fulfill the promise of 5G networks.
Many cable operators are already offering or planning to offer 5G wireless services on top of their wired cable services, and one approach under consideration employs convergence techniques that utilize wired networks, such as DOCSIS or passive optical networks (PON), to support Crosshaul (xHaul) to the more heavily-densified wireless access points and radio units of 5G.
Many cable operators continue to offer or plan to offer 5G wireless services on top of their wired cable services, and one approach employs convergence techniques that utilize wired networks, such as DOCSIS or passive optical networks (PON), to support Crosshaul (xHaul) to the more heavily-densified wireless access points and radio units of 5G.
As a result, cable operators are compelled to invest in and upgrade their networks for broadband but have mixed feelings about investments in their video and voice services.
As a result, cable operators are continuing to invest in upgrades to their networks for broadband but continue to have mixed feelings about investments in their video and voice services.
All of these transitions are expected to lead to increased investment. Fiber Deep Deployments Residential and business bandwidth consumption continues to grow substantially. The proliferation of OTT video, multiscreen viewing, cloud services and social media are prompting operators to accelerate fiber deployment. Operators can increase network capacity by installing fiber deeper into their networks.
All of these transitions are expected to continue driving increased investment. Fiber Deep Deployments Residential and business bandwidth consumption continues to grow substantially. The proliferation of OTT video, multiscreen viewing, cloud services and social media are continuing to prompt operators to accelerate fiber deployment. Operators are increasing network capacity by installing fiber deeper into their networks.
The global EHS team utilizes a companywide EHS management system designed and implemented based on the requirements of the International Standards of ISO45001 and ISO14001. CommScope seeks to inspire a culture of proactive and productive health such that our employees make lifestyle decisions that lead to rewarding careers and balanced lives.
Our EHS management system was designed and implemented based on the requirements of the International Standards of ISO45001 and ISO14001. CommScope seeks to inspire a culture of proactive and productive health management so employees make lifestyle decisions that lead to rewarding careers and healthy, balanced lives.
Exponential growth in video and mobile data consumption are revolutionizing how we connect to each other and changing the network architecture needed to support consumer demand. This trend requires better network coverage, greater broadband access, and increased capacity and data storage. Our customers are working to transition their networks to become faster, more responsive, more efficient and more reliable.
Exponential growth in video and mobile data consumption is continuing to revolutionize how we connect to each other and changing the network architecture needed to support consumer demand. This trend requires better network coverage, greater broadband access, and increased capacity and data storage. Our customers are continuing to develop networks that are faster, more responsive, more efficient and more reliable.
Increased sectorization at macro cell sites and establishing better inbuilding coverage will also play significant roles in the 5G network. We expect that densification will require significant fiber cable and connectivity between wireless cell sites. 5 4) Virtualization, Centralization and Disaggregation: Operators are virtualizing and centralizing their networks to make them more flexible and efficient.
Increased sectorization at macro cell sites and establishment of better inbuilding coverage play significant roles in the 5G network. We expect that densification will require significant fiber cable and connectivity between wireless cell sites. 4) Virtualization, Centralization and Disaggregation: Operators are continuing to virtualize and centralize their networks to make them more flexible and efficient.
There are several major trends that we expect to continue to drive network deployments and investment, including: Evolving Network Architecture and Technology The pace of change in networking has increased as consumers and data-driven businesses utilize more bandwidth and shift toward cloud and mobile applications.
There are several major trends that we expect to continue to drive network deployments and investment, including the following: Evolution of Network Architecture and Technology The pace of change in networking continues to increase as consumers and data-driven businesses utilize more bandwidth and cloud and mobile applications.
We will continue to protect our key intellectual property rights. 13 Government Regulation We are subject to various domestic and international government regulations. For example, our international operations expose us to increased challenges in complying with anti-corruption laws and regulations of the U.S. government and various other international jurisdictions.
Government Regulation We are subject to various domestic and international government regulations. For example, our international operations expose us to increased challenges in complying with anti-corruption laws and regulations of the U.S. government and various other international jurisdictions.
The densification of 5G networks will also reduce congestion and decrease latency as well. 6) Capacity Expansion : Wired and wireless network providers are both cognizant of the need to stay ahead of the traffic growth that occurs every year. This traffic growth results from increases in average subscriber consumption levels and in maximum service level agreement (SLA) levels.
The densification of 5G networks also reduces congestion and decreases latency. 6) Capacity Expansion : Wired and wireless network providers continue to be cognizant of the need to stay ahead of the traffic growth that occurs every year. This traffic growth results from increases in average subscriber consumption levels and in maximum service level agreement (SLA) levels.
Although we sell to most wireless operators globally, we are dependent on a small number of large operators. 9 Products from our NICS segment are primarily sold through independent distributors or system integrators for large telecommunications operators and to customers in a broad range of enterprise vertical markets, including hospitality, education, smart cities, government, venues and service providers indirectly through channel partners.
Products from our NICS segment are primarily sold through independent distributors or system integrators for large telecommunications operators and to customers in a broad range of enterprise vertical markets, including hospitality, education, smart cities, government, venues and service providers, indirectly through channel partners.
In addition, we have formed strategic relationships with leading technology companies to provide us with early access to technology that we believe will help keep us at the forefront of our industry. On a worldwide basis, as of December 31, 2022, we held over 16,000 patents and patent applications and approximately 3,000 registered trademarks and trademark applications.
In addition, we have formed strategic relationships with leading technology companies to provide us with early access to technology that we believe will help keep us at the forefront of our industry. As of December 31, 2023, we held over 13,000 patents and patent applications and over 2,700 registered trademarks and trademark applications worldwide.
As wireless operators transition toward 5G, they must also manage the fundamental network deployment issues of site acquisition, power, backhaul and in-building wireless proliferation.
As wireless operators continue to transition toward 5G, they are also managing the fundamental network deployment issues of site acquisition, power, backhaul and in-building wireless proliferation.
Cable operators are also seeking to virtualize their networks by moving from a traditional converged cable access platform (CCAP) architecture to a distributed access architecture (DAA).
Cable operators have also virtualized their networks by moving from a traditional converged cable access platform (CCAP) architecture to a distributed access architecture (DAA).
For cable providers, the next years will see many increases in spectrum, including moves to DOCSIS 3.1 upstream mid-splits (85 MHz) and DOCSIS 3.1 upstream high-splits (204 MHz) and downstream DOCSIS 3.1 transitions to 1.2 GHz.
Cable providers are beginning to see many increases in spectrum, including moves to DOCSIS 3.1 upstream mid-splits (85 MHz) and DOCSIS 3.1 upstream high-splits (204 MHz) and downstream DOCSIS 3.1 transitions to 1.2 GHz.
Employee Inclusion, Equity, and Diversity CommScope strives to create an inclusive environment that draws upon the strength of our diverse workforce to exceed the expectations of all our partners and stakeholders. CommScope’s global workforce is comprised of individuals of many races, cultures, backgrounds, geographies and experiences.
Employee Diversity, Equity and Inclusion CommScope strives to create an equitable and inclusive environment that draws upon the strength of our diverse workforce to deliver exceptional results for our investors and all key stakeholders. CommScope’s global workforce is comprised of individuals of many races, cultures, backgrounds, geographies and experiences.
For the year ended December 31, 2022, we derived approximately 15% of our consolidated net sales from our top two direct customers, but no single direct customer accounted for 10% or more of our net sales.
For the year ended December 31, 2023, we derived approximately 17% of our consolidated net sales from our top two direct customers, however, for the years ended December 31, 2023, 2022 and 2021, no single direct customer accounted for 10% or more of our net sales.
As an example, Data Over Cable Service Interface Specification (DOCSIS) deployments will likely be adding the new low latency DOCSIS technologies to their CMTS and customer premises equipment (CPE) gear in the coming year. Node-splits will also be used to reduce congestion.
As an example, Data Over Cable Service Interface Specification (DOCSIS) deployments are being added to the new low latency DOCSIS technologies to their CMTS and customer premises equipment (CPE) gear. Node-splits are also used to reduce congestion.
Major competitors by segment include the following: CCS segment – Amphenol Corporation, Belden Inc., Clearfield, Inc., Corning Inc. and Sterlite Corporation.; OWN segment – Comba Telecom Systems Holding Ltd., Huawei Technologies Co., Ltd., Rosenberger NA and Telefonaktiebolaget LM Ericsson; NICS segment – Cisco Systems, Inc., Comba Telecom Systems Holding Ltd., Corning Inc., Extreme Networks, Inc., Hewlett Packard Enterprise Development LP, Huawei Technologies Co., Ltd, JMA Wireless, Juniper Networks, Inc., SOLiD, Inc. and Ubiquiti Inc.; ANS segment – ATX Networks Corp., Casa Systems, Inc., Cisco Systems, Inc., Harmonic Inc., Technetix Group Ltd., Teleste Corporation and Vecima Networks Inc.; and Home segment – Humax Co., Ltd., Kaonmedia Co., Ltd., Nokia Oyj, Sagemcom Broadband SAS, Vantiva SA. and ZTE Corporation.
Major competitors by segment include the following: CCS segment – Amphenol Corporation, Belden Inc., Clearfield, Inc., Corning Incorporated and Sterlite Technologies Limited; OWN segment – Comba Telecom Systems Holdings Limited, Huawei Technologies Co., Ltd., Rosenberger North America and Telefonaktiebolaget LM Ericsson; NICS segment – Cisco Systems, Inc., Comba Telecom Systems Holdings Limited, Corning Incorporated, Extreme Networks, Inc., Hewlett Packard Enterprise Development LP, Huawei Technologies Co., Ltd., JMA Wireless, Juniper Networks, Inc., SOLiD, Inc. and Ubiquiti Inc.; and ANS segment – ATX Networks Corp., Casa Systems, Inc., Cisco Systems, Inc., Harmonic Inc., Technetix Group Limited, Teleste Oyj and Vecima Networks Inc.
Backlog and Seasonality At December 31, 2022 and 2021, we had an order backlog of $3,588.8 million and $3,953.9 million, respectively. Orders typically fluctuate from quarter to quarter based on customer demand and general business conditions. Our backlog includes only orders that are believed to be firm.
Backlog and Seasonality At December 31, 2023 and 2022, we had an order backlog of $1,151.5 million and $2,925.4 million, respectively. Orders typically fluctuate from quarter to quarter based on customer demand and general business conditions. Our backlog includes only orders that are believed to be firm.
The primary benefits of 5G are expected to include: • Enhanced mobile broadband—to support significant improvement in data rates and user experience in both the uplink and downlink, • IoT communications to support the expected billions of connections between machines, as well as short bursts of information to other systems, • Low latency, high-reliability—to support applications that are critical or are needed in real time, like factory machines, virtual reality and augmentation, and • Underlying capacity to support fixed broadband services in underserved areas. 6 As described above, wireless operators will need to both acquire and launch new spectrum for 5G, as well as continue their strategy of re-allocation of spectrum from one generation to another.
The primary benefits of 5G include the following: • Enhanced mobile broadband—to support significant improvement in data rates and user experience in both the uplink and downlink; • IoT communications—to support the expected billions of connections between machines, as well as short bursts of information to other systems; • Low latency, high reliability—to support applications that are critical or are needed in real time, like factory machines, virtual reality and augmentation; and • Underlying capacity—to support fixed broadband services in underserved areas.
Power-over-ethernet is expected to become increasingly important as the number of devices used for Wi-Fi and indoor cellular networks multiplies. While enterprises continue to need copper connectivity to power edge devices, enterprises are deploying fiber more extensively in data centers.
As a result, enterprises continue to adjust in-building cabling designs to deliver both power and high-speed data to those devices. Power-over-ethernet is becoming increasingly important as the number of devices used for Wi-Fi and indoor cellular networks multiplies. While enterprises continue to need copper connectivity to power edge devices, enterprises are deploying fiber more extensively in data centers.
Our customer service and engineering groups maintain close working relationships with these customers due to the significant amount of customization associated with some of these products. We sell these products to most of the wireline and satellite operators globally.
Our customer service and engineering groups maintain close working relationships with these customers due to the significant amount of customization associated with some of these products. Although we sell to most wireless operators globally, we are dependent on a small number of large operators.
For wireless providers, the next years will see continued deployment of 5G that will include ongoing additions to their wireless spectrum in the CBRS band, the C-band and the millimeter wave (mmWave) bands.
Wireless providers are seeing continued deployment of 5G that will include ongoing additions to their wireless spectrum in the Citizens Broadband Radio Service (CBRS) band, the C-band and the millimeter wave (mmWave) bands.
Over the next five years, approximately 2,100, or about 19%, of our issued patents will expire, while at the same time CommScope intends to seek patents protecting new innovations .
Over the next five years, approximately 1,650, or about 18%, of our issued patents will expire, while at the same time we intend to seek patents protecting new innovations .
The distribution of net revenues among our five segments was as follows: Year Ended December 31, 2022 2021 2020 CCS 41.0 % 35.6 % 30.4 % OWN 15.9 16.5 14.8 NICS 10.2 10.0 10.0 ANS 14.4 16.4 16.3 Core segments 81.5 78.5 71.5 Home 18.5 21.5 28.5 Total 100.0 % 100.0 % 100.0 % CCS Segment (2022 Net Sales of $3.8 billion) Our CCS segment provides fiber optic and copper connectivity and cable solutions for use in telecommunications, cable television, residential broadband networks, data centers and business enterprises.
The distribution of net revenues among our four segments was as follows: Year Ended December 31, 2023 2022 2021 CCS 46.8 % 50.4 % 45.4 % OWN 15.2 19.5 21.0 NICS 19.3 12.5 12.8 ANS 18.7 17.6 20.8 Total 100.0 % 100.0 % 100.0 % 4 CCS Segment (2023 Net Sales of $2.7 billion) Our CCS segment provides fiber optic and copper connectivity and cable solutions for use in telecommunications, cable television, residential broadband networks, data centers and business enterprises.
CommScope has also continued to strengthen the global Diversity & Inclusion Business Network that was established in 2020, providing over 1,600 employees with targeted opportunities to network, learn and lead, grow their careers and support their communities.
We focus on ensuring equity in the workplace and take pride in our diverse workforce and inclusive culture. CommScope has continued to strengthen its global Diversity & Inclusion Business Network that was established in 2020, providing over 1,600 employees with targeted opportunities to network, learn and lead, grow their careers and support their communities.
We believe that we differentiate ourselves in many of our markets based on our market leadership, global sales channels, intellectual property, strong reputation with our customer base, the scope of our product offering, the quality and performance of our solutions, and our service and technical support. 10 Competitive Strengths We are a global leader in connectivity and essential infrastructure solutions for communications and entertainment networks, and we believe we hold leading market positions in most of our segments.
We believe that we differentiate ourselves in many of our markets based on our market leadership, global sales channels, intellectual property, strong reputation with our customer base, the scope of our product offering, the quality and performance of our solutions, and our service and technical support.
The Future of CommScope We are positioned as a leader in most of our Core segments already and will work to defend our leadership in the more mature parts of these markets, while also shifting resources towards our targeted growth choices within them.
As discussed above, we believe we found the right opportunity for its future success and closed on a transaction to divest of our Home business on January 9, 2024. 9 The Future of CommScope We are positioned as a leader in most of our segments already and will work to defend our leadership in the more mature parts of these markets, while also shifting resources towards our targeted growth choices within them.
Our customers include substantially all the leading global telecommunications operators, data center managers, cable television providers or multi-system operators (MSOs) and thousands of enterprise customers, including many Fortune 500 companies. We have long-standing, direct relationships with our customers and serve them through a direct sales force and a global network of channel partners.
Our customers include substantially all the leading global telecommunications operators, data center managers, cable television providers or multi-system operators (MSOs) and thousands of enterprise customers, including many Fortune 500 companies.
We expect CommScope NEXT to drive adjusted EBITDA expansion over the next several years that will enable us to significantly increase our cash flow to accelerate our de-leveraging and further invest in our growth.
As demand in our industry recovers, we expect CommScope NEXT to drive adjusted EBITDA expansion that will enable us to increase our cash flow to de-leverage our indebtedness and further invest in our growth.
While we may provide technological solutions, it is our people who make the real difference in our communities. Their commitment to our customers, fellow employees and the communities in which they live and work drives them to provide creative solutions, services and practices that are safe and sustainable for our environment and future generations.
Their commitment to our customers, fellow employees and the communities in which they live and work drives them to provide creative solutions, services and practices that are safe and sustainable for our environment and future generations. We understand how important it is to consider the larger impact of our actions beyond the balance sheet.
Our customers include substantially all the leading global telecommunications operators, data center managers, cable television providers or MSOs and thousands of enterprise customers, including many Fortune 500 companies. We are a key supplier within the wireless infrastructure market and enjoy established sales channels across all geographies and technologies.
Customers Our customers include substantially all the leading global telecommunications operators, data center managers, cable television providers or MSOs and thousands of enterprise customers, including many Fortune 500 companies.
In response, we implemented rigorous health and safety protocols globally, which continue. Overall, our vision is to seek opportunities to protect the well-being of our employees, customers, suppliers, environment and communities. A commitment to business practices that are innovative, safe and sustainable is key to our company’s success.
We are always seeking opportunities to protect the well-being of our employees, customers, suppliers, environment and communities. A commitment to business practices that are innovative, safe and sustainable is key to our success.
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).
Operating Segments 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).
Our long-standing relationships with telecommunication operators enable us to work closely with them in providing highly customized solutions aligned with their technology roadmaps. We have a global sales force with sales representatives based in North America, Europe, Latin America, Asia and other regions, and an extensive global network of channel partners, including independent distributors, system integrators and value-added resellers.
We have a global sales force with sales representatives based in North America, Europe, Latin America, Asia and other regions, and an extensive global network of channel partners, including independent distributors, system integrators and value-added resellers.
The survey seeks to understand how employees experience company values, asks questions to determine if employees feel a strong sense of inclusion and belonging, and measures overall engagement. With this rich feedback, we can identify strengths and determine potential areas for focused improvement.
We also ask questions to determine if employees feel a strong sense of inclusion and belonging, as well as measure overall engagement. With this valuable feedback, we can identify strengths and potential areas for focused improvement.
In the wireless industry, ANDREW is one of the world’s most recognized brands and a global leader in RF solutions for wireless networks. In the enterprise market, SYSTIMAX, NETCONNECT and UNIPRISE are recognized as global market leaders in enterprise connectivity solutions for business enterprise and data center applications.
In the enterprise market, SYSTIMAX, NETCONNECT and UNIPRISE are recognized as global market leaders in enterprise connectivity solutions for business enterprise and data center applications.
We are accomplishing this mission by utilizing innovative technology, intelligent engineering and energy efficient design to build more sustainable networks that make our customers more agile, while at the same time seeking to preserve the natural ecosystems from which we source our raw materials.
Innovative technology, intelligent engineering and energy efficient design help us to build more sustainable networks that make our customers more agile, while at the same time allowing us to preserve the natural ecosystems from which we source our raw materials. While we may provide technological solutions, it is our people who make the real difference in our communities.
Additionally, as the network becomes more bi-directional and interactive, the need for lower and more consistent latency is growing in importance.
Additionally, the network has become more bi-directional and interactive, driving the need for lower and more consistent latency.
To achieve this, we maintain a robust Environment, Health & Safety (EHS) management system, set objectives and targets, provide necessary resources and create a comprehensive well-being and benefits program. All of this encourages ongoing improvement as we continue to unlock the greatest potential of our employees.
To achieve this, we maintain a robust Environment, Health & Safety (EHS) management system, set objectives and targets and measure them accordingly, provide necessary resources and create a comprehensive well-being and benefits program that supports a culture of safety and health first.
Delays in implementing price increases, failure to achieve market acceptance of price increases, or price reductions in response to a rapid decline in raw material costs, could have a material adverse impact on the results of our operations. 12 In addition, some of our products are assembled from specialized components and subassemblies manufactured by third-party suppliers.
We have adjusted our prices for certain products and may have to adjust prices again. Delays in implementing price increases, failure to achieve market acceptance of price increases, or price reductions in response to a rapid decline in raw material costs, could have a material adverse impact on the results of our operations.
Eventually this will enable servers and switches to replace some of the hardware specific equipment that exists today and allow much of the processing to be performed on general purpose processors wherever and whenever it is needed throughout the network.
Wireless operators have deployed centralized radio access networks (CRAN) as a first step in the evolution to a virtualized radio access network. This enables servers and switches to replace some of the hardware-specific equipment that exists today and allows much of the processing to be performed on general purpose processors wherever and whenever it is needed throughout the network.
We depend upon sole suppliers for certain of these components, including capacitors, memory devices and silicon chips. Our results of operations have been and may continue to be materially affected if these suppliers cannot provide these components in sufficient quantity and quality on a timely and cost-efficient basis.
Our results of operations have been and may continue to be materially affected if these suppliers cannot provide these components in sufficient quantity and quality on a timely and cost-efficient basis. We believe that our supply contracts and our supplier contingency plans mitigate some of this risk.
Since our founding in 1976, CommScope has been a leading brand in connectivity solutions for communications networks. In the cable television and video network equipment industry, both CommScope and ARRIS are longstanding market leaders, along with other brands we own such as RUCKUS, PACE, ADC and many smaller brands.
In the cable television and video network equipment industry, CommScope and ARRIS are longstanding market leaders, along with other brands we own such as RUCKUS, ADC and many smaller brands. In the wireless industry, ANDREW is one of the world’s most recognized brands and a global leader in RF solutions for wireless networks.
The work from home trend caused by the COVID-19 pandemic has accelerated many of these network trends. We believe the following key network trends will continue to impact CommScope and the industry during 2023: 1) Network Convergence : Operators are moving toward converged or multi-use network architectures.
We believe the following key network trends will continue to impact CommScope and the industry during 2024: 1) Network Convergence : Operators are continuing to move toward converged or multi-use network architectures.
In February 2022, our chief executive officer signed the CEO Pledge for the CEO Action for Diversity & Inclusion and committed to a set of actions.
CommScope's CEO also signed the pledge for the CEO Action for Diversity & Inclusion and committed to a set of actions several years ago.
Total Rewards We compensate employees equitably, relative to experience and performance, regardless of gender, nationality or disability. Globally, we sustain our pay-for-performance compensation philosophy, regularly completing pay equity assessments to calculate the results of our pay practices.
The results of our focused efforts make us stronger and pave a path for innovation, which drives business differentiation, talent engagement and retention. 15 Total Rewards We compensate employees equitably, relative to experience and performance, regardless of gender, nationality or disability. Globally, we embrace a pay-for-performance compensation philosophy, conducting pay equity assessments to determine the results of our pay practices.
Established Sales Channels and Customer Relationships We serve customers in over 150 countries and have become a trusted advisor to many of them through our industry expertise, quality products, leading technology and long-term relationships. These factors enable us to provide mission-critical connectivity solutions that our customers need to build and maintain high-performing communication networks.
Our ongoing innovation, supported by proprietary intellectual property and technology know-how, has allowed us to build and sustain a competitive advantage. 11 Established Sales Channels and Customer Relationships We serve customers in over 150 countries and have become a trusted advisor to many of them through our industry expertise, quality products, leading technology and long-term relationships.
Product offerings include indoor and outdoor Wi-Fi and long-term evolution (LTE) access points, access and aggregation switches; an Internet of Things (IoT) suite, on-premises and cloud-based control and management systems; and software and software-as-a-service applications addressing security, location, reporting and analytics. 4 ANS Segment (2022 Net Sales of $1.3 billion) Our ANS segment’s product solutions include cable modem termination systems (CMTS), video infrastructure, distribution and transmission equipment and cloud solutions that enable facility-based service providers to construct a state-of-the-art residential and metro distribution network.
Product offerings include indoor cellular solutions such as distributed antenna systems, public key infrastructure solutions, indoor and outdoor Wi-Fi and long-term evolution (LTE) access points, access and aggregation switches; an Internet of Things (IoT) suite, on-premises and cloud-based control and management systems; and software and software-as-a-service applications addressing security, location, reporting and analytics.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeFinancial Risks • Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our financial obligations. • Despite current indebtedness levels and restrictive covenants, we may still incur additional indebtedness that could further exacerbate the risks associated with our substantial financial leverage. • To service our indebtedness and pay dividends on our preferred stock, we will require a significant amount of cash, and our ability to generate sufficient cash depends on many factors beyond our control. • We may need to recognize additional impairment charges related to goodwill, identified intangible assets, fixed assets and right of use assets. • The IRS may not agree ARRIS International plc (ARRIS) was a foreign corporation for United States (U.S.) federal income tax purposes. 17 Business and Operational Risks • Our future success depends on our ability to anticipate and adapt to changes in technology and customer preferences and develop, implement and market innovative solutions. • If we do not stay current with product life cycle developments, our business may suffer. • If our products do not effectively interoperate with cellular networks and mobile devices, future sales of our products could be negatively affected. • If our product or service offerings, including material purchased from our suppliers, have quality or performance issues, our business may suffer. • We depend on cloud computing infrastructure operated by third parties and any disruption in these operations could adversely affect our business. • Our business depends on effective management information systems. • Cybersecurity incidents, including data security breaches, ransomware or computer viruses, could harm our business by exposing us to various liabilities, disrupting our delivery of products and services and damaging our reputation. • Climate change may have a long-term impact on our business.
Biggest changeWe may not fully realize anticipated benefits from past or future acquisitions or investments in other companies. • We may need to undertake additional restructuring actions in the future. • The Carlyle Group (Carlyle) owns a substantial portion of our equity, and its interests may not be aligned with yours. 17 Business and Operational Risks • Our future success depends on our ability to anticipate and adapt to changes in technology and customer preferences and develop, implement and market innovative solutions. • If we do not stay current with product life cycle developments, our business may suffer. • If our products do not effectively interoperate with cellular networks and mobile devices, future sales of our products could be negatively affected. • If our product or service offerings, including material purchased from our suppliers, have quality or performance issues, our business may suffer. • We depend on cloud computing infrastructure operated by third parties, and any disruption in these operations could adversely affect our business. • Our business depends on effective management information systems. • Cybersecurity incidents, including data security breaches, ransomware or computer viruses, could harm our business by exposing us to various liabilities, disrupting our delivery of products and services and damaging our reputation. • Climate change may have a long-term impact on our business.
Summary Risk Factors The following is a summary of some of the risks, uncertainties and assumptions that could materially adversely affect our business, financial position, results of operations and cash flows. You should read this summary together with the more detailed description of each risk factor contained below.
Summary of Risk Factors The following is a summary of some of the risks, uncertainties and assumptions that could materially adversely affect our business, financial position, results of operations and cash flows. You should read this summary together with the more detailed description of each risk factor contained below.
The concentration of our net sales with these key customers subjects us to a variety of risks, including: • lower sales volumes that could result from the loss of one or more of our key customers; • dependency on customers with substantial purchasing power and leverage in negotiating contractual obligations as well as the operational structure of the relationship, resulting in potential reductions in profit; • less efficient operations that could result in higher costs from an inability to accurately forecast and plan for volatile spending patterns of key customers; 19 • financial difficulties experienced by one or more of our key customers that could result in reduced purchases of our products and/or delays or difficulties in collecting accounts receivable balances; • election by our key customers to purchase products from our competitors in order to diversify their supplier base and dual-source key products, resulting in reduced purchases of our products; and • reductions in inventory levels held by channel partners and OEMs, which may be unrelated to purchasing trends by end customers.
The concentration of our net sales with these key customers subjects us to a variety of risks, including: • lower sales volumes that could result from the loss of one or more of our key customers; • dependency on customers with substantial purchasing power and leverage in negotiating contractual obligations as well as the operational structure of the relationship, resulting in potential reductions in profit; • less efficient operations that could result in higher costs from an inability to accurately forecast and plan for volatile spending patterns of key customers; • financial difficulties experienced by one or more of our key customers that could result in reduced purchases of our products and/or delays or difficulties in collecting accounts receivable balances; 19 • election by our key customers to purchase products from our competitors in order to diversify their supplier base and dual-source key products, resulting in reduced purchases of our products; and • reductions in inventory levels held by channel partners and OEMs, which may be unrelated to purchasing trends by end customers.
One or more of these channel partners could delay payments or default on credit extended to them, either of which could materially adversely affect our business, financial condition, results of operations and cash flows.
One or more of these channel partners could delay payments or default on credit extended to them, either of which could materially and adversely affect our business, financial condition, results of operations and cash flows.
Many of our customers are subject to various rules and regulations as Internet service providers and changes to such rules and regulations could adversely impact our customers’ decisions regarding capital spending.
Many of our customers, such as internet service providers, are subject to various rules and regulations, and changes to such rules and regulations could adversely impact our customers’ decisions regarding capital spending.
In prior years, we have also undertaken a number of initiatives to support the integration of acquisitions, such as the 2019 acquisition of the ARRIS business and the 2015 acquisition of the BNS business. These initiatives included the closure of manufacturing facilities, consolidation of distribution centers and other real estate and various other workforce reductions.
In prior years, we have also undertaken a number of initiatives to support the integration of acquisitions, such as the 2019 acquisition of the ARRIS business and the 2015 acquisition of the BNS business. These initiatives also included the closure of manufacturing facilities, consolidation of distribution centers and other real estate and various other workforce reductions.
The failure of our products to interoperate effectively with cellular networks or mobile devices may result in significant warranty, support and repair costs, divert the attention of our engineering personnel from our product development efforts and cause significant customer relations problems.
The failure of our products to interoperate effectively with cellular networks or mobile devices may result in significant warranty, support and repair costs, may divert the attention of our engineering personnel from our product development efforts and may cause significant customer relations problems.
Several U.S. states are considering or have adopted legislation requiring companies to disclose the collection of personal data, protect the security of personal information that they hold or respond to rights individuals' rights regarding their personal data.
Several U.S. states are considering or have adopted legislation requiring companies to disclose the collection of personal data, protect the security of personal information that they hold or respond to individuals’ rights regarding their personal data.
In addition, there is an increasing focus on corporate social and environmental responsibility in our industry, in which new laws and regulations, new or different interpretations of existing laws and regulations, expansion of existing legal requirements related to our products, the discovery of previously unknown contamination or the imposition of new remediation or discharge requirements could require us to incur costs or become the basis for new or increased liabilities that could have a material adverse effect on our financial condition.
In addition, there is an increasing focus on corporate social and environmental responsibility in our industry, in which new laws and regulations, new or different interpretations of existing laws and regulations, expansion of existing legal requirements related to our products, the discovery of previously unknown contamination or the imposition of new remediation or discharge requirements could require us to incur costs or could become the basis for new or increased liabilities that could have a material adverse effect on our financial condition.
Any or all of these factors could negatively affect demand for our products and our business, financial condition, results of operations and cash flows, and such effects could be material. Our significant international operations expose us to increased challenges in complying with anti-corruption laws and regulations of the U.S. government and various other international jurisdictions.
Any or all of these factors could negatively affect demand for our products and our business, financial condition, results of operations and cash flows, and such effects could be material. 33 Our significant international operations expose us to increased challenges in complying with anti-corruption laws and regulations of the U.S. government and various other international jurisdictions.
If we are unable to generate sufficient cash flow or are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness or if we fail to comply with the various covenants in the instruments governing our indebtedness and we are unable to obtain waivers from the required lenders, we could be in default under the terms of the agreements governing such indebtedness.
If we are unable to generate sufficient cash flow or are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness or if we fail to comply with the various covenants in the instruments governing our indebtedness and we are unable to obtain waivers from the required lenders or noteholders, we could be in default under the terms of the agreements governing such indebtedness.
Climate-related events, including the increasing frequency of extreme weather events and their impact on critical infrastructure in the regions in which we operate, have the potential to disrupt our business, our third-party suppliers, and/or the business of our customers and may cause us to experience higher attrition, losses and additional costs to maintain or resume operations.
Climate-related events, including the increasing frequency and intensity of extreme weather events and their impact on critical infrastructure in the regions in which we operate, have the potential to disrupt our business, our third-party suppliers, and/or the business of our customers and may cause us to experience higher attrition, losses and additional costs to maintain or resume operations.
The successful assertion of one or more large claims against us that exceeds available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, financial condition, results of operations and cash flow.
The successful assertion of one or more large claims against us that exceeds available insurance coverage, or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, financial condition, results of operations and cash flow.
Globally, there has been an increase in laws and regulatory action concerning privacy-related matters. Generally, these laws create rights for individuals in their personal data as well as impose obligations on businesses regarding the handling of personal data, including data of employees, consumers and business contacts.
Globally, there has been an increase in laws and regulatory action concerning privacy-related matters. Generally, these laws create rights for individuals in their personal data as well as impose obligations on businesses regarding the handling of such personal data, including data of employees, consumers and business contacts.
Our channel partners and end customers also may be subject to such laws and regulations in the use of our products and services. These U.S. federal and state and foreign laws and regulations, which often can be enforced by private parties or government entities, are constantly evolving.
Our channel partners and end customers also may be subject to such laws and regulations in the use of our products and services. 35 These U.S. federal and state and foreign laws and regulations, which often can be enforced by private parties or government entities, are constantly evolving.
Certain environmental laws impose strict and, in some circumstances, joint and several liability on current or former owners or operators of a contaminated property, as well as companies that generated, disposed of or arranged for the disposal of hazardous substances at a contaminated property, for the costs of investigation and remediation of the contaminated property.
Certain environmental laws impose strict and, in some circumstances, joint and several liability on current or former owners or operators of a contaminated property, as well as companies that generated, disposed of or arranged for the disposal of hazardous substances at a contaminated property, for the costs of investigation and remediation of such property.
Our channel partners have experienced financial difficulties in the past that has adversely affected our collection of accounts receivable. Our exposure to credit risks of our channel partners may increase if our channel partners and their end customers are adversely affected by global or regional economic conditions.
Our channel partners have experienced financial difficulties in the past that have adversely affected our collection of accounts receivable. Our exposure to credit risks of our channel partners may increase if our channel partners and their end customers are adversely affected by global or regional economic conditions.
Interruptions in our services might adversely affect our reputation and operating results, cause us to issue refunds or service credits, subject us to potential liabilities or result in contract terminations. Our business depends on effective management information systems.
Interruptions in our services might adversely affect our reputation and operating results, cause us to issue refunds or service credits, subject us to potential liabilities or result in contract terminations. 30 Our business depends on effective management information systems.
In addition, defects in some of the hardware or software we develop and sell, including in our engineering or in their implementation by our customers, could also result in unauthorized access to our customers’ and/or consumers’ networks.
In addition, defects in some of the hardware or software we develop and sell, including in our engineering or in their implementation by our customers, could result in unauthorized access to our customers’ and/or consumers’ networks.
In addition, there is a risk that failures in systems designed to protect private, personal or proprietary data held by us or our customers using our solutions will allow such data to be disclosed to or seen by others, resulting in application of regulatory penalties, enforcement actions, remediation obligations, private litigation by parties whose data were improperly disclosed or claims from our customers for costs or damages they incur.
In addition, there is a risk that failures in systems designed to protect private, personal or proprietary data held by us or our customers using our solutions will allow such data to be disclosed to or seen by others, resulting in application of regulatory penalties, enforcement actions, remediation obligations, private litigation by parties whose data was improperly disclosed or claims from our customers for costs or damages they incur.
Such unauthorized access could result in third parties gaining access to the private information of our customers, such as home health information, home cameras or other personal information or technology.
Such unauthorized access could result in third parties gaining access to the private and personal information and technology of our customers, such as home health information, home cameras or other personal information or technology.
In some cases, we guarantee a certain level of performance to our end customers, which could prove to be resource-intensive and expensive for us to fulfill if unforeseen technical problems arise. 21 Many of our service provider and large enterprise end customers have more complex networks and require higher levels of support than our smaller end customers.
In some cases, we guarantee a certain level of performance to our end customers, which could prove to be resource-intensive and expensive for us to fulfill if unforeseen technical problems arise. 21 Many of our service providers and large enterprise end customers have more complex networks and require higher levels of support than our smaller end customers.
We could experience a material adverse effect on our business, financial condition, results of operations and cash flows if we are not successful in our ongoing innovation efforts. As our products become more complex and customer preferences continue to change, we may encounter difficulties in meeting customer preferences, including performance, service and delivery expectations.
We could experience a material adverse effect on our business, financial condition, results of operations and cash flows if we are not successful in our ongoing innovation efforts. 28 As our products become more complex and customer preferences continue to change, we may encounter difficulties in meeting such preferences, including performance, service and delivery expectations.
In our mobile wireless markets, the shift to 5G includes the deployment of new spectrum in higher frequency bands where larger available bandwidths enable a significant increase in network capacity. In many cases, massive MIMO technology (active antennas) is the most effective way to deliver coverage in these bands.
In our mobile wireless markets, the shift to 5G includes the deployment of new spectrum in higher frequency bands where larger available bandwidths enable a significant increase in network capacity. In many cases, massive multiple-in-multiple-out (MIMO) technology (active antennas) is the most effective way to deliver coverage in these bands.
A variety of factors affect the timing and amount of capital spending in the communications industry, including: • general economic and market conditions, including increased costs due to rising inflation or interest rates; • customer-specific financial conditions or budget allocation decisions; • competitive pressures, including pricing pressures; • competing technologies; • timing and adoption of the global rollout of new technologies; • customer acceptance of new technologies and services offered; • foreign currency fluctuations; • seasonality of outdoor deployments; • changes in customer preferences or requirements; • availability and cost of capital; • governmental regulation; • demand for network services; • consumer demand for video content and pay TV services; • variability of shipments under large contracts; • industry consolidation; and • real or perceived trends or uncertainties in these factors.
A variety of factors affect the timing and amount of capital spending in the communications industry, including: • general economic and market conditions, including increased costs due to rising inflation or interest rates; • customer-specific financial conditions or budget allocation decisions; • competitive pressures, including pricing pressures; • competing technologies; • timing and adoption of the global rollout of new technologies; • customer acceptance of new technologies and services offered; • foreign currency fluctuations; • seasonality of outdoor deployments; • rollout of government funding for certain initiatives; • changes in customer preferences or requirements; • availability and cost of capital; • governmental regulation; • demand for network services; • consumer demand for video content and pay TV services; • variability of shipments under large contracts; • industry consolidation; and • real or perceived trends or uncertainties in these factors.
For a more complete discussion of our risks related to tariffs and trade restrictions, see the risk factor, “Additional tariffs or a global trade war could increase the cost of our products, which could adversely impact the competitiveness of our products” under our “International Risk Factors” in this Item 1A.
For a more complete discussion of our risks related to tariffs and trade restrictions, see the risk factor, “Additional tariffs or a global trade war could increase the cost of our products, which could adversely impact the competitiveness of our products” under our “International Risk Factors” in this Item 1A. Risk Factors section.
As the Federal Reserve has increased interest rates in 2022, we have seen increased interest cost which has adversely impacted our results of operations and cash flows. This may continue into 2023 if the Federal Reserve continues to maintain higher interest rates or chooses to raise interest rates further.
As the Federal Reserve has increased interest rates in 2023, we have seen increased interest cost which has adversely impacted our results of operations and cash flows. This may continue into 2024 if the Federal Reserve continues to maintain higher interest rates or chooses to raise interest rates further.
These cost increases could adversely affect the demand for our products and/or reduce margins, which could have a material adverse effect on our business and our earnings. In addition, a significant percentage of our component parts are manufactured in China and other southeastern Asian countries.
These cost increases could adversely affect the demand for our products and/or reduce margins, which could have a material adverse effect on our business and our earnings. In addition, a significant percentage of our component parts are manufactured in China and other Southeast Asian countries.
As a result, Carlyle owns approximately 16% of our common stock on an if-converted basis and has the right to designate up to two directors on our Board of Directors. In addition, certain of our existing directors are senior advisors to Carlyle. As a result, Carlyle has significant influence on our business.
As a result, Carlyle owns approximately 17% of our common stock on an if-converted basis and has the right to designate up to two directors on our Board of Directors (Board). In addition, certain of our existing directors are senior advisors to Carlyle. As a result, Carlyle has significant influence on our business.
Problems faced by our third-party cloud services with the telecommunications network providers with whom we or they contract or with the systems by which our telecommunications providers allocate capacity among their customers, including us, could adversely affect the experience of our end customers.
Problems faced by our third-party cloud service providers with the telecommunications network providers with whom we or they contract or with the systems by which our telecommunications providers allocate capacity among their customers, including us, could adversely affect the experience of our end customers.
As a result, we expect the shift to more open standards may require us to license software and other components indirectly to third parties via various open-source or royalty-free licenses. In some circumstances, our use of such open-source technology may include technology or protocols developed by standards settings bodies, other industry forums or third-party companies.
As a result, we expect the shift to more open standards may require us to license software and other components indirectly to third parties via various open-source or royalty-free licenses. In some circumstances, our use of such open-source technology may include technology or protocols developed by standard-setting bodies, other industry forums or third-party companies.
Although we believe the risk of a UFLPA enforcement action against the Company to be low at this time, we will continue to monitor the ongoing potential impact as the Customs and Border Protection guidance will continue to evolve.
Although we believe the risk of a UFLPA enforcement action against the Company is low at this time, we will continue to monitor the ongoing potential impact as the Customs and Border Protection guidance will continue to evolve.
While we do not expect the transition to SOFR to have a material adverse effect on our business, the full effects of the transition to SOFR remains uncertain. In addition, the indentures and credit agreements governing our indebtedness contain affirmative and negative covenants that limit our ability to engage in activities that may be in our long-term best interests.
While we do not expect the transition to SOFR to have a material adverse effect on our business, the full effects of the transition to SOFR remain uncertain. 23 In addition, the indentures and credit agreements governing our indebtedness contain affirmative and negative covenants that limit our ability to engage in activities that may be in our long-term best interests.
Any such events could result in theft of personal information, trade secrets and intellectual property; give rise to legal proceedings; cause us to incur increased costs for insurance premiums, security, remediation and regulatory compliance; subject us to civil and criminal penalties; expose us to liabilities to our customers, employees, vendors, governmental authorities or other third parties; allow others to unfairly compete with us; disrupt our delivery of products and services; expose the confidential information of our clients and others; and have a negative impact on our reputation, all of which could have a material adverse effect on our business, financial condition, results of operations, cash flows and stock price.
Any such events could result in theft of personal information, trade secrets and intellectual property; give rise to legal proceedings; cause us to incur increased costs for insurance premiums, security, remediation and regulatory compliance; subject us to civil and criminal penalties; expose us to liabilities to our customers, employees, vendors, governmental authorities or other third parties; allow others to unfairly compete with us; disrupt our delivery of products and services; expose the confidential information of our clients and others; and have a negative impact on our reputation, all of which could have a material adverse effect on our business, financial condition, results of operations, cash flows and stock price. 31 Climate change may have a long-term impact on our business.
A number of governments or governmental bodies have also introduced or are contemplating regulatory changes in response to various climate change interest groups and the potential impact of climate change, such as the proposed reporting regulations issued by the Securities and Exchange Commission in the U.S. and final regulations issued in the U.K.
A number of governments or governmental bodies have also introduced or are contemplating regulatory changes in response to various climate change interest groups and the potential impact of climate change, such as the proposed reporting regulations issued by the Securities and Exchange Commission in the U.S. and final regulations issued in California and the E.U.
Our foreign currency risk exposure is mainly concentrated in Chinese yuan, euro, British pound sterling, Mexican peso, Japanese yen, Canadian dollar, Australian dollar, Brazilian real, South African rand, Indian rupee and Czech koruna. We manage our foreign currency rate risks through regular operating and financing activities and use derivative financial instruments such as foreign exchange forward contracts.
Our foreign currency risk exposure is mainly concentrated in Chinese yuan, European Union (E.U.) euro, British pound sterling, Mexican peso, Japanese yen, Canadian dollar, Australian dollar, Brazilian real, South African rand, Indian rupee and Czech koruna. We manage our foreign currency rate risks through regular operating and financing activities and use derivative financial instruments such as foreign exchange forward contracts.
Our international sales, manufacturing, distribution and R&D operations are subject to the risks inherent in operating abroad, including, but not limited to, coordinating communications among and managing international operations; currency exchange rate fluctuations; economic and political destabilization, including the current risk with China-Taiwan relations, China-U.S. relations and Russia-U.S. relations; restrictive actions by foreign governments; price inflation; volatile interest rates; wage inflation; nationalization of businesses and expropriation of assets; the laws and policies of the U.S. and other countries affecting trade and tariffs, anti-bribery, foreign investment and loans; foreign tax laws, including the ability to recover amounts paid as value-added and similar taxes; potential restrictions on the repatriation of cash; reduced protection of intellectual property; longer customer payment cycles; compliance with local laws and regulations, including the imposition of new data privacy and climate change regulations; volatile geopolitical turmoil, including popular uprisings, regional conflicts, terrorism, and war; shipping interruptions, including shortages of containers or port congestion; major public health or safety concerns, such as pandemics and infectious diseases; natural or man-made disasters; inflexible labor contracts or labor laws in the event of business downturns; and economic boycott for doing business in certain countries.
To the extent international sales increase as a percentage of our net sales, our overall gross profit percentages may decline. 32 Our international sales, manufacturing, distribution and R&D operations are subject to the risks inherent in operating abroad, including, but not limited to, coordinating communications among and managing international operations; currency exchange rate fluctuations; economic and political destabilization, including the current risk with China-Taiwan relations, China-U.S. relations and Russia-U.S. relations; restrictive actions by foreign governments; price inflation; volatile interest rates; wage inflation; nationalization of businesses and expropriation of assets; the laws and policies of the U.S. and other countries affecting trade and tariffs, anti-bribery, foreign investment and loans; foreign tax laws, including the ability to recover amounts paid as value-added and similar taxes; potential restrictions on the repatriation of cash; reduced protection of intellectual property; longer customer payment cycles; compliance with local laws and regulations, including the imposition of new data privacy and climate change regulations; volatile geopolitical turmoil, including popular uprisings, regional conflicts, terrorism, and war; shipping interruptions, including shortages of containers or port congestion; major public health or safety concerns, such as pandemics and infectious diseases; natural or man-made disasters; inflexible labor contracts or labor laws in the event of business downturns; and economic boycott for doing business in certain countries.
The continued industry move toward open standards may result in an increase in competition for our products that may adversely impact our future revenues and margins.
The continued industry shift toward open standards may result in an increase in competition for our products that may adversely impact our future revenues and margins.
Furthermore, even without such regulation, increased awareness and any adverse publicity in the global marketplace about potential impacts on climate change by us or other companies in our industry could harm our reputation. General Risk Factors Any future public health crisis, similar to the COVID-19 pandemic, could materially adversely affect our business, financial condition, results of operations and cash flows.
Furthermore, even without such regulation, increased awareness and any adverse publicity in the global marketplace about potential impacts on climate change by us or other companies in our industry could harm our reputation. General Risk Factors Any future public health crisis could materially adversely affect our business, financial condition, results of operations and cash flows.
There is a risk that the Internal Revenue Service does not agree that ARRIS was a foreign corporation for U.S. federal income tax purposes in periods prior to the acquisition of ARRIS by CommScope and we could be subject to substantial additional U.S. taxes.
There is a risk that the IRS does not agree that ARRIS was a foreign corporation for U.S. federal income tax purposes in periods prior to the acquisition of ARRIS by CommScope and we could be subject to substantial additional U.S. taxes.
We are dependent on a limited number of key suppliers for logistics support and certain of our raw material and component purchases, including certain semiconductors, memory and chip capacitors, polymers, copper rod, copper and aluminum tapes, fine aluminum wire, steel wire, optical fiber, circuit boards and other electronic components, subassemblies and modules.
We also utilize a limited number of key suppliers for logistics support of certain of our raw material and component purchases, including certain semiconductors, memory and chip capacitors, polymers, copper rod, copper and aluminum tapes, fine aluminum wire, steel wire, optical fiber, circuit boards and other electronic components, subassemblies and modules.
Despite the security controls we have in place, our facilities, systems and procedures, and those of our third-party service providers, are at risk of security breaches, acts of vandalism, ransomware, software viruses, misplaced or lost data, programming and/or human errors or other similar events.
Despite the security controls we have put in place since that incident, our facilities, systems and procedures, and those of our third-party service providers, are still at risk of security breaches, acts of vandalism, ransomware, software viruses, misplaced or lost data, programming and/or human errors or other similar events.
Pandemics, such as the COVID-19 pandemic, have had and could have in the future, material and adverse effects on our ability to successfully operate and on our financial condition, results of operations and cash flows due to the following factors, among others: • health concerns that may lead to a complete or partial closure of, or other operational issues at, our manufacturing facilities or those of our contract manufacturers like we experienced related to the COVID-19 pandemic in the first quarter of 2020 with the shutdown of our factories in Suzhou, China; • the reduced economic activity may severely impact our customers’ financial condition and liquidity and may lead to decreased demand for our products and services like we experienced in 2020 related to the COVID-19 pandemic or impact the timing of on-going or planned projects; • difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations or address existing and anticipated liabilities on a timely basis; • a deterioration in our ability to operate in affected areas or delays in the supply of products or services to us from vendors that are needed for our efficient operations could adversely affect our operations like we experienced related to the COVID-19 pandemic in 2021 and 2022; • the potential outbreaks among our personnel, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during a disruption; and • remote working arrangements may increase our vulnerability to cybersecurity incidents, including breaches of information systems security, which could damage our reputation, disrupt operations and expose us to claims from customers, suppliers, employees and others.
Pandemics have had and could have in the future, material and adverse effects on our ability to successfully operate and on our financial condition, results of operations and cash flows due to the following factors, among others: • health concerns that may lead to a complete or partial closure of, or other operational issues at, our manufacturing facilities or those of our contract manufacturers; • the reduced economic activity may severely impact our customers’ financial condition and liquidity and may lead to decreased demand for our products and services or impact the timing of on-going or planned projects; • difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations or address existing and anticipated liabilities on a timely basis; • a deterioration in our ability to operate in affected areas or delays in the supply of products or services to us from vendors that are needed for our efficient operations could adversely affect our operations; • the potential outbreaks among our personnel, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during a disruption; and • remote working arrangements may increase our vulnerability to cybersecurity incidents, including breaches of information systems security, which could damage our reputation, disrupt operations and expose us to claims from customers, suppliers, employees and others.
Furthermore, there are several major trends that we expect to continue to impact the enterprise market and product life cycles, including the shift to 5G, enterprises shifting toward mobility indoors and adjusting in-building cabling designs to support Wi-Fi, more access points and in-building cellular applications.
Furthermore, there are several major trends that we expect to continue to impact the enterprise market and product life cycles, including the shift to 5G, enterprise shifts toward mobility indoors and adjustments of in-building cabling designs to support Wi-Fi, more access points and in-building cellular applications.
In addition, we will continue to incur ongoing costs some of which may exceed our estimates and may be stranded. 24 Whether or not a separation plan is completed, our businesses may face risks and uncertainties, including, but not limited to: the diversion of senior management’s attention from ongoing business concerns; maintaining employee morale and retaining key management and other employees; retaining existing business and operational relationships, including with customers, suppliers and employees, and attracting new business and operational relationships; foreseen and unforeseen costs and expenses; and potential negative reactions from the financial markets if we fail to complete a separation plan as expected, within the anticipated time frame, or at all.
Whether or not a separation plan is completed, our businesses may face risks and uncertainties, including, but not limited to: the diversion of senior management’s attention from ongoing business concerns; maintaining employee morale and retaining key management and other employees; retaining existing business and operational relationships, including with customers, suppliers and employees, and attracting new business and operational relationships; foreseen and unforeseen costs and expenses; and potential negative reactions from the financial markets if we fail to complete a separation plan as expected, within the anticipated time frame, or at all.
We may incur significant additional indebtedness in the future under the agreements governing our indebtedness. Although the indentures and the credit agreements governing our indebtedness contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of thresholds, qualifications and exceptions, and additional indebtedness incurred in compliance with these restrictions could be substantial.
Although the indentures and the credit agreements governing our indebtedness contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of thresholds, qualifications and exceptions, and additional indebtedness incurred in compliance with these restrictions could be substantial.
For example, the California Consumer Privacy Act, which went into effect on January 1, 2020, subjects us to stricter obligations, greater fines and more private causes of action related to data security. The California Privacy Rights Act (CPRA), which is effective in 2023, amends and further expands the California Consumer Privacy Act.
For example, the California Consumer Privacy Act (CCPA), which went into effect on January 1, 2020, subjects us to stricter obligations, greater fines and more private causes of action related to data security. The California Privacy Rights Act (CPRA), which is effective in 2023, amends and further expands the CCPA. Virginia, Connecticut, Utah and Colorado enacted similar laws in 2023.
Following the Pace combination, ARRIS was incorporated under the laws of England and Wales and a tax resident in the United Kingdom (U.K.) for U.K. tax purposes.
Following the ARRIS 2016 combination with Pace plc (the “Pace combination”), ARRIS was incorporated under the laws of England and Wales and a tax resident in the United Kingdom (U.K.) for U.K. tax purposes.
Supply Chain Risks • We are dependent on a limited number of key suppliers for logistics support and certain raw materials and components, and supply shortages or delays could limit our ability to manufacture products. • Our dependence on commodities and certain components subjects us to cost volatility and potential availability constraints. • If our integrated global manufacturing operations, including our contract manufacturers, suffer capacity constraints or production or shipping delays, we may have difficulty meeting customer demand s .
Supply Chain Risks • We are dependent on certain raw materials and components linked to the commodity markets and utilize a limited number of key suppliers for logistics support of certain of these raw materials and components, subjecting us to cost volatility and supply shortages or delays that could limit our ability to manufacture products. • If our integrated global manufacturing operations, including our contract manufacturers, suffer capacity constraints or production or shipping delays, we may have difficulty meeting customer demand s .
Inconsistencies in these laws can introduce complexity into our design, manufacturing and inventory management processes. 35 Compliance with these existing and proposed laws and regulations can be costly and require significant management time and attention, and failure to comply can result in negative publicity and subject us to inquiries or investigations, claims or other remedies, including fines or demands that we modify or cease existing business practices.
Compliance with these existing and proposed laws and regulations can be costly and require significant management time and attention, and failure to comply can result in negative publicity and subject us to inquiries or investigations, claims or other remedies, including fines or demands that we modify or cease existing business practices.
We are required to comply with the anti-corruption laws and regulations of the U.S. government and various other international jurisdictions, and our failure to comply with these laws and regulations may expose us to significant liabilities.
We are required to comply with the anti-corruption laws and regulations of the U.S. government and various other international jurisdictions, such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, and our failure to comply with these laws and regulations may expose us to significant liabilities.
Our ability to ship products on a timely basis has been and may continue to be unfavorably impacted, which could damage relationships with current and prospective customers and potentially have a material adverse effect on our business.
Our ability to ship products on a timely basis has been and may continue to be unfavorably impacted, which could damage relationships with current and prospective customers and potentially have a material adverse effect on our business. We also source many of our components from international markets.
As of December 31, 2022, we had approximately $9.6 billion of indebtedness. As of December 31, 2022, we had no outstanding loans under our asset-based revolving credit facility (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 outstanding letters of credit.
As of December 31, 2023, we had approximately $9.3 billion of indebtedness. As of December 31, 2023, we had no outstanding loans under our Revolving Credit Facility and the remaining availability was $688.0 million, reflecting a borrowing base subject to maximum capacity of $1,000.0 million reduced by $97.9 million of outstanding letters of credit.
If we cannot ramp up capacity fast enough to meet customer demand in the future, we may experience lost sales opportunities, lose market share and experience customer relations problems, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
If we cannot ramp up capacity fast enough to meet customer demand in the future, we may experience lost sales opportunities, lose market share and experience customer relations problems, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. 25 We rely on unaffiliated contract manufacturers, both domestically and internationally, to produce certain products or key components of products.
Circumstances may occur in which the interests of Carlyle could conflict with the interests of our other stockholders. 25 Financial Risks Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our financial obligations.
Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our financial obligations.
In 2020, we began the upgrade and integration of our ERP software to a newer, cloud-based version. The first phase was completed in early 2021 and the next phase is ongoing.
In 2020, we began the upgrade and integration of our ERP software to a newer, cloud-based version. The first phase was completed in early 2021 and we completed the second phase in 2023, with limited disruption.
Where products we manufacture are considered in scope for some of these laws and regulations, compliance obligations or customer contracts may necessitate modification of existing product features and specifications or make inventory obsolete.
Where products we manufacture are considered in scope for some of these laws and regulations, compliance obligations or customer contracts may necessitate modification of existing product features and specifications or make inventory obsolete. Inconsistencies in these laws can introduce complexity into our design, manufacturing and inventory management processes.
We have previously recognized restructuring charges in response to slowdowns in demand for our products, in conjunction with the implementation of initiatives to reduce costs and improve the efficiency of our operations and to integrate acquisitions. For example, the CommScope NEXT actions to date have included the planned closure of a manufacturing facility as well as workforce reductions.
We have previously recognized restructuring charges in conjunction with the implementation of initiatives to reduce costs and improve the efficiency of our operations and to integrate acquisitions. For example, the CommScope NEXT actions to date have included the closure of a manufacturing facility, reduction in our real estate footprint, including the consolidation of distribution facilities, as well as workforce reductions.
Prices for aluminum, copper, steel, silicon, fluoropolymers and certain other polymers 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.
Prices for aluminum, copper, steel, silicon, fluoropolymers and certain other polymers have experienced significant volatility in the past as a result of changes in the levels of global demand, supply disruptions, including port, transportation and distribution delays or interruptions, and other factors.
Similarly, a high-profile network failure may be caused by improper operation of the network or failure of a network component that we did not supply, but service providers may perceive that our products were implicated, which, even if incorrect, could harm our business, financial condition, results of operations and cash flows. 29 We depend on cloud computing infrastructure operated by third parties and any disruption in these operations could adversely affect our business.
Similarly, a high-profile network failure may be caused by improper operation of the network or failure of a network component that we did not supply, but service providers may perceive that our products were implicated, which, even if incorrect, could harm our business, financial condition, results of operations and cash flows.
We cannot easily switch our AWS, GCE or Azure operations to another cloud provider. Any disruption of or interference with our use of these cloud services would impact our operations and our business could be adversely impacted.
We currently operate our cloud-dependent services using Amazon Web Service (AWS), Google Compute Engine (GCE) or Microsoft Azure (Azure). We cannot easily switch our AWS, GCE or Azure operations to another cloud provider. Any disruption of or interference with our use of these cloud services would impact our operations and our business could be adversely impacted.
Also, many jurisdictions have enacted or are enacting laws requiring companies to notify regulators or individuals of data security incidents involving certain types of personal data, including recently proposed rules by the Securities and Exchange Commission in the U.S. that are expected to be adopted in 2023 that would, among other things, require public disclosure of material security incidents.
Many jurisdictions have also enacted or are enacting laws requiring companies to notify regulators or individuals of data security incidents involving certain types of personal data, including the rule issued by the Securities and Exchange Commission in the U.S. in 2023 that requires public disclosure of material security incidents.
We have adjusted our prices for most of our products, but we may have to adjust prices again in the future. Delays in implementing price increases or a failure to achieve market acceptance of price increases has in the past, and could in the future, have a material adverse impact on our results of operations.
Delays in implementing price increases or a failure to achieve market acceptance of price increases has in the past, and could in the future, have a material adverse impact on our results of operations.
An increasing number of investors are also pushing companies to disclose corporate social and environmental policies, practices and metrics. If we are unable to comply with such policies or meet the requirements of our customers and investors, it may impact the demand for our products, negatively impact our stock price or expose us to potential litigation.
If we are unable to comply with such policies or meet the requirements of our customers and investors, it may impact the demand for our products, negatively impact our stock price or expose us to potential litigation.
If our products are late in achieving or fail to achieve compliance with these certifications and standards, or our competitors first achieve compliance with these certifications and standards, such end customers may not purchase our products, which would harm our business, operating results, financial condition and cash flows.
If our products are late in achieving or fail to achieve compliance with these certifications and standards, or our competitors first achieve compliance with these certifications and standards, such end customers may not purchase our products, which would harm our business, operating results, financial condition and cash flows. 29 If our product or service offerings, including material purchased from our suppliers, have quality or performance issues, our business may suffer.
Our strategic alliances are generally based on business relationships that have not been the subject of written agreements expressly providing for the alliance to continue for a significant period of time, and the loss of any such strategic relationship could have a material adverse effect on our business and results of operations. 28 If our products do not effectively interoperate with cellular networks and mobile devices, future sales of our products could be negatively affected.
Our strategic alliances are generally based on business relationships that have not been the subject of written agreements expressly providing for the alliance to continue for a significant period of time, and the loss of any such strategic relationship could have a material adverse effect on our business and results of operations.
For a more complete discussion of our risks related to trade policies, see the risk factor, “Additional tariffs or a global trade war could increase the cost of our products, which could adversely impact the competitiveness of our products” under “International Risks” in this Item 1A, Risk Factors section. 32 Risks related to fluctuations in foreign currency rates has impacted in the past and could continue to impact our sales, financial condition, results of operations and cash flows.
For a more complete discussion of our risks related to trade policies, see the risk factor, “Additional tariffs or a global trade war could increase the cost of our products, which could adversely impact the competitiveness of our products” under “International Risks” in this Item 1A, Risk Factors section.
To meet these requirements, we must continue development and testing efforts that require significant capital and employee resources. We may not accomplish these development efforts quickly or cost-effectively, or at all.
As a result, we must ensure that our products interoperate effectively with these existing and planned networks and devices. To meet these requirements, we must continue development and testing efforts that require significant capital and employee resources. We may not accomplish these development efforts quickly or cost-effectively, or at all.
Some of our manufacturing and contract manufacturing facilities rely on aging production equipment and information technology infrastructure, and if we fail or our contract manufacturers fail to properly maintain or update this equipment, it could affect our ability to manufacture or ship products. 23 Strategic Risks The successful execution of our CommScope NEXT transformation plan is key to the long-term success of our business.
Some of our manufacturing and contract manufacturing facilities rely on aging production equipment and information technology infrastructure, and if we fail or our contract manufacturers fail to properly maintain or update this equipment, it could affect our ability to manufacture or ship products.
The extent to which any future public health crisis, such as COVID-19, impacts our operations and those of our customers and suppliers will depend on the scope, severity, duration and spread of the health crisis, the actions taken to contain it or mitigate its impact, and the direct and indirect economic effects of the crisis and containment measures, among others, all of which are uncertain and cannot be predicted with confidence.
The extent to which any future public health crisis impacts our operations and those of our customers and suppliers will depend on the scope, severity, duration and spread of the health crisis, the actions taken to contain it or mitigate its impact, and the direct and indirect economic effects of the crisis and containment measures, among others, all of which are uncertain and cannot be predicted with confidence. 37 We do not intend to pay dividends on our common stock and, consequently, the ability of investors to achieve a return on their investment will depend on appreciation in the price of our common stock.
We anticipate that a portion of our future growth may be accomplished by acquiring existing businesses, products or technologies. We cannot guarantee that we will be able to identify suitable acquisition opportunities or obtain the necessary financing on acceptable terms to provide these future growth opportunities.
We cannot guarantee that we will be able to identify suitable acquisition opportunities or obtain the necessary financing on acceptable terms to provide these future growth opportunities.
If we are unable to maintain our management information systems, including our IT infrastructure, to support critical business operations, produce information for business decision-making activities and support digital customer experience activities, we could experience a material adverse impact on our business or an inability to timely and accurately report our financial results. 30 Cybersecurity incidents, including data security breaches, ransomware or computer viruses, could harm our business by exposing us to various liabilities, disrupting our delivery of products and services and damaging our reputation.
If we are unable to maintain our management information systems, including our IT infrastructure, to support critical business operations, produce information for business decision-making activities and support digital customer experience activities, we could experience a material adverse impact on our business or an inability to timely and accurately report our financial results.
Legislation and increased regulation regarding climate change could impose significant costs on us and our suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring and reporting, and other costs to comply with such regulations.
Increased regulation regarding climate change could impose significant costs on us and our suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring and reporting, and other costs to comply with such regulations. Any adopted future climate change regulations could also negatively impact our ability to compete with companies situated in areas not subject to such limitations.
Difficulties in implementing the upgrade or significant system failure could disrupt our operations, divert management’s attention and have an adverse effect on our capital resources, financial condition, results of operations or cash flows. We also rely on management information systems to produce information for business decision-making and planning and to support e-commerce activities.
These upgrades and integrations do have risks and any future upgrades or integrations could disrupt our operations, divert management’s attention and have an adverse effect on our capital resources, financial condition, results of operations or cash flows. We also rely on management information systems to produce information for business decision-making and planning and to support digital platforms.
Climate change may have a long-term impact on our business. There are inherent climate change risks wherever business is conducted. The potential physical impacts of climate change on our operations are highly uncertain and would be particular to the geographic areas in which we operate.
There are inherent climate change risks wherever business is conducted. The potential physical impacts of climate change on our operations are highly uncertain and would be particular to the geographic areas in which we operate. These may include changes in rainfall and storm patterns and intensities, water shortages, changing sea levels and changing temperatures.
Certain of our products, including purchased components of such products, are subject to export controls and may be exported only with the required export license or through an export license exemption.
We are subject to governmental export and import controls and sanctions programs that could subject us to liability or impair our ability to compete in international markets. Certain of our products, including purchased components of such products, are subject to export controls and may be exported only with the required export license or through an export license exemption.
All acquisitions involve risks, such as the assumption of additional liabilities and expenses, issuance of debt, incurrence of transaction and integration costs, diversion of management’s attention from other business concerns, assumption of unknown contingent liabilities, unanticipated litigation costs and falling short of growth expectations.
We may spend time and money investigating and negotiating with potential acquisition or investment targets without completing the transaction, which may divert or waste resources. 27 All acquisitions involve risks, such as the assumption of additional liabilities and expenses, issuance of debt, incurrence of transaction and integration costs, diversion of management’s attention from other business concerns, assumption of unknown contingent liabilities, unanticipated litigation costs and falling short of growth expectations.
We may incur significant costs in pursuing the originators of such counterfeit products and, if we are unsuccessful in eliminating them from the market, we may experience a reduction in the value of our products, harm to our reputation and/or a reduction in our net sales. 34 Because of the nature of information that may pass through or be stored on certain of our solutions or networks, we, our vendors and our end customers are subject to complex and evolving U.S. and foreign laws and regulations regarding information privacy, data protection, cybersecurity and other related matters.
Because of the nature of information that may pass through or be stored on certain of our solutions or networks, we, our vendors and our end customers are subject to complex and evolving U.S. and foreign laws and regulations regarding information privacy, data protection, cybersecurity and other related matters.
If our product or service offerings, including material purchased from our suppliers, have quality or performance issues, our business may suffer. Our business depends on delivering products and services of consistently high quality. Many of our solutions are highly complex, and testing procedures used by us and our customers are limited to evaluating them under likely and foreseeable failure scenarios.
Our business depends on delivering products and services of consistently high quality. Many of our solutions are highly complex, and testing procedures used by us and our customers are limited to evaluating them under likely and foreseeable failure scenarios. Many of our products include both hardware and software components.
The payment of future dividends will be at the discretion of our Board of Directors; however, the indentures and the credit agreements governing our indebtedness place limitations on our ability to pay dividends. We currently intend to invest our future earnings, if any, to reduce our debt and fund our growth.
We do not intend to declare and pay dividends on our common stock for the foreseeable future. The payment of future dividends will be at the discretion of our Board; however, the indentures and the credit agreements governing our indebtedness place limitations on our ability to pay dividends.

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Item 2. Properties

Properties — owned and leased real estate

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ITEM 2. PROPERTIES Our facilities are used primarily for manufacturing, distribution and administration. Facilities primarily used for manufacturing may also be used for distribution, engineering, research and development, storage, administration, sales and customer service. Facilities primarily used for administration may also be used for research and development, sales and customer service.
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ITEM 2. PROPERTIES Our fixed assets include factories and warehouses and a substantial quantity of machinery and equipment. Our factories, warehouses and machinery and equipment are generally in good operating condition, are reasonably maintained and substantially all of our facilities are in regular use.
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As of December 31, 2022, our principal facilities, grouped according to the facility’s primary use, were as follows: Location Approximate square feet Principal segments Owned or leased Administrative facilities: Hickory, NC (1) 84,000 Corporate headquarters Owned Horsham, PA 325,000 Corporate Owned Suwanee, GA 103,000 Corporate Leased Richardson, TX (1) 100,000 Corporate Owned Shakopee, MN 177,000 CCS Leased Bangalore, India 151,000 Home & CCS Leased Lowell, MA 144,000 CCS, ANS & NICS Leased Santa Clara, CA 132,000 ANS Leased Manufacturing and distribution facilities: Catawba, NC (1) 1,000,000 CCS Owned Claremont, NC (1) 589,000 CCS Owned Kessel-Lo, Belgium (2) 431,000 CCS Owned Suzhou, China (3) 400,000 OWN & NICS Owned Suzhou, China (3) 363,000 CCS Owned Goa, India (3) 353,000 OWN & NICS Owned Santa Teresa, NM 333,800 Global Logistics Leased Juarez, Mexico 327,000 NICS Owned Brno, Czech Republic 281,000 CCS Leased Reynosa, Mexico 279,000 CCS Owned Suzhou, China 225,000 CCS, NICS & OWN Leased Veenendaal, Netherlands 215,000 OWN & NICS Leased Juarez, Mexico 189,000 CCS Leased Cary, NC 151,000 Global Logistics Owned Mission, TX 150,000 Global Logistics Leased Delicias, Mexico 139,000 CCS Owned Bray, Ireland 130,000 NICS Owned Tijuana, Mexico 128,000 ANS Leased Buchdorf, Germany 109,000 NICS Owned Vacant facilities and properties: Sorocaba, Brazil (4) 157,000 OWN Owned Richardson, TX (5) 100,000 OWN Leased Orland Park, IL (6) — Corporate Owned (1) Our interest in each of these properties is encumbered by a mortgage or deed of trust lien securing our senior secured credit facilities (see Note 7 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K).
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We consider the present level of fixed assets along with planned capital expenditures to be suitable and adequate for operations in the current business environment. At December 31, 2023, we operated approximately 23 manufacturing facilities with approximately 4.8 million square feet, of which approximately 1.3 million square feet were leased.
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(2) The Kessel-Lo, Belgium facility is currently being marketed for sale. (3) The buildings in these facilities are owned while the land is held under long-term lease agreements. (4) The Sorocaba, Brazil facility is not currently being marketed for sale. (5) The Richardson, TX facility is vacant and is currently being marketed for sublease.
Added
Manufacturing facilities located in the U.S. had approximately 1.7 million square feet, of which approximately 0.1 million square feet were leased. Manufacturing facilities located outside the U.S. had approximately 3.1 million square feet, of which approximately 1.2 million square feet were leased.
Removed
(6) The building at the Orland Park, IL facility was demolished and cleared. The 73-acre parcel is vacant and currently being negotiated for sale. We believe that our facilities and equipment generally are well maintained, in good condition and suitable for our purposes and adequate for our present operations.
Added
The square footage by segment related to our manufacturing facilities was approximately 3.7 million square feet, 0.8 million square feet, 0.2 million square feet and 0.1 million square feet for the CCS segment, OWN segment, NICS segment and ANS segment, respectively.
Removed
While we currently have excess manufacturing capacity in certain of our facilities, utilization is subject to change based on customer demand. We can give no assurances that we will not have excess manufacturing capacity or encounter capacity constraints over the long term. 41
Added
We believe that our facilities are suitable and adequate for our business and are being appropriately utilized for their intended purposes. Utilization of our facilities varies based on demand for the related products.
Added
We regularly review our anticipated requirements for facilities and, based on that review, may from time to time acquire or lease additional facilities and/or dispose of existing facilities.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThese claims and assertions, whether against the Company directly or against its customers, could require the Company to pay damages, royalties, stop offering the relevant products and/or cease other activities. The Company may also be called upon to indemnify certain customers for costs related to products sold to such customers.
Biggest changeThese claims and assertions, whether against the Company directly or against its customers, could require the Company to pay damages or royalties, stop offering the relevant products and/or cease other activities. The Company may also be called upon to indemnify certain customers for costs related to products sold to such customers.
Compliance with current laws and regulations has not had, and is not expected to have, a materially adverse effect on the Company’s financial condition or results of operations. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 42 PART II
Compliance with current laws and regulations has not had, and is not expected to have, a materially adverse effect on the Company’s financial condition or results of operations. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 40 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information and Holders Our common stock is traded on the Nasdaq Global Select Market under the symbol COMM.
Biggest changeMARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information and Holders Our common stock is traded on the Nasdaq Global Select Market under the symbol “COMM.” As of February 14, 2024, all of our outstanding shares of common stock are held by one stockholder of record, Cede & Co., as nominee for the Depository Trust Company.
Issuer Purchases of Equity Securities The following table summarizes the stock purchase activity for the three months ended December 31, 2022: Period Total Number of Shares Purchased (1) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Value of Shares that May Yet be Purchased Under the Plans or Programs October 1, 2022 - October 31, 2022 67,086 $ 9.21 — $ — November 1, 2022 - November 30, 2022 1,967 $ 13.07 — $ — December 1, 2022 - December 31, 2022 12,080 $ 8.76 — $ — Total 81,133 $ 9.24 — (1) The shares purchased were withheld to satisfy the withholding tax obligations related to restricted stock units and performance share units that vested during the period. 43 Stock Performance Graph The following graph compares cumulative total return on $100 invested on December 31, 2017 in each of CommScope’s Common Stock, the Standard & Poor’s 500 Stock Index (S&P 500 Index) and the Standard & Poor’s 1500 Communications Equipment Index (S&P 1500 Communications Equipment).
Issuer Purchases of Equity Securities The following table summarizes the stock purchase activity for the three months ended December 31, 2023: Period Total Number of Shares Purchased (1) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Value of Shares that May Yet be Purchased Under the Plans or Programs October 1, 2023 - October 31, 2023 67,935 $ 3.35 — $ — November 1, 2023 - November 30, 2023 7,471 $ 1.73 — $ — December 1, 2023 - December 31, 2023 2,881 $ 1.89 — $ — Total 78,287 $ 3.14 — The shares purchased were withheld to satisfy the withholding tax obligations related to restricted stock units and performance share units that vested during the period. 41 Stock Performance Graph The following graph compares cumulative total return on $100 invested on December 31, 2018 in each of CommScope’s Common Stock, the Standard & Poor’s 500 Stock Index (S&P 500 Index) and the Standard & Poor’s 1500 Communications Equipment Index (S&P 1500 Communications Equipment).
Base INDEXED RETURNS Period Period Ending Company / Index 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 CommScope Holding Company, Inc. 100 43.33 37.51 35.42 29.18 19.43 S&P 500 Index 100 95.62 125.72 148.85 191.58 156.88 S&P 1500 Communications Equipment Index 100 112.57 128.50 129.80 193.14 153.61 ITEM 6. RESERVED 44
Base INDEXED RETURNS Period Period Ending Company / Index 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 CommScope Holding Company, Inc. 100 86.58 81.76 67.36 44.84 17.21 S&P 500 Index 100 128.88 149.83 190.13 153.16 190.27 S&P 1500 Communications Equipment Index 100 111.62 109.80 159.85 124.37 142.07 ITEM 6. RESERVED 42
Removed
As of February 10, 2023, all of our outstanding shares of common stock are held by one stockholder of record, Cede & Co., as nominee for the Depository Trust Company.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeConnectivity and Cable Solutions Segment Year Ended December 31, 2022 2021 2020 (in millions) Operating income $ 438.2 $ 138.5 $ 169.3 Adjustments: Amortization of purchased intangible assets 99.5 156.7 161.6 Restructuring costs, net 17.1 62.0 25.9 Equity-based compensation 14.9 19.5 28.6 Transaction, transformation and integration costs 10.6 18.5 7.9 Patent claims and litigation settlements 1.7 — (1.3 ) Executive severance — — 1.7 Reserve of Russian accounts receivable 2.7 — — Depreciation 58.8 53.6 53.9 Adjusted EBITDA $ 643.6 $ 448.9 $ 447.5 Outdoor Wireless Networks Segment Year Ended December 31, 2022 2021 2020 (in millions) Operating income $ 189.0 $ 197.3 $ 179.3 Adjustments: Amortization of purchased intangible assets 32.4 33.5 45.8 Restructuring costs, net 22.4 3.6 15.7 Equity-based compensation 7.1 8.4 13.8 Transaction, transformation and integration costs 4.5 8.5 4.2 Executive severance — — 1.2 Depreciation 14.3 15.4 17.2 Adjusted EBITDA $ 269.7 $ 266.8 $ 277.3 Networking, Intelligent Cellular and Security Solutions Segment Year Ended December 31, 2022 2021 2020 (in millions) Operating loss $ (51.2 ) $ (143.5 ) $ (136.7 ) Adjustments: Amortization of purchased intangible assets 59.7 72.0 72.2 Restructuring costs, net 9.9 8.5 8.0 Equity-based compensation 13.5 17.4 22.6 Transaction, transformation and integration costs 3.0 6.2 2.5 Acquisition accounting adjustments 2.0 4.6 7.3 Patent claims and litigation settlements — 0.3 15.0 Executive severance — — 0.8 Depreciation 15.0 19.2 21.0 Adjusted EBITDA $ 51.9 $ (15.3 ) $ 12.8 61 Access Network Solutions Segment Year Ended December 31, 2022 2021 2020 (in millions) Operating income (loss) $ (1,149.6 ) $ 71.2 $ 11.6 Adjustments: Amortization of purchased intangible assets 247.2 247.0 247.0 Restructuring costs, net 12.2 9.2 8.8 Equity-based compensation 15.8 20.9 27.8 Asset impairments 1,119.6 — — Transaction, transformation and integration costs 14.0 9.4 4.1 Acquisition accounting adjustments 3.3 4.8 11.4 Patent claims and litigation settlements — 2.9 3.0 Executive severance — — 1.5 Depreciation 22.5 25.8 31.1 Adjusted EBITDA $ 285.2 $ 391.1 $ 346.3 Home Networks Segment Year Ended December 31, 2022 2021 2020 (in millions) Operating loss $ (140.2 ) $ (214.9 ) $ (275.4 ) Adjustments: Amortization of purchased intangible assets 104.1 103.9 103.9 Restructuring costs, net 1.3 8.6 30.0 Equity-based compensation 9.9 13.4 22.1 Asset impairments — 13.7 206.7 Transaction, transformation and integration costs 6.2 47.8 6.2 Acquisition accounting adjustments 1.7 1.9 1.9 Patent claims and litigation settlements 26.9 28.5 (0.3 ) Executive severance — — 1.2 Depreciation 16.6 22.7 35.1 Adjusted EBITDA $ 26.3 $ 25.5 $ 131.3 Note: Components may not sum to total due to rounding Recent Accounting Pronouncements See Note 2 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a discussion of recent accounting pronouncements.
Biggest changeConnectivity and Cable Solutions Segment Year Ended December 31, 2023 2022 2021 (in millions) Operating income $ 121.9 $ 438.3 $ 138.4 Adjustments: Amortization of purchased intangible assets 75.5 99.5 156.7 Restructuring costs, net 14.0 17.1 62.0 Equity-based compensation 15.6 14.9 19.5 Asset impairments 99.1 — — Transaction, transformation and integration costs 1.7 10.6 18.5 Patent claims and litigation settlements — 1.7 — Reserve (recovery) of Russian accounts receivable (2.0 ) 2.7 — Cyber incident costs 2.6 — — Depreciation 61.3 58.8 53.6 Adjusted EBITDA $ 389.6 $ 643.6 $ 448.8 Outdoor Wireless Networks Segment Year Ended December 31, 2023 2022 2021 (in millions) Operating income $ 130.5 $ 189.0 $ 197.3 Adjustments: Amortization of purchased intangible assets 20.4 32.4 33.5 Restructuring costs, net 6.6 22.4 3.6 Equity-based compensation 6.3 7.1 8.4 Transaction, transformation and integration costs 0.6 4.5 8.5 Cyber incident costs 1.1 — — Depreciation 12.6 14.3 15.4 Adjusted EBITDA $ 178.1 $ 269.7 $ 266.8 57 Networking, Intelligent Cellular and Security Solutions Segment Year Ended December 31, 2023 2022 2021 (in millions) Operating income (loss) $ 127.0 $ (51.2 ) $ (143.5 ) Adjustments: Amortization of purchased intangible assets 56.8 59.7 72.0 Restructuring costs, net 12.4 9.9 8.5 Equity-based compensation 10.6 13.5 17.4 Transaction, transformation and integration costs 7.0 3.0 6.2 Acquisition accounting adjustments 1.2 2.0 4.6 Patent claims and litigation settlements (3.5 ) — 0.3 Cyber incident costs 0.7 — — Depreciation 13.0 15.0 19.2 Adjusted EBITDA $ 225.2 $ 51.9 $ (15.3 ) Access Network Solutions Segment Year Ended December 31, 2023 2022 2021 (in millions) Operating income (loss) $ (462.5 ) $ (1,149.6 ) $ 71.2 Adjustments: Amortization of purchased intangible assets 173.9 247.2 247.0 Restructuring costs (credits), net (6.0 ) 12.2 9.2 Equity-based compensation 11.0 15.8 20.9 Asset impairments 472.3 1,119.6 — Transaction, transformation and integration costs 17.3 14.0 9.4 Acquisition accounting adjustments 0.2 3.3 4.8 Patent claims and litigation settlements — — 2.9 Cyber incident costs 1.0 — — Depreciation 22.1 22.5 25.8 Adjusted EBITDA $ 229.3 $ 285.2 $ 391.1 Note: Components may not sum to total due to rounding.
(2) Total capitalization includes long-term debt, including the current portion, Series A convertible preferred stock (Convertible Preferred Stock) and stockholders’ equity (deficit). Our principal sources of liquidity on a short-term basis are cash and cash equivalents, cash flows provided by operations and availability under our credit facilities.
(2) Total capitalization includes long-term debt, including the current portion, Series A convertible preferred stock (Convertible Preferred Stock) and stockholders’ deficit. Our principal sources of liquidity on a short-term basis are cash and cash equivalents, cash flows provided by operations and availability under our credit facilities.
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.
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.
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 long-term debt obligations, see Note 8 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.
There is the potential for a material adverse effect on our results of operation and cash flows if one or more matters are resolved in a particular period in an amount materially in excess of what we anticipated.
There is the potential for a material adverse effect on our results of operations and cash flows if one or more matters are resolved in a particular period in an amount materially in excess of what we anticipated.
If the implied control premium is not reasonable, we will reevaluate the fair value estimates of the reporting units by adjusting the discount rates and/or other assumptions. 2022 Interim and Annual Goodwill Analysis 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.
If the implied control premium is not reasonable, we will reevaluate the fair value estimates of the reporting units by adjusting the discount rates and/or other assumptions. 2023 Interim and Annual Goodwill Analysis Interim Test 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.
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.
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, 2023.
Changes in projected revenue growth rates, projected operating income margins or estimated discount rates due to uncertain market conditions, loss of one or more key customers, changes in our strategy, changes in technology or other factors could negatively affect the fair value in one or more of our reporting units and result in a material impairment charge in the future.
Changes in projected revenue growth rates, projected EBITDA margins or estimated discount rates due to uncertain market conditions, loss of one or more key customers, changes in our strategy, changes in technology or other factors could negatively affect the fair value in one or more of our reporting units and result in a material impairment charge in the future.
Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" included in Part I, Item 1A or in other parts of this Annual Report on Form 10-K.
Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” included in Part I, Item 1A or in other parts of this Annual Report on Form 10-K.
For the 2022 annual goodwill test, we determined the fair value of each reporting unit 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 market approach.
For the 2023 annual goodwill test, we determined the fair value of each reporting unit 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 market approach.
There were no material amounts recorded in our consolidated financial statements related to third-party guarantee agreements as of December 31, 2022 or 2021. 57 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.
There were no material amounts recorded in our consolidated financial statements related to third-party guarantee agreements as of December 31, 2023 or 2022. 52 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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations is for the year ended December 31, 2022 compared with the year ended December 31, 2021.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations is for the year ended December 31, 2023 compared with the year ended December 31, 2022.
When determining these assumptions and preparing these estimates, we consider historical performance trends, industry data, insight derived from customers, relevant changes in the reporting unit’s underlying business and other market trends that may affect the reporting unit.
When determining these assumptions and preparing these estimates, we consider historical performance trends, terminal growth rates, industry data, insight derived from customers, relevant changes in the reporting unit’s underlying business and other market trends that may affect the reporting unit.
For a discussion and analysis of our financial condition and results of operations for the year ended December 31, 2021 compared to December 31, 2020, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the 2021 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 17, 2022.
For a discussion and analysis of our financial condition and results of operations for the year ended December 31, 2022 compared to December 31, 2021, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the 2022 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 23, 2023.
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 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.
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. CommScope NEXT Since 2021, we have been engaged in a transformation initiative referred to as CommScope NEXT, which is designed to drive shareholder value through three pillars: profitable growth, operational efficiency and portfolio optimization.
The significant assumptions in the DCF model primarily include, but are not limited to, forecasts of annual revenue growth rates, annual operating income margin, the terminal growth rate and the discount rate used to determine the present value of the cash flow projections.
The significant assumptions in the DCF model primarily include, but are not limited to, forecasts of annual revenue growth rates, annual EBITDA margin and the discount rate used to determine the present value of the cash flow projections.
We believe these financial measures are commonly used by investors to evaluate our performance and that of our competitors. However, our use of the term non-GAAP adjusted EBITDA may vary from that of others in our industry.
We believe these financial measures are commonly used by investors to evaluate our performance and that of our competitors. However, our use of the term “non-GAAP adjusted EBITDA” may vary from that of others in our industry.
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.
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.
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.
For the year ended December 31, 2023, our non-GAAP pro forma adjusted EBITDA, as measured pursuant to the indentures governing our notes, was $1,101.2 million, which included annualized savings expected from cost reduction initiatives of $102.2 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 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.
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.
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.
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.
Income tax benefit 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 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.
Other expense, net Year Ended December 31, $ % 2022 2021 Change Change (dollars in millions) Foreign currency loss $ (4.1 ) $ (4.4 ) $ 0.3 (6.8 )% Other income (expense), net 4.0 (19.4 ) 23.4 NM 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.
Other income (expense), net Year Ended December 31, % 2023 2022 Change Change (dollars in millions) Foreign currency loss $ (13.9 ) $ (4.6 ) $ (9.3 ) 202.2 % Other income, net 73.6 4.1 69.5 NM 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.
See the Segment Results section below for illustration of 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.
See the Segment Results section below for illustration of the aggregation of Core segment adjusted EBITDA. (2) See “Reconciliation of Non-GAAP Measures” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, below.
We have $124.0 million in unrecognized tax benefits; however, the timing of the related tax payments is highly uncertain. We anticipate a reduction of up to $7.0 million of unrecognized tax benefits during the next twelve months. See Note 12 in the Notes to Consolidated Financial Statements included elsewhere in the Annual Report on Form 10-K for further discussion.
We anticipate a reduction of up to $8.0 million of unrecognized tax benefits during the next twelve months. See Note 13 in the Notes to Consolidated Financial Statements included elsewhere in the Annual Report on Form 10-K for further discussion.
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.
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.
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).
Our interest payments on long-term debt are expected to total $1,831.1 million over the duration of the debt, with $643.0 million due in 2024 (assuming interest rates in effect as of December 31, 2023 on our variable rate debt).
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.
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.
Key Assumptions Goodwill Excess (Deficit) of Fair Value to Carrying Value Reporting Unit Discount Rate Terminal Growth Rate Balance at December 31, 2022 % of Total Assets Result of Annual Goodwill Test as of October 1, 2022 Decrease of 10% in Cash Flows Decrease of 0.5% in Long-term Growth Rate Increase of 0.5% in Discount Rate ANS 10.0 % 1.0 % $ 734.0 6.3 % $ (1,119.6 ) $ (1,265.5 ) $ (1,165.8 ) $ (1,196.6 ) BDCC 11.5 % 1.5 % 975.9 8.4 % 290.4 161.5 258.5 231.3 Definite-Lived Intangible Assets and Other Long-Lived Assets Management reviews definite-lived intangible assets and other long-lived assets for impairment when events or changes in circumstances indicate that their carrying values may not be fully recoverable.
Key Assumptions Goodwill Deficit of Fair Value to Carrying Value Reporting Unit Discount Rate Terminal Growth Rate Balance at December 31, 2023 % of Total Assets Result of Annual Goodwill Test as of October 1, 2023 Decrease of 10% in Cash Flows Decrease of 0.5% in Long-term Growth Rate Increase of 0.5% in Discount Rate ANS 15.0 % 1.0 % $ 261.4 2.8 % $ (46.3 ) $ (154.6 ) $ (62.5 ) $ (86.7 ) BDCC 12.0 % 1.5 % 881.5 9.4 % (99.1 ) (208.9 ) (126.0 ) (154.6 ) Definite-Lived Intangible Assets and Other Long-Lived Assets Management reviews definite-lived intangible assets and other long-lived assets for impairment when events or changes in circumstances indicate that their carrying values may not be fully recoverable.
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 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 preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and their underlying assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other objective sources.
These estimates and their underlying assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other objective sources.
Considerable judgment is required to evaluate the technical merits of various positions and to evaluate the likely amount of benefit to be realized. Lapses in statutes of limitations, developments in tax laws, regulations and interpretations, and changes in assessments of the likely outcome of uncertain tax positions could have a material impact on the overall tax provision.
Lapses in statutes of limitations, developments in tax laws, regulations and interpretations, and changes in assessments of the likely outcome of uncertain tax positions could have a material impact on the overall tax provision.
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. 47 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.
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.
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.
From a regional perspective in 2023, 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.
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.
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. 51 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.
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. 51 Gross profit, SG&A expense and R&D expense Year Ended December 31, $ % 2022 2021 Change Change (dollars in millions) Gross profit $ 2,804.1 $ 2,684.3 $ 119.8 4.5 % As a percent of sales 30.4 % 31.3 % SG&A expense 1,135.0 1,233.9 (98.9 ) (8.0 ) As a percent of sales 12.3 % 14.4 % R&D expense 657.4 683.2 (25.8 ) (3.8 ) As a percent of sales 7.1 % 8.0 % Gross profit (net sales less cost of sales) 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.
For additional information on regional sales by segment, see discussion of Segment Results below and Note 17 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. 45 Gross profit, SG&A expense and R&D expense Year Ended December 31, % 2023 2022 Change Change (dollars in millions) Gross profit $ 2,148.3 $ 2,594.0 $ (445.7 ) (17.2 )% As a percent of sales 37.1 % 34.5 % SG&A expense 873.3 1,040.9 (167.6 ) (16.1 ) As a percent of sales 15.1 % 13.8 % R&D expense 459.7 543.6 (83.9 ) (15.4 ) As a percent of sales 7.9 % 7.2 % 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.
From a regional perspective in 2022, net sales increased in the U.S. 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.
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.
Amortization of purchased intangible assets, Restructuring costs, net and Asset impairments Year Ended December 31, $ % 2022 2021 Change Change (dollars in millions) Amortization of purchased intangible assets $ 543.0 $ 613.0 $ (70.0 ) (11.4 )% Restructuring costs, net 62.9 91.9 (29.0 ) (31.6 ) Asset impairments 1,119.6 13.7 1,105.9 8,072.3 Amortization of purchased intangible assets The amortization of purchased intangible assets was lower in 2022 compared to the prior year because certain of our intangible assets became fully amortized.
Amortization of purchased intangible assets, Restructuring costs, net and Asset impairments Year Ended December 31, % 2023 2022 Change Change (dollars in millions) Amortization of purchased intangible assets $ 327.1 $ 440.0 $ (112.9 ) (25.7 )% Restructuring costs, net 29.7 63.0 (33.3 ) (52.9 ) Asset impairments 571.4 1,119.6 (548.2 ) (49.0 ) Amortization of purchased intangible assets The amortization of purchased intangible assets was lower in 2023 compared to the prior year because certain of our intangible assets became fully amortized.
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.
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 7.22% at December 31, 2023 and 6.91% at December 31, 2022. Our interest expense will continue to increase if the Federal Reserve raises interest rates.
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 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. Reconciliation of Non-GAAP Measures We believe that presenting certain non-GAAP financial measures enhances an investor’s understanding of our financial performance.
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).
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).
Also as a step in our CommScope NEXT transformation plan, in 2021, we announced a plan to separate the Home Networks business.
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.
(2) See “Reconciliation of Non-GAAP Measures” within this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
See “Reconciliation of Segment Adjusted EBITDA” within this Management’s Discussion and Analysis of Financial Condition and Results of Operations, below.
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.
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.
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.
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. Foreign exchange rate changes did not have a material impact on NICS segment net sales during 2023.
The annual test of goodwill impairment was performed for each of the reporting units with goodwill balances as of October 1, 2022.
There was no impairment identified in our BDCC reporting unit in the Q3 2023 interim goodwill impairment test. Annual Test The annual test of goodwill impairment was performed for each of the reporting units with goodwill balances as of October 1, 2023.
We also paid four quarterly scheduled amortization payments totaling $32.0 million on our 2026 Term Loan during 2022.
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.
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. The Company has service arrangements where net sales are recognized over time.
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. Revenue is measured based on the consideration to which we expect to be entitled based on customer contracts.
Investing Activities Year Ended December 31, 2022 2021 (in millions) Additions to property, plant and equipment $ (101.3 ) $ (131.4 ) Proceeds from sale of property, plant and equipment 0.1 13.1 Payments upon settlement of net investment hedge — (18.0 ) Other 19.1 (0.5 ) Net cash used in investing activities $ (82.1 ) $ (136.8 ) 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.
Investing Activities Year Ended December 31, 2023 2022 (in millions) Additions to property, plant and equipment $ (53.3 ) $ (101.3 ) Proceeds from sale of property, plant and equipment 71.2 0.1 Other 20.4 19.1 Net cash generated by (used in) investing activities $ 38.3 $ (82.1 ) 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.
Contingencies and Litigation We are a party to lawsuits, claims and proceedings incident to the operation of our business, including intellectual property infringement matters, those pertaining to labor and employment contracts and other matters, some of which allege substantial monetary damages. We assess these matters in order to determine if a contingent liability should be recorded.
Variable consideration is primarily related to sales to our distributors, system integrators and value-added resellers. Contingencies and Litigation We are a party to lawsuits, claims and proceedings incident to the operation of our business, including intellectual property infringement matters, those pertaining to labor and employment contracts and other matters, some of which allege substantial monetary damages.
Additional restructuring actions related to CommScope NEXT are expected to be identified and the resulting charges and cash requirements could be material. 52 Asset impairments 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.
Additional restructuring actions related to CommScope NEXT are expected to be identified and the resulting charges and cash requirements could be material. 46 Asset impairments 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.
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.
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. 60 Product sales, to end-customers or distributors, represent over 90% of our revenue and are generally recognized at the point in time when products have been shipped, right to payment has been obtained and risk of loss has been transferred.
Liquidity and Capital Resources The following table summarizes certain key measures of our liquidity and capital resources: December 31, $ % 2022 2021 Change Change (dollars in millions) Cash and cash equivalents $ 398.1 $ 360.3 $ 37.8 10.5 % Working capital (1) , excluding cash and cash equivalents and current portion of long-term debt 1,252.6 1,068.9 183.7 17.2 Availability under Revolving Credit Facility 908.8 684.1 224.7 32.8 Long-term debt, including current portion 9,501.6 9,510.5 (8.9 ) (0.1 ) Total capitalization (2) 9,055.9 10,410.0 (1,354.1 ) (13.0 ) Long-term debt as a percentage of total capitalization 104.9 % 91.4 % (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.
Liquidity and Capital Resources The following table summarizes certain key measures of our liquidity and capital resources: December 31, $ % 2023 2022 Change Change (dollars in millions) Cash and cash equivalents $ 543.8 $ 373.0 $ 170.8 45.8 % Working capital, net of assets and liabilities held for sale (1) and excluding cash and cash equivalents and current portion of long-term debt 970.1 1,178.4 (208.3 ) (17.7 ) Availability under Revolving Credit Facility 688.0 908.8 (220.8 ) (24.3 ) Long-term debt, including current portion 9,278.6 9,501.6 (223.0 ) (2.3 ) Total capitalization (2) 7,471.9 9,055.9 (1,584.0 ) (17.5 ) Long-term debt as a percentage of total capitalization 124.2 % 104.9 % (1) Working capital is net of assets and liabilities held for sale and consists of current assets of $2,584.1 million less current liabilities of $1,102.2 million as of December 31, 2023 and current assets of $3,104.3 million less current liabilities of $1,584.9 million as of December 31, 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 2022 compared to the prior year.
Also see “Reconciliation of Segment Adjusted EBITDA” within this Management’s Discussion and Analysis of Financial Condition and Results of Operations, below.
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.
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. 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.
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.
From a regional perspective in 2023, 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.
Cash Flow Overview Year Ended December 31, $ % 2022 2021 Change Change (dollars in millions) Net cash generated by operating activities $ 190.0 $ 122.3 $ 67.7 55.4 % Net cash used in investing activities (82.1 ) (136.8 ) 54.7 (40.0 ) Net cash used in financing activities (65.0 ) (139.5 ) 74.5 (53.4 ) Operating Activities Year Ended December 31, 2022 2021 (in millions) Net loss $ (1,286.9 ) $ (462.6 ) Adjustments to reconcile net loss to net cash generated by operating activities: Depreciation and amortization 696.1 786.3 Equity-based compensation 61.1 79.6 Deferred income taxes (118.4 ) (147.5 ) Asset impairments 1,119.6 13.7 Changes in assets and liabilities: Accounts receivable (16.0 ) (59.6 ) Inventories (178.8 ) (359.8 ) Prepaid expenses and other current assets 30.9 3.2 Accounts payable and other accrued liabilities (43.2 ) 256.0 Other noncurrent assets 8.2 (45.5 ) Other noncurrent liabilities (88.8 ) 8.4 Other 6.2 50.1 Net cash generated by operating activities $ 190.0 $ 122.3 58 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.
Year Ended December 31, $ % 2023 2022 Change Change (dollars in millions) Net cash generated by operating activities $ 289.9 $ 190.0 $ 99.9 52.6 % Net cash generated by (used in) investing activities 38.3 (82.1 ) 120.4 NM Net cash used in financing activities (181.7 ) (65.0 ) (116.7 ) 179.5 NM – Not meaningful 53 Operating Activities Year Ended December 31, 2023 2022 (in millions) Net loss $ (1,450.9 ) $ (1,286.9 ) Adjustments to reconcile net loss to net cash generated by operating activities: Depreciation and amortization 561.2 696.1 Equity-based compensation 47.3 61.1 Deferred income taxes (183.3 ) (118.4 ) Asset impairments 1,217.6 1,119.6 Changes in assets and liabilities: Accounts receivable 461.7 (16.0 ) Inventories 391.3 (178.8 ) Prepaid expenses and other current assets 45.1 30.9 Accounts payable and other accrued liabilities (723.6 ) (43.2 ) Other noncurrent assets (27.4 ) 8.2 Other noncurrent liabilities 55.0 (88.8 ) Other (104.1 ) 6.2 Net cash generated by operating activities $ 289.9 $ 190.0 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.
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. The amount of benefit recognized is the largest amount of tax benefit that is evaluated to be greater than 50% likely to be realized.
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. 61 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.
Asset Impairment Reviews Impairment Reviews of Goodwill We test goodwill at the reporting unit level for impairment annually as of October 1 and on an interim basis when events occur or circumstances exist that indicate the carrying value may no longer be recoverable. We compare the fair value of our reporting units with the carrying amount, including goodwill.
See Note 2 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a description of all our significant accounting policies. 58 Asset Impairment Reviews Impairment Reviews of Goodwill We test goodwill at the reporting unit level for impairment annually as of October 1 and on an interim basis when events occur or circumstances exist that indicate the carrying value may no longer be recoverable.
Under the DCF method, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows.
We estimate the fair value of a reporting unit using a discounted cash flow (DCF) method or, as appropriate, a combination of the DCF method and a market approach known as the guideline public company method. Under the DCF method, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows.
In making this determination, management may, depending on the nature of the matter, consult with internal and external legal counsel and technical experts. We expense legal fees associated with consultations and defense of lawsuits as incurred. We accrue for loss contingencies when losses become probable and are reasonably estimable.
We assess these matters in order to determine if a contingent liability should be recorded. In making this determination, management may, depending on the nature of the matter, consult with internal and external legal counsel and technical experts. We expense legal fees associated with consultations and defense of lawsuits as incurred.
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 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.
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.
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. Revenue Recognition We recognize revenue based on the satisfaction of distinct obligations to transfer goods and services to customers.
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.
This had an impact of approximately $44 million on working capital, excluding cash and cash equivalents and the current portion of long-term debt, as of December 31, 2023. 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.
While we have generally not experienced significant deviations from our critical estimates in the past, it is reasonably possible that these estimates may ultimately differ materially from actual results. See Note 2 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a description of all our significant accounting policies.
While we have generally not experienced significant deviations from our critical estimates in the past, it is reasonably possible that these estimates may ultimately differ materially from actual results.
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.
For information on our obligations related to our Convertible Preferred Stock, see Note 14 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. In July 2023, we entered into a long-term supply contract with a third-party to secure the supply of certain raw materials.
If actual market conditions deteriorate from those anticipated by management, additional allowances for excess and obsolete inventory could be required and may be material to our results of operations. 49 Product Warranty Reserves We recognize a liability for the estimated claims that may be paid under our customer assurance-type warranty agreements to remedy potential deficiencies of quality or performance of our products.
If actual market conditions deteriorate from those anticipated by management, additional allowances for excess and obsolete inventory could be required and may be material to our results of operations.
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.
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.
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.
To that end, we incurred $29.7 million, $63.0 million and $85.1 million of net restructuring costs and $27.1 million, $35.1 million and $50.6 million of transaction, transformation and integration costs during the years ended December 31, 2023, 2022 and 2021, respectively, primarily related to CommScope NEXT initiatives.
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.
We accrue for loss contingencies when losses become probable and are reasonably estimable. 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.
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.
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.
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.
The ANS reporting unit is the same as our ANS segment and the BDCC reporting unit is in our CCS segment. See the discussion below under “Critical Accounting Policies and Estimates” for more information regarding the goodwill impairment tests performed during 2023. We recorded goodwill impairment charges of $1,119.6 million in 2022 related to our ANS reporting unit.
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 believe these efforts are critical to making us more competitive and allowing us to invest in growth, de-leverage our indebtedness and maximize stockholder and other stakeholder value in the future. 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.
From a regional perspective in 2022, net sales decreased in the U.S. 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.
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.
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.
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.
As of December 31, 2022, approximately 49% of our cash and cash equivalents were held outside the U.S.
Cash and cash equivalents increased by $170.8 million during 2023 as described under the Cash Flow Overview section below. As of December 31, 2023, approximately 44% of our cash and cash equivalents were held outside the U.S.
Financing Activities Year Ended December 31, 2022 2021 (in millions) Long-term debt repaid $ (365.0 ) $ (1,282.0 ) Long-term debt proceeds 333.0 1,250.0 Debt issuance costs (7.2 ) (12.0 ) Debt extinguishment costs — (34.4 ) Dividends paid on Series A convertible preferred stock (14.9 ) (43.0 ) Proceeds from the issuance of common shares under equity-based compensation plans 0.1 5.6 Tax withholding payments for vested equity-based compensation awards (14.8 ) (26.4 ) Other 3.8 2.7 Net cash used in financing activities $ (65.0 ) $ (139.5 ) In 2022, we borrowed $333.0 million and repaid $333.0 million under the Revolving Credit Facility.
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. 54 Financing Activities Year Ended December 31, 2023 2022 (in millions) Long-term debt repaid $ (32.0 ) $ (365.0 ) Long-term debt repurchases (142.6 ) — Long-term debt proceeds — 333.0 Debt issuance costs — (7.2 ) Dividends paid on Series A convertible preferred stock — (14.9 ) Tax withholding payments for vested equity-based compensation awards (9.1 ) (14.8 ) Other 2.0 3.9 Net cash used in financing activities $ (181.7 ) $ (65.0 ) 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.
On a long-term basis, our potential sources of liquidity also include raising capital through the issuance of additional equity and/or debt. 56 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.
On a long-term basis, our potential sources of liquidity also include raising capital through the issuance of additional equity and/or debt.
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.
Foreign exchange rate changes did not have a material impact on ANS segment net sales during 2023. 50 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.
(2) In 2022, 2021 and 2020, reflects ARRIS acquisition accounting adjustments related to reducing deferred revenue to its estimated fair value. 60 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.
(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. 56 Reconciliation of Segment Adjusted EBITDA Segment adjusted EBITDA is provided as a performance measure in Note 17 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe table below summarizes our expected interest and principal payments related to our fixed rate debt at December 31, 2022. 2023 2024 2025 2026 2027 Thereafter Principal and interest payments on fixed rate debt $ 397.3 $ 397.3 $ 1,658.2 $ 1,774.2 $ 1,919.3 $ 2,088.9 Average cash interest rate 6.11 % 6.11 % 6.12 % 6.16 % 5.99 % 5.01 % As part of our hedging strategy to mitigate a portion of the exposure to changes in cash flows resulting from the variable interest rate on our 2026 Term Loan, in March 2019, we entered into and designated pay-fixed, receive-variable interest rate swap derivatives as cash flow hedges of interest rate risk.
Biggest changeThe table below summarizes our expected interest and principal payments related to our fixed rate debt at December 31, 2023. 2024 2025 2026 2027 2028 Thereafter Principal and interest payments on fixed rate debt $ 376.6 $ 1,616.9 $ 1,759.1 $ 1,776.5 $ 746.7 $ 1,279.7 Average cash interest rate 6.06 % 6.06 % 6.08 % 5.91 % 5.24 % 4.75 % 62 We utilize a hedging strategy to mitigate a portion of the exposure to changes in cash flows resulting from variable interest rates on the 2026 Term Loan.
These contracts are not designated as hedges for accounting purposes and are marked to market each period through earnings and, as such, there were no unrecognized gains or losses as of December 31, 2022 or 2021. Our derivative instruments are not leveraged and are not held for trading or speculation.
These contracts are not designated as hedges for accounting purposes and are marked to market each period through earnings and, as such, there were no unrecognized gains or losses as of December 31, 2023 or 2022. Our derivative instruments are not leveraged and are not held for trading or speculation.
See Note 8 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further discussion of these contracts. Foreign Currency Risk Approximately 38% and 42% of net sales for 2022 and 2021, respectively, were to customers located outside the U.S.
See Note 9 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further discussion of these contracts. Foreign Currency Risk Approximately 35% and 33% of net sales for 2023 and 2022, respectively, were to customers located outside the U.S.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risks related to changes in interest rates, foreign currency exchange rates and commodity prices. We may utilize derivative financial instruments, among other methods, to hedge some of these exposures.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risks related to changes in interest rates, foreign currency exchange rates and commodity prices. We may utilize derivative financial instruments, among other methods, to hedge some of these exposures. We do not use derivative financial instruments for speculative or trading purposes.
The total notional amount of the interest rate swap derivatives as of December 31, 2022 was $300 million with outstanding maturities of up to fifteen months. As of December 31, 2022, the combined fair value of the interest rate swaps was an $8.6 million gain. The table above excludes the impact of these interest rate swap derivatives.
The total notional amount of the interest rate swap derivatives as of December 31, 2023 was $700.0 million with outstanding maturities up to thirty-one months. As of December 31, 2023, the combined fair value of the interest rate swaps was an $8.0 million loss. The table above excludes the impact of these interest rate swap derivatives.
The impact of a 1% increase in the interest rate index on projected future interest payments on the variable rate debt is also included in the table below. 2023 2024 2025 2026 2027 Thereafter Principal and interest payments on variable rate debt $ 270.5 $ 265.8 $ 262.2 $ 3,028.7 $ — $ — Average cash interest rate 7.74 % 7.67 % 7.63 % 7.63 % — — Impact of 1% increase in interest rate index $ 30.8 $ 30.5 $ 30.2 $ 3.7 $ — $ — We also have $6.5 billion aggregate principal amount of fixed rate senior notes.
The impact of a 1% increase in the interest rate index on projected future interest payments on the variable rate debt is also included in the table below. 2024 2025 2026 2027 2028 Thereafter Principal and interest payments on variable rate debt $ 298.4 $ 292.2 $ 3,032.0 $ — $ — $ — Average cash interest rate 8.83 % 8.72 % 8.72 % — — — Impact of 1% increase in interest rate index $ 30.2 $ 29.8 $ 3.7 $ — $ — $ — We also have $6.3 billion aggregate principal amount of fixed rate senior notes.
As of December 31, 2022, we had foreign exchange contracts with a net unrealized gain of $3.4 million, with maturities of up to eight months and aggregate notional value of $522.2 million (based on exchange rates as of December 31, 2022).
As of December 31, 2023, we had foreign exchange contracts with a net unrealized gain of $5.1 million, with maturities of up to nine months and aggregate notional value of $630.1 million (based on exchange rates as of December 31, 2023).
Management attempts to mitigate these risks through effective requirements planning and by working closely with key suppliers to obtain the best possible pricing and delivery terms. We may also enter into agreements with certain suppliers to guarantee our access to certain key components.
Management attempts to mitigate these risks through effective requirements planning and by working closely with key suppliers to obtain the best possible pricing and delivery terms. We may also enter into agreements with certain suppliers to guarantee our access to certain key components. As of December 31, 2023, we had no forward purchase commitments outstanding under take-or-pay contracts.
The principal payments presented below are based on scheduled maturities and assume no borrowings under our asset-based revolving credit facility. The interest payments presented below assume the interest rates in effect as of December 31, 2022 (see Note 7 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K).
The interest payments presented below assume the interest rates in effect as of December 31, 2023 (see Note 8 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K).
We continuously evaluate the amount and type of derivative instruments utilized to manage the market risk related to foreign currency exposures. 63 Commodity Price Risk Materials account for a large portion of our cost of sales.
See Note 9 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further discussion of these contracts. We continuously evaluate the amount and type of derivative instruments utilized to manage the market risk related to foreign currency exposures. Commodity Price Risk Materials account for a large portion of our cost of sales.
We do not use derivative financial instruments for speculative or trading purposes. 62 Interest Rate Risk The table below summarizes the expected interest and principal payments associated with our variable rate debt outstanding at December 31, 2022 (mainly the $3.1 billion variable rate senior secured term loan due 2026 (2026 Term Loan) and our asset-based revolving credit facility).
Interest Rate Risk The table below summarizes the expected interest and principal payments associated with our variable rate debt outstanding at December 31, 2023, primarily the 2026 Term Loan and the Revolving Credit Facility. The principal payments presented below are based on scheduled maturities and assume no borrowings under our Revolving Credit Facility.
Removed
See Note 8 in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further discussion of these contracts.
Added
In conjunction with the amendment to our 2026 Term Loan due to reference rate reform, on June 28, 2023, the Company settled its cash flow hedges with a notional value of $300.0 million that were outstanding.
Removed
As of December 31, 2022, we had forward purchase commitments outstanding under take-or-pay contracts for certain metals of approximately $4.9 million that we expect to consume in the normal course of operations through the second quarter of 2023. We continuously evaluate the amount and type of derivative instruments utilized to manage commodity price risk. 64
Added
During the third quarter of 2023, and following the amendment to the 2026 Term Loan and settlement of the cash flow hedges, we again reenacted our hedging strategy to mitigate the interest rate risk from our variable rate debt, initially associated with our amended 2026 Term Loan and extending to future borrowings or debt issued, to fix a portion of the future interest cash flows by designating qualifying receive-variable and pay-fixed interest rate swaps as a cash flow hedge for accounting and financial reporting purposes.
Added
We continuously evaluate the amount and type of derivative instruments utilized to manage commodity price risk. 63

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