April 24, 2006
VIA EDGAR
Mr. Larry Spirgel
Securities and Exchange Commission
Division of Corporation Finance
100 F. Street, N.E.
Washington, D.C. 20549
Re: COMMSCOPE, INC.
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
FILED MARCH 1, 2006
FILE NO. 1-12929
Dear Mr. Spirgel:
We are counsel for CommScope, Inc., a Delaware corporation (the
"Company"). We refer to your letter dated March 30, 2006 (the "Comment
Letter") commenting on the Form 10-K for the fiscal year ended December 31,
2005 (the "2005 Form 10-K") filed by the Company with the Securities and
Exchange Commission (the "SEC") on March 1, 2006.
Set forth below are the Company's responses to the comments of
the Staff of the Division of Corporation Finance (the "Staff") numbered to
correspond to the numbering of the comments of the Staff in the Comment
Letter (a copy of which is attached as Annex A).
FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 2005
- -------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, PAGE 24
- --------------------------------------------------------------------------
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2005
WITH THE YEAR ENDED DECEMBER 31, 2004
- -------------------------------------------------------------------------
1. BASED ON YOUR DISCLOSURE AT PAGE 81, IT APPEARS THAT YOUR
SEGMENTS CONTRIBUTE IN A DISPROPORTIONATE WAY TO YOUR OPERATING
RESULTS. REVISE YOUR DISCLOSURE TO DISCUSS YOUR RESULTS OF
OPERATIONS ON A SEGMENT BASIS, AS REQUIRED BY SECTION 501.06 OF
THE CODIFICATION OF FINANCIAL REPORTING POLICIES. IN THIS REGARD,
WE NOTE THAT YOU DISCUSS INFORMATION REGARDING NET SALES FOR EACH
SEGMENT WITHIN MD&A. EXPAND THIS DISCLOSURE TO DISCUSS YOUR
SEGMENT MEASURE OF PROFIT OR LOSS, WHICH APPEARS TO BE "OPERATING
INCOME (LOSS)," FOR EACH REPORTABLE SEGMENT.
The Company considered the guidance about MD&A contained in
Section 501.06(a) of the Codification of Financial Reporting
Policies. The Company believes that its current disclosures
provide the necessary information for a reader to develop an
understanding of its business and operating results. The Company
does not believe that a separate section within MD&A to address
operating income (loss) by reportable segment would meaningfully
add to the overall quality of its disclosure. Each of the
material items that affect the comparability of operating income
(loss) by segment (sales volumes, pricing changes, raw material
costs, expense reductions, restructuring costs, recovery of
accounts receivable from Adelphia Communications Corporation, the
impact of acquiring the Connectivity Solutions business of Avaya
Inc. ("Connectivity Solutions") and acquisition related costs)
are already addressed within the MD&A. Accordingly, the Company
respectfully submits that it does not believe that a revision of
its prior disclosures is necessary. The Company intends, however,
to begin to add a narrative comparison of operating income
(loss), by segment, to its MD&A disclosures in its future
filings, commencing with the first quarter Form 10-Q for 2006.
Solely for the convenience of the Staff in considering the
Company's response, the Company has prepared a framework for such
additional MD&A disclosure for the first quarter of 2006
(excluding numerical values), a copy of which is attached as
Annex B.
OFS BRIGHTWAVE, LLC, PAGE 32
- ----------------------------
2. WE NOTE THE DISCUSSIONS ON PAGES 32-33 AND PAGES 37-38 OF MD&A
CONCERNING OFS BRIGHTWAVE, LLC AND THE NEGOTIATIONS WITH
FURUKAWA, AND THE RELATED DISCLOSURE IN FOOTNOTE 5 TO YOUR
FINANCIAL STATEMENTS. PLEASE EXPAND YOUR DISCLOSURES HERE AND IN
NOTE 5 SO THAT THE FACTS AND CIRCUMSTANCES CONCERNING YOUR
NEGOTIATIONS WITH FURUKAWA, AND THE IMPACT FROM THE RESULTING
AMENDMENTS TO THE AGREEMENTS, ARE WHOLLY TRANSPARENT TO
INVESTORS. IN YOUR DISCLOSURES, SEPARATELY ADDRESS EACH OF THE
AGREEMENTS IN PLACE PRIOR TO THE NEGOTIATIONS IN JUNE 2004 AND
EACH OF THE AGREEMENTS IN PLACE AFTER THE NEGOTIATIONS IN 2004.
DISCLOSE THE MATERIAL TERMS, THE BUSINESS PURPOSE, THE FINANCIAL
IMPACT, YOUR ACCOUNTING, AND THE BASIS FOR THIS ACCOUNTING AND
ADVISE US. YOUR REVISED DISCLOSURES AND SUPPLEMENTAL RESPONSE
SHOULD SPECIFICALLY ADDRESS THE FOLLOWING COMMENTS.
a. REGARDING THE IMPACT OF YOUR NEGOTIATIONS WITH FURUKAWA, IT
IS OUR UNDERSTANDING THAT PRIOR TO AMENDING YOUR AGREEMENTS
WITH FURUKAWA ON JUNE 14, 2004, COMMSCOPE HAD THE ABSOLUTE
AND UNCONDITIONAL RIGHT TO SELL TO FURUKAWA ALL, BUT NOT
LESS THAN ALL, OF THE COMPANY'S MEMBERSHIP INTEREST IN OFS
BRIGHTWAVE FOR $173,388,000. THIS PUT RIGHT COULD ONLY BE
EXERCISED BY THE COMPANY FROM FEBRUARY 15, 2006 TO MARCH 15,
2006. IF FURUKAWA FAILED TO PAY THE EXERCISE PRICE IN FULL
WHEN DUE, FURUKAWA WOULD THEN BE REQUIRED TO PAY DEFAULT
INTEREST AT A RATE PER ANNUM EQUAL TO THE THREE MONTH LIBOR
PLUS 2.75%, AND ALL OF THE COMPANY'S REASONABLE
OUT-OF-POCKET COSTS AND EXPENSES INCURRED TO COLLECT PAYMENT
OF THE EXERCISE PRICE AND THE DEFAULT INTEREST. ALSO,
PURSUANT TO THE STOCKHOLDERS AGREEMENT BETWEEN THE COMPANY
AND FURUKAWA, IF THE COMPANY EXERCISED THE PUT RIGHT,
FURUKAWA WOULD, AT THAT TIME, HAVE THE RIGHT TO REQUIRE THE
COMPANY TO PURCHASE THE 7,656,000 SHARES OF COMMON STOCK OF
THE COMPANY OWNED BY FURUKAWA FOR AN AGGREGATE PRICE OF
$45,788,262.
Please note that The Furukawa Electric Co., Ltd. ("Furukawa")
owned 7,656,900 (as opposed to 7,656,000) shares of the Company's
common stock, par value $0.01 per share (the "Common Stock"),
prior to June 14, 2004.
IT APPEARS THAT IF COMMSCOPE HAD WAITED UNTIL FEBRUARY 15,
2006 TO EXERCISE ITS RIGHT UNDER THE PUT, AND IF FURUKAWA
EXERCISED ITS PUT RIGHT, IT COULD HAVE RECEIVED NET CASH OF
APPROXIMATELY $127.6 MILLION IN ADDITION TO THE 7,656,000
SHARES OF COMMON STOCK. CLEARLY DISCLOSE THAT THE COMPANY,
BY AGREEING TO ACCEPT THE RETURN OF 7.7 MILLION SHARES OF
COMMON STOCK IN JUNE 2004, LOST THE OPPORTUNITY TO RECEIVE,
AT MOST, NET CASH OF $127.6 MILLION AND THE RETURN OF 7.7
MILLION COMMON SHARES ON FEBRUARY 15, 2006.
The Company has considered the Staff's comment and believes that
the existing disclosure in its MD&A adequately conveys to
investors the material terms and impact of its 2004 transactions
with Furukawa, which the Company believed at the time were, and
continues to believe are, quite beneficial to it. For the reasons
set forth below, the Company believes that the transactions
enabled it to achieve its dual objectives of an early sale of its
equity interest investment in OFS BrightWave, LLC ("OFS
BrightWave"), an unprofitable venture, at a fair value and also
reacquiring the Common Stock owned by Furukawa, without
jeopardizing the Company's liquidity position:
(i) Beginning in early 2004, the Company began to consider a
possible disposition of its interest in OFS BrightWave as
soon as practicable. OFS BrightWave had been incurring
substantial losses due to greatly reduced demand for fiber
optic products and very low factory utilization rates (see
Annex C for an excerpt from a report by Morgan Stanley on
Furukawa's optical fiber business). In fact, some
independent analysts viewed the enterprise value of OFS as
"close to zero" (see Annex D for an excerpt from a report
by NikkoCitigroup). As a result of its equity interest in
OFS BrightWave, the Company itself had incurred
approximately $124 million in losses, on an after tax
basis, over the prior four years. The Company had tried to
monetize its right to sell its equity interest in OFS
BrightWave to Furukawa (the "CommScope Transfer Right"),
but was unsuccessful in such attempts.
(ii) The Company was concerned about whether Furukawa would be
able to make the required payment of $173,338,000 if the
Company waited until February 2006 to exercise the
CommScope Transfer Right. Furukawa was experiencing heavy
operating losses (approximately $1.3 billion of losses in
its fiscal year ended March 2004) and also had suspended
its dividend payment for the first time since 1949, and the
Company was worried that Furukawa might have encountered
difficulty making a substantial cash payment to the Company
due to liquidity concerns.
(iii) The Company was concerned that Furukawa might contest the
enforceability of its obligations under the CommScope
Transfer Right or take other actions which would hinder the
Company's ability to collect the required cash payment. The
Company's relationship with Furukawa's senior management
was changing in 2004, as OFS BrightWave had new management
and Furukawa had a new CEO. Under these circumstances the
Company believed that the ultimate collection of the
required cash payment upon exercise of the CommScope
Transfer Right might have been difficult or taken a
prolonged effort.
(iv) Although the Company wanted to repurchase its shares from
Furukawa, it had limited cash reserves with which to fund
such repurchase. In January 2004 the Company completed the
acquisition of the Connectivity Solutions business, which
effectively doubled the size of the Company and required a
$250,000,000 cash payment from the Company (of which only
$100,000,000 was funded from borrowings under the Company's
senior secured credit facility, with the remainder being
funded from available cash). As indicated in the Company's
response to Item 2(d), even if the Company had sought to
repurchase the shares for cash, such payment would have
been subject to various contractual restrictions (including
under the Company's senior secured credit facility), and
the Company may not have been able to obtain the consents
needed to consummate the transaction.
(v) Furukawa only had the right, not the obligation, to sell to
the Company its Common Stock at a price of $5.98 per share,
and the Company therefore could not assume it would have
been able to acquire such Common Stock at that price. Given
that the average price per share of the Common Stock for
the period from February 15, 2006 to March 15, 2006 was
$25.11, which was substantially in excess of the price per
share Furukawa would have received upon exercise of its
right, it is highly unlikely that Furukawa would have
exercised its right. As the Company had granted Furukawa
registration rights with respect to its shares under
certain circumstances (including upon exercise of the
CommScope Transfer Right), it is far more likely that
Furukawa would have attempted to sell the shares on the
open market rather than to the Company at a highly reduced
rate, an event that the Company believes would have had a
negative impact on the Company's share price in the open
market.
Accordingly, early in 2004, the Company began considering ways to
restructure its relationship with Furukawa in advance of the date
in 2006 when it could exercise the CommScope Transfer Right. The
transactions of June 2004, a result of extensive negotiations
between the Company and Furukawa, ultimately both (1) ensured
that the Company could realize a significant financial benefit
from an early sale of its equity interest, through acceleration
of the date on which the CommScope Transfer Right could be
exercised, by eliminating the credit and collection risks
inherent in delaying that exercise and (2) enabled the Company to
acquire approximately 12% of its then outstanding Common Stock at
a reasonable price, without reducing its liquidity.
If the Company had waited until February 15, 2006 to exercise the
CommScope Transfer Right, as the Staff suggests, and then
attempted to reacquire the 7.7 million shares held by Furukawa
(thereby putting itself in the same position as resulted from the
June 2004 amendments), the Company believes, based on the
contract terms and what it knows now, that the most likely
scenario would have been as follows:
(i) Furukawa would have sold the Common Stock in the market, or
to the Company, to fund the payment of $173,388,000 to the
Company pursuant to the CommScope Transfer Right, and
(ii) the Company would have received $173.3 million (assuming
Furukawa would have been able and willing to make the
required cash payment to the Company), but if the Company
had wished to acquire the shares once held by Furukawa, the
Company would have had to pay either approximately $218
million (using for purposes of this calculation the closing
price of the Common Stock, $28.55, on March 31, 2006) to
repurchase the 7.7 million shares of its Common Stock in
the market or approximately $195 million (assuming an
exercise date of March 31, 2006) if the shares could have
been acquired from Furukawa at the 90% call price.
Accordingly, had the Company waited to exercise the CommScope
Transfer Right until February 15, 2006 and subsequently sought to
reacquire the shares, the Company would have expended
approximately an additional $22 million to $45 million in cash in
excess of the $173.3 million it would have received upon exercise
of the CommScope Transfer Right, an excess it did not have to pay
as a result of the June 2004 amendments.
The Company believes that it has adequately disclosed the
accounting treatment for the Furukawa transaction on page 32 of
the 2005 Form 10-K, as set forth below:
"The OFS BrightWave transaction resulted in a net pretax
gain of $121.3 million ($76.4 million net of tax or $1.13
per diluted share) during 2004. This gain represents (1) the
fair value of the common stock received by us in exchange
for the transfer of our ownership interest in OFS BrightWave
to Furukawa, plus (2) the realized gain from our cumulative
equity method share of OFS BrightWave's unrealized foreign
currency translation gains previously recorded in
accumulated other comprehensive loss, less (3) an $11
million impairment charge related to fully impairing a $30
million note receivable from OFS BrightWave. This
transaction does not affect our right to receive full
payment from OFS BrightWave under the $30 million note due
in November 2006, based on its original terms. We have
continued to receive quarterly interest payments in
accordance with the terms of the note."
b. FURTHER, YOU SHOULD EXPLAIN IN MD&A WHY YOU AGREED TO ACCEPT
THE RETURN OF 7.7 MILLION SHARES OF YOUR COMMON STOCK ON
JUNE 14, 2004 IN LIEU OF $173.4 MILLION IN CASH IN FEBRUARY
2006 IN EXCHANGE FOR YOUR INVESTMENT IN OFS BRIGHTWAVE.
The Company does not believe that any further discussion is
necessary in MD&A for the reasons set forth below. In addition to
the reasons set forth in the Company's response to Item 2(a)
(including the $121.3 million pre-tax gain on the transaction and
concerns about whether Furukawa would fund the cash payment), the
Company notes that the June 2004 transactions enabled it to
dispose of its entire equity interest in OFS BrightWave almost
two years earlier than would otherwise have been possible had the
right to exercise the CommScope Transfer Right not been
accelerated, a significant benefit in light of the substantial
losses incurred by the Company due to its ownership of such
equity interest (approximately $124 million over 4 years on an
after-tax basis) and the ongoing difficulties in the fiber optic
market.
c. CLEARLY EXPLAIN TO INVESTORS HOW THE JUNE 2004 AMENDMENTS TO
THE EXISTING CONTRACTUAL AGREEMENTS WERE "FOR THE MUTUAL
BENEFIT OF BOTH PARTIES." IN THIS DISCUSSION, DISCLOSE THE
CLOSING PRICE OF YOUR COMMON STOCK ON JUNE 14, 2004 AND
EXPLAIN WHY YOU EFFECTIVELY PAID A PREMIUM TO BUY BACK YOUR
STOCK. QUANTIFY THIS PREMIUM OVER THE THEN CURRENT MARKET
VALUE OF YOUR COMMON STOCK, YOUR CALL RIGHT PRICE, AND THE
FURUKAWA PUT PRICE. IF THE AMENDMENTS TO THE AGREEMENTS WERE
TO THE DETRIMENT OF THE COMPANY, AS IT APPEARS, YOU SHOULD
CLEARLY SAY SO AND REMOVE ALL SUGGESTIONS OTHERWISE.
The Company has considered the Staff's comment but believes that
the existing disclosure adequately conveys to investors that the
June 2004 amendments were in fact beneficial to both the Company
and Furukawa, as set forth in the Company's response to Items
2(a) and (b).
The closing price of the Common Stock on June 14, 2004 was $17.28
per share. The Company specifically notes that on June 15, 2004,
the day on which the amendments were publicly disclosed, the
Common Stock price rose by approximately 10% to $18.96 per share,
and that by June 30, 2004 the Common Stock price had increased to
$21.45 per share. This response appears to indicate that the
market viewed the restructuring of the Company's relationship
with Furukawa as beneficial to the Company.
The Company believes that a non-monetary exchange involving a
highly illiquid asset (the equity interest in OFS BrightWave),
pursuant to an accelerated CommScope Transfer Right, is
significantly different than an open market cash purchase of the
shares. As a result, the Company does not believe that it paid a
premium to reacquire the shares and does not think the nominal
value, based on the cash payment the Company could have received
upon exercise of the CommScope Transfer Right, of the shares
acquired is meaningful. The Company's call right price (which was
variable) was $15.56 per share on June 14, 2004, and the Furukawa
put price was $5.98 per share. The Company notes that the Common
Stock is currently trading at a price ($28.55 as of the close of
business on March 31, 2006) that greatly exceeds its trading
price at the time of the June 2004 transaction ($17.28 per
share). This further supports the Company's view that the
amendments were beneficial to the Company.
Finally, the Company notes that the June 2004 amendments enabled
the Company to reacquire the Common Stock owned by Furukawa
without making a cash payment, which the Company considered a
significant benefit given its liquidity position at the time as
well as potential restrictions in its debt agreements relating to
such payments (as described in the Company's responses to Items
2(a) and 2(d)).
With respect to Furukawa, the Company notes in particular that
the amendments enabled Furukawa to avoid making a substantial
cash payment upon exercise of the CommScope Transfer Right, and
that Furukawa stated in its public filings that it believed the
transaction would generate a number of positive effects
(including further enhancing efficiencies in its management of
OFS BrightWave) (see Annex E).
d. DESCRIBE, IN DETAIL, THE TERMS OF THE CALL RIGHT HELD BY
COMMSCOPE (SECTION 6.1 OF THE STOCKHOLDERS AGREEMENT DATED
OCTOBER 9, 2002) AND EXPLAIN TO INVESTORS WHY THE COMPANY
CHOSE NOT TO PURCHASE THE 7.7 MILLION SHARES OF COMMON STOCK
AT 90% OF THE FAIR MARKET VALUE.
The Company has considered the Staff's comment but believes that
additional disclosure would not be material to investors, since
the exercise of the call right would not have achieved the
Company's key objectives.
The call right enabled the Company to purchase all, but not less
than all, of the shares owned by Furukawa for a price of
$45,788,262; provided that, if the fair market value of the
shares (defined as the product of (i) the number of shares owned
by Furukawa and (ii) the average per share closing price for the
10 trading days immediately preceding the exercise date) exceeded
$59,524,741, the purchase price for the shares would be 90% of
their fair market value. The Company could exercise this right at
any time upon not less than 10 nor more than 20 calendar days
written notice to Furukawa.
The exercise of the call right would have required a significant
upfront cash payment from the Company. As described in the
Company's response to Item 2(a), the Company in January 2004
completed the acquisition of the Connectivity Solutions business,
a major acquisition that was partially funded from the Company's
cash reserves. While the Company's $250,000,000 convertible
debenture offering in March 2004 improved its liquidity position
to a certain extent, a majority of the proceeds from this
offering was used to retire the Company's outstanding convertible
notes and to repay borrowings under its senior secured credit
facility. Furthermore, even if the Company had sought to exercise
the call right, the making of such payment would have been
subject to various contractual restrictions (including under the
Company's senior secured credit facility), and the Company may
not have been able to obtain the consents needed to consummate
the transaction. The Company therefore viewed the opportunity to
dispose of its equity interest in OFS BrightWave and reacquire
its Common Stock without depleting its cash reserves as a
substantial benefit.
e. DISCUSS IN MD&A THE IMPACT OF YOUR OPTICAL FIBER SUPPLY
AGREEMENT WITH FURUKAWA, DATED JUNE 14, 2004, ON YOUR GROSS
MARGINS AND ADVISE US IN DETAIL. TELL US IF YOU RECEIVED
FAVORABLE PRICING IN THIS ARRANGEMENT. IN YOUR RESPONSE,
PLEASE COMPARE FOR US THE PRICING OF EACH ITEM COVERED UNDER
THE OPTICAL FIBER SUPPLY AGREEMENT WITH OFS FITEL, LLC DATED
JUNE 14, 2004, AND THE OPTICAL FIBER SUPPLY AGREEMENT CITED
IN SECTION 5.2 OF THE MEMORANDUM OF UNDERSTANDING DATED
NOVEMBER 15, 2001.
As discussed in the Company's response to Item 2(f), the Company
believes that the pricing it received in the 2004 Supply
Agreement is consistent with its experience in negotiating supply
agreements generally, given both the declining prices in the
fiber optic market generally and the Company's status as the
largest customer of OFS Fitel, LLC ("OFS Fitel").
The execution of the Supply Agreement dated June 14, 2004 (the
"2004 Supply Agreement") may have had a positive impact on the
Company's gross margins in that it reduced the cost of optical
fiber, a key raw material for certain of its products, from the
then-current pricing. However, the pricing in the 2004 Supply
Agreement is largely reflective of market prices at the time, so
it is impossible to say whether or not the Company could have
achieved the same favorable pricing by using the price adjustment
mechanism provided in the November 16, 2001 Supply Agreement (the
"2001 Supply Agreement"), which is the agreement referenced in
the November 15, 2001 Memorandum of Understanding. Further, to
the extent the execution of the 2004 Supply Agreement did have an
effect on the Company's gross margins, the Company does not
believe this effect was material, since fiber optic cables make
up a relatively small part (5.8% in 2004 and 5.2% in 2005) of the
Company's overall sales. Consequently, the Company does not
believe that a detailed discussion of the effect of this
agreement on gross margins is necessary or appropriate in MD&A.
The 2004 Supply Agreement provided initial pricing for 12
products. Two of the products (6F Multimode Fiber - 6.25
(200/500) and 8W AllWave or comparable zero or low water peak
fiber) accounted for over 80% of the optical fiber purchased by
the Company from OFS Fitel in 2004 and 2005. With respect to most
covered products, the pricing included in the 2004 Supply
Agreement reflects further reductions from then-current pricing,
as noted in the table below. Based on the Company's internal
analysis of February 2004 (which is being provided to the SEC in
a supplemental submission due to its confidential nature), it
appears that these reductions were consistent with the overall
market for comparable optical fibers.
The following table provides the percentage by which the prices
included in the 2004 Supply Agreement changed from (1) pricing in
effect from January 1, 2004 through June 14, 2004 under the 2001
Supply Agreement, and (2) the initial prices under the 2001
Supply Agreement. The price lists under the 2004 Supply Agreement
and the 2001 Supply Agreement, as well as information on actual
pricing during the months leading up to the execution of the 2004
Supply Agreement, are being provided in a supplemental submission
due to the confidential nature of this information.
- -------------------------------------------------- ------------------- -------------------
PRODUCT % CHANGE FROM % REDUCTION FROM
THEN-CURRENT INITIAL 2001 SUPPLY
PRICING[1] AGREEMENT PRICING
- -------------------------------------------------- ------------------- -------------------
8M Matched Clad Single-Mode Fiber -4.96% -55.77%
- -------------------------------------------------- --------------------- ---------------------
Depressed Clad Single-Mode Fiber [2] [2]
- -------------------------------------------------- --------------------- ---------------------
6F Multimode Fiber - 62.5 (200/500) 0% to -8.22% -27.17%
- -------------------------------------------------- --------------------- ---------------------
6U Multimode Fiber - 62.5 (220/1000) +5.97% to -0.07% -29.70%
- -------------------------------------------------- --------------------- ---------------------
5H Multimode Fiber - 50.0 (500/500) +1.6% to -5.9% [3]
- -------------------------------------------------- --------------------- ---------------------
5L LaserWave 300 Fiber -21.67% [3]
- -------------------------------------------------- --------------------- ---------------------
5M LaserWave G+ 150 Fiber -2.81% [3]
- -------------------------------------------------- --------------------- ---------------------
8W AllWave or comparable zero or low water peak -10.07% -69.51%
fiber
- -------------------------------------------------- --------------------- ---------------------
8T TrueWave fiber -2.70% [3]
- -------------------------------------------------- --------------------- ---------------------
5K LaserWave 500 fiber -34.09% [3]
- -------------------------------------------------- --------------------- ---------------------
5D Multimode Fiber - 50um (3500/500) [4] [3]
- -------------------------------------------------- --------------------- ---------------------
5J Multimode Fiber - 50um (4500/500) [4] [3]
- -------------------------------------------------- --------------------- ---------------------
<FN>
[1] The information in this column is based on actual pricing for
representative orders placed during the period from 1/1/04
through 6/14/04 and/or OFS Fitel quotes used in an internal
competitive analysis prepared by the Company in February of 2004.
Actual pricing information and the February 2004 analysis are
being provided in a supplemental submission due to the
confidential nature of this information. Negative numbers
(indicated by "-" signs) indicate a reduction in pricing. Where
ranges are provided, the Company's records indicate that it
received multiple quotes and/or actual sale prices for this
product during the first six months of 2004.
[2] The 2004 Supply Agreement does not provide a fixed price for this
product.
[3] The 2001 Supply Agreement does not provide a fixed price for this
product.
[4] The Company had no orders with or quotes from OFS Fitel for this
product during the period from 1/1/04 through 6/14/04.
</FN>
f. EXPLAIN TO US WHY YOU ENTERED INTO THE OPTICAL FIBER SUPPLY
AGREEMENT ON JUNE 14, 2004. TELL US WHY IT WAS NECESSARY TO ENTER
INTO THE AGREEMENT ON THIS DATE AND NOT NECESSARY IN AN EARLIER
PERIOD. EXPLAIN TO US THE CONSIDERATION GIVEN BY MANAGEMENT AND
FURUKAWA TO THE TERMS OF THE AMENDMENTS TO YOUR OTHER AGREEMENTS
WHEN NEGOTIATING THE TERMS OF THE OPTICAL FIBER SUPPLY AGREEMENT.
ALSO, TELL US IF ALL THE MATERIAL TERMS OF THE OPTICAL FIBER
SUPPLY AGREEMENT, INCLUDING THE INITIAL PRICES FOR THE PRODUCTS
DETERMINED IN ACCORDANCE WITH APPENDIX A, WERE CONSISTENT WITH
WHAT WAS COMMERCIALLY AVAILABLE TO THE COMPANY FROM OTHER
SUPPLIERS OF SUBSTANTIALLY SIMILAR PRODUCTS ON JUNE 14, 2004.
PLEASE PROVIDE US UNREDACTED COPIES OF THIS AGREEMENT AND THE
AGREEMENT CITED IN SECTION 5.2 OF THE MEMORANDUM OF UNDERSTANDING
DATED NOVEMBER 15, 2001.
The 2001 Supply Agreement was scheduled to expire by its terms on
November 16, 2004, and both the Company and Furukawa were interested
in extending the agreement. Significantly, some of the products
covered by the 2001 Supply Agreement, and subsequently included in the
2004 Supply Agreement, were not necessarily available from other
suppliers, as they were based on proprietary technology owned or
licensed by OFS Fitel. Given these facts, it would not be unusual for
the Company to commence discussions with an important vendor six to
twelve months prior to the expiration of a supply agreement, so the
timing of the Company's negotiations with regards to the supply
relationship was in line with its normal practices. Further, since the
Company was seeking to amend its other agreements with Furukawa and
dispose of its equity interest in OFS BrightWave at this time,
management believed it was also appropriate to open discussions
relating to the supply agreement in the hopes that the Company could
obtain a consistent future supply of high quality optical fiber after
the termination of its ownership interest in OFS BrightWave, at
market-competitive pricing. It was not necessary to enter into a new
supply agreement at an earlier date because the existing agreement was
not due to expire until November 2004. Further, since pricing from OFS
Fitel had been maintained at reasonably competitive levels during the
period prior to June 2004, there were no grounds to terminate or
renegotiate the 2001 agreement.
The Company notes that, although the June 2004 contractual amendments
provided the Company with the opportunity to open discussions with
Furukawa relating to the supply agreement, little if any consideration
was given by the Company's management to the terms of the amendments
to the other agreements when negotiating the terms of the 2004 Supply
Agreement. Negotiations with respect to the 2004 Supply Agreement were
primarily handled by the Company's Vice President for procurement, who
had minimal involvement in negotiations relating to the other
agreements.
The Company cannot address what consideration Furukawa may have given
to the terms of the other agreements while negotiating the 2004 Supply
Agreement.
Based on the then-current pricing provided by OFS Fitel, as well as
information gathered by the Company in connection with the February
2004 competitive analysis referenced above, the Company believes that
the initial pricing terms included in the 2004 Supply Agreement were
favorable to the Company and were consistent with or better than
alternative vendors' pricing. As for other terms, the Company believes
that the 2004 Supply Agreement is favorable to the Company in that it
provides for a committed supply of the high quality optical fibers
needed by the Company into June 2008. In most cases, the terms of the
2004 Supply Agreement are identical to the 2001 Supply Agreement and
conform to the Company's standard forms and practices. In light of
both the declining state of the fiber optic market and the Company's
status as OFS Fitel's largest customer, however, the Company considers
the favorable pricing and other terms it received in the 2004 Supply
Agreement to be entirely consistent with its experiences in
negotiating supply agreements generally.
The 2001 Supply Agreement and the 2004 Supply Agreement are being
provided to the Staff in a supplemental submission. The Company notes
that it previously filed a confidential treatment request with respect
to the pricing information and other sensitive commercial terms of the
2004 Supply Agreement (dated June 15, 2004, subsequently amended on
August 13, 2004), and was granted confidential treatment, pursuant to
your Order dated September 27, 2004 (File No. 001-12929; CF Control
No. 15421). The Company voluntarily filed the 2004 Supply Agreement
with the SEC in the context of filing the agreements relating to the
restructuring of the Company's relationship with Furukawa, even though
it did not consider it a material agreement by itself. The 2001 Supply
Agreement requested by the Staff has not been filed with the SEC (as
the Company did not consider it a material agreement), and is thus not
publicly available. Likewise, the additional pricing information
referenced herein that is being provided in the Company's supplemental
submission is not publicly available and includes sensitive
competitive information. Accordingly, simultaneously with this letter,
the Company is delivering the two supply agreements and the additional
pricing information to the Staff by hand, and requests that the Staff
return such agreements and information to the Company after its
review.
NOTE 6 - RESTRUCTURING CHARGE AND EMPLOYEE TERMINATION BENEFITS
- ---------------------------------------------------------------
3. WE NOTE THAT YOU HAVE IDENTIFIED PRODUCTION EQUIPMENT THAT WILL
BE AVAILABLE FOR SALE PENDING THE CONSOLIDATION OF CERTAIN
PRODUCTION OPERATIONS IN OTHER FACILITIES. YOU HAVE RECORDED THIS
EQUIPMENT AT ITS ESTIMATED NET REALIZABLE VALUE UPON SALE PLUS AN
ESTIMATE OF ITS REMAINING UTILITY WHILE STILL IN SERVICE. CLARIFY
FOR US WHETHER YOU CONTINUE TO CLASSIFY THIS EQUIPMENT AS ASSETS
TO BE HELD AND USED UNDER SFAS 144 AND WHETHER YOU CONTINUE TO
DEPRECIATE THESE ASSETS. IF SO, TELL US HOW YOU DETERMINED THAT
THIS RECORDED AMOUNT REPRESENTS FAIR VALUE, WHICH IS THE REQUIRED
MEASUREMENT BASIS FOR ASSETS TO BE HELD AND USED.
The production equipment that has been identified as excess,
pending the consolidation of certain production operations in
other facilities, is classified as assets to be held and used and
the Company has continued to depreciate these assets, based on
their expected remaining useful lives. In determining the amounts
at which the assets should be valued, the Company considered the
estimated selling price expected to be received for the assets
once they were no longer in use (based on the Company's
experience from recent sales of similar equipment) and the net
cash flow expected to be derived from the assets over the period
they were projected to remain in use. These cash flows were not
discounted due to the short period of time (up to seven months)
between when the decision was made regarding the disposition of
the assets and the expected disposal date. The Company believes
that this represents a reasonable estimate of the fair value of
the assets.
As requested, attached as Annex F to this letter is a statement
from the Company acknowledging that (1) the Company is responsible for the
adequacy and accuracy of the disclosure in its filings under the Securities
Exchange Act of 1934, as amended, (2) Staff comments or changes to
disclosure in response to Staff comments do not foreclose the SEC from
taking any action with respect to the filings, and (3) the Company may not
assert Staff comments as a defense in any proceeding initiated by the SEC
or any person under the federal securities laws of the United States.
Please address any comments that the staff may have with respect
to this letter to me at (212) 859-8076.
Very truly yours,
/s/ Lois Herzeca
-----------------
Lois Herzeca
cc: Frank B. Wyatt, II
CommScope, Inc.
ANNEX A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Mail Stop 3720
March 30, 2006
Mr. Jearld L. Leonhardt
Chief Financial Officer
CommScope, Inc.
1100 CommScope Place, S.E.
P.O. Box 339
Hickory, NC 28602
RE: COMMSCOPE, INC.
FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 2005
FILED MARCH 1, 2006
FILE NO. 1-12929
Dear Mr. Leonhardt:
We have reviewed your filing and have the following comments. We
have limited our review to only your financial statements and related
disclosures and do not intend to expand our review to other portions of
your documents. Where indicated, we think you should revise your documents
in response to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your explanation. In
some of our comments, we may ask you to provide us with information so we
may better understand your disclosure. After reviewing this information, we
may or may not raise additional comments.
Please understand that the purpose of our review process is to
assist you in your compliance with the applicable disclosure requirements
and to enhance the overall disclosure in your filing. We look forward to
working with you in these respects. We welcome any questions you may have
about our comments or any other aspect of our review. Feel free to call us
at the telephone numbers listed at the end of this letter.
Form 10-K for Fiscal Year Ended December 31, 2005
- -------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations, page 24
- --------------------------------------------------------------------------
Comparison of Results of Operations for the Year Ended December 31, 2005
with the Year Ended December 31, 2004
- --------------------------------------------------------------------------
1. Based on your disclosure at page 81, it appears that your
segments contribute in a disproportionate way to your operating
results. Revise your disclosure to discuss your results of
operations on a segment basis, as required by Section 501.06 of
the Codification of Financial Reporting Policies. In this regard,
we note that you discuss information regarding net sales for each
segment within MD&A. Expand this disclosure to discuss your
segment measure of profit or loss, which appears to be "operating
income (loss)," for each reportable segment.
OFS Brightwave, LLC, page 32
- ----------------------------
2. We note the discussions on pages 32-33 and pages 37-38 of MD&A
concerning OFS BrightWave, LLC and the negotiations with
Furukawa, and the related disclosure in footnote 5 to your
financial statements. Please expand your disclosures here and in
note 5 so that the facts and circumstances concerning your
negotiations with Furukawa, and the impact from the resulting
amendments to the agreements, are wholly transparent to
investors. In your disclosures, separately address each of the
agreements in place prior to the negotiations in June 2004 and
each of the agreements in place after the negotiations in 2004.
Disclose the material terms, the business purpose, the financial
impact, your accounting, and the basis for this accounting and
advise us. Your revised disclosures and supplemental response
should specifically address the following comments.
a. Regarding the impact of your negotiations with Furukawa, it
is our understanding that prior to amending your agreements
with Furukawa on June 14, 2004, CommScope had the absolute
and unconditional right to sell to Furukawa all, but not
less than all, of the Company's membership interest in OFS
Brightwave for $173,388,000. This put right could only be
exercised by the Company from February 15, 2006 to March 15,
2006. If Furukawa failed to pay the exercise price in full
when due, Furukawa would then be required to pay default
interest at a rate per annum equal to the three month LIBOR
plus 2.75%, and all of the Company's reasonable
out-of-pocket costs and expenses incurred to collect payment
of the exercise price and the default interest. Also,
pursuant to the Stockholders Agreement between the Company
and Furukawa, if the Company exercised the put right,
Furukawa would, at that time, have the right to require the
Company to purchase the 7,656,000 shares of common stock of
the Company owned by Furukawa for an aggregate price of
$45,788,262.
It appears that if CommScope had waited until February 15,
2006 to exercise its right under the put, and if Furukawa
exercised its put right, it could have received net cash of
approximately $127.6 million in addition to the 7,656,000
shares of common stock. Clearly disclose that the Company,
by agreeing to accept the return of 7.7 million shares of
common stock in June 2004, lost the opportunity to receive,
at most, net cash of $127.6 million and the return of 7.7
million common shares on February 15, 2006.
b. Further, you should explain in MD&A why you agreed to accept
the return of 7.7 million shares of your common stock on
June 14, 2004 in lieu of $173.4 million in cash in February
2006 in exchange for your investment in OFS BrightWave.
c. Clearly explain to investors how the June 2004 amendments to
the existing contractual agreements were "for the mutual
benefit of both parties." In this discussion, disclose the
closing price of your common stock on June 14, 2004 and
explain why you effectively paid a premium to buy back your
stock. Quantify this premium over the then current market
value of your common stock, your Call Right price, and the
Furukawa put price. If the amendments to the agreements were
to the detriment of the Company, as it appears, you should
clearly say so and remove all suggestions otherwise.
d. Describe, in detail, the terms of the Call Right held by
CommScope (Section 6.1 of the Stockholders Agreement dated
October 9, 2002) and explain to investors why the Company
chose not to purchase the 7.7 million shares of common stock
at 90% of the fair market value.
e. Discuss in MD&A the impact of your optical fiber supply
agreement with Furukawa, dated June 14, 2004, on your gross
margins and advise us in detail. Tell us if you received
favorable pricing in this arrangement. In your response,
please compare for us the pricing of each item covered under
the Optical Fiber Supply Agreement with OFS FITEL, LLC dated
June 14, 2004, and the Optical Fiber Supply Agreement cited
in Section 5.2 of the Memorandum of Understanding dated
November 15, 2001.
f. Explain to us why you entered into the Optical Fiber Supply
Agreement on June 14, 2004. Tell us why it was necessary to
enter into the agreement on this date and not necessary in
an earlier period. Explain to us the consideration given by
management and Furukawa to the terms of the amendments to
your other agreements when negotiating the terms of the
Optical Fiber Supply Agreement. Also, tell us if all the
material terms of the Optical Fiber Supply Agreement,
including the initial prices for the products determined in
accordance with Appendix A, were consistent with what was
commercially available to the Company from other suppliers
of substantially similar products on June 14, 2004. Please
provide us unredacted copies of this agreement and the
agreement cited in Section 5.2 of the Memorandum of
Understanding dated November 15, 2001.
Note 6 - Restructuring Charge and Employee Termination Benefits
- ---------------------------------------------------------------
3. We note that you have identified production equipment that will
be available for sale pending the consolidation of certain
production operations in other facilities. You have recorded this
equipment at its estimated net realizable value upon sale plus an
estimate of its remaining utility while still in service. Clarify
for us whether you continue to classify this equipment as assets
to be held and used under SFAS 144 and whether you continue to
depreciate these assets. If so, tell us how you determined that
this recorded amount represents fair value, which is the required
measurement basis for assets to be held and used.
* * * *
As appropriate, please amend your filing and respond to these
comments within 10 business days or tell us when you will provide us with a
response. You may wish to provide us with marked copies of the amendment to
expedite our review. Please furnish a cover letter with your amendment that
keys your responses to our comments and provides any requested information.
Detailed cover letters greatly facilitate our review. Please file your
response letter on EDGAR. Please understand that we may have additional
comments after reviewing your amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the filing
includes all information required under the Securities Exchange Act of 1934
and that they have provided all information investors require for an
informed investment decision. Since the company and its management are in
possession of all facts relating to a company's disclosure, they are
responsible for the accuracy and adequacy of the disclosures they have
made.
In connection with responding to our comments, please provide, in
writing, a statement from the company acknowledging that:
o the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
o staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with respect to the filings; and
o the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of Enforcement
has access to all information you provide to the staff of the Division of
Corporation Finance in our review of your filings or in response to our
comments on your filings.
You may contact Melissa Hauber, Senior Staff Accountant, at (202)
551-3368 or Robert S. Littlepage, Jr., Accountant Branch Chief, at (202)
551-3361 if you have questions regarding comments on the financial
statements and related matters. Please contact me at (202) 551-3810 with
any other questions.
Sincerely,
/s/ Robert S. Littlepage, Jr.
-----------------------------
for Larry Spirgel
Assistant Director
ANNEX B
The following illustrative draft is being provided solely for the
convenience of the Staff in considering the Company's response:
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,
2006 WITH THE THREE MONTHS ENDED MARCH 31, 2005
THREE MONTHS ENDED MARCH 31,
-----------------------------------------
2006 2005
------------------- -------------------
% OF % OF
$ NET $ NET DOLLAR %
(MILLIONS) SALES (MILLIONS) SALES CHANGE CHANGE
---------- --------- --------- --------- --------- --------
Net sales $ % $ 309.1 100.0% $ %
Gross profit 72.2 23.4
SG&A expense 53.9 17.4
R&D expense 7.8 2.5
Restructuring costs 2.0 0.6
Net income 5.5 1.8
Net income per
diluted share 0.09
NET SALES
Overall, the increase/decrease in net sales is attributable to
growth in domestic and international sales in both the Enterprise and
Broadband segments and domestically for the Carrier segment. The
improvement/reduction in net sales can be attributed to the positive impact
of price increases implemented for certain products during 2005 in response
to significant increases in the costs of raw materials, improved project
business and improved economic conditions for the telecommunications
industry, offset by _____________. For further details by segment, see
Segment Results below.
GROSS PROFIT (NET SALES LESS COST OF SALES)
The year-over-year increase/decrease in gross profit of $xx.x
million was primarily due to the impact of _______. The increase/decrease
in gross profit margin to xx.x% from 23.4% was primarily due to the impact
of _________. Also contributing to the increase/decrease in gross profit
margin during the first quarter of 2006 were the positive/negative effects
of changes in sales mix among our various product lines and the impact of
the implementation of price increases on certain product lines.
We expect additional increases in the costs of certain raw
materials, such as plastics and other polymers, which are derived from oil
and natural gas, and copper to result in increased cost of sales. The
inability to achieve higher sales volume and continued cost efficiencies to
offset the increasing costs of raw materials could result in lower gross
profit and gross profit margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
The year-over-year increase/decrease in selling, general and
administrative expense ("SG&A") of $xx.x million was primarily due to
________. The increase/decrease in SG&A expense, as a percentage of sales,
can be primarily attributed to increases in selling costs related to
bringing new products to market and marketing existing products, offset by
____________.
RESEARCH AND DEVELOPMENT
Research and development ("R&D") expense increased/decreased $x.x
million year over year primarily due to ________. R&D expense as a
percentage of net sales increased/decreased moderately to x.x% for the
three months ended March 31, 2006 compared to 2.5% for the three months
ended March 31, 2005. This year-over-year increase/decrease in R&D expense
as a percentage of net sales is mainly due to the ongoing R&D activities
related to bringing new products to market and to modifying existing
products to better serve our customers.
RESTRUCTURING COSTS
We recognized pretax restructuring costs of $X.X million in the
first quarter of 2006. These costs resulted from the continued
implementation of the global manufacturing initiatives which began during
the third quarter of 2005. Included in the first quarter costs were
employee-related costs of $X.X million, which consisted of expected
severance costs and related fringe benefits, accrued over the remaining
period employees are required to work in order to receive benefits,
equipment relocation costs of $X.X million, which consisted of costs
directly related to shift manufacturing capacity among our global
manufacturing facilities and include costs to uninstall, pack, ship and
re-install equipment as well as costs to prepare the receiving facility to
accommodate the equipment. During the first quarter of 2005, we recognized
$2.0 million of pretax restructuring costs related to the continued
implementation of the organizational and cost reduction initiatives at the
Omaha facility of Connectivity Solutions Manufacturing, Inc., our
wholly-owned manufacturing subsidiary, which began during the fourth
quarter of 2004.
We anticipate that we will recognize additional pretax
restructuring charges of up to $X million to complete the implementation of
the global manufacturing initiatives and that such costs will be
substantially incurred during 2006.
NET INTEREST EXPENSE
The increase/decrease in net interest expense was primarily due
to the impact of ___________. Our weighted average effective interest rate
on outstanding borrowings, including amortization of associated long-term
financing costs, increased/decreased to x.xx% as of March 31, 2006 compared
to 2.74% as of December 31, 2005. This increase/decrease in our effective
interest rate was mainly due to ________ and was offset by increases in
LIBOR and other short-term interest rates.
INCOME TAXES
Our effective income tax rate was xx.x% for the three months
ended March 31, 2006 compared to 24.7% for the three months ended March 31,
2005. The increase/decrease in our effective income tax rate was primarily
due to continuing benefits derived from our expanded international
activities in lower tax rate jurisdictions, offset by __________.
SEGMENT RESULTS
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2006 2005
----------------- ----------------
% of % of
Net Net Net Net Dollar %
Sales Sales Sales Sales Change Change
------- ------- ------- -------- ---------- ---------
Net sales by segment:
Enterprise $ % $157.7 51.0% $ %
Broadband 108.1 35.0
Carrier 44.1 14.3
Inter-segment
eliminations ) ) (0.8) (0.3) )
------- -------- ------- -------- ----------
Consolidated net sales $ 100.0% $309.1 100.0% $ %
======= ======== ======= ======== ==========
Total domestic sales $ % $205.8 66.6% $ %
Total international
sales 103.3 33.4
-------- -------- ------- -------- ----------
Total worldwide sales $ 100.0% $309.1 100.0% $ %
======== ======== ======= ======== ==========
Operating income (loss)
by segment:
Enterprise $ $ 8.9 $ %
Broadband 6.5
Carrier (6.9)
-------- ------- ----------
Consolidated
operating income $ $ 8.5 $ %
======== ======= ==========
ENTERPRISE SEGMENT
The Enterprise segment consists mainly of structured cabling
systems for business enterprise applications. The segment also includes
coaxial cable for various video and data applications.
The increase/decrease in Enterprise segment net sales was
primarily driven by the effect of price increases, improved project
business and the introduction of new products and offset by ______. The
Enterprise segment realized increases/decreases in net sales both
domestically and internationally. We implemented price increases for
certain Enterprise products during 2005 and the first quarter of 2006 as a
result of significant increases in the cost of certain raw materials.
We expect demand for Enterprise products to be driven by the
ongoing need for bandwidth and high-performance structured cabling in the
enterprise market and affected by global information technology spending,
among other things.
The increase/decrease in Enterprise segment operating income is
primarily attributable to __________ and __________ and was somewhat offset
by _______.
BROADBAND SEGMENT
The Broadband segment primarily consists of coaxial cable, fiber
optic cable and conduit for cable television system operators. These
products support multi-channel video, voice and high-speed data services
for residential and commercial customers using Hybrid Fiber Coaxial
architecture.
The increase/decrease in net sales of Broadband products
primarily resulted from price increases implemented for certain products to
mitigate the significant increase in raw material costs and strong domestic
and international sales for most of our product lines, offset by ________.
The domestic sales increase can be also attributed to continued maintenance
needs of our large cable television system operator customers. Net sales
increased internationally in most regions and such increase can be
attributed to new projects and maintenance projects initiated by
international customers.
The increase/decrease in Broadband segment operating income is
primarily attributable to __________ and __________ and was somewhat offset
by _______.
CARRIER SEGMENT
The Carrier segment consists of secure environmental enclosures
for electronic devices and equipment, structured cabling solutions for
telephone central offices and cables and components used by wireless
providers to connect antennae to transmitters. These products are primarily
used by telecommunications service providers or "carriers."
The Carrier segment net sales increased/decreased by X.X% on a
year over year basis. The wireless product group within this segment
reported _______ sales growth both domestically and internationally. We
have developed relationships with new customers, who are generally
purchasing a higher volume of products. We have made substantial progress
communicating the Cell Reach(R) value proposition to new and existing
customers, both domestically and internationally, which was the primary
contributor to the increase in sales of wireless products. In addition, the
improvement in general economic conditions has led to increased spending by
the major wireless carriers. Also impacting the increase/decrease in net
sales of wireless products was _______.
There was an increase/decrease in net sales of the Integrated
Cabinet Solutions (ICS) product group. The ICS business is somewhat
project-driven in nature. Although ICS net sales increased/decreased due to
higher/lower volume, ICS net sales were also impacted by an
increase/decrease in shipments of integrated cabinets related to Digital
Subscriber Line (DSL) deployments by telephone companies. In addition, the
ExchangeMAX product group also experienced a year over year
increase/decrease in net sales that is primarily related to the continued
impact of competitive pricing pressures and weak demand for central office
telecommunications equipment, our decision to exit the central office
twisted pair cable business and _________.
While we expect sales of Carrier products to be somewhat volatile
since customer spending is mainly project-driven, we remain optimistic
about our opportunities for the ICS and wireless product groups.
We anticipate growth in sales primarily due to fiber to the node
construction activity and DSL deployments and fiber to the node
construction activity, which provide opportunities for our ICS product
group. We also expect continuing expansion in cellular telephone base
stations, which affects growth for our wireless product group.
The increase/decrease in Carrier segment operating income is
primarily attributable to __________ and __________ and was somewhat offset
by _______.
ANNEX C
"Weakness in domestic optical fiber owed not only to stagnant demand but
also to staff and facility shifts predicated on a demand recovery going
against the company. Furukawa Electric had expected optical fiber demand to
increase with the penetration of fiber to the home (FTTH), but since
October 2003 domestic shipments have continued to fall by more than 40%
YoY. Current optical fiber facility utilization rates are around 40%. Not
only OFS, which was already dragging down the company, but now domestic
utilization as well is likely to fall into the red. In photonics too,
although there were hopes for a halt to the slide in some demand for
telecom equipment in the US, Furukawa Electric's sales remain on an
uninterrupted downtrend."
Source: Morgan Stanley, "Furukawa Electric: Estimate Cuts as Expected, but
Conditions Poor" (February 3, 2004).
ANNEX D
"We currently think the enterprise value of OFS, which continues to make
heavy losses, is close to zero, and we assume a base-case scenario in which
the operations of OFS are shut down or sold in FY3/04."
Source: NikkoCitigroup, "Furukawa Electric: Worse-than-expected losses;
outlook remains grim" (February 3, 2004).
ANNEX E
"As I have already mentioned, we have disposed of impaired fixed assets and
lowered our break-even point for the Telecommunications segment, a major
contributor to our losses in fiscal 2004. In June 2004, we reached
agreement with CommScope to turn OFS into a fully owned subsidiary, by
agreeing to swap our shares in CommScope Inc. for CommScope's holdings in
OFS BrightWave. We expect this move will generate a number of positive
effects, such as further enhancing efficiencies in our management of OFS."
Source: 2004 Annual Report of The Furukawa Electric Co., Ltd., p. 5.
ANNEX F
On behalf of CommScope, Inc. (the "Company"), the undersigned
hereby acknowledges that:
o the Company is responsible for the adequacy and accuracy of the
disclosure in its filings under the Securities Exchange Act of
1934, as amended;
o comments of the Staff of the Division of Corporate Finance (the
"Staff") or changes to disclosure in response to Staff comments do
not foreclose the Securities and Exchange Commission (the
"Commission") from taking any action with respect to the filings;
and
o the Company may not assert Staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
Dated: April 24, 2006
COMMSCOPE, INC.
By: /s/ Frank B. Wyatt, II
-----------------------------
Name: Frank B. Wyatt, II
Title: General Counsel