CommScope Holding Company Inc (COMM) 2005 Q4 法說會逐字稿

Thank you for standing by and welcome to the CommScope fourth quarter 2005 earnings conference call. (OPERATOR INSTRUCTIONS). As a reminder, today's conference is being recorded Tuesday, February 28, 2006. I would now like to turn the conference over to Mr. Phil Armstrong, Vice President of Investor Relations at CommScope.

Good afternoon, and thank you for joining us on this call. Frank Drendel, CommScope's Chairman and Chief Executive Officer; Brian Garrett, CommScope's President and Chief Operating officer, and Jearld Leonhardt, CommScope's Chief Financial Officer are joining me on the call. During this conference call, we may make forward-looking statements regarding our financial position, plans and outlook that are based on information currently available to management, management's beliefs and a number of assumptions concerning future events. Forward-looking statements are not a guarantee of performance and are subject a number of uncertainties and other factors which 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 release we issued today and CommScope's filings with the Securities and Exchange Commission. And in providing forward-looking statements, the Company does not intend and is not undertaking any duty or obligation to update these statements as a result of new information, future events or otherwise.

Also, please note that all dollar figures and percentages are approximations. After we review fourth quarter results and Frank makes some closing comments, we will open the lines for questions. Jearld?

Today, CommScope announced fourth quarter results for the period ended December 31, 2005. The Company reported fourth quarter sales of $346 million and net income of 17 million, or $0.25 per diluted share. Reported net income includes after-tax charges of $12 million related to restructuring costs and an after-tax gain of $8 million related to recovery of accounts receivable that had previously been written off.

Excluding these items, adjusted earnings were $20 million, or $0.30 per share. For a reconciliation of GAAP earnings to adjusted earnings, please see the table included in our press release.

Sales for the fourth quarter of 2005 were stronger than we expected. Sales increased 17% year-over-year, primarily driven by improved Carrier segment sales as well as price increases in response to higher raw materials costs. Fourth quarter Enterprise segment sales rose 9% year-over-year to 163 million, mainly due to higher sales prices for most products.

While we won a number of important 10G projects globally, we also elected not to participate in lower margin segments of market. As a result, overall cable sales volume was lower, mainly because we have tried to be disciplined in raising prices in order to recover higher material costs. We've already taken additional pricing actions that should help operating margins as we exit the first quarter.

Broadband segment sales were $119 million, up 8% year-over-year, primarily due to higher prices for coaxial cable products and increased international sales. During the first quarter of 2006, we announced additional price increases that will become effective later in the quarter. Carrier segment sales rose 81% year-over-year to $64 million, primarily due to increased demand for Integrated Cabinet Solutions, or the ICS product line, and Cell Reach wireless products. Fourth quarter ICS sales were stronger than expected as we shipped additional cabinets in support of DSL and fiber to the node deployment.

AT&T began its rollout of Project Lightspeed, which was a big driver of fourth quarter upside sales performance. However, we do expect quarterly volatility and demand for cabinets due to the project nature of these deployments. Over the longer-term, we expect ongoing growth as AT&T, BellSouth and Qwest upgrade their infrastructures for high-speed video and data services.

Our Cell Reach wireless sales were also very strong. We continued to make excellent progress with customers and believe we have enhanced our competitive position as a result of Cell Reach's outstanding transmission performance, high reliability and ease of installation. We've also raised prices on certain Cell Reach wireless products as a result of the higher material cost.

During the first quarter of 2006, we intend to the exit the ExchangeMAX twisted pair telephone central office cable business, which had sales of approximately $10 million for calendar year 2005. We plan to keep and operate the ExchangeMAX apparatus business. In the fourth quarter, international sales rose 10% year-over-year to 121 million, or approximately 35% of Company sales. The Asia/Pacific Rim and Latin American regions showed stronger sales growth in Europe in the fourth quarter, and we think this trend will continue in 2006.

For full year 2005, our international performance was solid. While sales in the U.S. rose 12% from 2004's pro forma level, overall international sales rose 17%, with Asia/Pac Rim up 19% and Latin America up 26%. Overall, external orders booked in the fourth quarter of 2005 were 307 million, for an overall fractional book-to-bill of 0.9 times. Enterprise book-to-bill was approximately one times for the quarter, while Broadband orders reflected a typical seasonal slowdown. A fractional Carrier book-to-bill related resulted from the strong sales performance in the fourth quarter and the project nature of the fiber to the node deployments.

Before I cover operating expenses, I wanted to remind everyone of the global manufacturing initiatives that we announced in September 2005. These initiatives are designed to improve service, reduce cost and improve factory utilization. We plan to redistribute production among global facilities and improve the efficiency of certain manufacturing processes. As a part of these initiatives, we plan to close the Scottsboro, Alabama facility in late 2006. Broadband cable production in Scottsboro will be consolidated into other CommScope facilities.

We also plan to resource SYSTIMAX cable production from the Omaha, Nebraska facility to other lower cost CommScope facilities globally. We've been working diligently during the past six months and we believe that we are on schedule.

We expect annualized pretax savings of 35 to $40 million once the initiatives are completed in early 2007 and we expect to realize 15 to $20 million of pretax savings associated with these initiatives during 2006, primarily in the second half of the year. In order to execute this strategy, we are incurring restructuring costs, including impairment charges for equipment that will no longer be needed, and employee-related expenses as well as equipment relocation expenses. CommScope's fourth quarter results reflect these special charges, and a few other benefits as well, including, first, a pretax charge of $18 million, primarily for employee-related costs associated with the global manufacturing initiatives. These employee costs included severance charges and a $10 million non-cash charge for pension benefit curtailment and special termination benefit costs resulting from an early retirement offer accepted by 166 employees at the Omaha facility. We believe that this early retirement offer will help us reduce cost as we move ahead.

In the fourth quarter, we also recorded a $13 million pretax benefit related to recovery of accounts receivables from Adelphia that had been written off in 2002. Substantially all the cash related to this recovery was received in 2003 when the receivables were sold. A final order of the bankruptcy court in December 2005 approving the Company's claims triggered the recognition of the recovery.

Gross margins for the fourth quarter rose to 25.8%, up 300 basis points from the year-ago level. Gross margin improved year-over-year primarily due to the higher sales volume and improved margins in the Carrier segment. The positive impact of higher sales prices, however, was offset by rising costs. As I noted earlier, we have implemented or announced price increases on the selected cable products in all of our major product lines due to the rising cost of metals and [petroleum-based] metals. We intend to take additional pricing action as necessary to recover any further higher cost of raw materials.

Total period overhead -- that is SG&A and R&D combined -- for the quarter was $62 million, excluding the Adelphia benefits. Period overhead was stable year-over-year on an absolute basis and declined as a percentage of sales. For calendar year 2005, adjusted period overhead declined about 100 basis points year-over-year as a percentage of sales. We intend to continue investing in sales and marketing and research and development in order to expand our global leadership position.

Operating income for the fourth quarter of 2005 was $22 million, or about 6.3% of sales. Excluding special items, operating income was 27 million, or 7.8% sales for the fourth quarter. This compares to adjusted operating income of $5 million, or 1.5% of sales for the fourth quarter of 2004.

Now I will turn to cash flow and balance sheet items. Net cash generated by operating activities in the fourth quarter of 2005 was $30 million. Total depreciation and amortization expense was 15 million and included 3 million of intangible to amortization. Capital spending for the quarter was 4 million. At December 31, 2005, long-term debt, including current maturities, declined to 297 million and was 36% of book capital structure. CommScope ended the year with 249 million in cash, cash equivalents and short-term investments.

As we look back at our accomplishments over the last year, it is clear we made strategic progress. All segments increased sales and operating margins year-over-year. In Enterprise, we led the 10G revolution over copper and fiber for our enterprise networks with our cutting-edge SYSTIMAX GigaSpeed Extend solution. In the first year, GigaSpeed Extend won more than 100 projects globally. We also added numerous patching and Connectivity Solutions to our industry-leading SYSTIMAX and Uniprise brands.

In Broadband, we expanded our product portfolio by introducing AirBridge wireless plan extension solution and strengthened our global supply chain as well by expanding our manufacturing capabilities in the Asia/Pacific Rim region. Recently, we also announced our intention to acquire Trilogy Communications Inc., MC Squared (indiscernible) distribution cable television product line.

In the Carrier segment, we introduced innovative new cabinets for wireline and wireless applications and reached the important milestone of more than 350,000 secure environmental enclosures, primarily installed in the United States. We built upon our patented Cell Reach and our Extremeflex cables for wireless transmission systems, and we made extraordinary progress in restructuring the Omaha manufacturing facility through various initiatives. We cut manufacturing costs and overhead. We're in the process of marketing more than 1 million square feet of excess facilities and other real estate. We recently announced a new negotiated agreement with representative employees which should provide further savings.

In the Carrier segment, we achieved operating profitability in the second half of the year, and we made the strategic decision to exit portions of the telephone central office market. Overall, excluding special items, we more than doubled our operating income and improved our operating margin to 7.3%.

2005 earnings per share excluding special items in both years grew by 123%. We generated 86 million in cash from operations. We exceeded both the sales and the operating guidance that we provided the financial community for 2005. We achieved these objectives during a year where we faced significant increases in raw material costs. Overall, we believe 2005 was an excellent year for CommScope, and believe that our long-term outlook is positive.

We finished 2005 with another excellent quarter. We maintained our price discipline, generated profitable growth and delivered on cost reduction commitments. As we look ahead, it is important to note that our sales and operating performance have been somewhat seasonal historically. Performance is typically weakest in the first and fourth quarter, and strongest in the third and second quarter. Consistent with this pattern, we expect the first quarter of 2006 to have the lowest sales and operating margin of the year with expected sales of 330 million to 340 million, and operating margin in the 4.0 to 4.5% range excluding special charges.

Based on this guidance, first quarter 2006 sales should be up 7 to 10% year-over-year, and operating income should rise more than 25% year-over-year, excluding items in both years. While operating results are expected to be lower sequentially, we have already taken pricing actions that would help margins as we exit the first quarter of 2006.

Looking at the full calendar year 2006, we anticipate sales of 1.425 to $1.475 billion, primarily driven by modest volume growth and anticipated price increases. Assuming major raw material costs do not escalate, we believe that we can achieve an operating margin of around 8.5% level for the calendar year 2006, excluding special items.

Other financial item expectations for calendar year 2006 are an effective tax rate of 30%, depreciation and amortization expense of 60 million, capital spending estimate of 33 million, restructuring costs of $11 million pretax to complete the previously announced global manufacturing initiatives, primarily for equipment, relocation and employee related costs, and stock-based compensation expense of $4 million.

As we previously noted, the second half of 2006 should be stronger than the first half of 2006. As we move through the year, we expect benefits from a number of items, including higher prices, the global manufacturing initiatives, the new agreement with representative employees in Omaha, and the pending MC Squared broadband product line acquisition and normal seasonal trends.

We believe CommScope has built a solid foundation for longer-term earnings growth. We have industry-leading cable and connectivity, we're executing our cost reduction plans effectively, and we believe the fundamentals of our business are sound. Now I would like to turn it over to Frank Drendel.

Thank you, Jearld, and thank you all of the audience. First of all, I'd like to thank the CommScope team. This '05 year was one of the greatest years in CommScope's history. We faced the most adverse pricing and cost of materials environment I've ever seen in the 30 years that we've been at this company. The team worked hard to develop the pricing strategies to lead the market, in raising prices and recovering to the best of our ability the cost increases.

2006 is a very special year for CommScope; it represents our 30th year, our anniversary year. In 1976, Jearld Leonhardt and I, and then shortly thereafter, Brian joined. We began the Company with approximately 10 million in sales, with the idea of serving the last mile and the last mile connectivity. I can say we have been there, we've (indiscernible) survivors and for that, we're very, very thankful.

In the spirit of full disclosure I expect to be filing a [10-B 5] for options that I have that expire in the 2007-2008 period. These will cover approximately 400,000 shares of the 1.65 million share position I hold. This is the first stock I've sold in nine years, and of course these options are beginning to run out, so it's appropriate that I take the appropriate action.

Finally, as we enter 2006, CommScope is in the best position that it's ever been in to go forward with leading indicators (indiscernible) that all the digital revolution is taking [place]. If you consider that Cisco's acquisition of Scientific Atlanta places broadband squarely in all video formats, you can begin to see how well we're position for the future of the technology revolution. This is a very important year, the team delivered great results, we have a stable employment environment now, we have sales at an all-time high of 300,000 per employee, and we generated free cash flow of almost $1.97 a share for CommScope share. All that said, we look forward to a greater 2006 and we thank you all for your support. With that, we will open it up for questions.

We will be glad to take questions now.

(OPERATOR INSTRUCTIONS). Steve Kamman, CIBC.

Very happy to see the enterprise side of the business not fall off. Congratulations on that, I know that was an issue last year. I wanted to ask specifically on the ExchangeMAX, can you split out what's the copper cabling versus the apparatus, and what does -- if ExchangeMAX apparatus walked up and bit me, what would it look like?

Both of them are primarily directed at central office applications. The cable is clear, the apparatus is primarily connectors and crossconnects and jacks that are used in the central offices. The other part of it, though, not an insignificant part of the ExchangeMAX apparatus is integrated into our Integrated Cabinet Solutions. It gives us good reason to stay into that segment. There are a number of technology advancements happening in that space. And it's I think a very bright element of our future.

And then an update on 10G, the copper 10G, just what's going on with that.

It continues to be very active. And I'll tell you, over the -- let's talk about '05, where we had a very strong European or EMEA market first half of the year, and a rather sluggish in North American market, I'll say '06 is almost a flip of that where we've seen very high levels of adoption, relatively speaking of 10G in North America in the first quarter of '06, and it looks very promising for us.

That's heartening. Just on Katrina, I know that had a fair amount of impact last quarter, puts and takes. Is that pretty much over through [wash through] any sort of lingering impacts, both either positive or negative?

Substantially behind us, I would say, in terms of incremental revenue, inconsequential as it would relate to the first quarter. It was cause for, if you look at inventory performance, it was one element that caused us to bulk up substantially in the fourth quarter in raw material inventories.

Concerns about his supply disruption.

Right. And we will burn through that, or consume through that. So I think the effects of the hurricane season are largely behind us.

Good to know. Last question, just on the copper price obviously not been breaking anybody's way lately. What happens? Price increase rolls through, what happens if the copper price does come down? If the copper price comes down by $0.01, what does that do to you guys? Or by dollar (indiscernible) if you just give me some kind of metric, if and when -- you see what I mean? What would the impact be there on a margin side.

We talk about it -- we've spoken on the subject for years, as we watched copper rise. If it's a protracted decline, or withdrawal, I think it will be an attractive environment for us. I think we will be able to hold the pricing, or certainly our pricing will be lagging the rate of decrease of copper, and in that environment, we would expect some margin expansion. If it's very abrupt, I think it will cause all people to adjust pricing. And the benefit would be less.

How far out is the hedging? You guys hedged about a quarter out, is that --?

It depends on the metal. We're not very far out typically in copper area, Steve, but we usually have a visibility for a quarter in the aluminum area.

I'll let somebody else ask questions, again, thanks very much.

Ken Muth, Robert W. Baird.

On the profit by segment, you gave the operator margin. Could you first give us a little bit of clarity? There seems to be just some volatility in the Q4 from the Enterprise. The Broadband had, it looks like to be a very substantial operating profit and Carrier continues to benefit. Could you tell us a little bit, kind of the causes for some of the volatility there?

Sure. In the Broadband area, the Adelphia receivable recovery was a broadband item. So that certainly impacted Broadband profitability on the GAAP basis for the quarter.

And then the Enterprise, it looked like it dipped a slight negative in the quarter. Is it the kind reason behind that?

The restructuring costs that were going on impacted the enterprise space pretty significantly, and I'd say that was the largest factor -- the least unusual in the quarter.

And on the AT&T side, on the Project Lightspeed you mentioned, there was a good area of growth coming up here. How long do you expect this to last today? Kind of do some initial buildouts or initial cities or states, or how are you looking at the rollout of that?

I would say it's very early in that process. And I think it's going to continue to be jumpy, if you will, for the next few quarters. I would say the fourth quarter was characterized largely by pipeline filling in advance of a larger rollout over the course of the year. And in -- I would expect quarter-to-quarter some uncertainty in what those numbers will be until Project Lightspeed becomes much more mature.

The other issue that the telcos, as you're aware, all (indiscernible) very hard to get a universal franchise across the country. If they're successful in getting open franchising where they don't have to slug it out city by city, block by block, it will clearly accelerate. And there's some indication that they're getting traction with their arguments in Congress and at the FCC.

Okay. And the last question I'll have on the Enterprise side, obviously you showed very good growth for you in the '05 timeframe. Kind of expectation that you have in '06, do you think you can see some similar upgrade cycles continue for another year?

I think the upgrade cycle is clearly gaining momentum and expectations globally for all of Enterprise, not just the business, but for the market, would be in the upper single-digits of growth.

Thank you very much, nice quarter.

Larry Harris, Oppenheimer.

If I could add my congratulations for the results for the quarter. With respect to the gross margin, actually, the operating margin in the first quarter of 2006, the sequential decline that we see from the fourth quarter, is it largely related to the impact of raw materials, or is it a function of the higher spending at AT&T in the fourth quarter? What would we define as being the key drivers?

I think raw materials is probably the biggest single issue, Larry, and the volumes are somewhat lower. So the first quarter is our weakest period seasonally, and we have some incremental expenses kicking and, like the stock-based compensation expense.

I see. And with respect to the price increases, could we expect to see them more on the Enterprise side, or do you think you have a shot at getting them on Enterprise, Broadband and Carrier?

Larry, they are announced in every segment of the business.

Understood. And in terms -- uses of cash flow, you've done an excellent job in terms of generating cash at this point. Do you see doing more acquisitions, or at some point, could we see reductions in debt, or what do you see as being the uses for the cash?

I think we've been open that we are interested in making additional acquisitions and using our resources here for those strategic purposes.

Thank you.

Kevin Sarsany, Foresight Research.

I have a question on the Broadband side. I believe in your prepared remarks, you talked about walking away from some business that had some aggressive pricing. Is that correct?

That comment was related or directed to the Enterprise segment.

That's fine. Was that domestically or internationally?

I would say globally. And if you know the market well, it would cover the spectrum of Category 5, relatively low, 100 megabit applications to cutting-edge 10G solutions. And to the extent that we're successful in 10G as we are, it's a very attractive business for us. To the extent that we would take business at the commodity end of the business, meaning Cat 5, it would be less profitable for us. So we'll modulate that participation, period to period.

And on the Broadband side, could you describe the activity you're seeing out there? It seems like international is growing pretty well, but I'm hearing kind out there that Adelphia [and seeing a] pickup in the domestic carriers of capital spending expectations. Is that kind of what you're seeing?

International historically is our upside opportunity going forward and have good growth expectations in revenue and volume in '06. Domestically, we largely characterize as a maintenance-level business, low single-digits in terms of volume growth.

Okay. On the Carrier business, it seems like ICS and wireless are profitable, correct?

Correct.

And you're going to get rid of ExchangeMAX, or a piece of it. I know you don't want to quantify the losses there, but would we expect in the second quarter a sequential significant uptick in the margins because of getting rid of the ExchangeMAX business?

There were substantial losses associated with ExchangeMAX, but the consequences of exiting that business are all reflected in the restructuring numbers that we've provided in the fourth quarter.

Basically the savings, we've talked about savings out of the restructuring in 2006 of 15 to $20 million, mainly in the second half of the year, and that would include the benefits -- the ExchangeMAX twisted pair cable business is part of that restructuring.

Thank you.

Marcus Kupferschmidt, Lehman Brothers.

I just want to clarify firstly the new revenue guidance for the full-year '06. My guess is you're including some assumption for Trilogy, but some other things are changing too, because you're divesting roughly 10 million of the ExchangeMAX. So could you walk us through what the little changes versus a quarter ago (MULTIPLE SPEAKERS)?

Marcus, nearly all the changes have to do with our price, anticipated price increases that we have been in the process of implementing this quarter.

Nearly all, but you're still putting in something for Trilogy, I assume.

yes, I'm sorry, yes. Your comment that the Trilogy and that ExchangeMAX are somewhat offsetting, I would agree with. And most of the change is coming from pricing activities.

So the key assumption is the '06 guidance -- does that assume any meaningful uptick in the cabinet business still?

That's correct. Our expectations for cabinets in '06 have not changed.

Good. Could you talk to us about the leadtimes on the 10G projects? (indiscernible) talk about orders, [or is there about] 100 project started, but how much of that has CommScope really done versus just beginning to kind of get through some of those opportunities?

It's lagging, and I'll give you a qualitative response. We've talked in terms of roughly 100 projects over the course of our first 11 or 12 months since introduction, something less than 20 million that -- I will say 100 projects won. The value of those projects would be something less than 20 million, maybe 18 million and the revenue that was incurred in the course of '05 would be something in the neighborhood of $15 million.

Okay.

So a very strong start. As I mentioned, a lot of that, it's certainly in the first part of the year started in Europe with growing strength in the last half of '05 in North America. And it's continued into the first quarter here of '06. We have great expectations for 10G growth, globally in '06. In the latter half of the year, we will begin to see switches and routers compatible with 10G copper appearing on the market. So the IT community is queuing up for the introduction of those routers, and that means getting the copper cabling into their infrastructure.

Any sense of -- talking about -- units for the enterprise grows, I think you said mid to higher single digits for '06, right?

I think I said revenues.

Oh, revenues, okay. Any sense of what percentage of the '06 business could be 10G?

I would say upper single digits. Our expectation is 7, 8, 9% of revenue being associated with 10G. The other part of it I'll tell you Marcus, is the success that we have in the copper 10G also contributes in those jobs in terms of our fiber successes, which is also a very strong element of our enterprise business. But you know, when you look at our presence, when we come into the data center, no one has the combined strength of 10G copper connectivity in cabling and fiber.

I'm sorry if this was asked before. Have you guys given us an update on kind of potential uses of the nice cash balance?

Yes, Marcus, I mentioned a little earlier that we're keeping our cash mainly in -- as [power] for strategic needs, as we see them moving ahead. We did just announce a relatively small acquisition that hasn't closed yet, so -- and we are looking for other opportunities.

Sounds good.

Celeste Laurenzano, Merrill Lynch.

I had a question on the operating margin outlook for '06. It seems like it's a little more conservative than your prior outlook. Is that solely due to material prices, or is there something else?

That would be -- your observation is correct. It would be [very slight], we were saying around 8.5%. We have had material increases in the first quarter, we've raised sales prices as well. So we still feel very good about our positioning overall and not changing our operating income through those transactions.

If you could talk a little bit about the pricing environment so far in Q1 for the products that you've implemented increases on. Have you been successful with that, and are there certain products that are maybe more difficult getting pricing on?

They're all difficult. I think we will be successful, are being successful in the Enterprise space. The price increases that are going on currently were not in enterprise, were not anticipated in the fourth quarter. And to the extent that we're currently implementing a price increase effective first quarter, it has impacted the guidance that Jerald has provided.

In the Broadband space, recall that when we announced a price increase in the fourth quarter of '05, we took the opportunity to alert customers there would be a second half to that price increase in the first quarter of '06 once we fully understood what the commodities environment would be. And we have taken that price increase to our Broadband customers, and it is being adopted.

And then lastly, in the Carrier space, particularly as it relates to Cell Reach RF cables, we have announced price increases to a number of our customers and channels, and it is being successfully implemented as well.

Thank you.

Steve Kamman, CIBC.

Just couldn't go away. Actually, just the Adelphia receivable and the restructuring cost, can you (indiscernible) what line items those are in.

The Adelphia recovery is in the SG&A line, Steve and the restructuring cost is a separate line item.

I was just trying to make sure -- I want to make sure I had that detail down. And the 30% tax rate, is that going because it sort of bounced around this quarter this year? Is that probably going to be steady throughout the year? Any thoughts on that?

There is more volatility in those rates than we used to see, and we ended 2005 at a little under 30% but had some volatile quarters. So hopefully, it will be a little less volatile, but it depends largely on our mix of income. Hopefully we'll have fewer restructuring items and significant items like we have been having in the U.S. particularly that have had an impact on that -- on our tax rate.

Thanks very much.

Brian Coyne, Friedman Billings Ramsey.

Thanks for taking my call, nice quarter. Just real quickly, a of couple points. Most my questions have been asked and answered.

On capacity utilization, I was wondering if you could talk for a second about the dynamic you see just between what you're trying to achieve obviously and improving that metric on the cost savings, and then also leaving for flexibility for any upside in the demand, specifically what you might see on the GigaSpeed product.

Secondly, one final point on GigaSpeed, I know it's been hit multiple times today. But if you could just talk a little bit about any emerging competition. I think in the past, you said perhaps maybe you're around multiple times bigger than the closest competition, maybe 10 X, maybe more. I was wondering if that's changed at all. I understand your point about how it pulls through everything else and makes the rest of the business stronger, but I was wondering if you could drill down on just the competitive aspect on the copper product.

The first part as it relates to capacity, are you asking that as it relates to the entire corporation, or specifically Enterprise?

Everything that was added with the SYSTIMAX line and what's going on. I realize you've probably done quite a bit, if not everything, in Omaha by now, but with the other -- with respect to the announcements in September, as that kind continues to go through. So I guess a little bit more on the enterprise side.

The capacity situation I think is adequate. There is a lot of volatility, can be in mix of product, quarter-to-quarter, but those are things that we anticipate. Fortunately, in the Enterprise space, as it relates to buffering that data, all of the materials are moving through distribution channels, which helps us level demand from a manufacturing standpoint period to period. GigaSpeed as it relates to the 10G offering specifically, we have tooled that product in all of our facilities, in EMEA and the U.S. and in Australia, and I think we've done our planning well. Our expectations are to retain the very high service model that we've had. So I hope I'm not wrong in that regard.

As it relates to the competitive environment, there will be increasing competition in this space, as the market continues to prove itself and grow. And I think there's clear expectations that we will see more competitors there. But my comments as they related to certainly the early parts of '05, and into the mid part of '05, I think are accurate. A lot of people were in the space pre-announcing product that had not yet been demonstrated commercially. I think there were issues with some products. Many of those things have been resolved, and I think competition will improve over the course of '06 and '07.

Thanks again.

Marcus Kupferschmidt, Lehman Brothers.

Just wanted to touch on two things. One, could you give us an update on how your program is to enforce the intellectual property you inherited from Avaya and the royalties you're looking for? And I had a second follow-up question.

The intellectual property issues -- I'm not quite sure what we inherited as it related to enforcement. But we continued to invest in the enforcement area, and I would say we were very pleased with the results that -- as it relates to counterfeiting with the results in '05.

From the standpoint of licensing and intellectual property assertion, those are ongoing activities and I expect them to be so for the next couple of years. It's an area of substantial investment for us, and I think we're in a catch-up mode. I think we've commented before that we thought certainly Avaya was last in this particular area. And so we're still in a catch-up mode of getting people into a state of compliance with existing intellectual property.

Moving forward, obviously we're generating a lot of new intellectual property, particularly as it relates to the fiber space and 10G copper, and we'll have to advance the licensing programs consistent with that.

So just to be clear on this, it sounds like you're not generating any kind of meaningful license revenues at this time.

I would not agree with that statement.

They're not material, Marcus, they're meaningful but they're -- at this point they're not material in our financial segment.

Is a second -- totally different topic, just to clarify again, it's on the 4Q results. Could you give us a little better sense of kind of why you feel the operating margin ended up having a nice outperformance, better then what you would have anticipated when you entered the quarter? What were some of the key drivers of that outperformance?

I think, Marcus, that everything always starts with revenue, and our revenue was a little stronger than we expected. I think we were above our guidance a little bit in revenue, and I think that helped. And we had some -- the Carrier business, the cabinet business particularly, was very strong in the quarter, and in comparison to earlier periods, particularly that was a great improvement in the financial results of the Company.

Great.

(OPERATOR INSTRUCTIONS). Alan Mitrani, Sylvan Lake Asset Management.

Can you talk about the possibility of putting in a small dividend over time?

Obviously, the Board reviews that at least twice a year, and currently, our view is that it's more attractive to have our capital base for acquisitions to build the business. If we can't find alternative uses for that cash balance, we would obviously consider that or share repurchases or all the other options that are available under that line. We've done them all before, so it's not like we're unfamiliar with them. But right now, given the presence that we have in the intellectual property and the presence we have in the space that we have, being clearly number one in both broadband and enterprise and a strong number two now in carrier, is that we continue to look for products and opportunities to fill that out.

Also, you brought back stock when stock was meaningfully lower, you hadn't bought back any stock the last year to the consternation of a lot of us. But it seems to have worked out for you. The stock's up and you generated a lot of cash. Can I assume now, given your bulletproof balance sheet, that you're comfortable making acquisitions for cash and relevering, given where rates are if you see something interesting?

Absolutely. We've never been afraid of leverage. If you go back and study the history of CommScope, we've always been leveraged carrier for (indiscernible) we've come out of those environments of LVOs, so we understand it. If we have the right opportunity, we would bet the balance sheet on taking an opportunity like that. So clearly, we did once before. If we had not had the cash reserves that we had at the Avaya opportunity, we would have lost Avaya to some other competitor. Given our balance sheet was one of the reasons we are able to get an exclusive on that negotiation.

One other thing, Frank, just be clear, did you say, or was it Frank or Joe, you talked about 1 million square feet of space that you're looking to sell or do something with out in Omaha? Is that the right number?

We have buildings in that complex, Alan, that are for sale currently, and the total square footage of those is approximately 1 million square feet.

Are there more buildings or more land outside of that that you have under contract that you can sell?

Outside Omaha? No. That's what's remaining of what we've already been able to sell.

So it's only 1 million square feet -- only, it's a huge number -- so 1 million square feet out of there, there's no additional real estate sales outside of that amount?

None [but] what we want to keep to operate with.

We will examine all of our facilities, and any unutilized facilities, say at Scottsboro, will ultimately be closed, and it is not closed yet. We haven't started marketing. It's a very small facility, 150,000 square feet, so -- and any small facilities in addition to that. But the meaningful ones are out in Omaha, in terms of scale.

Lastly, one of your competitors reported earlier this year, seems to have conceded that they lost some market share to you guys. Can you talk about the competitive environment as it relates to enterprise, and who you see out there and how many people you see on bids, how many companies you see competing on bids and how you're differentiating yourselves specifically?

It's a different story in different parts of the world. There is no one competitor that is uniformly of scale and the level of competition in all the geographic markets. In the U.S., we have probably the largest number of competitors -- I'll say capable competitors -- and when you get to EMEA, it's largely a different group of competitors. It's the high-end of the market in the technology segments. We would have less competition in Europe, and I would say even substantially less again as we moved into the Asia-Pac region. So it's a complex picture by region, and by segment of the market, relative to the technology levels.

Thank you, nice job.

Operator, we will take one more question.

Jeff Beach, Stifel Nicolaus.

Congratulations on a great year. And I finally figured out if I kept pushing star one I'd never get a question in. I had a couple of things. First, what kind of indications for demand, even if it might be lumpy, are you getting from your RBOCs, or your cabinets and enclosures for 2006? It is some indication of strong growth ahead from -- even from the fourth quarter level?

I really won't address it relative to the fourth quarter. I think fourth quarter might be viewed as -- for forecasting purposes an anomaly, in that it really was about filling the pipeline, if you will, in advance of these rollouts. And -- the projections -- we've had these discussions before, the projections are very attractive. They are large expectations for growth, certainly year-over-year. I would say those expectations are for continued growth throughout the year from the first quarter. But our position right now, and as it's reflected in our guidance, is a much more conservative proposition. So as we move into the year, and understand how these projects roll out from a construction perspective and from a market adoption standpoint, adoption by their customers, we will be adjusting our guidance.

How do you protect yourself from quarterly variability of the manufacturing volume?

You really don't. And it's one of the complexities of the business. One of the real attributes of the ICS product line of CommScope is the tremendous scale of it. So you think about a wireline carrier who has demand for high volumes on relatively short notice, we would be one of the few in North America or the world, tooled and equipped to respond to it. The flip of that is, when demand turns down on a sequentially quarterly basis, you've got to deal with that cost. And it's a very complex part of managing the business there in Omaha.

Two other quick questions. One is, can you tell us relatively, are your plastic costs higher in the first quarter than they were in the fourth quarter? And with the spot market coming off, is there any chance you'll see lower costs going into the second quarter?

Our costs would be higher in the first quarter, and particularly as it relates to ethylene-derived plastics, we will lag spot markets, spot costs. So short-term, things look pretty good, in terms of the last few days or weeks. If that trend were to continue, our costs would trail by two or three months.

The third thing -- I think you were pushing a very high rate of production capacity at your new plant in China as you ended the year. What are you doing for capacity? Are you continuing to add equipment, production machinery over there for higher volumes?

That's right, Jeff. As part of our announcement that was in with the restructuring where we were going to take a lot of U.S.-based manufacturing and redistribute it in globally closer to our international markets or global markets. Part of that announcement was the increase of machine capacity in our [Zhujo], China facility. And that activity is currently underway and currently on schedule.

Again, great year.

Thank you, everyone. We look forward to having a great '06, and thank you for joining us.

Ladies and gentlemen, that does conclude the conference call for today. Once again, we thank you very much for your participation and ask that you please disconnect your lines. Thank you and have a good day.