Exhibit 99.1
FOR IMMEDIATE RELEASE
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COMMSCOPE REPORTS FIRST QUARTER 2004 RESULTS;
RESULTS INCLUDE RECENT ACQUISITION; SALES OF $235 MILLION;
CASH FLOW FROM OPERATIONS OF $22 MILLION
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HICKORY, NC -- (MAY 4, 2004) CommScope, Inc. (NYSE: CTV) today announced
first quarter results for the period ended March 31, 2004, which includes
the January 31, 2004 acquisition of the Connectivity Solutions business of
Avaya Inc. The Company reported sales of $235.1 million and a net loss of
$16.4 million, or $0.27 per share, for the first quarter. The net loss
includes acquisition-related transition and startup costs as well as the
impact of purchase accounting adjustments related to the acquisition of
Connectivity Solutions. These adjustments are outlined below. The first
quarter net loss also includes a loss on the early extinguishment of debt
and CommScope's after-tax share of losses of OFS BrightWave.
For the first quarter 2003, CommScope reported sales of $129.4 million and
a net loss of $3.1 million or $0.05 per share. This net loss reflected
after-tax equity in losses of OFS BrightWave of $0.06 per share.
"We are pleased with the ongoing integration of Connectivity Solutions and
the overall direction of our business," said Chairman and Chief Executive
Officer Frank M. Drendel. "Despite rising material costs and special
charges related to our acquisition, we generated $21.6 million in cash flow
from operations during the quarter."
Sales for the first quarter of 2004 were $235.1 million. CommScope is
reporting results in two segments in the first quarter of 2004: a) Cable
segment, which is CommScope's legacy cable business and b) Connectivity
Solutions segment, which is the recent acquisition. Below is a sales
summary that reflects actual first quarter sales, which incorporate
Connectivity Solutions sales for February and March. This summary also
reflects pro forma sales for the current quarter, as if Connectivity
Solutions had been acquired on January 1, 2004 and eliminates intersegment
sales for all the periods presented. The pro forma information for periods
prior to January 31, 2004 is based on the historical results of
Connectivity Solutions as operated by Avaya Inc. (as reported in the public
filings of Avaya) and therefore may not be indicative of the actual results
of the Connectivity Solutions segment as operated by CommScope. The
year-over-year and sequential comparisons are made on a pro forma basis (in
$ millions):
PRO FORMA
ACTUAL -------------------------
FIRST FIRST FOURTH FIRST
QUARTER QUARTER QUARTER QUARTER PRO FORMA CHG %
2004 2004 2003 2003 YOY SEQ.
---- ---- ---- ---- --- ----
Cable Segment
- -------------
Broadband/Video $102.5 $102.5 $121.8 $101.3 1.2% -15.8%
LAN $25.3 $25.3 $22.2 $23.0 10.0% 14.0%
Wireless/Other Telecom $8.0 $8.0 $9.8 $5.1 56.9% -18.4%
------ ------ ------ ------ ----- ------
Subtotal Cable $135.8 $135.8 $153.8 $129.4 4.9% -11.7%
CONNECTIVITY SOLUTIONS SEGMENT Feb-Mar Jan-Mar
- ------------------------------
SYSTIMAX $77.9 $93.7 $99.6 $107.3 -12.7% -5.9%
ExchangeMAX $7.7 $11.3 $18.0 $13.3 -15.0% -37.2%
ICS $17.1 $24.9 $20.6 $10.4 139.4% 20.9%
------ ------ ------ ------ ----- ------
Subtotal Connectivity Solutions $102.7 $129.9 $138.2 $131.0 -0.8% -6.0%
Intersegment eliminations -$3.4 -$4.9 -$4.8 -$3.7 n/a n/a
TOTAL COMMSCOPE $235.1 $260.8 $287.2 $256.7 1.6% -9.2%
CommScope's Cable segment sales rose 5% year-over-year to $135.8 million
and were up in all major product categories. Broadband sales were up
year-over-year primarily due to strong international sales, but were
somewhat offset by lower sales of fiber optic cable. LAN sales continue to
show good progress both year-over-year and sequentially. Wireless and Other
Telecom sales rose 57% year over year. The sequential decline in total
Cable segment sales was primarily due to lower domestic Broadband/Video
sales.
CommScope's Connectivity Solutions segment sales were essentially flat on a
pro forma basis year over year. SYSTIMAX(R) sales for the first quarter
were affected by CommScope's efforts to reduce external channel inventories
to a more appropriate level. Integrated Cabinet Solutions (ICS) sales grew
significantly year over year and sequentially primarily due to increasing
service provider deployments of Digital Subscriber Lines (DSL). Reduced
telephone central office spending and ongoing competitive pressures
continued to affect ExchangeMAX(R) sales. The sequential decline in pro
forma Connectivity Solutions segment sales was primarily due to lower
SYSTIMAX and lower ExchangeMAX sales.
Overall external orders booked in the first quarter of 2004 were $275.1
million, which includes Cable segment orders of $155.2 million and
Connectivity Solutions segment orders of $119.9 million. External cable
segment orders on a pro forma basis were $131.3 million for the first
quarter of 2003.
The consolidated pro forma net loss for the quarters ended March 31, 2004
and 2003, as if the acquisition had occurred as of the first day of each
quarter, was $23.1 million, or $0.38 per share, and $1.7 million, or $0.03
per share, respectively. The year-over-year increase in the pro forma net
loss was primarily due to the negative impact on gross margin of lower
sales and manufacturing volume, product mix and higher material costs in
the first quarter of 2004, somewhat offset by lower corporate overhead
expenses. The pro forma net loss for the quarter ended March 31, 2004
includes acquisition-related transition and startup costs, the impact of
purchase accounting adjustments and a loss on the early extinguishments of
debt, which are outlined below. These special charges are not reflected in
the pro forma net loss for the quarter ended March 31, 2003.
SPECIAL CHARGES
- ---------------
CommScope incurred significant special charges during the first quarter.
These pretax charges included:
o $13.3 million related to lower margins on certain inventory
acquired from Avaya in the acquisition and sold during the
quarter,
o $3.9 million for acquisition-related in-process research and
development,
o $6.7 million for acquisition-related transition and startup
costs, and
o $5.0 million for a loss on the early extinguishment of debt.
Excluding these special charges, adjusted net income was $3.6 million and
adjusted earnings per share was $0.06 per share. Please refer to the
attached supplementary schedule "Reconciliation of GAAP to Adjusted Results"
for a quantitative reconciliation.
GROSS MARGIN
- ------------
The company's overall gross margin for the first quarter was 15.9%, which
includes $13.3 million related to lower margins on certain inventory
acquired from Avaya in the acquisition and sold during the quarter.
Excluding this impact, the company's adjusted gross margin for the first
quarter was 21.6%. Gross margin was also affected by lower sales and
manufacturing volume, unfavorable product mix as well as higher material
costs during the quarter. The previously announced price increases for
enterprise products had minimal impact in the first quarter; however, they
are expected to have a more significant impact in the second quarter.
Additionally, as a result of rising material costs, CommScope recently
announced a 5% price increase for essentially all broadband cable products,
which will be effective beginning in late May.
"During the first quarter, we also took aggressive steps to reduce internal
and external channel inventories," stated Drendel. "We slowed production at
certain facilities during the quarter in order to use existing inventories
purchased in our recent acquisition. While cost of sales was negatively
affected in the quarter, we improved cash flow."
CASH FLOW AND LIQUIDITY
- -----------------------
Net cash provided by operating activities was $21.6 million for the first
quarter. Capital expenditures were $1.8 million in the quarter. The Company
expects capital expenditures to be approximately $30 million for calendar
year 2004, which includes capital spending associated with a planned facility
in Asia.
As previously announced, effective January 31, 2004, CommScope completed
the acquisition of substantially all of the assets of the Connectivity
Solutions business from Avaya Inc., except for certain international
operations that are expected to be completed later this year. The total
purchase price consisted of $250 million in cash, subject to post-closing
adjustments, and approximately 1.8 million shares of CommScope common
stock. CommScope assumed certain current liabilities of the Connectivity
Solutions business and up to $65 million of other specified liabilities,
primarily related to employee benefits.
Also during the quarter, CommScope issued in a private placement $250
million aggregate principal amount of 1% convertible subordinated
debentures due 2024. The proceeds of this offering were used as follows: a)
to retire all of the $172.5 million aggregate principal amount of our
outstanding 4% convertible subordinated notes due 2006 through repurchase
and redemption; b) to repay $25 million of outstanding revolving credit
loans under our senior secured credit facility; and c) for other general
corporate purposes.
During the quarter, CommScope repurchased $102.9 million aggregate
principal amount of the 4% convertible notes for $106.0 million in
privately negotiated transactions. The remaining $69.6 million aggregate
principal amount of the 4% convertible notes was redeemed on April 26,
2004, for $71.8 million, which includes the call premium and accrued
interest. CommScope ended the first quarter with $186.1 million in cash and
cash equivalents.
OFS BRIGHTWAVE RESULTS
- ----------------------
For the first quarter of 2004, OFS BrightWave had revenues of $20.5
million, a negative gross profit of $5.8 million and a net loss of $12.0
million. This compares to revenues of $28.3 million, a negative gross
profit of $20.6 million and a net loss of $32.8 million for the year-ago
quarter.
CommScope recorded after-tax charges of $0.8 million, or $0.01 per share,
in the first quarter of 2004 for its share of losses of OFS BrightWave
related to the Company's minority investment in this venture.
As previously announced, The Furukawa Electric Co. Ltd. (Tokyo: 5801) has
combined certain cable production activities and restructured the OFS
operations. As a result of these restructuring actions and because
CommScope chose not to make further investments in OFS BrightWave, our
equity ownership percentage was reduced to 9.4% effective April 1, 2004.
This change in ownership does not currently affect the losses recognized by
CommScope for accounting purposes. The Company's share of OFS BrightWave
losses is based on CommScope's proportionate share of OFS BrightWave's
long-term debt, which was approximately 11% as of March 31, 2004.
OTHER COMMSCOPE FIRST QUARTER 2004 HIGHLIGHTS
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o Total actual international sales were $73.7 million for the
quarter and $85.0 million on a pro forma basis, as if
Connectivity Solutions had been acquired on January 1, 2004.
International Cable segment sales increased significantly year
over year, while international Connectivity Solutions segment
sales decreased moderately on a pro forma basis.
o Sales to Anixter and its affiliates totaled approximately 29% of
CommScope sales for the quarter.
o During the quarter, CommScope announced new pricing for certain
enterprise products. Prices increased by 3 percent to 8 percent
for new enterprise projects primarily due to the rising cost of
copper and polymers. An additional price increase of up to 10%
for fluoropolymer-based products was also implemented for new
projects.
o Total depreciation and amortization was $14.5 million, which
included $2.3 million of intangibles amortization and deferred
financing fees of $2.3 million.
o As a result of expanded international activities in lower tax
rate jurisdictions, CommScope's effective tax rate for the
quarter was approximately 31%.
UNIPRISE SOLUTIONS(TM)
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On April 27, 2004, CommScope introduced Uniprise SolutionsTM, a second
structured cabling solution for enterprise networks. The Uniprise
integrated solution is built upon proven connectivity technology from our
recent acquisition and CommScope's high-performance cable. With the
introduction of Uniprise, the Company has expanded its ability to serve the
needs of the total enterprise market.
The industry-leading SYSTIMAX(R) Solutions, a CommScope company, will
continue to offer premium, cutting-edge solutions to its global customers.
The Uniprise brand will provide customers with competitive performance and
value-oriented solutions based on established technology.
COMMSCOPE SECOND QUARTER 2004 OUTLOOK
- -------------------------------------
"Looking ahead to the second quarter of 2004, we expect total sales in the
$280-$300 million range," said CommScope Executive Vice President and Chief
Financial Officer Jearld Leonhardt. "While we expect higher material costs
in the second quarter, we also expect to begin to see a positive impact
from price increases. Overall, we expect gross margin to be in the 22-23%
range in the second quarter, excluding special charges. We expect SG&A
expense to be around 16-17% of sales and R&D to be around 2-3% of sales.
Depreciation and amortization expense is expected to be approximately $14.8
million for the second quarter.
"We also expect to incur up to $10 million of additional special charges in
the second quarter related to the remaining impact of purchase accounting
adjustments related to certain inventory acquired from Avaya in the
transaction and sold during the quarter as well as other acquisition-
related transition and startup costs."
CONFERENCE CALL INFORMATION
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CommScope will host a conference call/webcast today at 5:00 p.m. (EDT) to
discuss first quarter results. You are invited to listen to the conference
call or 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 212-346-6540. 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 Internet at:
http://www.firstcallevents.com/service/ajwz405012789gf12.html
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
402-977-9140 for the replay. The replay ID is 21193527. The replay will be
available through Tuesday, May 11th. A webcast replay will
also be archived for a limited period of time following the conference call
via the Internet on CommScope's web site (http://www.commscope.com).
ABOUT COMMSCOPE
CommScope (NYSE: CTV - http://www.commscope.com) is a world leader in the
design and manufacture of 'last mile' cable and connectivity solutions for
communication networks. We are the global leader in structured cabling
systems for business enterprise applications and the world's largest
manufacturer of coaxial cable for Hybrid Fiber Coaxial (HFC) 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 from the central office to the home.
(Minimum requirements to listen to the broadcast and replay on the
Internet: The Windows Media Player software, downloadable free from
http://www.microsoft.com/windows/windowsmedia/EN/default.asp, and at least
a 28.8Kbps connection to the Internet. If you experience problems listening
to the broadcast, send an email to webcastsupport@tfprn.com.)
FORWARD-LOOKING STATEMENTS
- --------------------------
This press release contains forward-looking statements regarding, among
other things, the business position, plans, transition, outlook, margins,
revenues, earnings, accretion, synergies and other financial items, and
integration and restructuring plans related to CommScope's acquisition of
substantially all of the assets and certain liabilities of Connectivity
Solutions ("the acquisition") that are based on information currently
available to management, management's beliefs and a number of assumptions
concerning future events. 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, the ability of the Company to complete the acquisition of
certain international operations of Connectivity Solutions; the challenges
of transition, integration and restructuring associated with the
acquisition; post-closing adjustments; purchase accounting adjustments; the
challenges of achieving anticipated synergies; the ability to retain
qualified employees and existing business alliances; maintaining
satisfactory relationships with represented employees; customer demand for
Connectivity Solutions products, applications and service; any statements
of belief and any statements of assumptions underlying any of the
foregoing; expected demand from Comcast Corporation and other major
domestic MSOs; telecommunications industry capital spending; ability to
maintain successful relationships with Anixter and other major
distributors; industry consolidation; ability of our customers to secure
adequate financing to fund their infrastructure projects or to pay us;
product demand and industry excess capacity; changes or fluctuations in
global business conditions; financial performance and limited control of
OFS BrightWave; competitive pricing and acceptance of our products; changes
in cost and availability of key raw materials, especially those that are
available only from limited sources; ability to recover higher material and
transportation costs from our customers through price increases; possible
future impairment charges for goodwill and other long-lived assets;
industry competition and the ability to retain customers; possible
disruption due to customer or supplier bankruptcy, reorganization or
restructuring; our ability to obtain financing and capital on commercially
reasonable terms; covenant restrictions and our ability to comply with
covenants in our debt agreements; successful operation of our vertical
integration activities; successful expansion and related operation of our
facilities; achievement of sales, growth and earnings goals; ability to
achieve reductions in costs; ability to retain and attract key personnel;
developments in technology; intellectual property protection; product
performance issues and associated warranties; adequacy and availability of
insurance; regulatory changes affecting us or the industries we serve;
acquisition activities and the ability to integrate acquisitions;
environmental issues; terrorist activity or armed conflict; political
instability; major health concerns and other factors. For a more complete
description of factors that could cause such a difference, please see
CommScope's filings with the Securities and Exchange Commission. 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.
CONTACTS:
PHIL ARMSTRONG BETSY LAMBERT, APR
INVESTOR RELATIONS MEDIA RELATIONS
(828) 323-4848 (828) 323-4873
COMMSCOPE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED -- IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended
March 31,
-------------------------
2004 2003
------------ -----------
Net sales $ 235,061 $ 129,368
------------ -----------
Operating costs and expenses:
Cost of sales 197,677 105,251
Selling, general and administrative 35,984 20,070
Research and development 4,866 1,589
In-process research and development charges 3,894 -
Acquisition-related transition and startup costs 6,739 -
------------ -----------
Total operating costs and expenses 249,160 126,910
------------ -----------
Operating income (loss) (14,099) 2,458
Other income (expense), net (1,126) 209
Loss on early extinguishment of debt (5,029) -
Interest expense (2,759) (2,158)
Interest income 479 617
------------ -----------
Income (loss) before income taxes and equity
in losses of OFS BrightWave, LLC (22,534) 1,126
Income tax benefit (expense) 6,979 (417)
------------ -----------
Income (loss) before equity in losses of
OFS BrightWave,LLC (15,555) 709
Equity in losses of OFS BrightWave, LLC, net of tax (815) (3,782)
------------ -----------
Net loss $ (16,370) $ (3,073)
============ ===========
Net loss per share:
Basic $ (0.27) $ (0.05)
Assuming dilution $ (0.27) $ (0.05)
Weighted average shares outstanding:
Basic 60,653 59,220
Assuming dilution 60,653 59,220
COMMSCOPE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
March 31, December 31
2004 2003
------------ -----------
ASSETS
Cash and cash equivalents $ 186,135 $ 206,038
Accounts receivable, less allowance for doubtful
accounts of $13,687 and $12,145, respectively 144,865 69,461
Inventories 113,362 32,723
Prepaid expenses and other current assets 25,082 8,389
Deferred income taxes 15,006 14,061
------------ -----------
Total current assets 484,450 330,672
Property, plant and equipment, net 346,840 176,290
Goodwill 151,360 151,368
Other intangibles, net of accumulated amortization of
$44,713 and $42,435, respectively 88,709 6,330
Deferred income taxes 46,425 44,756
Advances to OFS BrightWave, LLC 12,038 13,361
Other assets 21,109 17,004
------------ -----------
Total Assets $1,150,931 $ 739,781
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 59,819 $ 14,659
Other accrued liaiblities 95,407 35,377
Current portion of long-term debt 92,075 --
------------ -----------
Total current liabilities 247,301 50,036
Long-term debt 309,550 183,300
Other noncurrent liabilities 117,572 50,739
------------ -----------
Total Liabilities 674,423 284,075
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value; Authorized
shares: 20,000,000; Issued and outstanding
shares: None at March 31, 2004 and
December 31, 2003 -- --
Common stock, $.O1 par value; Authorized shares:
300,000,000; Issued shares, including treasury
stock: 64,057,054 at March 31, 2004 and
61,861,376 at December 31, 2003; Issued and
outstanding shares: 61,513,954 at March 31, 2004
and 59,318,276 at December 31, 2003 641 619
Additional paid-in capital 423,119 384,889
Retained earnings 74,585 90,955
Accumulated other comprehensive loss (8,613) (7,533)
Treasury stock, at cost: 2,543,100 shares at
March 31, 2004 and December 31, 2003 (13,224) (13,224)
------------ -----------
Total Stockholders' Equity 476,508 455,706
------------ -----------
Total Liabilities and Stockholders' Equity $1,150,931 $739,781
============ ===========
COMMSCOPE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - IN THOUSANDS)
Three Months Ended
March 31,
-------------------------
2004 2003
------------ -----------
OPERATING ACTIVITIES:
Net loss $ (16,370) $ (3,073)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 14,493 8,636
In-process research and development charges 3,894 --
Equity in losses of OFS BrightWave, LLC, pretax 1,318 6,046
Deferred income taxes (2,627) (1,410)
Tax benefit from stock option exercises 789 --
Changes in assets and liabilities: 20,122 (6,007)
------------ -----------
Net cash provided by operating activities 21,619 4,192
INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,761) (1,849)
Acquisition of Connectivity Solutions (285,856) --
Proceeds from disposal of fixed assets 72 56
------------ -----------
Net cash used in investing activities (287,545) (1,793)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 75,000 --
Principal payments on long-term debt (3,750) --
Proceeds from issuance of convertible notes 250,000 --
Repayment of convertible notes (102,925) --
Proceeds from issuance of stock 32,853 --
Long-term financing costs (10,013) (1,166)
Proceeds from exercise of stock options 5,110 --
------------ -----------
Net cash provided by (used in) financing activities 246,275 (1,166)
Effect of exchange rate changes on cash (252) 363
------------ -----------
Change in cash and cash equivalents (19,903) 1,596
Cash and cash equivalents, beginning of period 206,038 120,102
------------ -----------
Cash and cash equivalents, end of period $ 186,135 $ 121,698
============ ===========
COMMSCOPE
First Quarter 2004
Reconciliation of GAAP to Adjusted Results
Net Income
Net Income (Loss)
(Loss) $m Per Share
---------- ----------
GAAP RESULTS REPORTED ($16.4) ($0.27)
Special charges (after-tax):
Impact of purchase accounting inventory adjustments $9.2 $0.15
Acquisition-related in-process research & development $2.7 $0.04
Acquisition-related transition & start-up costs $4.6 $0.08
Loss on early extinguishment of debt $3.5 $0.06
---- -----
Total special charges (after-tax): $20.0 $0.33
ADJUSTED RESULTS $3.6 $0.06
CommScope management believes that presenting net income and net income per
share excluding special charges noted above provides meaningful information
to management and investors, which could allow them to more easily compare
results period to period.
CommScope expects up to $10 million of additional pretax charges in the
second quarter of 2004 for acquisition-related transition and startup costs
and the impact of purchase accounting adjustments.
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