Business Context and Reporting Period
This Form 8-K is filed by CommScope Holding Company, Inc. (not Vistance Networks, Inc.) on January 28, 2019, reporting events occurring on January 25, 2019. The filing discloses potential financing transactions to fund the proposed acquisition of ARRIS International plc. It includes preliminary financial estimates for ARRIS for the quarter and year ended December 31, 2018, and historical Non-GAAP financial data for CommScope, ARRIS, and the combined entity.
Key Financial Metrics
Preliminary ARRIS Estimates (Unaudited)
| Metric | Quarter Ended Dec 31, 2018 | Year Ended Dec 31, 2018 |
|---|---|---|
| Net Sales | $1,775 - $1,800 million | $6,730 - $6,755 million |
| Adjusted Direct Contribution | $194 - $209 million | $772 - $787 million |
| Adjusted EBITDA (Recast) | $196 - $211 million | $802 - $817 million |
Note: ARRIS historically calculated Adjusted EBITDA differently; under their definition, Q4 2018 would be $192-$207 million and Full Year 2018 would be $795-$810 million.
Historical Non-GAAP Adjusted EBITDA (in millions)
| Entity | 2015 | 2016 | 2017 | LTM Ended Sep 30, 2018 |
|---|---|---|---|---|
| CommScope | $778.4 | $1,124.6 | $958.4 | $935.5 |
| ARRIS | $603.7 | $893.2 | $830.2 | $859.0 |
| Combined | $1,382.0 | $2,017.9 | $1,788.6 | $1,794.4 |
The filing does not provide GAAP net income, cash flow statements, or specific debt balances for the reporting period, focusing instead on Non-GAAP metrics and financing plans.
Material Changes and Financing Plans
On January 25, 2019, CommScope announced plans to secure financing for the ARRIS acquisition:
- New Term Loan Facility: Seeking a senior secured first-lien term loan of approximately $3,869.0 million.
- Debt Offering: Intending to offer approximately $1,000 million in senior unsecured notes (2027), $1,000 million in senior secured notes (2024), and $1,000 million in senior secured notes (2026).
- Use of Proceeds: Funds will finance the ARRIS acquisition, repay existing term loan facilities for both companies, and cover related fees.
The filing notes that the acquisition has not been completed, and the combined financial results presented are pro forma estimates.
Outlook, Risks, and Contingencies
Management provided forward-looking statements regarding the acquisition and financing, subject to significant risks:
- Transaction Risks: Failure to obtain regulatory approvals, inability to secure financing on acceptable terms, or failure to integrate ARRIS successfully.
- Operational Risks: Dependence on customer capital spending, supply chain disruptions, raw material costs, and cybersecurity threats.
- Financial Risks: Substantial indebtedness, compliance with debt covenants, and potential impairment charges.
- Market Risks: Trade tariffs (specifically imports from China), foreign exchange variability, and global trade war uncertainties.
The preliminary financial estimates for ARRIS are unaudited and subject to change upon completion of financial closing procedures. Ernst & Young LLP has not performed procedures on these estimates.
Investor Verification Checklist
- Verify the final terms and closing status of the $3.869 billion term loan and the $3 billion notes offering.
- Confirm the final audited financial results for ARRIS for the year ended December 31, 2018, as current figures are preliminary estimates.
- Monitor regulatory approval status for the CommScope-ARRIS acquisition.
- Review the reconciliation of Non-GAAP Adjusted EBITDA to GAAP net income in subsequent filings to understand the impact of amortization and restructuring costs.
- Assess the impact of potential trade tariffs on the combined entity's supply chain and margins.