CommScope Holding Company Inc (COMM) 2008 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the CommScope first quarter 2008 conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference call is being recorded, April 29, 2008. I would now like to turn the call over to VP of Investor Relations, Mr. Phil Armstrong, you may begin your conference, sir.

Thank you. Good afternoon. 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, Chief Financial Officer, join me on the call.

During the conference call today, 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 the press release we issued today and CommScope's filings with the Securities and Exchange Commission. In providing forward-looking statements, the company does not intend and is not undertaking any duty or obligation to update these statements as a result of new information, future events and otherwise. Also, please note that all dollar figures and percentages are approximations.

After we review first quarter results and Frank makes some closing comments, we'll open the line to questions. Jearld?

Thank you, Phil. This afternoon, I will review our first quarter results, and before turning the call over to Frank, I will also cover our current outlook from second quarter of 2008, as well as the full year.

Today, CommScope announced first quarter results for the period ended March 31, 2008. This is our first quarterly conference call after making the transformational acquisition of Andrew Corporation, which we acquired in late December of last year. We reported first quarter sales of $1 billion and a net loss of $11 million, or $0.16 per diluted share. The reported net loss includes after-tax charges of $34 million for inventory-related purchase accounting adjustments, $19 million for the amortization of purchased intangibles, $3 million of costs related to debt reduction, and $2 million for acquisition and restructuring costs. Excluding these items, adjusted first quarter 2008 earnings were $47 million, or $0.59 per diluted share.

Sales more than doubled on a year-over-year basis, primarily as a result of the Andrew acquisition. On a combined basis, that includes Andrew's actual sales for the first quarter of 2007, sales increased 7.1%. This sales growth was primarily driven by increased spending by wireless operators and changes in foreign exchange rates of $31 million, somewhat offset by lower broadband sales. Excluding the impact of the changes in foreign exchange rates and after adjusting for the January 2008 divestiture of Satellite Communications, or the SatCom product line and other items, sales growth was approximately 5% year-over-year. For the antenna, cable and cabinet group, or ACCG, sales increased 19% year-over-year to $479 million on a combined basis, as wireless operators continued to invest in expanding and upgrading their wireless networks. Base station antenna growth was especially robust in the first quarter. Sales growth was strong in essentially all regions, including North America, and especially the Asia-Pacific region.

We expect continued growth and buildout in emerging markets, as wireless carriers expand their networks. In more mature markets, such as North America and Western Europe, mobile data services are driving the deployment of 3G and 4G networks. We believe data services will continue to drive network expansion, as wireless customers expect more coverage and bandwidth of existing networks. Regarding major wireless operators, sales to Sprint/Nextel were down on a year-over-year basis, but were more than offset by strong sales to T-Mobile, AT&T Wireless, and Verizon, among others.

As stated in our last call, 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. We have expanded our cabinet portfolio, with the addition of the new ecopower fuel cell cabinet. This environmentally friendly cabinet solution for standby power is the most compact integrated fuel cell system available. It provides up to 16 KW in a single cabinet, while protecting sensitive equipment at a cell site or remote location.

Enterprise segment sales rose 5% year-over-year to $212 million. Sales growth was primarily driven by higher international sales volumes. Enterprise segment continues to experience profitable year-over-year growth, as businesses migrate towards our premium enterprise infrastructure solutions. Enterprise has continued to invest in higher bandwidth solutions, as employees work more collaboratively, data centers expand, legacy security networks migrate to IP based platforms, and buildings are configured with intelligent infrastructure. We expect to see ongoing demand for our industry-leading SYSTIMAX Gigaspeed Extend 10 gigabits per second copper solution as a result of the recent ratification of the category 6A and class EA standards. For perspective, more than three quarters of our enterprise copper solutions sales were category 6 or higher in the quarter. In the first quarter, sales of SYSTIMAX Gigaspeed Extend doubled year-over-year to more than 10% of solution sales for the quarter.

In addition, nearly half of our enterprise segment sales come from outside the United States. So while North American sales were essentially unchanged year-over-year, we achieved double-digit sales growth in international markets. We also continued to see a solid global project pipeline that keeps us optimistic about 2008. We are also excited about the long-term prospect of building upon enterprise sales channels, with Andrews' industry-leading in-building wireless solution. As stated in our last call, we have teams developing market strategies and a product road map we are already closing -- as well as we are already closing on some current sales opportunities.

Broadband segment sales declined 9% year-over-year to $136 million, primarily due to the slowdown in outside plant construction in North America. Broadband performance was negatively affected by lower sales volumes, a less favorable product mix, and higher raw material and other costs. Our construction-related cable and conduit product line showed the biggest decline year-over-year. We are disappointed in our broadband operating results and are taking steps to improve its performance. We continue to believe that competition between domestic MSOs and domestic carriers should drive investment by the MSOs in their existing HSC networks.

Wireless network solutions, or W nets, decreased 4% year-over-year to $181 million. These results include sales related to SatCom product line, which was divested on January 31, 2008. Excluding the impact of SatCom, W net sales increased 9% year-over-year primarily due to increased sales of filters and power amplifiers, as well as in building wireless products, partially offset by decreased geolocation sales due to the completion of a large Middle East fuel location project in the March 2007 quarter. Similar to ACCG, wireless networks solutions benefited from the buildout of new networks in developing regions and the investment in and upgrade of existing wireless networks in more developed regions. Overall for the company, customer orders booked in the first quarter of 2008 were $1.06 billion, up 10% from the year-ago quarter on a combined basis. Our book to bill ratio was 1.06 times for the quarter. The book to bill was more than 1 in all segments.

Gross margin for the first quarter was 22% and includes the effect of $53 million of purchase accounting adjustments related to inventory, as well as $4 million of intangible amortization reflected in cost of sales. Excluding these items, gross margin would have been 27%. For period overhead, in order to provide additional clarity in our disclosures, we added a separate line item on the income statement for amortization of purchased intangible assets, which would otherwise be included in SG&A. This line item, which was $25 million in the quarter, represents the major portion of the amortization of purchased intangible assets. As mentioned, an additional $4 million of amortization is included in cost of sales.

SG&A, excluding any amortization for the first quarter was $128 million, or 13% of sales. Research and development was $36 million for the quarter, or 4% of sales. Operating income in the first quarter was $28 million. Excluding purchase accounting adjustments, intangible amortization, acquisition-related expenses and restructuring, first quarter adjusted operating income was $112 million. Adjusted operating income on a comparative basis rose 24% year-over-year, primarily due to improved performance in the ACCG enterprise NW net segments.

As a result of higher raw material costs, we announced price increases on selected cable and other products in the ACCG enterprise and broadband segments. While we expect to see a modest positive impact of these price increases in the second quarter, we should see the majority of the benefit in the second half of the year. While material costs continued to be volatile and are expected to be higher in the second quarter as well. We are monitoring these costs closer.

We are also pleased to announce that integration activities and synergies are ahead of schedule. We remain confident that we can achieve or exceed our merger-related cost reduction targets. As part of these initiatives, we recently announced that we intend to close the Jaguariuna, Brazil broadband facility. This facility, which employs approximately 200 people and produces broadband cable products, is expected to close by the end of September, with most equipment redeployed to other CommScope facilities. These changes do not affect the company's other Brazilian facility located in Sorocaba or the company's ongoing commitment to providing Latin America customers with high-performance wireless, enterprise and broadband solutions. Separately, CommScope Europe SPRL has notified the Works Council its intention to discontinue production activities at its facility in Belgium. A final decision on the proposed restructuring will be made after a consultation period with the Works Council. The company also has notified affected employees of its intent to proceed with the closing of its Capriati, Italy facility, acquired as part of the Andrew acquisition. Some Capriati activities will be centralized in the company's other Agrate, Italy site. Discussions are ongoing to finalize these and other consolidation plans.

As previously discussed and excluding one-time transition items, we expect total merger-related savings of 90 to $100 million during the calendar year 2009, of which 50 to $60 million would be achieved in calendar year 2008. The total cost savings are expected to come from a combination of saving, rationalization of duplicate locations, streamlining overhead, and integration of infrastructure, and building upon best practices in technology and manufacturing. Transition cash costs associated with these initiatives are expected to total 70 to $80 million. In a separate matter, CommScope has completed the previously announced divestiture of it's minority interest in Andrews Industry, Inc.

Now, I'll turn to cash flow and balance sheet items. Despite a significant increase in cash outlays for interest due to the acquisition financing, net cash provided by operating activities rose substantially year-over-year to $80 million. We also reduced debt by $291 million during the first quarter, which represented more than 10% of total debt outstanding. As anticipated, substantially all of the Andrews 3.25% convertible senior subordinated notes were converted and holders received merger consideration, primarily cash, in the quarter. We also agreed to the conversion into CommScope's stock of $51 million of our $250 million aggregate principal amount of 1% convertible center subordinated notes. As a result of this conversion activity, we recorded a special $3 million nontax deductible charge and other expense. Total depreciation and amortization expense was $57 million for the first quarter, while capital spending was approximately 12 million.

We are particularly proud of our execution in the first quarter, while managing the significant task of integrating CommScope and Andrews. We achieved key integration milestones and delivered solid financial performance, top line growth and cash flow. Looking ahead, North American economic conditions remain uncertain, and volatile raw material costs remain a challenge. However, we expect to see positive seasonal trends in the second quarter, and believe that our geographic diversity combined with the breadth of our industry leading product portfolio should help us deliver good results in the second quarter. For the second quarter, we expect sales to rise to $1.05 billion to $1.09 billion, up modestly year-over-year on a combined basis, and adjusted operating income to rise to $135 million to $145 million, excluding restructuring and transition costs, as well as purchase accounting adjustments related to the fair value write-up of inventory and intangibles, which results in increased charges for inventory and amortization. This adjusted operating income range represents a 15 to 25% increase from the combined basis year-over-year.

For the full year, we have reaffirmed our previous guidance. We expect revenue of $4.1 billion to $4.3 billion and adjusted operating income of 525 to $575 million, excluding restructuring and transition costs, as well as purchase accounting adjustments related to inventory and intangibles. This operating income target assumes the company will be able to successfully recover costs associated with rising material costs. The tax rate of 34 to 36% on adjusted pretax income is expected. 81 million weighted average fully diluted shares outstanding are anticipated. More than $500 million of cash flow from operation is still expected. Capital expenditures of 80 to $90 million were forecast, and significant cash restructuring costs and other noncash costs related to purchase accounting adjustments are expected.

Overall, we are very pleased with first quarter performance and believe we are in a good position to achieve these 2008 targets. We have a strong global portfolio and continue to expect the ongoing global demand for bandwidth to drive the need for infrastructure solutions. We look forward to another successful year. Now I'll turn the call over to Frank for closing comments.

Thank you, Jearld, and first of all, I want to thank all the CommScope employees, the historical CommScope employees, and the new Andrew CommScope employees for an outstanding first quarter. The effort put by all of our employees shows in these results. We had adjusted operating income rose 24% year-over-year. We had strong cash flow from all the operations. We retired 10% of our debt outstanding, and we continue to believe that we can deliver the synergies and cost reductions we promised.

This has turned out to be a great team of employees. I am more pleased now than I ever believed I would be with this acquisition. The more I look into it, this is a justifiably great company and a great future. And I want to especially thank Brian and his operational team for all the good workmanship that went forward in this quarter. With that, Phil, we'll turn it over to TK and some outside questions.

Operator?

Thank you. (OPERATOR INSTRUCTIONS). Your first question comes from the line of Lehman Brothers.

Good afternoon, folks. Thank you very much for taking my question. Amir Rozwadowski from Lehman.

Yes, good afternoon.

I was wondering if you could touch upon the strength in the North American wireless business. It seems as though other wireless OEMs have experienced similar trends. I was wondering if you could give us a little bit of color as to what's been driving that strength and how sustainable you think that is.

Well, this is Brian Garrett. And good afternoon, and thank you for the question. Much of the strength that we experience in the quarter was carry-over from the fourth quarter. I think we've reported that we've seen good recovery in the AT&T account, in particular. On a year-over-year basis as it relates to, I'll say specifically tower products within Andrew, legacy Andrew, sales into that account have nearly doubled. So we're seeing strength in a number of accounts. We are seeing visibly, weakness in others, but in balance, a much stronger North America than others have anticipated.

And do you think that that is sustainable over the near term, given 700 megahertz auction, or however the pipeline looks for you folks?

I think 700 is clearly a big part of the outlook going forward. The deployment of 4G will play a part in our future, maybe not most immediately, but certainly in '09 and going forward. We've got topics with Sprint/Nextel, I think later in this year, that may create strength in the business as well.

Great, and then lastly, you talked about some of the price increases in the marketplace on the RF cable side and potentially in other areas. Now, we've seen that across several vendors in the space, and I was just wondering, if you can give us any color in terms of the reception by your customers in terms of how they have viewed some of the pricing increases.

Good is not a, is not the right, is not the right word. I would say the best word is they are being largely accepted.

Okay.

One of the key advantages in the CommScope proposition, as you know, for those who kind that the copper price increases, overly troublesome for them, they have the election to move to aluminum solutions in the cell reach product line. And it continues to be adopted in North America. It's being broadly adopted, particularly in the Asia-Pac region, and it is all part of the high growth period, high growth story for the cable business -- cable business in the first quarter.

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

Yes, sir, thank you.

Our next question comes from the line of Jeff Beach with Stifel Nicolaus.

Good afternoon. Congratulations on another good quarter.

Thank you, Jeff.

Thank you, Jeff.

Thank you for the support.

I, I noticed your commentary about increasing prices this quarter, but it would primarily benefit the second half of the year. Can you talk about the, a little bit more about the timing of implementation of pricing? It sounds like there may be some -- you might not totally recoup higher costs in the second quarter by the time you have your pricing in place. Is that, is that fair, and can you expand a little bit on some of the different product lines and the success of getting the price increases in place?

Jeff, I think that's a fair statement and an accurate representation. I mean a good example would be our broadband business and probably one noteworthy based upon the Q, performance in the Q. For the major MSOs, for some people, price increases have already happened in North America in the broadband space. The major MSOs in North America, their price increases are essentially this week, early next week. So here we are approaching the midpoint of the quarter and the largest customers will just start seeing their price increases. It would be fair to say that in selected international markets, there may even be delays. So I mean before we see, a broad acceptance of the price increase, I think it's going to be a third quarter, third quarter event.

There obviously is typically some lag effect as Brian was describing -- at the end of the quarter, at higher levels than they started the quarter. So that movement is -- still a head wind, if you will, as we move into this quarter. But we are tacking, if you will, and moving on to, to increased prices in the quarter, but there is going to be some lag.

Aluminum prices have not slowed down. Crude oil has not slowed down from the time that we first contemplated the launches of these price increases. So there's still, there's still caution in the wind.

Okay. Just -- just as a follow-up question, I was listening to the comments about cabinets, but I wondered if you could address specifically, even though it's part of a larger segment now the performance of your legacy cabinets to the domestic carriers.

Well, let me speak, you know, let me put it in a bigger picture. Remember cabinets serve a number of North American accounts, in both wire line and wireless. And often, Jeff, we focus on what's happening in Lightspeed with AT&T, because it is a large percentage of the total business at present. I will say that in the quarter, Lightspeed performed very well. Volumes were up year-over-year, in terms of units. Revenue was up year-over-year modestly, and as we've spoken, this time last year, we had essentially 100% of that business and so there is a share loss occurring as it relates to that particular account.

But at the same time, there is lots of other activities. We have made mention of the opportunities that we have in taking our wireless cabinets into the wireless space. Potentially as big or bigger than the business that we're conducting today with AT&T, Jerald and his commentary made mention of what we're doing in standby power, particularly as it relates to fuel cell solutions, and both of these, I think, are very promising, relatively near-term opportunities for us.

And do you see similar demand trends remaining stable, or similar throughout the rest of the year? Do you see any major change there?

I see no challenges to it, Jeff.

Okay.

I think we're in a very solid position. You know, the -- our expectations in the wireless space are precisely that. To the extent that we are broadly accepted, we can create some upside.

All right, thanks.

Jeff, it's Frank. You know that AT&T reported very strong success, along with Verizon, on their connectivity and Lightspeed.

Right. I just wanted to check. Thank you.

Okay, Jeff.

Our next question comes from the line of George Notter with Jefferies.

Thanks very much, guys. I guess I wanted to ask about the pricing increases just to follow on to some earlier questions. You mentioned that you're raising pricing in some other areas of the business. You told us how much you're raising pricing by on RF cable. I was just trying to figure out how big the pricing increases are in areas like enterprise and broadband, and then as a follow-up, just to be clear, I want to understand the full year guidance, the 4.1 to $4.3 billion. Does that include the impact of pricing increases, or not? Thanks.

George, I would just say broadly without getting into a lot of detail that I don't want to do, since most of these price increases are commodity-based, the price increases that we're asking for are largely in that 7 to 8% range. And, you know, that would be true for wireless, you know, cable within wireless. That would be true largely for the North American enterprise space, and for broadband as well.

As it relates to cable.

As it relates to cable, that's correct, Jearld.

And then the guidance?

Well, I think the guidance is -- we've got to wait and see. I mean there is -- there remains a lot of uncertainty in this environment. To the extent that things continue to look good throughout the second quarter, and we're pleased with the acceptance of these price increases, , it's going to push us towards the top side of the existing guidance, and we'll have a chance at the end of the Q to recalibrate that whole process. But, you know, there are a lot of variables in the equation

And we did give you a pretty broad range, George.

Okay, and just to be -- one last one, does the Q2 guidance contemplate pricing increases here as well, or no?

It does. And there is, you know, obviously a factoring in there in terms of the rate at which it would be implemented over the course of the quarter.

And some higher costs as well.

Okay, great. Thanks very much.

Our next question comes from the line of Celeste Santangelo with Merrill Lynch.

Celeste, how are you?

Good afternoon, guys.

Good afternoon.

So just expanding on that question regarding the outlook, I mean given the better top line in operating income than you were expecting in Q1, how should we look at an unchanged full year outlook? I mean aside from what's going on with raw materials and I know it assumes that you're going to get the price increases, how should we talk about -- are you a little more cautious now about some markets, or could you just talk about what that--

Celeste, I would say that we're cautious in all regards. I mean I think everyone speaks at what's happening in the macro economy and we would be foolish not to be cautious in such an environment.

Yes.

You know, that being said, in the enterprise space, you know, we talk about our pipeline and the visibility that we have. There is nothing there that concerns us. There is an attractive rate of new projects coming into that pipeline that give us a lot of confidence. And, you know, we look throughout all of these business units, we like our competitive position. And it's not just North America. We're seeing very, you know, broad support in Asia-Pac that gives us confidence. So we have a mix of upside and downside in the forecast through the remainder of the year.

Okay, and then just regarding the enterprise space, I think on the last call you talked about annual sales growth of 8 to 10%. Are you still comfortable with that kind of growth for '08?

Yes, I think so. And, you know, there's nothing we saw in the first quarter that would substantially change our outlook.

Okay, and then pricing for those products, especially in North America, are you seeing anything competitive nature or pressures that were not expected in the quarter?

We always have competitive pressures, but no, nothing--

Nothing out of the ordinary?

Nothing extraordinary. We really are advantaged, Celeste, in that, you know, our proposition is truly a solution, and I think you know that. It's copper. It's fiber. You know, out of this whole market, I mean we're the only one with an intelligent patching solution that's proprietary. You know, it's a proposition that is truly differentiated globally. So you know, if we are in that 5 E space, I think we would be hammered right now, but with the current product offering and market proposition, the outlook for the rest of the year looks consistent.

Celeste, it's Frank. When you look at the guidance the other competitors -- it would raise reason to have some concern. We are executing well, gaining some market share, but obviously our competitors are having some problems. So we're going to take a very conservative view of this as it develops.

Okay. Great. Thank you.

Thank you.

Thank you, Celeste.

Our next question comes from the line of Simon Leopold with Morgan Keegan.

Thank you very much. Couple of quick housekeeping questions. First, what was the share count you used in the pro forma EPS?

For, yes, about 80 million shares.

Fully diluted, yes, fully diluted.

Okay, and any 10% customers in the quarter?

We had two 10% customers Anixter Communication is about 12% and Alcatel-Lucent was about 10%.

Anixter was 12?

Yes, sir.

And in terms of synergies achieved this quarter, did you detail what level of synergies you were able to deliver in the quarter?

Yes, I-- And I would -- Simon, I would say broadly, we're very happy with what the teams delivered in the period. They are ahead of our expectations. The announcements that we have made in terms of our intentions in Brazil and our plans moving forward are -- excuse me, get it backwards here, plans in Brazil and intentions in Belgium are all part of what happened. We have not talked about consolidating logistics and warehousing locations. That will happen over the course of -- those announcements will happen over the course of this quarter. But in terms of P&L impact, something in the neighborhood of $9-plus million landed in the quarter, and we will, we will build upon that number throughout the year.

Okay, and you gave us a breakout on operating income, and the WNS business on a GAAP basis was pretty lossy, obviously that's an area that you guys are working on -- maybe if we could talk a little bit about, is there some way to break out what the pro forma operating margin was for WNS?

Yes, I think we can help you a little bit there. Go ahead, Phil. Phil's got some information.

Yes, yes, don't forget, we did have both WNS and ACCG had significant FAS 141 adjustments, as well as intangible amortization. So for WNS, you back those things out, you're around the break-even level. So there was significant improvement year-over-year.

And just the last question is if we think about some of the trending now that's implied in your forecast for sales, the 1.05 to $1.09 billion for 2Q, typically wireless market is a little bit flatter, and other markets like enterprise and broadband usually have a better sequential pop. What kind of trends are you thinking in terms of seasonality and the mix in the next quarter?

I think you really just described our expectations, that there's probably not quite as much seasonality in the wireless business as we typically see in enterprise, and the broadband business. But there still is a seasonal trend there with the second and third quarter, should say the June and September quarters being strongest in wireless, typically it's the September quarter, but the differentials are -- the wireless business is much more dependent or functions more on backlog and that can have an impact quarter to quarter, as we saw it did in the first quarter, where it was probably a little stronger than it typically would be on a seasonal basis.

And when we talk about enterprise being better, it's safe to say -- sequential move is very reasonable, correct?

Sequentially? Simon, we're really not getting into the, into the segment forecasting by quarter.

Okay. I figured I would give it a shot.

Okay, we're with you.

Thank you.

Our next question comes from the line of Amitabh Passi with UBS.

A few questions. First, I think you talked about a $31 million FX benefit to sales in the quarter. I was just wondering if you saw any benefit on the gross margin or the operating income line from foreign exchange movements.

Well, we had some puts and takes. I would not describe that as overall beneficial. I think what we saw in terms of the benefit on the sales line, you know, if you translate that to COGS, there would be a pretty significant hit there because we are, most of our foreign sourced revenues are actually produced outside the U.S. and for that matter would have a negative foreign exchange impact from a cost of operations, in the current environment.

Got it. And I was just curious, what currencies are you most sensitive to?

Price and raw materials.

Well, outside the U.S., it would be certainly the Euro. It would be the next most significant currency that we would be influenced by.

Got it, and then in your commentary, you talked about enterprise trends in North America. I was wondering, what are you seeing in Europe? I mean, we've seen sort of mixed data points coming from various companies in the sort of supply chain. I'm just wondering what sorts of trends are you seeing in Europe with respect to your enterprise business?

It's done very, very well. I'm looking here real quick, Amitabh for my stats. If we look in growth, in enterprise space in EMEA, 6 or 7% in the quarter. So we had, we had good growth in enterprise. Clearly the weaker dollar is helping us in that market, as it is a number of other markets. Asia-Pac's strength for enterprise was up 15 or 16%, in part because of, you know, our presence in that region, two, clearly the dollar's got to be helping us there as well.

Got it, and then just curious, if you can give us any sense of what the expected savings are from the closure of the plants you've announced, the three, Jaguariuna, Seneffe and Capriati?

We've not provided the detail.

Okay, thought I would ask. And then just one final question, I was a little surprised with just the magnitude of the drop in your operating margins in the broadband segment, given that sales are down only, whatever, 8.5% year-over-year. Just wondering, maybe if you could just shed a little more light in terms of the puts and takes that sort of drove the dramatic drop, and then, how should we think about where you think operating margins sort of stabilized for that market as we exit the year.

Well, three things happened in the quarter. The train wreck in Q1 really started in the fourth quarter. If you go back and look at our book to bill, it was 0.86, which was rather extraordinary for us, and I think in other conversations we've had, we said January was just a very, very tough month, starting the year. Not just for broadband, but for a number of our business segments. So the result of that was, was a big volume impact, which had its damages on absorption and margin. I guess the good news is, and the continuation of that theme is, throughout the quarter we saw a growing response in orders and ended up the quarter with a book to bill of nearly 1.2. I think it was 1.9, which sets us up well for Q2 recovery in volume.

The other thing that's happening is, is a mix shift, and in the quarter, in the current environment, particularly as it relates to North America, there is less new build activity. We've characterized it largely as maintenance and Frank often talks about the the defensive nature between the competition of broadband and the traditional wire line carriers. The result of that is a higher mix of drop wire and a lower mix of higher margin trunk and distribution products. So that had an impact in the quarter. And then, and then the other piece, of course, it was cost. I mean commodities ran strongly in the quarter, did not have the benefit of recovering any costs in the quarter, and you put the three of them together for broadband in the Q, it was a tough period for us. But I will say all three of those change in nature, and I'll say positively, over the course of the second quarter.

The volume certainly will help that operating performance as well. The operating leverage on the less than expected revenue was negative to operating income and some improvement there will obviously be positive to it.

Got it. Just one final question, Phil, for you. What was the pro forma operating income figure for ACCG?

It was around $72 million.

Okay, thank you. I'll leave it there.

Thank you. Our next question comes from the line of Brian Coyne with FBR Capital Markets.

Brian?

Brian, good afternoon. If you're with us.

TK, we might have lost him.

Okay, Mr. Brian, your line is open. Okay. Well, we'll go to the next question. It comes from Eric Buck with Brean Murray.

Hi, Eric.

Hi, guys. Couple of fill-ins here. What was the assumed tax rate on your pro forma EPS number?

35%, Eric.

Okay, and then you had $6.7 million in other expenses. I assume the $3 million debt conversion expense is in there. What's the rest of that?

The other large piece would be the foreign exchange negative impact on cash and intercompany debt.

Okay.

The balance, 3 million.

I'm sorry?

About 3 million as well.

Okay, and then the 2.9 million in acquisitions and other expense that you called out, where in the income, in the GAAP income statement does that fall?

I believe it's all in SG&A, the majority of it would be in SG&A, Eric.

Okay, great. And then back to the WNS businesses, with that now running at breakeven, has that crossed the hurdle where you definitively have said that makes the cut and we keep the business, or is that still a, we need to fix it more before we make a decision on it?

Eric, all of the issues we had two or three months ago still exist, and they did, they performed very, very well, the filter team was, was profitable in the quarter, which was a big part of it. Our wireless innovations team, great story there, year-over-year revenue growth. One of the more profitable businesses we have corporately, so, there's a lot of good things going on there. But we've got work to do in filters to assure all of our shareholders that that performance can be sustainable, if not growing on the bottom line, and we still have a lot of big issues in power amps.

I think the strategy's right. The technology's right. There are a lot of things -- the positioning. There were a lot of things that were right about that business, but it was not a good quarter for them and we've got a lot of work to do. So maybe I'll even say more specifically, as it relates to any or all, we've made no decisions to divest of any, any further, and certainly filters and power amps, which are on a lot of people's radars, and we're sorting through where we can take those businesses longer term.

Okay, and in terms of the Brazil, Belgium and Italy, I know you don't want to put a dollar in terms of those, but can you size it relatively to your synergy target? Is this a major chunk of the synergies that will be generated the rest of this year, or--

It will be a small part. These -- in total magnitude, it's not number one or two, Eric, as a category. The other thing in that it relates to people and factories and assets, they take longer to materialize. So, they will have a short tenure over the course of the '08 financials.

And we will have some large, larger restructuring costs than we experienced in the first quarter coming in later quarters, likely the second quarter, Eric, concerning those activities.

Yes, I was asking more about the synergy savings side as opposed to the cost side.

Yes, yes. The impact in '08 is relatively small.

Okay. All right, thanks.

You bet.

TK, we'll take, I think we have time for about two more questions.

Okay. Our next question comes from the line of Brian Coyne, with FBR Capital Markets.

Are you there this time, Brian?

Brian?

I'll get it one of these times.

It happens to all of us.

That darn mute button.

It wasn't a wireless network, was it?

I wish I could blame the mute button, but anyway. Lot of good questions, so I'll keep it to a couple here. If you could perhaps spend time on the Asia-Pacific wireless growth drivers you could see, maybe take a second to review your competitive position in China and elsewhere over there, and if you're sort of seeing any signs of any long promise next Gen rollouts.

Well, I would -- I would say, you know, our position in China, and credit to the, to the Andrew team, they are advantaged in their presence in China has been lengthy and excess of 10 years, which is very helpful to the business. On a year-over-year basis, they did fairly well. I think we've got work to do in China. In region, the real story is all about India, and we're doing very well in all aspects of the tower space in India. That's inclusive of cable, but most particularly in the antenna space. We do very well in terms of share with essentially all of the major carriers and it's been a big, big part of the success and story for ACCP in the quarter.

Great. That's good. And then, also on broadband, I know you touched on it a little bit, but if you could maybe just spend a little more time, obviously it was pretty weak, we all know about Comcast lagging earlier this year, but in case you haven't said anything about it, to what degree did you see any meaningful impact from sort of slack housing demand and how do you see that looking ahead?

Well, I, I missed the question.

One of our biggest products has suffered the downturn was a product that has direct reference to new housing starts. So that was clearly an indication of what's happened there. It's -- cable and conduit business.

Got it, great. Quickly, just to finish up, again, sorry if I'm treading over old stuff, but with cable formally now exiting the pivot relationship, not a surprise to anybody obviously maybe for Frank, if you haven't touched on it, could you talk about if it's sort of a positive or negative for the potential for the cable operators to build out their own wireless networks?

I've said this time and time again. I believe long-term, the cable operators will need a wireless solution, whether they do it on their own or do it with MBNO or do it with some other combination, I do believe they will be in the wireless business at some point in the future. They certainly have enough frequencies on their own to get started. Cox was very aggressive in the 700 megahertz areas and stuff, so I believe that you'll see some transactions happening going forward that will lead to wireless penetration by cable operators.

And I mean for your business, assuming it happens, I mean is that, could that be incremental to your business, or is it sort of--

Well, it certainly would be incremental. Any new network that's going to be built would be incremental -- whatever you want to call it, 700 megahertz LTE, 4G, the next generation, all of that requires incremental capital to -- and incremental products that we sell to the industry. Those are different frequencies. They take different antenna. They take different nomenclature and so those would all be positives for us.

Great, thanks, guys.

Thank you, Brian.

Our next question comes from the line of Levon Von Redden with Hocky Capital.

Just under the wire. Quick question, in terms of the enterprise, could you give me a little bit more granularity in terms of percentage of percentage of sales from a geographic perspective?

I don't know if I have it. I'll say, you know, it just -- in big pieces, maybe someone can fish while I'm speaking here, big pieces, slightly less or roughly half of the sales are North American, Levon. The next largest region would be Asia-Pac -- not Asia-Pac, but EMEA, and I don't know if anyone has that percentage here. I'm going to guess somewhere in the neighborhood of 20%, and the remainder would be, would be in Asia-Pac and calla.

I'll tell you there was stronger growth internationally than certainly in the U.S., and so a little stronger mix international to U.S. in a quarter than is typical.

Levon, it was an excellent quarter for them. Not only the strength that they had in revenue from international perspective year-over-year, the real story, like so many of these businesses, is about what they were able to do in the, on the operating income line. I mean the enterprise group grew 22% year-over-year in operating income, and not unlike a lot of the legacy Andrew businesses, it was good performance year-over-year in operating income.

I want to follow up in terms of cabinets and enclosures. Obviously you're looking to put some meaningful resources behind that initiative to grow there. Could you give me a better sense for who you are coming up against from incumbent standpoint and kind of maybe are we going to be looking for announcements from you as you get more of this business?

Announcements? I think clearly, you know, as we're just starting in the fuel cell space and, you know, I think as those markets and businesses mature here, we'll clearly be keeping you current in what's happening there. Our entry into, at least from a CommScope perspective into the wireless space with cabinets is, is largely a new offering. I mean we've had sales in that space for at least a couple years, but it's been, it's been minimal compared to the larger wire line business and absolutely we'll keep all investors advised of our progress in the wireless space.

Who are the incumbents you're coming up against in that wireless area?

Well, I think on the wireless side, I would say for sales of a large incumbent, certainly within North America. The other task that we have, of course, relates to international deployment of these products. I mean they are broadly accepted in North America. We've got excellent design in R&D teams. The task we have now is taking these products into the broader international wireless channels, provided by the Andrew business.

That relates to just trying to put your pricing initiatives into context. Are we pricing to recoup our raw materials? Are we pricing to try to get ahead of the curve?

Well, we don't necessarily anticipate further commodities costs, but what we do attempt to do is to recover margin. And so we make our best estimate of what our current cost and near-term costs will be and to the extent that that's a premium, we'll try and recover that cost and associated margin with announced price increases.

Thank you.

Well, operator, I think that closes it. I want to again thank all of the Andrew CommScope team for an outstanding first quarter. Considering we just closed on this business at the end of December, these results, I think, are outstanding testament to what this company can do together and we are by far better together as combined companies. Jearld, to your team, congratulations on the financing and everything they got done this quarter. Look forward to talking to all of you at the end of next quarter. And TK, that wraps it up.

Yes, sir. That will conclude today's conference call. Again, that does conclude today's conference call. You may now disconnect.

Thank you, TK.