CommScope Announces Record Third Quarter Results

HICKORY, N.C., Oct. 26 /PRNewswire-FirstCall/ -- CommScope, Inc. today announced record third quarter results for the period ended September 30, 2006. The Company reported record third quarter sales of $466.1 million and net income of $43.6 million, or $0.61 per diluted share. The reported net income includes after-tax charges of $1.9 million related to restructuring costs. Excluding this special item, adjusted third quarter earnings were $45.5 million, or $0.64 per diluted share.

For the third quarter of 2005, CommScope reported sales of $345.6 million and net income of $11.5 million, or $0.18 per diluted share. The reported net income included total after-tax charges of $11.2 million, primarily for equipment impairment related to global manufacturing initiatives. Excluding these special items, adjusted earnings were $22.7 million, or $0.34 per share.

"We delivered record third-quarter results fueled by the expanding global demand for bandwidth," said Frank M. Drendel, CommScope Chairman and Chief Executive Officer. "We believe our performance demonstrates we are executing our strategy well and are strongly positioned for success in 2007.

"We posted strong sales growth in all segments," added Drendel. "Business enterprises are upgrading their Local Area Networks and data centers. Broadband service providers and telecommunication carriers are investing in their infrastructure to provide the 'quadruple play' of video, data, voice and mobility. CommScope's expanding portfolio of infrastructure solutions continues to enable a host of new and exciting communications services."

Sales Overview

Sales for the third quarter of 2006 increased 34.9% year over year, primarily driven by increased customer demand and price increases in response to higher raw material costs.

Below is a sales summary: Third Second Third ($ in millions) Quarter Quarter Quarter % Change 2006 2006 2005 YOY Sequential Enterprise $237.7 $205.1 $167.9 41.6% 15.9% Broadband 143.8 136.5 122.3 17.6 5.3 Carrier 85.0 71.0 55.6 52.9 19.7 Inter-segment eliminations (0.4) (0.7) (0.2) n/a n/a Total CommScope Net Sales $466.1 $411.9 $345.6 34.9% 13.2%

Enterprise sales rose 41.6% year over year to $237.7 million. Sales rose across essentially all geographic regions with particular strength in the European region. The strong third quarter growth is primarily due to unusually strong orders received during the second quarter and price increases resulting from increased commodity prices. The Enterprise segment continued to experience organic growth as businesses moved toward consolidated data centers and updated their Local Area Networks to support bandwidth intensive applications.

Broadband segment sales rose to $143.8 million, up 17.6% year over year, as a result of higher prices for coaxial cable products, increased global sales volumes in all regions and a product line acquisition announced earlier this year. Broadband sales continued to be positively affected by competition between cable television operators and telephone companies.

Carrier sales rose 52.9% year over year to $85.0 million due to substantially increased demand for Integrated Cabinet Solutions (ICS) products. ICS sales increased as domestic telephone companies continued investing in their infrastructure to support video and high-speed data services.

Total international sales rose 22.0% year over year to $137.1 million, or approximately 29.4% of total company sales.

Overall orders booked in the third quarter of 2006 were $392.6 million, up 6.6% from the year-ago quarter.

Global Manufacturing Initiatives

CommScope's third quarter 2006 results reflect net pretax restructuring charges of $3.0 million ($1.9 million after tax) primarily for equipment relocation costs associated with the Company's global manufacturing initiatives.

The Company has essentially completed the Enterprise portion of these initiatives. The Broadband portion of these initiatives is expected to be completed in the first quarter of 2007.

Other Third Quarter 2006 Highlights - CommScope's SYSTIMAX(R) Solutions(TM) joined the Cisco Technology Developer Program as an IP Communications Participant Partner. The Cisco Technology Developer Program sets criteria for interoperability testing by independent third parties and enables leading product and services firms to deploy innovative business solutions. This program provides enterprise or service provider customers with information regarding Cisco Technology Developer Partner products and services that an independent testing facility has tested and found to interoperate with Cisco networking technology. - Gross margin for the third quarter rose to 30.0%, up more than 250 basis points year over year and up more than 350 basis points sequentially. The gross margin improvements were primarily due to higher sales volume and selling prices, favorable product mix and the positive impact of the Company's global manufacturing initiatives. - SG&A for the third quarter of 2006 was $62.8 million or 13.5% of sales, compared to $51.3 million or 14.8% of sales in the year-ago quarter. SG&A declined as a percentage of sales primarily due to higher sales levels. - Third quarter 2006 results include $1.3 million of pretax equity-based compensation expense accounted for in accordance with SFAS No. 123(R). - Operating income for the third quarter of 2006 was $64.9 million or 13.9% of sales. Excluding restructuring costs, operating income would have been $67.9 million or 14.6% of sales. In the year-ago quarter, operating income was $19.9 million or 5.8% of sales. Excluding special items, operating income would have been $33.9 million or 9.8% of sales for the quarter. - Total depreciation and amortization expense was $13.4 million for the third quarter, which included $3.2 million of intangibles amortization. - Net cash provided by operating activities in the third quarter was $34.8 million, up 22% year over year. Capital spending in the quarter was $7.6 million.

CommScope also recently announced that its wholly owned subsidiary, Connectivity Solutions Manufacturing, Inc. (CSMI), had closed on a previously announced agreement to sell real estate consisting of approximately 70 acres and a 580,000-sq. ft. building at the CSMI manufacturing facility located in Omaha, Nebraska. The sales price for the land and building was approximately $11 million. The sale will be recorded in the fourth quarter of 2006.

Fourth Quarter and 2007 Outlook

CommScope management provided the following guidance for the fourth quarter 2006 and calendar year 2007:

Fourth Quarter 2006 Guidance - For the fourth quarter of 2006, revenue is expected to be $370-$385 million and operating margin is expected to be 9%-10%, excluding special items. - Effective tax rate of approximately 30%-34%. - Capital spending of approximately $5-$8 million.

Based on the fourth quarter 2006 guidance, sales for calendar year 2006 are expected to be approximately $1.60-$1.62 billion, up 20% year over year. Operating margin for calendar year 2006 is estimated to be around 10.5%, excluding special items.

Calendar Year 2007 Guidance - For calendar year 2007, revenue is expected to be in the range of $1.70-$1.75 billion and operating margin is expected to be 11.5% or better, excluding special items. - Effective tax rate of approximately 30%-34%. - Depreciation and amortization expense of approximately $50 million. - Capital spending of approximately $30-$40 million.

"As we move into the seasonally slower fourth quarter, we expect a greater than normal sequential sales decline due primarily to strong shipments in the third quarter," said Executive Vice President and Chief Financial Officer Jearld L. Leonhardt.

"Our calendar year 2007 sales guidance is based on our assumption of relatively constant raw material costs, modest volume growth and a stable business environment," noted Leonhardt. "Based upon this revenue outlook, we believe we can deliver another year of good earnings growth."

Conference Call Information

CommScope plans to host a call today at 5:00 p.m. EDT 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 and international callers should dial +1-415-537-1835. Please plan to dial in 10-15 minutes before the start of the call to facilitate a timely connection. The live, listen-only audio of the conference call will also be available via the Presentations page on CommScope's website at http://phx.corporate-ir.net/phoenix.zhtml?c=101146&p=irol-presentations.

If you are unable to participate on the call and would like to hear a replay, you may dial 800-633-8284. International callers should dial 1-402-977-9140 for the replay. The replay ID is 21306920. The replay will be available through Thursday, November 2. A webcast replay will also be archived for a limited period of time following the conference call via the Internet on CommScope's website.

About CommScope

CommScope is a world leader in the design and manufacture of "last mile" cable and connectivity solutions for communication networks. Through its SYSTIMAX(R) Solutions(TM) and Uniprise(R) Solutions brands CommScope is the global leader in structured cabling systems for business enterprise applications. It is also the world's largest manufacturer of coaxial cable for Hybrid Fiber Coaxial applications. Backed by strong research and development, CommScope combines technical expertise and proprietary technology with global manufacturing capability to provide customers with high-performance wired or wireless cabling solutions.

Forward-Looking Statements

This press release contains forward-looking statements regarding, among other things, the business position, plans, outlook, revenues, margins, earnings, global manufacturing initiatives, 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. These forward-looking statements are identified by the use of certain terms and phrases, including but not limited to "intend," "goal," "estimate," "expect," "project," "plan," "anticipate," "should," "designed to," "foreseeable future," "believe," "think," "scheduled," "outlook," "guidance" and similar expressions. Forward-looking statements are not a guarantee of performance and are subject to a number of uncertainties and other factors that could cause the actual results to differ materially from those currently expected. The potential risks and uncertainties that could cause actual results of CommScope to differ materially include, but are not limited to, changes in cost and availability of key raw materials and our ability to recover these costs from our customers through pricing; the challenges of executing our previously announced global manufacturing initiatives; customer demand for our products and the ability to maintain existing business alliances with key customers or distributors; the risk that our internal production capacity and that of our contract manufacturers may be insufficient to meet customer demand for our products; the risk that customers might cancel orders placed or that orders currently placed may affect orders in the future; continuing consolidation among our customers; competitive pricing and acceptance of our products; industry competition and the ability to retain customers through product innovation; possible production disruption due to supplier or contract manufacturer bankruptcy, reorganization or restructuring; successful ongoing operation of our vertical integration activities; the possibility of further restructuring actions; possible future impairment charges for fixed or intangible assets; increased obligations under employee benefit plans; ability to achieve expected sales, growth and earnings goals; costs of protecting or defending our intellectual property; variability in effective tax rate and ability to recover amounts recorded as value-added tax receivables; product performance issues and associated warranty claims; ability to successfully implement major systems initiatives; regulatory changes affecting us or the industries we serve; authoritative changes in generally accepted accounting principles by standard- setting bodies; political instability; and any statements of belief and any statements of assumptions underlying any of the foregoing. For a more complete description of factors that could cause such a difference, please see CommScope's filings with the Securities and Exchange Commission, which are available on CommScope's website or at http://www.sec.gov/. In providing forward- looking statements, the Company does not intend, and is not undertaking any duty or obligation, to update these statements as a result of new information, future events or otherwise.

CommScope, Inc. Condensed Consolidated Statements of Operations (Unaudited -- In thousands, except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Net sales $466,100 $345,613 $1,230,235 $991,378 Operating costs and expenses: Cost of sales 326,287 251,077 897,135 736,071 Selling, general and administrative 62,799 51,260 175,229 159,158 Research and development 9,151 6,789 24,821 22,996 Restructuring costs 3,011 16,553 10,764 20,128 Total operating costs and expenses 401,248 325,679 1,107,949 938,353 Operating income 64,852 19,934 122,286 53,025 Other income (expense), net 207 179 872 (490) Interest expense (2,110) (1,975) (6,082) (6,342) Interest income 3,145 1,286 7,541 3,434 Income before income taxes and gain on OFS BrightWave note receivable 66,094 19,424 124,617 49,627 Income tax expense before income tax provision on gain on OFS BrightWave note receivable (22,504) (7,902) (40,279) (16,267) Income before gain on OFS BrightWave note receivable 43,590 11,522 84,338 33,360 Gain on OFS BrightWave note receivable, net of tax of $11,175 - - 18,625 - Net income $43,590 $11,522 $102,963 $33,360 Net income per share: Basic $0.74 $0.21 $1.77 $0.61 Assuming dilution (a) $0.61 $0.18 $1.46 $0.52 Weighted average shares outstanding: Basic 59,166 54,821 58,146 54,632 Assuming dilution (a) 72,662 67,746 71,917 67,496 (a) Calculation of net income per share, assuming dilution: Net income (basic) $43,590 $11,522 $102,963 $33,360 Convertible debt add-back (b) 629 629 1,887 1,887 Numerator (assuming dilution) $44,219 $12,151 $104,850 $35,247 Weighted average shares (basic) 59,166 54,821 58,146 54,632 Dilutive effect of: Stock options (c) 1,823 1,431 2,136 1,370 Phantom stock and performance units 179 - 141 - Convertible debt (b) 11,494 11,494 11,494 11,494 Denominator (assuming dilution) 72,662 67,746 71,917 67,496 (b) In March 2004, the Company issued $250 million of 1% convertible senior subordinated debentures, which are convertible into shares of common stock at a conversion rate of 45.9770 shares per $1,000 principal amount representing a conversion price of $21.75 per share. These debentures are convertible into shares of CommScope common stock under specific circumstances as described in the Company's Form 10-K for the year ended December 31, 2004. (c) Options to purchase approximately 0.6 million and 1.9 million common shares were excluded from the computation of net income per share, assuming dilution, for the three months ended September 30, 2006 and 2005, respectively, because they would have been antidilutive. Options to purchase approximately 0.6 million and 3.0 million common shares were excluded from the computation of net income per share, assuming dilution, for the nine months ended September 30, 2006 and 2005, respectively, because they would have been antidilutive. CommScope, Inc. Condensed Consolidated Balance Sheets (Unaudited -- In thousands, except share amounts) September 30, December 31, 2006 2005 Assets Cash and cash equivalents $221,610 $146,549 Short-term investments 112,123 102,101 Total cash, cash equivalents and short-term investments 333,733 248,650 Accounts receivable, less allowance for doubtful accounts of $15,241 and $13,644, respectively 254,760 165,608 Inventories 159,325 123,603 Prepaid expenses and other current assets 31,906 26,156 Deferred income taxes 27,593 25,245 Total current assets 807,317 589,262 Property, plant and equipment, net 234,105 252,877 Goodwill 151,369 151,356 Other intangibles, net 66,831 69,297 Deferred income taxes 12,653 24,623 Other assets 22,418 14,766 Total Assets $1,294,693 $1,102,181 Liabilities and Stockholders' Equity Accounts payable $93,284 $63,444 Other accrued liabilities 103,053 100,498 Current portion of long-term debt 13,000 13,000 Total current liabilities 209,337 176,942 Long-term debt 274,350 284,300 Pension and postretirement benefit liabilities 95,358 101,989 Other noncurrent liabilities 18,347 16,925 Total Liabilities 597,392 580,156 Commitments and contingencies Stockholders' Equity: Preferred stock, $.01 par value; Authorized shares: 20,000,000; Issued and outstanding shares: None at September 30, 2006 and December 31, 2005 - - Common stock, $.01 par value; Authorized shares: 300,000,000; Issued shares, including treasury stock: 69,545,064 at September 30, 2006 and 66,073,347 at December 31, 2005; Issued and outstanding shares: 59,345,064 at September 30, 2006 and 55,873,347 at December 31, 2005 696 661 Additional paid-in capital 522,537 462,842 Deferred equity compensation - (8,980) Retained earnings 319,651 216,688 Accumulated other comprehensive loss (48) (3,651) Treasury stock, at cost: 10,200,000 shares at September 30, 2006 and December 31, 2005 (145,535) (145,535) Total Stockholders' Equity 697,301 522,025 Total Liabilities and Stockholders' Equity $1,294,693 $1,102,181 CommScope, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited -- In thousands) Nine Months Ended September 30, 2006 2005 Operating Activities: Net income $102,963 $33,360 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 41,858 45,469 Equity based compensation 3,384 226 Deferred income taxes 9,967 1,638 Gain on OFS BrightWave note receivable (29,800) - Restructuring costs related to fixed asset impairment - 17,034 Tax benefit from stock option exercises - 1,049 Changes in assets and liabilities (96,904) (42,995) Net cash provided by operating activities 31,468 55,781 Investing Activities: Additions to property, plant and equipment (22,625) (16,350) Repayment of OFS BrightWave note receivable 29,800 - Acquisition of MC2 product line (13,810) - Acquisition of Connectivity Solutions - 653 Net purchases of short-term investments (10,022) (958) Proceeds from disposal of fixed assets 4,599 1,706 Net cash used in investing activities (12,058) (14,949) Financing Activities: Principal payments on long-term debt (9,950) (9,750) Long-term financing costs - (306) Proceeds from exercise of stock options 48,969 6,402 Tax benefit from stock option exercises 15,857 - Net cash provided by (used in) financing activities 54,876 (3,654) Effect of exchange rate changes on cash 775 (1,093) Change in cash and cash equivalents 75,061 36,085 Cash and cash equivalents, beginning of period 146,549 99,631 Cash and cash equivalents, end of period $221,610 $135,716 CommScope, Inc. Sales and Operating Income by Reportable Segment (Unaudited -- In millions) Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Net Sales: Enterprise $237.7 $167.9 $614.9 $499.4 Broadband 143.8 122.3 406.2 340.3 Carrier 85.0 55.6 210.7 153.4 Inter-segment eliminations (0.4) (0.2) (1.6) (1.7) Consolidated Net Sales $466.1 $345.6 $1,230.2 $991.4 Operating Income (Loss): Enterprise $40.9 $5.7 $76.1 $36.8 Broadband 12.8 13.9 25.3 26.2 Carrier 11.2 0.3 20.9 (10.0) Consolidated Operating Income $64.9 $19.9 $122.3 $53.0 CommScope, Inc. Reconciliation of GAAP Earnings to Adjusted Earnings (Unaudited) Third Quarter 2006 Year-to-Date 2006 Earnings Diluted Earnings Diluted ($m) EPS ($m) EPS GAAP Earnings Reported $43.6 $0.61 $103.0 $1.46 Special items: Restructuring costs 1.9 0.03 7.0 0.10 Gain on OFS BrightWave note receivable - - (18.6) (0.26) Adjusted Earnings $45.5 $0.64 $91.4 $1.30 Third Quarter 2005 Year-to-Date 2005 Earnings Diluted Earnings Diluted ($m) EPS ($m) EPS GAAP Earnings Reported $11.5 $0.18 $33.4 $0.52 Special items: Restructuring costs 10.7 0.16 13.0 0.19 Employee benefit adjustment (1.7) (0.02) (1.7) (0.02) Deferred tax valuation adjustment 2.2 0.03 2.2 0.02 Adjusted Earnings $22.7 $0.34 $46.9 $0.72 CommScope management believes that presenting earnings information excluding the special after-tax items noted above provides meaningful information to investors because the adjusted results eliminate special charges which are not related to CommScope's ongoing operations, and therefore allows investors to compare period to period more easily. Note: Some totals may not add due to rounding.