CommScope Announces Third Quarter 2008 Results

CommScope, Inc. (NYSE: CTV):

• Third quarter sales of $1.06 billion, reflecting Andrew acquisition
• Adjusted operating income, on a combined basis and excluding special items, rises 19% year over year to $150 million
• Tax rates lower due to geographic mix and synergies
• Diluted EPS rises 30% year over year to $1.05
• Adjusted diluted EPS of $1.17, excluding special items
• Cash flow from operations rises 63% year over year to record $132 million
• Debt repayments of over $100 million, representing further steps in planned deleveraging

CommScope, Inc. (NYSE: CTV), a global leader in infrastructure solutions for communications networks, reported revenue of $1.06 billion and net income of $84.7 million, or $1.05 of diluted earnings per share, for the quarter ended September 30, 2008.

The reported net income includes after-tax charges of approximately $17.5 million for the amortization of purchased intangibles and $3.4 million for restructuring, one-time costs and purchase accounting adjustments. These special charges were somewhat offset by approximately $6.2 million of after-tax benefits related to aligning certain CommScope and Andrew employee benefit policies. In addition, the consolidation of CommScope and Andrew entities in Brazil allowed the company to recognize a $5.0 million tax benefit related to the expected use of net operating losses. Excluding these items, adjusted third quarter 2008 earnings were $94.4 million, or $1.17 of diluted earnings per share. (A reconciliation of reported GAAP earnings and diluted earnings per share to adjusted results for the quarter is attached.)

In comparison, for the third quarter of 2007, CommScope reported sales of $513.6 million and net income of $60.3 million, or $0.81 of diluted earnings per share.

"CommScope delivered a solid quarter despite increasingly difficult global economic conditions,” said CommScope Chairman and Chief Executive Officer Frank Drendel. "Among our accomplishments, we continued to successfully integrate the Andrew acquisition, generated significant cash flow from operations and exceeded synergy targets.

"We have a fundamentally positive long-term view for our industry despite the current financial turmoil. The ongoing need for bandwidth is expected to continue driving network infrastructure investment. Items such as global network traffic growth, next generation mobile devices, IP video and video conferencing as well as security and public safety issues all drive ongoing network requirements. Through our industry leadership, evolving product portfolio and global reach, we are at the forefront of delivering vital connectivity solutions for customers’ network infrastructure needs.”

Sales & Operating Income Overview

Sales more than doubled year over year primarily as a result of the Andrew acquisition. Sales decreased 6.7 percent on a combined basis that includes Andrew’s actual sales for the third calendar quarter of 2007. The company’s ongoing efforts to eliminate unprofitable product lines affected the year-over-year, combined-basis sales comparison primarily in the Wireless Network Solutions (WNS) segment.

Excluding the favorable impact of changes in foreign exchange rates of $21.5 million and adjusting for the divestiture of the Satellite Communications (SatCom) product line, sales declined approximately 6.5 percent year over year on a combined basis.

Antenna, Cable and Cabinet Group (ACCG) segment sales decreased 1.8 percent year over year to $495.0 million. Significantly lower wireline sales were substantially offset by higher wireless sales. Wireline sales declined primarily due to weaker demand for cabinet and apparatus products by major U.S. telecommunications providers. The company expects continued weakness in the fourth quarter as carriers manage capital spending and inventory levels; however, wireline sales are expected to recover in the first quarter of 2009. Despite the slowdown, CommScope expanded its leadership position in engineering environmentally secure enclosures, and initiated field trials with major OEMs outside of North America for potential wireline, wireless and fuel cell applications.

The wireline weakness was substantially offset by strength in ACCG wireless products, which increased 7.4 percent year over year. ACCG wireless sales continued to be robust in emerging markets with Asia Pacific and Other Americas up double digits year over year, including the positive effect of changes in foreign exchange rates. Sales of microwave products for backhaul applications were also strong in the quarter. On a combined basis, in spite of lower overall sales volume, ACCG segment adjusted operating income rose year over year primarily due to ongoing integration and cost management efforts along with a favorable sales mix.

Enterprise segment sales decreased 1.6 percent year over year to $236.5 million, primarily as a result of a slowdown in the North American enterprise market. Moderate growth continued on a year-over-year basis in all major regions outside of North America and these sales represented essentially half of total Enterprise sales in the quarter. The company continues to see a positive shift in mix toward higher bandwidth applications, which are typically less sensitive to changes in commodity prices. This favorable sales mix in addition to ongoing cost management created year-over-year adjusted operating income growth in the Enterprise segment.

Broadband segment sales declined 1.4 percent to $159.0 million on a year-over-year basis. International growth was more than offset by weakness in the North American market, which was primarily attributable to the slowdown in residential construction. The lower sales volume and an unfavorable product mix negatively affected the Broadband segment adjusted operating income.

WNS segment sales decreased 24.8 percent year over year to $174.7 million in the third quarter of 2008. The WNS year-over-year sales decline was primarily due to the divestiture of the SatCom business, which was sold in the first quarter of 2008. The SatCom business had sales of $27.2 million in the year-ago quarter. The WNS sales comparison was also affected by the restructuring of a relationship with a major OEM. As a result of these changes, WNS segment operating income improved significantly despite lower sales volumes.

Customer orders booked in the third quarter of 2008 were $1.02 billion, down 6.2 percent from the year-ago quarter, on a combined basis, and down 6.1 percent sequentially.

Consolidated Operating Income

Operating income in the third quarter of 2008 was $127.5 million. Excluding intangible amortization, purchase accounting adjustments, acquisition related expenses, restructuring costs and benefit adjustments, third quarter adjusted operating income was $150.1 million. Adjusted operating income, on a comparative basis, rose approximately 19.0 percent year over year, primarily due to improved performance from the WNS and ACCG segments.

Other Third Quarter 2008 Highlights

• Non-U.S. sales represented 53.5 percent of total company sales during the third quarter of 2008.
• The company estimates that it achieved $16 million of synergies in the third quarter of 2008 and $42 million year-to-date.
• Gross margin for the third quarter of 2008 was 27.9 percent and includes $3.8 million of intangible amortization and $1.8 million of purchase accounting adjustments related to inventory reflected in Cost of Sales. Excluding these items, gross margin would have been 28.4 percent.
• SG&A expense for the third quarter of 2008 was $108.8 million, or 10.2 percent of sales, and includes approximately $10.0 million related to the alignment of certain employee benefit policies between CommScope and Andrew. Excluding this benefit, SG&A would have been 11.2 percent of sales.
• The company incurred $2.4 million of restructuring expenses during the third quarter of 2008 related to the previously announced manufacturing rationalization.
• The consolidation of CommScope and Andrew entities in Brazil resulted in a $5.0 million tax benefit in the quarter related to the partial release of tax valuation allowances on net operating losses from prior years. In addition, the company’s effective tax rate reflects the benefits derived from significant operations outside the U.S., which are generally taxed at rates lower than the U.S. statutory rate. The geographic mix of taxable earnings (lower U.S. and higher non-U.S.) had a significantly positive impact on the effective tax rate.
• Total depreciation and amortization expense was $55.6 million in the quarter.
• Total amortization of purchased intangible assets for the quarter was $28.0 million, which is primarily related to the Andrew acquisition.
• Capital spending in the quarter was $12.9 million.

Capital Structure and Cash Flow

In the third quarter of 2008, CommScope generated $131.6 million of cash flow from operations and expects to achieve approximately $450 million of cash flow from operations in calendar year 2008. The weighted-average effective interest rate on outstanding borrowings as of September 30, 2008, was 6.25 percent. During the quarter, CommScope repaid $104.7 million of its outstanding debt as a further step in its plan to reduce leverage.

Andrew Integration and Cost Reduction Activities

CommScope integration and synergy activities are ahead of schedule and the company now expects total merger savings to be approximately $115 million by 2009. Nearly $60 million of these savings are expected to be achieved in 2008. The increased synergy expectations include the recently announced plans to consolidate certain antenna and cable production within the Antenna, Cable and Cabinet Group and Enterprise segments into other existing facilities. The total cost savings are expected to come from a combination of procurement savings, rationalization of duplicate locations, streamlining overhead and integration of infrastructure, and building upon best practices in technology and manufacturing.

Outlook

CommScope management provided the following guidance for the fourth quarter of 2008 and calendar year 2008:

Fourth Quarter 2008 Outlook:

• Revenue of $875 million to $925 million
• Adjusted operating income of $80 million to $100 million, excluding special items
• Tax rate of 24 percent to 26 percent on adjusted pretax income
• More than $200 million in cash flow from operations
• Capital expenditures of $20 million - $30 million

Calendar Year 2008 Outlook:

• Revenue of $4.03 billion to $4.08 billion
• Adjusted operating income of $495 million to $515 million, excluding special items
• Tax rate of 26 percent to 28 percent on adjusted pretax income
• More than $450 million of cash flow from operations
• Capital expenditures of $55 million to $65 million

"Our seasonally slow fourth-quarter outlook reflects significantly lower sales volume expectations for wireline cabinets, reduced seasonal sales volume for other product areas and a stronger dollar, somewhat offset by lower expected commodity costs,” said Executive Vice President and Chief Financial Officer Jearld Leonhardt. "Clearly, the current global financial crisis has created unprecedented volatility and made our customers more cautious. However, we continue to expect our strongest cash flow generation of the year during the fourth quarter. We are proceeding with our deleveraging strategy and our liquidity remains strong. We have nearly $500 million of cash and cash equivalents and our revolving credit facility remains fully in place and undrawn—all this after reducing debt by more than $100 million in the quarter.

"The ongoing global economic uncertainty and commodity cost volatility have made forecasting much more difficult – particularly in the near term. As a result, CommScope does not intend to provide specific financial guidance for calendar year 2009 at this time. Despite these challenges, we firmly believe in the strength and diversity of our business model and expect to create value for customers and stakeholders over the long term.”

Financial Analyst Conference

CommScope plans to host a financial analyst conference on Thursday, November 6 in Richardson, Texas. Management will conduct a formal presentation from 8:30 a.m. to 11:30 a.m. CT, followed by afternoon tours of selected research and development facilities located in Richardson.

CommScope executives plan to provide an overview of the company’s strategy and will discuss how each business segment advances innovation, quality and performance for its global communications customers. While the company intends to highlight business drivers, it does not plan to provide specific financial guidance for calendar year 2009 at the conference. Institutional investors interested in attending the event should contact Mark Huegerich at +1 828-431-2540 or mhuegerich@commscope.com for registration details. Investors can also listen to a live Internet webcast and view the corresponding slides from a link on the Investor Relations Presentations page of CommScope’s website at www.commscope.com. A webcast replay will also be available on CommScope’s web-site for a limited period of time following the conference.

Conference Call Information

CommScope plans to host a call today at 5:00 p.m. ET to discuss third quarter results. You are invited to listen to the conference call or live webcast with Frank Drendel, chairman and CEO; Brian Garrett, president and COO; and Jearld Leonhardt, executive vice president and CFO.

To participate in the conference call, domestic callers should dial +1 866-845-6585 and international callers should dial +1 706-643-2944. The conference identification number is 68950532. Please plan to dial in 15-20 minutes before the start of the call to facilitate a timely connection. The live, listen-only audio of the call will be available through a link on the Investor Relations Presentations page of CommScope’s web-site at www.commscope.com

If you are unable to participate and would like to hear a replay, domestic callers may dial +1 800-642-1687 and international callers should dial +1 706-645-9291. The replay identification number is 68950532 and will be available through November 13, 2008. A webcast replay will also be archived on CommScope’s website for a limited period of time following the conference call.

About CommScope

CommScope (NYSE: CTV – www.commscope.com) is a world leader in infrastructure solutions for communication networks. Through its Andrew^® brand, it is a global leader in radio frequency subsystem solutions for wireless networks. Through its SYSTIMAX^® and Uniprise^® brands, CommScope is the global leader in structured cabling systems for business enterprise applications. It is also the premier manufacturer of coaxial cable for broadband cable television networks and one of the leading North American providers of environmentally secure cabinets for DSL and FTTN applications. Backed by strong research and development, CommScope combines technical expertise and proprietary technology with global manufacturing capability to provide customers with infrastructure solutions for evolving global communications networks in more than 130 countries around the world.

Forward Looking Statement

This press release contains forward-looking statements regarding, among other things, the announced global manufacturing changes, business position, plans, outlook, integration, synergies and other financial items relating to CommScope that are based on information currently available to management, management’s beliefs and a number of assumptions concerning future events. Statements made in the future tense, and statements using words such as "intend,” "goal,” "estimate,” "expect,” "project,” "projections,” "plans,” "anticipate,” "should,” "designed to,” "long term view,” "believe,” "confident,” "think,” "scheduled,” "outlook,” "guidance” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are not a guarantee of performance and are subject to a number of risks and uncertainties, many of which are difficult to predict and are beyond the control of CommScope, and therefore should be carefully considered. Factors that could cause actual results of CommScope to differ materially include, but are not limited to, continued global economic weakness and uncertainties; changes in cost and availability of key raw materials and the potential effect on customer pricing; the challenges of achieving anticipated cost-reduction synergies expected from the acquisition of Andrew; delays or challenges related to removing, transporting or reinstalling equipment; the ability to retain qualified employees and existing business alliances; customer demand for our products and the ability to maintain existing business alliances with key customers or distributors; competitive pricing and acceptance of products; industry competition and the ability to retain customers through product innovation; concentration of sales among a limited number of customers or distributors; the risk that internal production capacity and that of contract manufacturers may be insufficient to meet customer demand or quality standards for our products; the outcome of negotiations with represented employees; the risk that customers might cancel orders placed or that orders currently placed may affect order levels in the future; continuing consolidation among customers; possible production disruption due to supplier or contract manufacturer bankruptcy, reorganization or restructuring; significant international operations and the impact of variability in foreign exchange rates; ability to integrate the CommScope and Andrew businesses; ability to fully realize anticipated benefits from prior or future acquisitions or equity investments; substantial indebtedness as a result of the acquisition of Andrew and compliance with the senior secured credit facilities; capital structure changes; tax rate variability; dependence upon key personnel; ability to integrate Andrew’s systems of internal control over financial reporting with ours; realignment of global manufacturing capacity; purchase accounting costs; protecting or defending intellectual property; ability to obtain capital on commercially reasonable terms; fluctuations in interest rates; the ability to achieve expected sales growth and earnings goals; the outcome of the TruePosition, Inc. litigations and regulatory changes affecting us or the industries we serve. For a more complete description of factors that could cause such a difference, please see CommScope’s filings with the Securities and Exchange Commission (SEC), which are available on CommScope’s website or at www.sec.gov. In providing forward-looking statements, CommScope does not intend, and does not undertake any duty or obligation, to update these statements as a result of new information, future events or otherwise.