CommScope Holding Company Inc (COMM) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the fourth quarter 2007 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded, Thursday, February 28th, 2008.

I would now like to turn the conference over to Phil Armstrong, Vice President of Investor Relations. Please go ahead, sir.

Thank you, 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, join me on the call.

During this conference call, we may make forward-looking statements regarding our financial position, plans, the Andrew acquisition, 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 to 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 our press release we issued today, and CommScope's filings with the Securities & Exchange Commission.

In providing forward-looking statements, the Company does not intend and is not undertaking any duty or obligation, to update these statements as a result of new information, future events, or otherwise. Also, please note that all dollar figures and percentages are approximations.

Jearld?

Thank you, Phil. This afternoon, I will review our fourth quarter and full year CommScope results, which do not include any of the operating results for Andrew. I will then give a brief summary of Andrew's December quarter results prior to the acquisition, and before turning the call over to Frank, I will also cover our current outlook for 2008, and the first quarter as well. Earlier today, CommScope announced fourth quarter results for the period ended December 31, 2007.

The Company reported record fourth quarter sales of $463 million, and net income of $38 million, or $0.51 per diluted share. The reported net income includes after-tax charges of approximately $3 million for interest on the new term loans, write-off of deferred financing fees related to our old financing arrangement, and acquisition expenses related to the Andrew acquisition. Excluding these special items, adjusted fourth quarter earnings were $41 million, or $0.55 per diluted share.

Sales for the fourth quarter of 2007 increased 17% year-over-year, driven by increased volume in all three segments. Enterprise segment sales rose 17% year-over-year to $219 million, primarily due to higher sales volumes and growth across all regions, with particular strength in the North American region. For calendar year 2007, the Enterprise sales rose 12% to $899 million, as we achieved growth in all of our major regions. We continued to invest in emerging markets as we build our global brand, as a result of our growing international focus, nearly one-half of our Enterprise revenue is now going generated outside the United States.

The Enterprise segment continues to experience year-over-year growth as businesses invest in intelligent buildings, deploy and consolidate data centers, and respond to increasing bandwidth needs, as employees utilize new technologies, such as collaborative software and videoconferencing.

We believe the enterprise segment continues to experience a multi-year upgrade cycle with recent ratification of the Category 6A and Class EA standards, we should see increased demand for 10-gigabits per second copper solutions, such as CommScope's industry-leading SYSTIMAX GigaSPEED X10 products.

Now despite U.S. economic uncertainty, we continue to see a strong global project pipeline that give us confidence about 2008. Large enterprises are now looking at their local area networks as key strategic investments, and traditional functions, such as video surveillance and building controls are moving to IP-based platforms as well.

We are also very excited about the long-term prospect of building upon our Enterprise sales channel, with Andrew's industry-leading in-building wireless solution. We currently have teams developing and then building wireless market strategy, and believe we will begin to see results towards the end of 2008, with more significant growth in calendar year 2009.

Broadband segment sales rose 6% year-over-year to $153 million, primarily due to higher international sales volumes, and the positive impact of the Signal Vision Incorporated acquisition, which closed on May 1, 2007. For calendar year 2007, Broadband sales rose to approximately 14% to $625 million, with a particular strength in the Latin American and Asia-Pacific regions.

In calendar year 2008, we expect modest Broadband growth, while North American residential construction is expected to be weak, competition between MSOs and telcos should continue to drive maintenance spending, and investment by MSOs in their hybrid fiber coaxial networks.

Customers continue to demand new service offerings such as greater selections of High Definition, On-Demand video, and higher speeds of broadband, capable of handling next-generation technologies, such as peer-to-peer activities. Carrier sales increased 46% to $91 million in the fourth quarter. Sales rose significantly in all major carrier product areas.

Carrier segment experienced particularly strong international wireless sales for its Extremeflex smooth wall aluminum cables, for mobile cellular towers in the quarter. Integrated Cabinet Solutions, or ICS, revenue increased as large domestic wireline carriers continue to deploy electronics deeper into their networks, to offer higher bandwidth, and broadband, and video services. Fourth quarter ICS sales reflect a less favorable product mix than previous quarters. For calendar year 2007, carrier sales grew an impressive 49%, and we remain very excited about what we believe is a multi-year opportunity for our ICS product line.

In 2008, we expect higher volumes of cabinets for the less favorable mix of new generation cabinets, as AT&T expands to like speed deployment. While we expect ongoing composition, we believe we are uniquely positioned to serve the customer's needs with innovative cabinet designs, strong customer service, and a proven record of quality and reliability. In our ICS business, we are also excited about the long term opportunity of selling cabinets through the Andrews sales channel, we expect to see initial sales in 2008, and more extensive growth in 2009, as we combine leading cabinet technology, with a global wireless channel.

Overall for CommScope fourth quarter international sales increased 17% year-over-year to $165 million, or 36% of total revenue. Calendar year 2007 international sales grew 20% year-over-year to $629 million. We achieved double-digit growth in all international regions, with particularly strong growth in the Latin America and Asian-Pacific regions. External customer orders booked in the fourth quarter of '07 were $420 million, up 19% from the year-ago quarter.

Gross margin for the fourth quarter was 29%, up more than 100 basis points year-over-year. The gross margin improvement was primarily due to higher sales levels, a more favorable product mix, and the benefits of ongoing cost reduction activities.

Our SG&A for the fourth quarter was $71 million, or 15% of sales, and includes approximately $600,000 of expenses related to the Andrew acquisition. The $71 million compares to $65 million, or 16% of sales in the year-ago quarter. SG&A expenses grew primarily due to higher sales levels, and spending to support and expand global sales initiatives. Research & Development for the period was approximately $10 million in the fourth quarter, or 2% of sales. Excluding special items, operating income for the fourth quarter increased 44% year-over-year to $55 million, or 12% of sales.

For calendar year 2007, excluding special items in both periods, operating income grew more than 65% to $287 million, and operating margin increased more than 400 basis points to nearly 15%. We achieved an important goal of bringing all of our business groups to double-digit operating margins for the year, with significant improvement in all groups. However, raw material costs continue to rise, and we are monitoring these costs closely as commodities are a key input, particularly in our Broadband and Enterprise businesses.

Now, I will turn to cash flow and balance sheet items. We achieved an all-time record quarterly cash flow in the fourth quarter, by generating over $100 million of net cash flow from operating activities, bringing business to a total of $239 million for the full year. We are very proud of these results, and the discipline our entire team demonstrated to deliver, both the profitability and effective working capital management for this level of cash flow from operations.

Total Depreciation & Amortization expense was $12 million for the fourth quarter, while capital spending was approximately $10 million in the fourth quarter. While our results from operations reflect almost no impact of the December 27th Andrew acquisition, our balance sheet fully reflects it. Total assets as of December 31, 2007, were more than $5.1 billion, and includes our allocations of the approximate $2.6 billion purchase price to the consolidated balance sheet.

The purchase price was funded by approximately $2.1 billion of new long-term debt, and using our existing cash, as well as the issuance of approximately 5.1 million new CommScope shares. At December 31, 2007, long-term debt including current maturities was approximately $2.6 billion. CommScope also ended the year with $649 million of cash and cash equivalents.

Please note that the year-end balance sheet reflected a number of items remaining to be settled related to the acquisition, including cash payments to redeem the Andrew 3.25% senior subordinated convertible debentures, and the remaining amounts to be paid to some Andrew stockholders. The CommScope tendered for the outstanding Andrew debentures in January, and as of February 15th, essentially all of the Andrew debentures had been exchanged for merger consideration, which totaled $208 million in cash, and approximately 500,000 CommScope shares. Both our total debt and cash were reduced from the year-end levels, as a result of the subsequent conversion of the Andrew bonds.

Let me briefly turn to Andrew's December quarter results. In the December quarter, prior to the acquisition by CommScope, Andrew's unaudited results included revenues of $546 million, and an operating loss of $25 million. Andrew's operating loss reflected merger costs of $34 million, asset impairment of $12 million, restructuring of $5 million, and intangible amortization of $2 million.

Please note that CommScope's 2007 statement of operations and cash flows do not include any operating results for Andrew, which were immaterial for the four-day period between closing and December 31st.

Also note that we recently completed the divestiture of the Satellite Communications product line for $8.5 million in cash, $2.5 million in a note receivable due in 2010, an 18% ownership interest in the new entity, and the potential for up to an additional $25 million in cash, if certain financial targets are met over a 3-year period.

As we look ahead in the Wireless market, we remain excited about its potential. Wireless subscriber growth, particularly in emerging markets, increasing minutes of use, new smart phones and handsets, multimedia functionality and robust data applications are all expected to drive the demand for wireless infrastructure. In the near term while we expect to grow with the overall wireless markets, we believe we will create the most value, by executing on our integration plan, creating synergies, and focusing on cost reduction.

So overall, we are pleased to deliver another record quarter and year. We are excited about the acquisition, and the significant task of integrating these two strong companies is well underway. So far this year, we have created an implemented a new overall organizational structure, we have begun implementation of the integration plans developed by more than 50 transition teams, we have created a consolidated business plan for 2008, and started the process of evaluating global manufacturing and distribution facilities.

We understand the challenges ahead. We are building a broader foundation for the long-term success, while we work to execute aggressive business plans, and a potentially weakening economic environment. We also face the headwinds of volatile raw material costs. However, we have strong and experienced management, which has been strengthened by the Andrew team. We believe we have a leading competitive global position, and we fundamentally believe that the ongoing global demand for bandwidth, will continue to drive the need for communications infrastructure, in both wired and wireless networks.

Now as we look ahead to calendar year 2008, we expect to have revenue of 4.1 billion to $4.3 billion, and a proforma operating income target of 525 million to $575 million, excluding restructuring and transition costs, as well as purchase accounting adjustments related to the fair value write-up of inventory, property, plant & equipment, and intangibles, all of which results in increased charged for inventory, depreciation, and amortization, this operating income target assumes that the Company will be able to successfully recover our costs associated with the rising raw material costs we are experiencing.

We expect an overall interest rate of around 6.75% for the term loans, which had a beginning balance of $2.1 billion. Our expected effective tax rate is in the range of 34 to 36%, but with a lower cash tax rate anticipated, from utilization of deferred tax assets acquired in the acquisition. Approximately 81 million weighted average fully diluted shares are anticipated as outstanding, and more than $500 million of cash flow from operations is expected.

We also expect capital expenditures of 80 to $90 million, and significant non-cash costs related to purchase accounting adjustments, including more than $100 million of additional annual intangible amortization, and more than $50 million of fair value inventory write-up that increases cost of sales primarily in the first quarter. So for the first quarter of 2008, we expect revenue of 950 million to $970 million, and pro forma operating income of 80 to $90 million, excluding restructuring and transition costs, as well as purchase accounting adjustments, which we previously mentioned.

Also note that the revenue includes approximately $7 million in Satellite Communication revenue, and an operating loss of approximately $2 million for Satellite, prior to the January 31, 2008 sale of the business. Primarily due to significant non-cash purchase accounting adjustments, as well as transition costs, we anticipate on a GAAP basis, a loss for the quarter. Despite that, we are very excited about CommScope's future opportunities, as we integrate these two dynamic businesses.

So I would like to turn the call over now to Frank for his comments.

Thank you Jearld, and thank you for joining us on this call. By any measure this was the most successful CommScope has ever had. Sales rose nearly 19% across all segments, operating income increased substantially in all segments, and we achieved a 50% increase in both operating income and EPS. And once again, I want to welcome all of the Andrew employees that are joining us. As I look forward I am very excited about the transition, and taking forward what we see as a very exciting period in the last model of wire to wireless.

If I look at the priorities for 2008, continue to execute on profitable growth, deliver the 50 to $60 million in synergies, and continue to identify those non-core assets and non-performing assets for possible divestiture, but in the end, so far everything we have seen in the Andrew transaction, is as good or better than we could have possibly expected. We have started out on a very positive note, and we are very excited to have this new team.

So we will turn it over operator to questions and answers.

Thank you. Ladies and gentlemen, (OPERATOR INSTRUCTIONS)

One moment, please, for the first question. Your first question comes from Celeste Santangelo from Merrill Lynch. Please proceed with your question.

Celeste, are you there?

Yes, can you hear me?

Yes ma'am, now we can.

Okay. Good afternoon. Based on your guidance, it looks like for operating margins, they would have to go from about 9% in Q1, and probably exit the year-round 15% to get to your full-year outlook? Is there something going on in Q1? And then can you talk about how we should think about the quarterly progression?

I will start Celeste, and Jearld may have some more color. I would say first and foremost is, the rate at which the synergies and cost reductions will happen. We will pick early fruit in the first quarter but it's impact will be only for a small part of the quarter, and then we'll continue to add to that pile over the course of the year, and we should expect to expand margin of those activities, get traction, so front end of the year you don't have the benefit of, and the back end of the year, we will. So in total it will have a substantial impact on the quarterly performance.

Yes, the only additional thing I would mention, Celeste, is clearly, we have seen some rise in raw material cost so far this quarter, and as mentioned, we will have to make adjustments so we expect going forward to recover those, assuming that they sustain, and it will take us, that is basically a headwind, if you will, in the process of improving our operating results, or delivering the results that we expect for the year, but we as I said in the call, we know what is ahead of us, and we have done it before.

Celeste it is Frank, overall we will continue to work on the non-performing assets also.

Okay. And looking at the full-year outlook, can you talk about each business, and what kind of top line growth assumptions you have both for CommScope's core business, I know you talked about Broadband just seeing modest growth in '08. But can you talk about maybe Enterprise Carrier, and then what you are assuming for Andrew?

Well, we have got a full spectrum, and I don't know if I will cover all of the pieces with the granularity that you would like, but in our traditional digital Broadband space, I think we will have very low growth in that business segment, or that business product.

In Enterprise, again, speaking from a traditional perspective, we should have good growth, potentially double-digit growth, 8 to 10% type of top-line growth. We would expect, again, profitability to exceed revenue growth in that segment.

In Carrier, the story is, and we saw a little bit of that, we will see a little bit of that in the fourth quarter of '07 and more of it in the first quarter of '08. Volumes will be up, but we will be transitioning the product line to next generation product, which, will be at a lower price point, and certainly early in the year at a lower gross margin. So in our traditional cabinet space or Carrier space, I would say a downward turn in revenue, and an upward move in units sold.

In the Andrew segments, both in the tower space and in the OEM space, which we call ACCP and WNS, we expect growth in both of those businesses in the mid-single-digit range.

Great. Thank you.

Thank you.

Thank you, Celeste.

Your next question comes from Jeff Beach with Stifel Nicolaus.

Good afternoon, and congratulations on another great quarter.

Thank you, Jeff.

Thank you, Jeff.

To start with as you exit 2008 to go from 50 to $60 million of costs and synergies, towards the 90 to 100, where do you think just to gauge the progress, where do you think you'll be when you end this year, and going in to next year? And I have a reason for asking that because I want to talk a little bit about actions beyond procurement, cutting some of the easy stuff up front.

Well, don't tell my people that any of it is easy, but no, by the end of the year we need to be at that year-two run rate basically.

We are very close.

Yes, we said in the first 100 days we would create organization which we have dome, we have assembled these plans, these transition teams, get them engaged, that will happen, and what we have got to do right now is detail the plan for global manufacturing and distribution consolidation, and those plans will be, largely completed by the end of the first quarter, with implementation starting in the second quarter, so by the end of the year, the vast majority of these projects will be engaged and underway.

The other thing I will say, Jeff, is that, the more we get these teams together, the more opportunity we see. And, I am not putting anything more on the table, but I would say that, you know, if we get all of this thing -- all of these launched and underway year one as I have outlined, there is potential to add further opportunities to the pile into year two.

All right. So you have already answered, I was going to get at the timeframe for consolidation. You are not wasting any time moving heavily in to that in the next couple of months?

Absolutely not.

-- in that process. Another thing, a little surprised at the high tax rate. Now is this something that the company is working on, is tax planning to try to knock that number down if not this year, next year?

That is for sure, Jeff. We are engaged in tax planning currently. One the effective tax rate, I think in part is due to the fact that we had to include in our opening balance sheet deferred tax assets related to some of the tax credits and NOLs, and that sort of thing, that we fully expect to utilize, or take some benefit from in 2008. So the effective book rate is going to be in this mid-30-sort-of number, we think now, while the effective cash rate should be towards the lower end of the 30s. I would say more in the range of where you think core CommScope has been.

And Jeff, it is Frank. In addition to what Brian said about pure cost and the opportunities we have seen, and synergies, the interesting point for me has been the unique additional marketing opportunities. We have always believed that the combination of these two companies would offer new markets, and new business opportunities.

Clearly the conversion of copper to aluminum, having discipline across all of the markets, to be able to get the products and pricing and distribution channels, but that has been substantially endorsed and accepted by both Andrew and CommScope teams. They are working very well at the senior management levels for these opportunities.

Okay. And this final question, on that last comment about moving from copper towards aluminum, is a large amount, or a full impact of that in your synergies that you talk about? Because it doesn't sound like you will be there largely before the end of 2008?

Well, I think we will be there largely by the end of 2008. In the legacy CommScope business, by year end, 75 to 80% of our production had converted to aluminum, and the fourth quarter was an extraordinary period for us in the wireless space, on the legacy side.

Andrew's percentage of aluminum was a much, much smaller number, but they were in a different market position, and where the teams are now is obviously to create the strategy of how we move forward and advance aluminum, I will tell you that over the last 30 days, probably one of the largest OEMs in the world, in terms of wireless infrastructure has adopted smooth wall aluminum cables, as their design of choice globally.

And that will substantially move activities in parts of the world that CommScope would have spent a long period of time to transition, since most of our business was domestic. So you couple that with the strength of the Andrew sales and marketing channels, I think it is going to be quite a transformation year-over-year, as it relates to aluminum.

Thanks a lot.

Thank you, Jeff.

Thank you.

Your next question comes from George Notter with Jefferies.

Can you hear me?

Yes, sir, George.

Hey, I wanted to clarify on the top line and the operating income guidance going forward, I assume that does not include any anticipated divestitures? And what is the assumption there also regarding cross-selling?

Well, as far as divestitures it does not include any further divestitures, but we have said, George there are businesses that we are continuing to evaluate, and so that potentially could change. Second part of your question related to --

George you broke up on that. Second question was --

Yes, had to do with cross-selling opportunities? Would that be built in terms of guidance for cross-selling, for example, cross-selling cabinets through the Andrew channels, cross-selling in buildings through the Enterprise channels that you have, et cetera?

I know that the two we are focused on. And the teams are just coming together. It would be a small number. Something in the neighborhood of 25 million in the first year.

Got it. And as a second question I wanted to ask about. You know, can you just talk about the process of moving higher raw materials costs on to your customers? How quickly do you think you could implement pricing changes? Maybe you could kind of talk about some of the sensitivities, in terms of customers and contracts, and how does that flow through going forward? Thanks.

Well, probably the best way to answer would be to say look at what has happened over the last two years. I mean, we have been through this precise environment at least twice over the last couple of years, and I would say we have managed the process very well. I mean, we have expanded margin through these periods, but for both enterprise and for wireless, it is not a step function. We move pricing by account.

There are contracts and projects in both of those business segments that prohibit price increases over certain periods of time, so it will be a mix. In the Enterprise space, we did start moving pricing in the fourth quarter of last year. It had little impact on the quarter. It should begin to help us a little bit in the first quarter of this year.

And limited international.

Yes. It was largely international in Enterprise. And I suspect there will be further price increases announced in the quarter for Enterprise. In the Carrier space, a like scenario. There has been price increases in selected accounts, where permitted. We are likely to change pricing again during the quarter, and move pricing in a second step where practical. So the whole process end to end may take the entirety of a quarter to yield a large percentage of the opportunity. So it's never as fast as we would like to.

George, it is Frank. From the operational team Brian put together and the procurement teams have done an excellent job. If you look at the history of CommScope over the last three years, in fact the last five years, total history, the scale that this Company now has, gives us a unique opportunity to work this issue, as well or better than anyone, because everyone faces the same basic raw material issue.

The advantage we have is the scaled depth and worldwide position in procurement to modulate these as best as anyone can, and to work through it, and to get the price increases on an orderly schedule as well as anyone. I feel comfortable that we are not going to be disadvantaged in this environment. I think you should concentrate on the operating income, as much as are on the sales part of it. We have proven we will let some junk business go, in order to improve the margin, improve our stature with the world's leading customers.

Yes, and then I would wrap up by saying, I didn't comment on our Broadband business. Clearly, we have got material price increases in aluminum, as well as in plastics, largely polyethylene, and at the current pricing of aluminum, there is expectations for price increases in that business segment as well.

Thanks very much.

Yes, sir.

Your next question comes from Simon Leopold with Morgan Keegan.

Thank you. Wanted to ask a couple of clarifications, and then some questions. First, going back to, I think, one of the answers to the first set of questions around the Carrier growth, I understand the declining ASP, rising volume aspect, but wanted to see if you could give us a little bit more color, in terms of what you are expecting either for the full year, or for the quarter, within the Carrier space in terms of a revenue trend?

Yes, Simon in both the quarter, and you are referring to the first quarter of '08?

Yes.

Year-over-year we will see a modest decline in revenue, and for the full year, we are projecting again a modest decline in revenue.

And increases in units sold, and lower ASPs as mentioned before.

And is there assumption in there about any kind of market share shifts?

Yes, we have been very vocal for some period of time. Our expectation is particularly as it relates to the AT&T business that we will continue to share more of that business with competitors. So there will be declines in account share, as well as unit pricing.

Okay. And then also just wanted to double check that the forecast for sales that you have given us excludes the NSN filters business, and the Sat Comm business that you said you are getting rid of already?

That is correct.

Yes, for the balance of the year, that is right.

And next one I wanted to verify some quick math that the interest expenses look like they are going to run about 35 million a quarter on the new debt?

That is a pretty good number I would say for right now. You know, keep in mind we do have, starting with some pretty significant cash balances, we are not going to be in a hurry to drawn down our cash position today, although as mentioned we did pay about 200 million of the Andrew convertible debt since the end of the year, so there will be some income coming in from those cash balances as well.

Okay. Now in terms of trying to do some modeling, I would like to try to get a sense of what the operating expense baseline is, so that it helps us measure the synergy progress through the year on at least that line item. Is there a metric you can give us so that we can watch your progress?

Certainly not prepared today to do that Simon. We obviously you can combine the Andrew and CommScope businesses last year. Think about some of our synergies that we talked about as a reduction, and reflect some cost of living inflation-type adjustments there as well, and start from there.

Right. I guess what we are missing here is the explicit operating expenses for Andrew for the fourth quarter? That is probably the missing element.

Okay. Well, I think we can provide those to you. If not now at a different time. Do you have those now, Phil?

Yes, Simon I think we gave that actually for the December quarter they had a GAAP loss of 24.7 million, and then I think we listed all of the adjustments that gets you to a proforma operating income around $26.8 million. And I think Jearld actually mentioned those in his comments. We can take that offline, but I think you got that piece.

Okay. And just to sort of close out my questions. Wanted to see if we could get a sense of trending in the first quarter, looking at it on a sequential basis? I guess you have got normal seasonality leading down, but just wanted to see if you can give us a little bit of color about how the different business segments might behave sequentially in the March quarter, including the new wireless segment?

Well, in the new wireless segment, they are going to do very, very well, and the tower space, the ACCP business, well in to the double-digits, in the teens in terms of growth, and in terms of the WNS part of the business, it is probably going to be mid-single digits in terms of growth. Our Enterprise business in the first quarter expectations are to be flat. In the first quarter of last year, we --

You said year-over-year or sequential?

Year-over-year.

Okay.

All of these comments are year-over-year.

Got it.

Enterprise flat, and that is not a reflection of the market, so much as that in the first quarter of last year, we were in the midst of the largest project in our history. It was an enormous quarter for us, and it's more reflective of last year than it is the strength of Q1 '08 if you follow me.

Okay.

Carrier I think I already commented on. The expectation is that it will be down slightly year-over-year, as well as our digital Broadband business. The housing market in North America is clearly affecting that business unit, and sales in North America will be down.

Great. Well thank you very much for the answers.

You bet.

Yes, sir.

Your next question comes from Ken Muth with Robert W. Baird.

Hi, this is James Falkoff on for Ken, can you hear me?

Yes, we can hear you.

Great. First quickly on the cash flow guidance you have given, what is the expected depreciation and amortization? And then what assumptions are you making for changes in working capital?

Well, James, that would be a difficult question to answer here, and we will take a stab at it here while Phil is looking up some information. It is difficult because of the intangible amortization that will be occurring, and as we said there is over $100 million of new intangible amortization coming in, but in total, we think about 210 to 220, somewhere in there for a total for the year.

And what we just reported in our K, James, is about $205 million in calendar year 2007. And as Jearld said, there will be some movement in the intangibles.

How about working capital? The direction?

Well, we do expect to see a working capital improvement, or benefit, largely coming from the year, for the year, and typically, the first quarters of the year are our weakest in terms of cash flow, and then the last quarter of the year is our strongest as it was this year. So we would expect to see some of those trends again this year.

Okay. That is helpful, thanks. I guess my --

Did you ask on capital expenditures also, Jim?

I believe that was given actually.

Yes, 80 to 90 million.

Yes, so I guess my next question can you give an update on the level of visibility that you have in each of your segments, and if that has it improved or worsened, or is it unchanged?

Oh, I don't think visibility has changed substantially. And I really can't comment on a year-over-year basis in terms of the visibility within the Andrew businesses, but clearly from the legacy side, James, I don't think our visibility has changed substantially.

Okay. Great. Thanks, guys.

Your next question comes from Brian Coyne with FBR Capital Markets.

Hey, guys, good afternoon.

Good afternoon, Brian.

Couple of I guess more philosophical questions at this later stage in the call. First one is what are your alternatives to divestiture if you are thinking about any of those paths? I mean, if you were to start to undertake a consideration of a sale of any of the former Andrew businesses or assets, and you start going down that way, but it ends up taking a little bit longer than you might expect. What other options do you think you might have to address some of the non-performing businesses?

Well, I think first of all that they may not be underperforming. Let's start with the assumption these are good businesses with unique models, and their opportunity, a very unique technology, covered by all kinds of intellectual property. So at the beginning we will hope that we can turn a lot of these in to successful businesses. A lot like what happened to cabinets. If you have followed us for a long time. If we would have divested in cabinets, we would have missed one great run. So I don't want to start out in the assumption that these all have to be divested of.

Yes, and that process, really got started, because with the extended review period by the Justice Department, Andrew was able to complete their sale of their Nokia-related filter business, and completed that last year, and then the Satellite business was announced at the end of the year and closed in January, so you know, that was the two most offending areas, I would say in terms of performance in the historical Andrew results, and they have been largely addressed already.

Yes, that is great. Second question, really, is about I guess going back a little bit to prices. And besides responding to raw material price fluctuations, do you guys think you have any opportunities to take another look at prices perhaps in certain markets where you and Andrew have had some historical overlap now that you are joined together?

I would certainly hope so.

Yes, the whole price subject in that space is being evaluated, and the biggest variable is not so much the competitive relationship that existed between Andrew and CommScope. I mean there are other providers of cable in the world. I mean, the issue here, as it relates to pricing is really about the transition of copper designs into high-performing aluminum designs, and expanding margin.

Okay. Got it. One quick one on Andrew, and perhaps maybe you gave this and I just missed it, do you know how much unallocated CapEx is contemplated in the results that you gave?

In their projection --

Our fourth quarter?

Right. In the Andrew fourth quarter.

Well, in the operating income that we gave includes a full allocation if that's the question, of all Andrew expenses. It was GAAP-based operating income, if you will.

Okay. I was just thinking back historically how Andrew sort of talked about costs?

Yes, that was fully absorbed in all of the SG&A costs.

Okay. Great. As you allocated that where did you see the biggest portion going? Was it in fact base stations, or one of the other businesses?

Well, I think it is broadly across the businesses. You know, Andrew had one philosophy when it came to those allocations and we have got another. And we are applying our philosophy to how we allocate these expenses.

Got it. Did you have any update on the total level of cost synergies or perhaps a split of the total amount between '08 and '09?

Did not make a revision in terms of '08 and '09, Brian. Only to say, the only comment that we did make was to say that we are very pleased at where we are. We like our projection. We think there is clearly potential to meet if not exceed those objectives, and all oars are in the water.

Okay. Sounds good. Nice quarter again, thanks, guys.

Thank you.

You bet.

Your next comes from Glen Anderson with Oppenheimer.

Hi guys. Thank you for taking the call. Congratulations on a great quarter. Couple of things in terms of the Carrier business first off, my checks are indicating that a lot of the build-out in terms of cabinet deployments has already happened in the Midwest, and a lot of that work is shifting to the South. And you put that together with the fact that AT&T says they are accelerating that [ebress] project, they announced that yesterday.

Putting the two data points together, where should we expect unit volumes to be going? Have they already begun to come down? Or should we expect that as the year goes on, and then the second thing is with the aggressive, increasingly aggressive rollouts of fiber by competitors, and the likely competitive reaction by cable guys, why aren't we seeing that translate into the Broadband business in terms of your '08 prospects? Is that simply housing construction is impacting that number?

Let me talk about the units on the enclosure business. The number of units that will be consumed in '08 by AT&T will be up year-over-year, and so my comments were that, we would expect to actually lose a small amount of account share during the year. That is not our goal, and we are going to work to do otherwise, but in our guidance for the year, we anticipate share loss and unit growth, so you put those two together, and it says that AT&T must be buying more units in '08 than '07. As it relates to fiber, I mean, it's not likely that AT&T will alter their strategy in terms of taking fiber to the home, in areas where they already have distribution planned. And their deployments of fiber to the home are really in new-build areas or unserved areas.

The cable television people clearly are in the midst of a competitive battle, and they are going to invest more to stay in a competitive space. The question is, what will be the impact in terms of largely coaxial cable sales? They have tremendous bandwidth with their HFC architecture. What they have got to do is convert more of that into digital programming for more channel capacity. That activity doesn't necessitate a departure to a fiber to the node strategy.

So much of what we see in North America, in terms of spending by the cable television industry, is a continuation of their maintenance and upkeep in activity, and to the extent that it is a competitive environment, that maintenance level has to be maintained at a very high level, so the numbers aren't going to go away, but they are not going to grow substantially, as you might expect because of increased channel capacity.

Like, maintenance on our house, for instance, you can delay it a season if your house needs painting, or a year, or maybe even longer, but ultimately you know it needs maintenance. And so this has been largely a maintenance business in our Broadband business in the last few years, domestically certainly.

Got it. And one quick follow-up in terms of your Enterprise business in terms of the outlook, where are you expecting, what is the catalyst for growth in that business, is it sales through the data business, or is it upgrades? Where is that upside coming from?

All of the above. And we are seeing growth if you wanted to put it in to those two segments, or piles, we are seeing large growth in both of those areas. Data centers for reasons that you largely know, broadly so much of the horizontal infrastructure worldwide is still 100 megabits, which from a technology and application perspective is obsolete. So people will out of necessity are going to continue to upgrade to 1-gigabit and 10-gigabit worldwide.

Operator, I think we have time for about two more questions.

Okay. Your next question comes from Amir Rozwadowski with Lehman Brothers.

Thank you very much for taking the question, gentlemen.

Welcome aboard, Amir. We followed you when you followed Andrew.

Thank you. Sorry to harbor on the question of your ability to recover rising raw material costs factored into your guidance, but if we were to look at the two factors between the shift to aluminum and, versus your customer's ability to absorb more flexible pricing, which is the primary factor that gives you comfortability that you can sort of recover these types of costs?

We don't have the precise answer to that question right now. Though roll-up of the entire strategy of how and to who, and when this transition happens has not been finalized, but if it doesn't change at all, we have got to get on with price increases for copper-based products, and those transitions, again, as I said before, don't happen square away, but substantially should happen over the course of a quarter.

To add a little flavor to that, for the first time we will have a portfolio of products that allow us to price copper to the copper customers, who desire it and want it, the largest copper producer in the world, in at least 50 home products, and to the cost conscious, lower value higher performance people will have aluminum. No other company worldwide has the portfolio base of products to manage both pricing and both distribution and value. So I think you have to look at it, as we will not abandon copper by any stretch of the imagination. But we will be able to offer a value proposition and channel proposition unique to this Company.

Yes, the internal monitor here is I think we are the only ones with Coke and Pepsi both.

Right.

Great. That is great color. In terms of the Andrew business, it seems as though some of the larger infrastructure OEMs have been offering somewhat tempered outlooks for growth in 2008 and beyond. What gives you sort of the confidence in terms of the growth profile from that business, and has that at all shifted since the acquisition has completed?

Well, one, we don't have big expectations in our top line.

Okay.

And a lot of the growth that we do have in the plan comes from the Asia-Pacific area, which has been strong throughout '07. I mean, the real story for the wireless segment, not unlike the entirety of CommScope, isn't the focus on the top line. My personal perspective in that and a lot of managers here is it could be a flat year. The story for '08 is internal to CommScope largely, and it is delivering on cost reduction, as well as synergies. There is a tremendous opportunity, and that is a large part of what you see in our guidance.

Modest top-line growth relative to our prior year's performance, and inward focus on delivering value out of this merger, and so we talk about big numbers and synergy, 50 to 60 million in year one. There are also some big goals internally in terms of cost reduction, that relate to productivity and technology. So don't want everyone to be, I don't want to say that we're not focused on the top line, but we don't want to overly focus on that subject. It is really about the bottom line in '08.

Great. Well thank you very much for taking my questions.

Yes, sir.

Look forward to meeting you and working with you.

Your last question comes from Nate Kellogg with Next Generation.

Just a couple of quick ones to wrap up. Obviously you guys will be generating a fair amount of free cash flow this year. I was wondering what your priorities are as far as use of that cash flow? Pay down debt, or build up cash on the balance sheet to give you firepower for things down the road, or what are you sort of looking at?

I wouldn't expect us to build cash from the levels that we have currently and through the year, we do expect to generate it. We have talked about relatively modest capital spending compared to our total corporate revenue size now of $4 billion plus of 80 to $90 million. Obviously that is there.

We will spend some money in our transition. As expenses, some out of pocket costs that sort of thing that relate to the transition, and certainly we will fund that. We view that largely as an investment, although it will be accounted for differently. And then obviously debt is ready made. We have no prepayment penalties in prepaying any of our debt, and in fact, we have if we generate excess cash flow, we will need to use that excess cash flow to pay down some debt, as part of our lending arrangement.

So we don't expect to increase any cash in the balance sheet. Beyond that I will talk about dry powder. We do have a revolving credit facility, $400 million that was not drawn at closing, hasn't been drawn since, and the forecast that we gave you really doesn't anticipate drawing it. So we have very good liquidity sources all the way around.

That is great. And then just lastly. Obviously, Andrew sort of now managed their balance sheet the way they did when they were a separate company.

But as guys look at it, and the next couple of quarters things are going to be bumpy, but as we sort of get to the end of the year and you guys have got things where you want, is there any reason to think that DSO inventory turns or capital turns will look materially different, once you guys get these businesses integrated versus historically? I mean is there longer terms in sort of any Andrew's business, or lower inventory turns, or that kind of thing?

Well, we clearly have some goals to make some improvements in both inventory and Accounts Receivable. I will say in Accounts Receivable it is a challenging environment now, and I would say, our goals in that area are relatively modest today, but we do have goals to see if we can improve the approximate 90 days that Andrew AR was running.

They are substantially more international, and that is where the majority of these extended-term arrangements are, so it will take us some time. We do hope to improve upon that. And inventory management is a very high focus in our business discipline here, and we are already incorporating that into our business plans.

Okay. Great. Nice quarter, guys, and I appreciate the time.

Well, we know you are new to the Company and welcome aboard. We look forward to working with you, and meeting you soon. And with that, ladies and gentlemen, we will conclude the call. Thank you very much everyone.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and ask that you please disconnect your line.