CommScope Holding Company Inc (COMM) 2003 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the CommScope acquisition of the Avaya Connectivity Solutions conference call. My name is Jeanne, and I will be your conference coordinator for today. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Phil Armstrong, Vice President of Investor Relations and Communications. Sir, you may proceed.

Good morning and thank you for joining us on this call. Today we have Frank Drendel, Chairman and Chief Executive Officer; Brian Garrett, President and Chief Operating Officer; and Jearld Leonhardt, Executive Vice President and Chief Financial Officer, with me.

During this conference call we intend to make forward-looking statements regarding CommScope and the business position, plans, outlook, revenues, earnings, accretion, synergies, integration and restructuring plans and the anticipated timing of closing related to CommScope's planned acquisition of substantially all the assets and certain liabilities of ACS. These statements 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 factors that could cause the actual results to differ materially from those currently expected. For a more detailed description of factors that could cause such a difference, please see the press releases we issued today in CommScope's filings with the Securities and Exchange Commission. In providing forward-looking statements, the Company does not intend and does not undertake any duty or obligation to update these statements as a result of new information, future events and otherwise.

Now I will turn it over to Frank Drendel, Chairman and Chief Executive Officer.

Good morning, ladies and gentlemen. Before we go to the formal presentation, I would like to discuss with all of you what we believe is an outstanding opportunity for CommScope.

For the deal team at Avaya, I want to thank you for the professional approach that you give this transaction. I look forward to working with you to bringing it to a successful conclusion.

To the ACS 2000 employees, I want to welcome you to our new subsidiary and our family. We look forward to being a part of continued growth and opportunity that you have provided over the years. There's no question that you have achieved the number one position in a very difficult environment. We look forward to working with you.

To the CommScope shareholders, for Brian, Jearld and I, who started this company 27 years ago, this represents probably the most powerful addition to our company we've ever done. It gives us the number one position and a collective ability to serve the last mile. We're looking forward to completing this transaction and moving on to serve the market and the last mile.

The one thing that will be of interest all of you analysts that are on the phone today, after the conclusion of this transaction it will be impossible for you to pick a phone, go on the Internet, go on a high-speed cable modem, watch television, talk on a cellular phone where some product that we manufacture does not touch that environment. So we look forward to this to this opportunity.

We will move now to the formal part of the presentation, beginning on slide three. For those who have followed CommScope, this is not new. We are the leader in the key last mile technologies -- broadband, mulberry network, wireless and other telecom. We continue our strong competitive position as the number one, largest supplier in the world in the HFC market. This market is provided by our experience both in the coaxial cable and the fiber-optic opportunities that we have with OFS.

Our balance sheet has never been in stronger shape than it is at this current moment. We have (indiscernible) a strategically strong balance sheet, accredited with continuing strong cash flow. And we believe this positions our new combination, providing for the fundamentals of broadband connectivity.

Page four -- "What is the ACS transaction summary; what were the thinking and process that we went through?" We have known of ACS for years. This is the number one preeminent supplier to connectivity. It has in its position substantial patent intellectual portfolio.

What we're doing is paying 263 million in cash and securities. We are financing that from 210 million in cash, and a combination of cash and cash equivalents that we have on our balance sheet and a new bank debt, primarily of a 150 million of senior secured credit facilities. Inclusive in the purchase price is an $18 million convertible note, and that is subject to adjustment as we move through the transaction and currently $34.9 million in CTV stock. It is collared; it has an up-and-down range of $1013.

Slide five -- continuing this transaction summary, ACS businesses were held for sale and net assets of approximately 300 million at the end of June. This is based on the Avaya historical financials. CommScope will also assume approximately $75 million of liabilities, mostly related to the employee benefits. We expect the closing will take place within 90 days. We will obviously need international and local positioning and approvals. It is subject to regulatory approval, as I said earlier, and the opening balance sheet will clearly reflect the fair value adjustments according to accounting principles ATV-16 (ph).

Next page, slide six -- the transaction rationale. It has always been CommScope's desire to be positioned as number one in the last mile. With the combination of ACS and CommScope, we not only have a last mile, we have the first mile and the last foot. So this clearly represents a major opportunity for the Company and for our future.

If you look at ACS's, not only the integrity and the intellect that that Company has, but it also has one of the most powerful patent portfolios I've ever seen in telecommunications activity. There are over 1200 patent supporting ACS's position in the marketplace. This clearly creates an expanded patent portfolio with our 200 patents and the availability of intellectual property from OFS. In addition it creates a stronger platform for us to serve Asia and the Pacific Ring. Clearly we believe that this will begin to accelerate our growth opportunities.

As we move to page seven, continuing on this area I'm going to have Brian Garrett discuss with you a more clear explanation of the products and the rationale and how they fit within the CommScope family.

Thank you very much. For those of you that may not be familiar with the ACS business of Avaya, it is really comprised of three distinct product lines. The first and the largest of course is Systemax and Systemax is the global leader of structured cable system. That's probably the one element of the business that is the most synergistic with CommScope's historical domestic LAN business.

The second piece, or the second business within ACS, is ExchangeMAX and for years ExchangeMAX has been a leading provider of structured cabling systems and equipment for central office applications. Our hope here is that we can use some of CommScope's historical channels, specifically in the cable television, to bring ExchangeMAX products into that segment.

And then lastly is ICS -- Integrated Cabinet Solutions -- which is the domestic leader in secure environmental enclosures.

Systemax, more than any of the products, is a brand that is recognized globally for its leadership in structured cabling. It's supported by over 100 technologists that are located principally in Richardson, Texas. And that group of people, as Frank has identified has brought more then 1200 patents domestically and internationally to support the business.

Let's move on to slide eight and talk about briefly about some of the specific segments.

Systemax on slide eight is one of a handful of companies globally that provides end-to-end solutions for both cabling and connectivity within the Local Area Network business. Unique to it among its competitors, is it provides solutions not only for copper and fiber, but copper connectivity and fiber connectivity.

Slide nine -- ExchangeMAX, as I mentioned, for years has been a leading provider of equipment for central office infrastructure. The products include cabling products, co-ax, UTP and shield and twisted pair products and fiber, all products that CommScope is very familiar with. Within the connectivity products it includes digital distribution systems, and also uniquely a novel net set remote provisioning system. We are currently evaluating the opportunity of bringing these products within our cable television channels.

The third leg of this business is ICS, an electronic cable cabinet manufacturer for OEM providers of DSL and wireless equipment. Technically, these products are highly engineered and have the purpose of providing physical protection for potentially hundreds of thousands of dollars of electronics equipment used in wireless and DSL applications.

Slide 11 -- like most businesses, market leaders do business with market leaders in their respective industries, and ACS is no exception. For Systemax and ExchangeMAX, Anixter and Graybar represent the leading distribution channels of these products. Systemax domestically provides products to leaders such as Cisco Systems, Intel, SunSystems and others; ExchangeMAX into leading carriers such as BellSouth, Verizon and OEMs such as Lucent Technologies.

Moving on to slide 12, we often think in terms of products strengths, but one of the leading strengths that we saw in the Systemax business was really its relationships with distributors and VARs. What's in slide 12 is a brief summary of the strength that they have globally. In total they (indiscernible) 27 distributors and nearly 2000 VARs and system integrators worldwide that represent their products.

Jearld, I'd like to turn it over to you, and if you will give us some of the financial back ground.

The slides on financial subjects star on 13 -- the ACS sales overview. We think this is a unique opportunity for CommScope obviously. In a single transaction we will be doubling or nearly doubling our revenue size because ACS had sales of $542 million for their fiscal year ended September of 2003. And that's down from very high levels in 2000, 2001. At one point it was 1.4 billion for the ACS business.

During that period of time there was some decline in all three of the business segments that Brian described, but the Systemax business was down the least, about 40 percent, while the ExchangeMAX and the cabinet business were down 90 and 80 percent respectively during those periods. But for the last five quarters sales have been pretty stable for the ACS business, Systemax making up about 80 percent on their 542 million of revenue.

North America is the largest piece of the business on a geographic basis, contributing about 60 percent approximately of the revenues, while international, led principally by Europe, is 40 percent. As we stated, the Systemax and ExchangeMAX brands are worldwide in their scope and market. The Pacific Rim area is the fastest growth region of all the ACS businesses currently.

Moving to slide 14 and looking at some of the charts related to the historical financials, you can see that ACS had revenues in the quarter ended September of $147 million. And there was some upward seasonable momentum as we move through the year. That is what we believe is the typical seasonal trend, with the first quarter being the weakest, the fourth quarter generally the strongest.

On a year-over-year basis, the fourth quarter was up 14 percent from the fiscal fourth quarter of 2003. On a full-year basis, however, the ACS revenues were down about 5 percent from 572 million in 2002.

Also during 2002 there was some significant cost restructuring activity that occurred in the ACS business, which restored their profitability as we moved into 2003. As you can see, the ACS segment of the Avaya business reported an operating profit of $3 million starting in their second fiscal quarter 2003, and the fourth fiscal quarter was the strongest at 5 million. On the full-year there was an operating income of $3 million, and this is after all the corporate charges that Avaya allocates to the business. Corporate charges are an estimated $44 million during that period of time. Also at the bottom you can see that the depreciation expense runs about $28 million a year, and adding that to the 3 million of year-to-date operating income would get you a sum up about $31 million. What we have in the past, as I mentioned already, the fourth quarter of 2003 was the strongest, producing an operating income of $5 million.

Moving on to slide 15, we will undertake a transition period between now and closing, which, as mentioned, we expect to occur within 90 days, and renew what is a significant commitment on CommScope's part for this business. Structured cabling is indeed a core business for CTV. We have long been in the LAN business and we think established a leadership position in our cabling technology. But the combination with ACS and the increased commitment with ACS's market leadership we believe has great potential for CTV going forward.

CommScope's operational focus, as you know, has always been on reducing costs, and we think there are cost benefits potential in the acquisition. For instance, we believe we can provide the corporate services of approximately $20 million less than the historical corporate allocations that have been allocated to the ACS business. In order to be in that position, we expect to incur some one-time charges in 2004 certainly, perhaps as high as $25 million is our current estimate for the one-time start-up and transition costs for this business.

Now I will turn it back to Frank, who has some comments about the acquisition, following which we will go through our third quarter operating results report.

As members of the CTV analysts community that follow CommScope, clearly this fits our existing strategy in providing the last mile. The Avaya ACS business holds the number one position in the premium brands; CommScope supports the other markets in the lower, more commodity brands, so we will be able to attack this market in a two-tiered approach. We will have best in class in almost everything that we do. Clearly we become one of the largest users of these materials, so it should give us cost advantages in buying down on the cost and materials to produce these products.

We will keep the ACS team independent. We do not want to mess with something that's been that successful. So our approach is to have the ACS operate as a separate subsidiary, growing on the success that they have had, hopefully giving us a new product line group to take to the CTV industry.

If you go to page 17, the bandwidth demand continued to grow. There's no doubt in our minds that we now have the best blanket on top of the last mile. The products that we will produce collectively will support almost every type of transmission of information to business and the home.

Page 18 -- CommScope's continued HFC leadership with its coaxial cable position, it's fiber-optic cable position and now add to its LAN and local area network connectivity position, gives us the strength to build on our continued blocking and tackling for the last mile.

On page 19, if you look at the position in the puzzle, the addition of the growing wireless position that we have and the growing structured cabling solution of ACS and CTV gives us a new, broad position. You might note also, with the combination of ACS and CommScope we will be feeling (ph) over 300 people and sales force around the world.

The new CommScope, on page 20, for the first time we now have a balanced portfolio. We have a business that is almost exactly our size in connectivity. We have broadband and video and we have a growing wireless position, a growing conductivity position and obviously a growing fiber-optic position.

If you think about these companies in the year 2000 -- and I don't expect us to return any time soon -- but the reason we're excited about this is these two companies shipped at $2.5 billion sales rates. And we don't expect to have to put a great deal of additional capital into these businesses. We will continue to support the advanced R&D that Avaya has supported ACS with. We will continue to support the growth of the technology leadership between all of our companies. And when you consider for a moment that the capacity of these companies is in excess of 2.5 billion in sales, that the combined patent portfolio is almost 2000 units of different variety patents, and the fact that we ship and sell to 140 countries, we are truly a world-class company with this transaction.

Now I will turn it back to Brian, and he will walk through the connectivity advantage of the combined portfolio.

The combination of CommScope and the ACS businesses only reinforces the value that has made it successful. Specifically, it would relate to leadership in products and technologies in our field of endeavor; commitment to the customer; total quality and service; and lastly, operational excellence. Both parties in this deal provide and bring unique capabilities. And our intent is to adopt the best practices of each party.

Let's go on to slide 22. If you examine the CTV footprint post-acquisition, and the last mile will cover comprehensive solutions for cable, conductivity and closures for Telco markets, CATV markets, wireless markets and enterprise markets. Clearly, one of the most comprehensive solutions in the last mile globally.

Frank, if you'll summarize for us?

In summary, we're excited about this opportunity. We're excited to have the ACS team join us and our family as a new subsidiary. We're excited about our position in providing a worldwide footprint for our joint companies. So we look forward to having an accretive acquisition partnership as we close this transaction, hopefully by the end of the year.

Now what I would like to do is turn it back to Jearld, and we will move from the ACS discussion to reporting on our third quarter results.

We will start with the slides on page 25 of the presentation. It's entitled "CommScope's Q3 '03 Results".

Clearly we're pleased with the overall results in the third quarter. We saw improvement on a year-over-year basis and sequential basis in not only sales, but in earnings and in cash flow. Revenues for the fourth quarter were $148.7 million. Seasonally it was stronger than we expected in the third quarter. Net earnings for the period -- net income was $1.1 million, or 2 cents per share. And again, we are quite pleased to be able to report a positive net income in the third quarter.

These results include 5 cents per share for the OFS BrightWave losses. OFS BrightWave, as you know, is our minority investment in the OFS fiber-optic business, headquartered in Norcross, Georgia. Generally, the OFS business was up slightly from a year ago. And up also, CommScope was up slightly from a year ago about -- and up 9 percent from the second quarter of this year. Second quarter sales were $141.4 million.

Moving on to slide 26, our sales and orders for the quarter were driven by the improving domestic sales outlook. Book to bill was 1.02 for the third quarter. Orders were $152 million. Again, the best since the second quarter of 2002. While fiber-optic cables did decline moderately from the second quarter, they still remain greater than 10 percent of our overall CommScope sales. International sales were down slightly year-over-year, and were about 18 percent of sales for the quarter, or $26.5 million.

Moving on to slide 27 for Broadband/Video, again Broadband/Video revenues rose sequentially to $117.9 million in the September quarter. This was down 2 percent from the year ago, due principally to lower fiber-optic cable sales than last year. We did see sequential improvements from the second quarter to almost all of our major broadband customers. Sales to Comcast for the period were 17 percent of total Q3 sales. Orders for Broadband/Video business were $121.6 million for the September quarter. And compared to Q3, we expect Q4 to be seasonally lower moving forward than the stronger third quarter period.

Moving on to Local Area Networks, the LAN sales were $24 million for the quarter and were down slightly from the second quarter of this year and last year's third quarter. LAN orders were $23.7 million for the quarter. And we also, as we typically do, expect to see seasonally weaker LAN sales in the fourth quarter ahead.

Our Wireless/Other Telecom slide begins on slide 29. Sales for Wireless/Other Telecom for the quarter were $6.8 million, or about 5 percent of our total third quarter sales. However, this was more than double the third quarter of 2002 level of $3.3 million. The Wireless/Other Telecom segment, however, was down sequentially about 18 percent from the second quarter. Orders were 6.9 million in the third quarter, and we continue to feel positive about our wireless business progress and the value proposition it brings to this important segment for CommScope.

Going on to review our other operating results, our gross margin for the quarter rose 20 basis points from the second quarter. This improved volume was offset by the full impact of the plastic increases that began in the second quarter. Year-over-year there was a 230 basis point improvement in gross margin. However, the third quarter of last year did have some employee separation costs that were one time in nature. But despite those, there was improvement in gross margin ratio from last year. The improvements were from cost reduction activity, which I mentioned, and higher wireless volume also was helpful.

Our SG&A expense remained stable at about $20.9 million, down slightly from the second quarter and up slightly from last year. SG&A as a percentage of sales, 14.1 percent.

The OFS BrightWave results for the quarter was the smallest quarterly loss to date since that business has been in operation -- a $27 million operating loss. That was on revenues of $25 million for the September quarter. And as mentioned, that contributed a 5 cents per share loss to CommScope's third quarter results.

Overall we did produce a 2 cents per share positive earnings, including OFS charges. And without OFS that would have been approximately 7 cents for the quarter.

We continue to be pleased with cash flow, which is the subject of slide 31. Cash from operations in the quarter were $32.4 million for the third quarter. This included a tax refund of $13.5 million related to 2002's operating loss carryforward. Capital spending for the third quarter was only $1.6 million and we expect full-year CapEx to be less than $10 million in total. We ended the September quarter with $171.3 million in cash and equivalents.

Moving on to our outlook now, as mentioned we expect the third quarter just ended to be our strongest quarter of the year and expect to see some seasonal downturn in the fourth quarter. I think last year we saw an 8 percent decline from the third quarter to the fourth quarter, so we expect to see that seasonal decline to be in the 5 to 10 percent range from the third quarter levels in the fourth quarter. Gross margin will also be expected to decline as much as 100 basis points due to the lower volume as well. The fourth quarter is usually a good cash flow quarter for CommScope, and we expect it to be so again in 2003. And of course, all of our outlook ignores any possible impact of the pending ACS transaction on our outlook expectations.

That concludes the slide presentation that we have today. We are ready to take some questions. Jeanne, if you're there, we will take some questions now.

(OPERATOR INSTRUCTIONS) Steven Fox, Merrill Lynch.

A couple of questions on the acquisition. My understanding is that there is a sizable union in Omaha. Can you discuss how that's going to impact your costs and what you can do to alleviate some of that is my first question?

The ACS business that is being acquired will be acquired substantially through a OEM subsidiary of CommScope, which will be assuming the contracts related to the union in Omaha. Generally, on the question of costs we believe that the ACS facility can be quite a productive facility. It has done significant amounts of cost restructuring in the last two years. And as the numbers grew, they have, if you will, turned the business around from an operating standpoint, we think, after going through significant decline in 2001 and 2002.

Let me add to Jearld's comments. I think the other opportunity that we see when we look at the business -- and understand we really don't have an opportunity to be as close as we would like to be to this business at this time -- but at this point I would say that there appears to be a fruitful opportunity in working capital performance. And just by contrasting the two businesses, I think we can make improvements in that area based upon our historical performance.

Sticking with the subject of profitability, it looks like it's about a 6 percent EBITDA margin business today, and I think Frank highlighted that it has been much more probable in the past. What's a reasonable target now, given that the world has changed a lot for the profitability levels of this business, as you get through restructuring?

We think there are opportunities ahead. We've talked specifically today about the potential for providing corporate type services. CommScope will incur additional costs to provide those services, but we think we can do it less than the $44 million that was allocated to the ACS business by Avaya in their last fiscal year. So that's probably the best example we have today of some of the opportunities that we have.

Just one last question. Can you talk about the $75 million liability? What kind of range would you put on that? Could it be closer to zero? Or how is that going to work out?

We don't expect it to be closer to zero. We do expect it to be somewhere in that range, Steve. The liability is principally related to employee benefits, about half of which come from an under-funded pension plan which we will be assuming, and the other half related to post-retirement employee benefits which we will also be assuming as part of the transaction.

The under-funded pension is a little more significant from a cash flow standpoint, going forward. The post-retirement, since on day one of this business there will be no active retirees -- saying it differently, we will not be taking any existing retirees as part of our pension and post-retirement obligation, but only related to active employees.

Thank you very much.

Larry Harris (ph), Oppenheimer.

How quickly do you think you'll be able to improve operating margins within the Avaya business? Will it take one quarter, four quarters? Any sense of how quickly you can make the transaction accretive?

We will incur, as we said, some start-up costs and transition related costs of $25 million. And again, on a targeted basis we think there's about a $20 million improvement that we can reduce generally SG&A by from the amounts that were being allocated to this business historically. So that should be there immediately following the transition period.

On a gross margin basis, this business for the last year has a gross margins higher than CommScope's averages.

I see. Great. And in terms of capital expenditures, I'm showing a number -- and I don't know if it's right or not -- for the conductivity business of about $7 million in fiscal 2002. What was the level in 2003? And what type of level of capital spending do you see going forward to support the business?

At present time I don't have those numbers in front of me. Capital spending certainly has been very modest in 2003 -- 7 million sounds to be a number in that sort of range; less than 10 million, we know for sure in 2003. And as Frank Brian both suggested, there is significant capacity in place already in the ACS business. Capital spending will probably be more directed towards potential cost reductions than it would be to adding any capacity.

I understand. And just switching quickly to the third quarter results, did you see any significant change in terms of sales to Adelphia or possibly order activity at Adelphia?

Yes, Adelphia has clearly picked up. Charter was a little weaker; Comcast was right on line; Cox was ahead. So there's good strength picking back up across the board. We have sorting out what the impact of the hurricane had. It was obviously positive, not for the people, but for the product. There is improvement.

Finally, the decrease in gross margins that you anticipated, is it namely the sequential decline in volume? Or is it more than the cost of plastics and raw materials?

There we think it's volume related to the extent that there will be a decline.

Understood. Thank you.

Jeff Beach, Stifel Nicolaus.

I would like to know what assets you are acquiring with ACS. Is it just one large plant?

No, I think their largest facility is in Omaha, where they have 2.4 million square feet of plant. They also have manufacturing facilities in Bray, Ireland, 140,000 square feet; in Brisbane, Australia, 114,000 square feet. They also have a manufacturing facility in China and then warehousing and office space at various other locations around the world. And their ACS headquarter is in Richardson, Texas, where they have their division headquarters and R&D facility.

So we will be acquiring all those assets hopefully in this transaction, as well as substantially all of the machinery and equipment that's in those facility. The inventory, the accounts receivable, generally nearly all of the assets related to the ACS business that Avaya has operating.

I might add that ACS achieves about a third of their sales worldwide. So it rings a much stronger global footprint to our family.

Just as a related follow-up, do you anticipate doing any shifting, potential closing or consolidation of manufacturing between the two companies at some point in the next two years? And then related to the employment at ACS, is there excess headcount there where there's been limits to restructuring that they can do because of the union?

As we pointed out in the slide, the ACS business has been on an uptrend throughout this year, so that in and of itself does not signal any excess employment. ACS has essentially been, except for corporate services, a stand-alone business of Avaya. We're hopeful that its trends can continue in the future, but our philosophy here at CommScope is that we adjust our business to meet the business conditions that we find. At this point I would say we're optimistic that we will see increased spending in the IT area going forward and in communications more broadly around world.

Thank you.

Daniel Ernst, Rodman & Renshaw.

Good morning. A couple of questions; one on the acquisition and two on your core business.

On the core business, Comcast, at 17 percent of sales, again you said it was in line but the company has been talking about that they have been ahead of schedule on the upgrade of the AT&T properties. Could you talk about where that will leave you when they are complete with that, which they say will be some time during 2004 and separate the upgrade to the AT&T plant out from Comcast's cooperation?

And on the acquisition side, can you speak a little bit more about where you are in terms of capacity utilization and where they are in capacity utilization on the LAN business?

Let me try on both of those and then I will get Brian and Jearld to comment if they need to.

On the Comcast situation, they're on plan. Clearly they're ahead of some of their programs but we still believe that that will represent kind of a baseline ongoing business level for us. We don't expect it to break into like 17 percent to 2 percent. There's always the issue of the maintenance and continuing upgrade programs. So our view of next year is flat to stable business with all the MSOs; not growing, but not deteriorating.

On the second question you had, on what we see on capital expenditures and capacity, clearly these two businesses -- CommScope and the ACS systematic businesses -- at one point delivered product -- delivered, understand -- as the $2.4 billion rate. So we all have excess capacity. We've taken moves to relieve some of that capacity and to do some other areas.

We expect Adelphia, back on the CTV part, to be up substantially for 2004. We expect a return and substantial European build coming up in 2004. We still view this as a very stable, strong cash flow business for us, and it has the opportunity for some growth around world.

A follow-up on your comment on Europe, international was down slightly sequentially. Most of the other vendors in the cable space are reporting limited engagement over there. What gives you the confidence that Europe is going to pick of next year?

I agree with you. They are clearly flat this year. There has not been a great deal of momentum. But the licensing and the pre-design work that is taking place in a lot of these markets indicates to me that we may finally see some of that take off next year.

Thank you much.

Alan Mitrani, Copper Beech Capital.

It looks like a good deal; I just want to get some details. Can you tell us what the interest rate is on the bank debt?

We expect that to be less then 4 percent LIBOR. The bank debt will be floating-rate debt, and current 90-day LIBOR us about 1.1, 1.2 percent. So we expect, including amortization and that sort of thing of expenses, to be at 4 percent or so, based on current rates.

So you're paying 280 basis points above LIBOR?

Again, we have some expenses to amortize so --

Outside of that.

Outside of that, we haven't announced exactly what our margins are yet, but we will. The 4 percent is an estimate all-in cost.

Can I also understand the shares -- and the slide show sort of came across, by the way, very difficult off the EDGAR filings. I'm not sure if everybody was able to watch it. There was no link anywhere on a web site. So if you pardon the questions, hopefully it will be helpful for everybody.

In terms of the number of shares, when you were talking about the maximum number of shares and the slide says it's 3.5 million and the minimum 2.7, is that converts and shares combined?

That is just shares. That is not convert. In terms of the note, the convertible note is not convertible until one year and after from the day of its issue, which would be closing. And it is our expectation that we can fund that note prior to its maturity and its conversion. That certainly is our expectation going forward, or our desire.

When you say it says subject to adjustment, do you have any sense as to how for up the convert is now? People are issuing converts it seems of 30, 40 percent up in the regular market. Will this be a similar type of structure?

The convert has an unusual structure. The nominal amounts of the note will convert into CTV shares based on the market at the time of its conversion, plus a premium of 28 percent. So it is not a traditional conversion type feature that you would see in convertible notes.

Also, your stock is 13.60 right now. The stock is above, I guess, the 10 to 13 range. How did you come up with the 10 to 13 range? Is that just an average of where the stock was?

Yes and no. In early negotiations of this transaction we were trading in those ranges, and so we wanted the opportunity to float the collar up and down on the slide (ph), and work to performing for Avaya and for the ACS people that prove that this combination makes sense. Clearly it is working in everybody's favor, inclusive of being able hopefully to pay down the note before it ever sees a conversion premium.

Also can I understand why it is Avaya wanted some stock? Was it them wanting stock in the deal or you wanting to give some stock in the deal? Can you explain why they want to keep a small amount for this?

It was part of our consideration from the first offer in the business, and so stock has been a component of our acquisition that has been agreed to.

Also, if I can understand margins quickly, Steve asked in his question referenced six percent margins. It looks to me like you actually did about a little over 8 percent EBITDA margins on the Avaya business this past quarter. And if I heard you correctly, it sounded like there were almost -- was it $44 million of charges in the last 12 months that this Avaya business swallowed?

There are -- corporate allocations have been allocated to this business of that magnitude, yes.

Of onetime charges.

No, I'm sorry. Of allocation of corporate expense.

How much of onetime charges are in this trailing twelve-month number that you put in the press release? In Avaya's business?

That's not information that we have available to us for this call.

But there are onetime charges in there, correct?

I would say not significant, but there could be, yes.

Thank you.

Again, we apologize to the viewers if you couldn't view the information; that was certainly not our intent.

You'll just get lots of phone calls later in the day, it's not a problem.

Bob Butner (ph) Strong Capital Management.

Any feel for ACS in terms of major customers, and then once the business is fully integrated, can you give us what you would say would be your top three customers by percentages? Just right out of the gate.

The biggest piece of the business, by far, is Systemax. We will talk in terms of Systemax and those products for the Systemax products channel, through distribution partners, the two largest domestically are Anixter and Graybar, and internationally they're Anixter. For our business historically, the traditional part of CommScope's LAN business are -- historically, going back some period of time, our two largest distributors would be Anixter and Graybar as well.

So in other words, once everything is put together, core CommScope and core ACS, obviously CommScope is probably going to stay your largest customer. But can you give us a sense as to how big they are?

No, I think that would be an incorrect assumption. I think Comcast would be in the top five, and would not be at the completion of this our largest customer. What will happen it that the distribution channel, both the distributors worldwide and the value added resellers, the VARs, would become CommScope's largest customer base?

Bear in mind that CommScope sells on a direct basis worldwide to the MSOs, but there are a lot of our products that we produce at CommScope that could be channeled to the ACS team. I personally believe that the ACS market scale and scope teams will be pulling more product from us than we will be providing getting from them. Actually, I believe that this will add a tremendous growth opportunity in both sides of the (inaudible).

Frank, to a great extent, although you probably wouldn't characterize it this way, it gets you out from under the MSOs thumbs here and put you back on a somewhat more equivalent scale in terms of negotiating price and volume.

It's an excellent question. It certainly makes us a more diverse company. It certainly gives us the scale to protect the shareholders and grow the businesses on both sides. And it certainly gives us the advantage in being probably, without question, the ability to be the lowest cost producer, given the fact that we can leverage our suppliers. So all of that is true. Survival of this, the consolidation of telecommunications is taking place as we speak. The Alcatel announcement this week of Nexans Alcatel, there will be more and more combinations and survivors in this should have a unique opportunity if the demand ever returns to anything like it was before.

One last question, just on the fiber optics. Obviously we seem to sometimes get diverging messages out of both Corning and yourselves in terms of where the market is today; how quickly the market is picking back up; when we could expect more significant growth; whether it's a year out, two years out or not. Can you bring us up to speed on what your thinking is in terms of OFS today; when you think it's really going to be gaining traction again, either from a sales standpoint or from a final stabilization in its expense base?

I think it's clearly shown improvement. OFS has shown improvement and getting its costs under control. Hopefully, Corning and OFS don't intentionally give divergent statements. There's just no knowledge base out there. It's so confusing to where that market is and is going because no one knows exactly how much capacity has been re-lit (ph) and how much capacity that is already in place that can be used.

The best advantage, as Brian just pointed out, the best advantage that both Corning and OFS has is the conversion to zero water peak fibers. The ability for other manufacturers to produce this is nonexistent, so it puts us in a unique position if there's ever a recovery -- I believe there will be one, but I don't think it's near-term -- that the ZWP position of Corning and OFS gives us a uniqueness.

The other uniqueness that is taking place in the ACS acquisition is ACS has a major copper capability but we have the major fiber conductivity capability. So the combination of the Avaya, ACS salesforce conductivity is we convert wire copper to fire and the combinations of copper and fiber in the enterprise market gives us an advantage unique to anybody else who supplies this market.

So our current view is that we are partnered with OFS. We're very fortunate that we still have the $200 million put coming up in '06, I believe it is. So we will continue to evaluate that position and look at it at that time. In the meantime, we're very excited about this new relationship and hopefully we will be in a position to bring the combined products to the industry.

Thanks, Frank.

Alan Bezoza, FBR.

A couple of question. First, on the acquisition, Bob ask the question regarding the breakdown of sales; how about more on the end markets, obviously through distributors, but can you give us a sense of maybe RBOC versus cable versus enterprise end customer once this acquisition takes place?

We now have a distribution network with ACS and ourselves, the team that Brian built, and our direct salesforce that virtually covers every telecommunications supplier from direct to the cable industry, to indirect/direct to the Telcos, to indirect/direct to the suppliers and OEMs and to a very structured, very competent distributor VAR network around the world. In percentages of sales and everything, it would almost be as you would think in telecom -- it will be a very broad and very different customer base.

But any sense on the size and scale versus enterprise versus RBOC versus cable?

I would think that clearly the enterprise industry would be the biggest, but only in the one and two position, and cable being number three collective. So it would go one, two, three or one, two, three, enterprise being first, cable being second. So collectively those would be how it should shake out. You've now taking CommScope from the 550 to $560 million company to 1 billion 1. So fortunately, we will have the breadth of the combined talents of the salesforces and the R&D. We will not -- I repeat, not -- cut ACS's R&D. It is clear that these talented people have proved the excellence of the products to get that kind of marketshare.

How about the ability to kind of leverage some of the ACS products into the cable industry, whether domestic or international? Is there any kind of leverage to (multiple speakers) --?

Absolutely. As the cable industry enters telephony, both Internet-based, IP-based and voice telephony, the products produced by the combined companies fall directly into that area, especially in the head end, which has not been a space that we have been very active in. So clearly we can take those products into that market.

One question on the core business in the quarter. Going into it you said Charter was a bit weaker. Some of the other traditional cable equipment vendors have seen at least some kind ordering/uptick out of Charter. Any sense of where they are in the fourth quarter?

And also, can you talk about the mix maybe of cabling? Was it more P&D, given the Adelphia increase the your regular job cable?

I must have mis-spoke. Charter was up slightly over the quarter. Clearly the mix is moving more to the less P&D and more to the drop, but it is still running the same percentages it has for the first two quarters. The so they are all up a little bit. There is a little mix change.

Do you expect any increase then, given some of the stuff coming out of Charter or perhaps Adelphia?

No, actually we expect Adelphia to continue to improve. I expect Charter to continue over the next year to improve. I don't see anything that's going to take us up substantially and down substantially in the near-term.

Congratulations on the acquisition and the quarter. If you wouldn't mind, if maybe Phil can post the presentation on the website it would be great.

It is up there. You should be able to access it now. We apologize to everybody.

Lee Athol (ph), Elmridge Capital Management.

A couple questions. I think we may be losing track of the big picture here; we're focusing on trailing 12 months for the ACS business. Like you said, it was doing much higher rev -- 1 billion 2, 1 billion 4, 1 billion 3 -- in the previous three years and margins were 10 to almost 20 percent, so we're obviously distressed now and the previous three years may be too good. But if you talk about how distressed is rev and just a bit more on margins. Can this be a 15 percent margin business?

Again, we think the business has been on an upward bias since its significant restructuring activity that it underwent in 2002; had a loss in the first quarter of 2003, but has produced operating results, including after allocation of corporate costs every quarter since the first quarter. So we think the trend is definitely for improved margin performance looking ahead. Obviously it depends largely on volume and maintaining good volume growth, and as volumes improve we should clearly see margin improvement as well.

I think your question was very well pointed. You have two companies -- CommScope and ACS -- that are producing relatively good results, given a hugely depressed market; strong cash flow, strong continuation of market position, strong continuation of research and development, excellent employee relations given the breadth and depth of this downturn in Telco. The margins obviously go hand-in-hand with the situation that exists in the market growth. I'm very excited about the potential margins in all these businesses if we can get any kind of return to normalcy.

And with that I'd like to say we're going to take one more question. Did you have anything else to add?

No, perfect. Thanks a lot.

Fritz VonKarp (ph), Sage Asset Management.

You mentioned briefly the hurricane. Could you quantify what impact these spates of unusual weather have had in the quarter?

In the quarter it probably had 2 to $2.5 million worth. Again, it's not over. We're still shipping product directly related to that. It's not gigantic. It's not good for anybody to go through one of those, but it helps the supply and demand piece.

What do you think it will help in the fourth quarter?

it that there is a small, modest piece of that in there.

Less than the third quarter then?

Yes, less than the third quarter.

With that, ladies and gentlemen, we thank you. We're very excited. To the ACS family members, we can't wait to be joining with this transaction and look forward to working with you and bringing a successful conclusion to this. Thank you.

Ladies and gentlemen, that does conclude today's conference. You may now disconnect.