CommScope Holding Company Inc (COMM) 2009 Q1 法說會逐字稿

At this time, I would like to welcome everyone to CommScopes first quarter 2009 earnings release conference call. (Operator Instructions). I would now like to turn the conference call over to Phil Armstrong, Senior Vice President, Investor Relations. Sir, you may begin your conference.

Good afternoon, thank you for joining us on this call. Before we get started, we and the entire CommScope team would like to publicly extend our condolences to Frank Drendel , Commscope's Chairman and Chief Executive Officer on the recent loss of his wife. Marilyn Pinky Drendel passed away last week after a long and courageous battle with multiple sclerosis. Frank will not participate on the call today, but he expects to be back full- time with us soon. Joining me on the call are Brian Garrett, the CommScope's President and Chief Operating Officer, Jearld Leonhart, CommScope's Chief Financial Officer. Last quarter we began a program of introducing some of our general managers to the financial community. Today we also have with us, Ted Hally , Executive Vice President of our Antennae, Cable and Cabinet group. Please note that during this conference call, we may make forward- looking statements regarding the financial position, plans and outlook that are based on information currently available to management. Management's beliefs and a number of assumptions concerning future events.

Forward- looking statements are not a guarantee of performance, and are subject 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 a difference, see -- please see the press release we issued today in Commscope's filings with the Securities and Exchange Commission. And by providing forward- looking statements 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 and that details reconciliations of GAAP to adjusted results, can be found in the press release we issued today, and on our website. After we review first quarter results, and our outlook for the second quarter, we will open up the

Thank you, Phil. Today, CommScope announced first quarter results for the period ended March 31, 2009. We reported first quarter sales of $742 million, and a net loss of $21 million or $0.29 per share. Reported net loss includes after tax charges of $15 million for the amortization of intangibles, a $9 million dollar loss on the extinguishment of debt, and $8 million in restructuring and other special items. Excluding the special items adjusted first quarter 2009 earnings were $11 million, or $0.14 of diluted earnings per share. Sales declined 26% year-over-year, primarily due to the overall weakness in the global economy. Sales in all segments were negatively affected by the significant economic downturn, decreased capital spending by telecommunications service providers, and by a reductions in customer distributor inventories.

The year-over-year sales comparison was also affected by the negative impact of changing in foreign currency exchange rates of $27 million, and the divestiture of the unprofitable satellite communications or SatCom product line in early 2008. Antenna cable and cabinet group or ACCG segment sales declined 32% to $326 million, primarily during to lower sales in North America and Europe, somewhat offset by higher sales in Asia. The largest portion of the decline in North American sales can be attributed to lower wireline cabinet sales as major US carriers slowed spending and reduced inventory levels. Approximately 12% of the decrease in year-over-year ACCG sales resulted in the negative impact of foreign currency exchange rates. Despite the difficult results in the North America and Europe markets, there were pockets of strength. The Asia- Pacific region was up on a year-over-year basis due to growing markets such as India and China, which I will highlight in just a moment.

We can expect to see improvements in the second quarter and North America as carrier budgets have been finalized, and inventory level have been reduced at OEMs. We also expect North American wireline cabinet business to improve on the sequential basis. I'm going to cover our other wireless segment. Wireless network solutions or WNS. WNS sales decreased 12% to $159 million. Sales decline was largely due to the restructuring of an unprofitable relationship with a major OEM, the divestiture of the unprofitable SatCom business in early 2008, and the negative effect of foreign currency exchange rates, which accounted for about one-third of the decrease in year-over-year sales and W and S. A bright spot in the WNS during the quarter was the strengthening of the North American network solutions sales, which include location services systems, network optimization analysis and consulting services as well.

For example, we won some important mobile location service project during the quarter with our geometrics registered MLC product line. Geometric accommodates a variety of location based services including fleet management, mobile commerce, E-911, public safety, and security among others. Another bright spot for WNS was the significantly higher sales and orders in the Asia-Pacific region, due primarily to expanding business opportunities, serving the Chinese wireless operators. Let me take a moment to highlight some of our overall wireless opportunities in Asia- Pacific. We believe there are deep roots in the Asia-Pacific region and large manufacturing presence in China and India, provide a competitive advantage. As you may know, wireless infrastructure is a focal point of the China's economic stimulus.

In China, we are the leading supplier of wireless communication infrastructure for metro and railway projects and have won numerous other coverage in capacity systems for landmark project such as the National Center for the Performing Arts, the Ministry of Environmental Protection building, the Beijing to Tianjin railway, Beijing subway, and Shanghai Metro among others. We also are a key supplier of side solutions including bay station antennas, power amplifiers, and feeder cable, to major OEMs, as well as China Unicom and China Telecom. During the first quarter, we increased production significantly to support Chinese orders. While the ongoing Phase 1 and Phase 2 project may be lumpy quarter-to-quarter, we believe we are strongly positioned to benefit from this ongoing opportunity.

Another bright spot for CommScope in Asia is India. India continues to post staggering wireless subscriber growth, announcing nearly 16 million new subscribers in the month of March. The Indian market remains robust, but there are challenges that will likely restrain our growth. These include the delay of 3G auctions, due to the pending government elections, on-going competition, and the negative effect of the lower rupee. While some of the large incumbent Indian operators have become somewhat more cautious, five new GSM licenses have been awarded, and these operators are awarding contracts and starting role outs. Overall, it remains a strong market for CommScope, and we look forward to ongoing growth.

Now, as always, we're focused on the opportunities in Asia and around the globe, where we can utilize technology and competitive advantage to provide us with reasonable returns. While we are pleased with our performance in the Asia-Pacific region, we believe our, one of the key strengths of CommScope is its geographic and market diversity. We are equally focused on the development of wireless site solutions for 4 generation or 4G networks around the globe, We've been have been awarded multiple projects, and numerous operators and OEMs for the development of products for use in 4G networks, long term evolution or LTE, and WiMAX. Andrew Solutions continues to develop new cabinet and tower based solutions including filters, amplifiers, antennas, repeaters and fully integrated bay station RF offerings, for multiple customers covering various LTE frequencies.

We have begun delivering initial product to customers for evaluation, in anticipation of being market ready, when LTE begins initial trials and deployment in the next few quarters. Broad deployment of LTE is expected to commence in major markets in 2010, 2011. Enterprise segment sales declined 32% year-over-year to $144 million, as a result of challenging global business conditions. Sales declined in all major regions, as the global recession caused the slow down in information technology spending. Sales were also negatively affected in the quarter as CommScope's distribution partners significantly reduced inventory levels. We believe that roughly half of the enterprise sales decline year-over-year can be attributed to reduction in channel inventories. While some enterprise projects have been delayed or canceled, we're seeing a fairly healthy level of potential project activity. We also believe that inventory levels are near by, as a result, we expect to see a more traditional seasonal increase as we move into the second quarter.

Broadband segment sales declined 16% year-over-year to $114 million, primarily due to lower international sales, particularly in Europe and central and Latin America. In addition, sales to North American operators were lower year over year mainly due to the continued weakness in residential construction. On a consolidated basis, non-US sales declined 24% year-over-year to $384 million, or 52% of total company sales, while US sales fell 29% year-over-year to $360 million. On a consolidated basis, customer orders booked in the first quarter of 2009 were $779 million. Our book-to-bill ratio was 1.05 times for the quarter. Gross margin for the first quarter was 2000, first quarter of 2009, was 23%, and includes $4 million of intangible amortization, and $3 million of litigation charges in cost of sales. Excluding these items, gross margin would have been 24%.

SG&A expense for the first quarter was $101 million, down $33 million, or 25% year-over-year, primarily due to cost reduction efforts, including work force reductions, the impact of lower sales volume, and the suspension of cash bonus programs. Operating income in first quarter 2009 was $9 million, compared to $28 million for the comparable 2008 period. The decline resulted primarily from lower manufacturing volumes, due to lower sales, as well as initiatives to reduce our inventory levels. First quarter operating income was also negatively affected by warranty and restructuring charges. The benefits of lower raw material costs were not fully realized, due to the higher cost inventory that was on hand, at the beginning of the year, and some of the purchase commitments that we had coming into the year.

Now, these factors were somewhat offset by lower operating costs, which included ongoing cost reduction measures, and the suspension of cost, I'm sorry, of cash bonus programs. Despite lower sales volumes, the company reported significant improvement in WNS and broadband operating performance year-overyear. Now excluding $25 million for the amortization of purchased intangible assets, $9 million of restructuring costs and $3 million in litigation charges, adjusted operating income in the first quarter was $45 million, or 6% of sales. This compared to adjusted operating income of $112 million in the first quarter a year ago.

Now, turn to cash flow, the balance sheet and liquidity measures. Despite significantly lower operating results in the quarter, cash flow from operation increased 7% year-over-year, to $85 million. We achieved solid cash flow in part, by reducing inventory substantially. This benefit was somewhat offset by reduction in accounts payable, and other liabilities. Capital spending in the first quarter was $14 million. CommScope retired $206 million of debt during the first quarter. The company repaid $180 million of its senior secured term loss in the quarter, including $172 million for the excess cash flow payment provision under the senior secured credit facilities.

The company negotiated the conversion of $24 million in face value of 1% convertible senior subordinated debentures in exchange for 1.7 million shares of CommScope common stock. Now March 20th, the company paid $176 million to redeem the remaining 1% debentures. To finance the redemption of the debentures, CommScope issued $100 million of 3.5% convertible senior subordinated debentures, and borrowed $75 million under its senior secured revolving credit facility. Under the terms of the new 3.5% debentures, the company may effectively induce conversion by terminating the holder's right to convert, if the closing stock price exceed 150% of the original conversion price for 20 days out of a 30 consecutive trading day period. As of the close of business today, CommScope stock exceeded the 150% termination threshold of $15.10 per share, for the last 14 trading days. Now, in the event of early conversion termination, noticed by the company, holders will receive an interest (inaudible) payment, for unpaid interest, in addition to the common shares underlying the debentures.

Clearly, we experienced a difficult first quarter. However, while business conditions remained challenging, and visibility is limited, we expect significant improvement in second quarter results, and continue to believe we maintain compliance with our financial covenants during 2009. For the second quarter of 2009, we expect revenue of $800 million to $850 million. Adjusted operating income is expected of $100 million to $125 million excluding intangible amortization, restructuring and other special items. And a tax rate of 33% to 36%, that is, 33% to 36%, on the adjusted pretax earnings is expected. Now, as we indicated earlier this year, we expect operating performance to improve in the second quarter for five main reasons.

First, we expect to benefit from higher sales and production volume as we move into the historically stronger second quarter. We believe that we have experienced the majority of inventory reductions by our customers and business partners. We believe that sales and orders will now more closely track actual end user demand. Second, we also expect to benefit from lower raw material costs. During the first quarter of the benefits of lower raw material costs, were not fully realized due to the higher cost inventory that was on hand at the beginning of the year, and some of the purchase commitments that we had coming into the year. Third, we expect to see improved North American wireless and wireline spending, as many budgets and annual build plans have now been finalized. Fourth, we expect to see continued benefits from our leading wireless position in growth markets such as India and China. And finally, we expect the benefit from ongoing cost reduction.

We continue to actively work to lower operating costs through spending controls, work force reductions, restructuring and other cost reduction measures, including the recently announced suspension of 2009 cash bonuses. While we work on improving operating performance, we're focused on lower interest expense and reducing debt. So despite a difficult first quarter, we remain optimistic. While the overall business environment remains volatile, we believe that we're taking the appropriate steps for a successful 2009. Maintaining compliance with financial covenants of our senior secured credit facility remains a high priority before us in 2009. As I have explained, we are planning to do so by managing our business carefully, while reducing debt. Now, I'll turn it over to Brian Garrett for his comments. Brian?

Jearld, thank you. And as always, a special thanks to the global employee team of this company. From a high in the third cause of '08, with revenues in excess of a billion dollars, in operating margin north of 14%, we've rode into the abyss of '04 and the global economic meltdown. During which, this team has kept focused, working diligently against the plans we established and have continued to deliver. From Q3 ending, we bottomed in the January, February time frame, off substantially in revenue, and with operating losses. Only to recover in March to revenue rates consistent with our second quarter guidance and operating margins in the mid- teens. Our employees have dropped inventory some $80 million in this quarter alone, $50 million of which is in finished goods in WIP. They have delivered above plan results in synergy growth, some $27.5 million delivered in the Q, as well as cost reductions.

They have largely held pricing and delivered major account wins worldwide. And they've surrendered wage increases in '09 bonuses to help us assure long- term global leadership. Barring some other global economic trauma, we believe we've seen the bottom, I'd like to particularly congratulate the WNS and broadband teams who delivered strong year-over-year operating income performance in the Q, despite lower sales. I can tell all of you on the call, that all approximately some 13,000 CommScope employees have focused on and committed to covenant compliance for the remainder of this year. By generating profitable sales and expanding EBITDA, while we reduced debt and interest expense. As an added note, we are pleased to have ranked number 554 in the Fortune 1000 based on calendar year 2008 revenues of just over $4 billion. We were the 6th largest public company in the network and other communications equipment industry grouping of which we are very proud. With that, operator, I'll turn it over and we'll accept questions. Operator? Operator? Ashley? Operator?

(Operator Instructions). Kim Watkins from JPMorgan. And our first question comes from Kim Watkins from JPMorgan.

Kim, are you there?

(Operator Instructions). And Miss Watkins, your line is open. If your line is muted, please unmute your line at this time.

Operator, let's just go to the next question please.

Okay. Yes, sir, the next question comes from Ken Muth with Robert W. Baird.

Ken, good afternoon.

Hello?

There you are. We'll eventually connect.

Hello? Can you hear us, Ken?

No.

Operator?

Sir, your line is open for questions.

Hello?

Ken, you've got the management team here.

Yes, can you hear me?

Yes, I can.

Okay. Thanks. Just wanted to see, kind of go through a little bit more detail the assumptions you have made on the - - the compliance issues with your debt covenants. Hello?

Ken, we'll eventually get this fixed. Excuse us. Let's try it again.

Can you hear me now?

Yes, we can.

Okay. On the debt covenants assumption you make with staying in compliance there, could you just go through what you think you need to do in the way of kind of the actual operating margins, and kind of operating profit assumption, as well as the debt to soon to be paid down for the next few quarters?

Ken, we - - this is Jearld, we have great cash flow in the first quarter for that quarter, which is typically been the weakest one, often in the pass. We generated $85 million of cash flow from operations in the quarter, which was actually an improvement over last year. So we felt good about that, and we used obviously that cash flow to pay down debt in large part, along with our existing cash at the end of the year. Did some restructuring of the convertible debt with a new $100 million issue, and redeeming the old issues so it was an active quarter for us in terms of financing activity. And the results were very helpful for us in paying down debt, and in total reduced debt $200 million and ended the quarter with a little under $300 million of cash on our balance sheet. So we liked the position we are, so we think we do have opportunity, both to lower debt further as we look ahead, and at the present time, we will gauge that based on business conditions.

Our --our quarterly flow of business from here on out should suggest that the second quarter should be stronger than the first course, and operating performance, and stronger still in the third quarter would be an early expectation. So we think all those things should be helpful, as we look ahead to to managing covenant compliance, as we measure where we're at today, and our EBITDA cushion we have, which is almost $70 million to 80 million, about $80 million approximately EBITDA cushion on compliance that we have today. We feel we're in good condition or shape, to move forward and maintain compliance through the balance of the year.

A quick followup on that, if you would come in the midpoint of your Q2 guidance for operating income assumption, and have your normal seasonality for Q3, would that be enough to stay in compliance?

Well, our expectations around compliance would encompass a midpoint of our current guidance, yes, for the second quarter.

Okay. And then just a followup on the enterprise division. You talked about some kind of bottoming out and kind of Q1 time frame, and in the way of reducing inventories to the channel system, as well as maybe some hiccups, where are you seeing kinds of the demand stabilization? Is it still more the high end data centers? Or is it more generic than that?

Well its -- data centers remain an important part of the business, Ken, but, there's still in that 25% to 30% range. You might think, if we didn't know otherwise, that data center became a much, much larger percentage of our business, over the course of this down turn. But that has not been the case. They remain strong, but have not become the overwhelming part of the business. If you look at what happened in sales into the distribution channel during the quarter, it was off substantially on a year-over-year basis. Our sales out of the channel is approximately half that amount. And so obviously, that's representative of the impact that destocking has had, channel destocking on the business in the first quarter. So if the other benchmark we have, Ken, is that if you look at our pipeline, it's the number of projects, I'll say the dollar value of projects that we brought into the pipeline in the first quarter of '09, is essentially identical to the first quarter of '08. So if distribution, inventories have largely bottomed, and that's not a bad assumption, not to say there could be some more, but it's not a bad assumption. And there's the not a large up take in project cancellations, there's a reason to believe this business will grow out of the low that we saw in Q1.

Great, thank you. I'll pass it on.

Thanks, Ken.

Our next question comes from Jeff Beach with Stifel Nicolaus.

Good afternoon.

Good afternoon. Hi Jeff.

I'd like you to expand a little bit more on India and China, specifically with India and with this strong new subscriber growth and then you talked about a couple of the hurdles with the delay in some auctions and other things. I think I remember back at the last Investor Day, you were talking about delivering 3000 kits a month into India. And I just wonder, is the number up now because of subscribers are up? And is that going to continue to grow? And then over on China, when you were running through the components that you delivered, you didn't mention antennas, and I was just wondering if you're delivering full kits into China, similar as into India and whether that includes antennas.

Okay. Jeff, I'll turn this over to Ted, and let him have the first shot at it, he's closest.

Jeff, hi, it's Ted Hally. And just to talk about India first, Ted, India continues to be an exciting market, very competitive. I think Jearld covered the point, what we see in Indian is the deferral of 3G license, so most of the adds you're seeing would be 2G customers, and we expect that pace to still be good for the rest of the year. In India, in the quarter, you're seeing a lot more activity with some new operators, I mentioned one Tata, where we've actually shipped antennas and won some awards. And we expect that growth on those new operators to continue through the year, the established operators one, Bharti has slightly pulled back on its CapEx, so there's a lot of movement in the Indian marketplace.

And we continue to service primarily from my product portfolio, which is the antenna business and cable business. The antenna business at India is very active, RET technology, is a technology that last year we saw volumes go up in India, and that's continuing through this year. On the cable side, it's a little more competitive. And while we continue to play in India, we will play where we can expect some margin. And some customers you seen the commodity e-bidding, where really with copper declining through the last quarter, and into the beginning of this quarter, that has not put us in a favorable position. So we are continuing to focus on our introduction of aluminum products to the Indian customer. And that will take time as they technically amalmagate us and introduce us into the network. We have one large customer in India that takes our HELIAX 2 (inaudible) aluminum today.

So, to go on to China, maybe an oversight, but I guess one of the things we're very pleased with in China. I don't know if you are aware, with the China Telecom last year, we were the only non-indigenous supplier of antennas. And we expect China Telecom to come out with more bids this year, and continue that. With China Unicom, they made a decision early this year to select multiple suppliers in the antenna business. And Andrew, CommScope was the only non-indigenous in the top 3. So they make decisions based on percentage split, and then you go out and sell to the various regions. We are through the first phase of that, just tailing off on the first shipment. And a Phase 2 is being discussed by Unicom which we expect to see decisions in the second quarter.

Yes. I may add some more background on China Telecom, Jeff. As Ted mentioned, we're one of the top three, and those three in aggregate are approximately 75% of the supply to Unicom. So this is a big statement, and when you look at Unicom and the context of that total China market, they are the largest in terms of the number of sites that are going to be installed in '09. Some 80,000 sites with an associated 3G budget of nearly $12 billion. We positioned ourself very well with Unicom, and have strong expectations moving forward.

Alright. Thank you.

Our next question come from Simon Leopold with Morgan Keegan

Thank you very much. I want to -- a couple of quick housekeeping questions. First, one was on the tax rate guidance. It's a little bit higher than what you talked about in the previous quarter. If you could shed light on what has changed there?

Well, in terms of our guidance, Simon, I think the most critical factor is our mix of where income is coming from, has the biggest impact on actual tax rates, as we as we try to develop our forecast, and record our actual results. So perhaps, or as a consequence of a little higher US mix in some areas could be from the first quarter, could be higher rates for the year. And we do expect a US improvement as we move through the year. Also, we are repatriating -- expect to repatriate most of our 2009 earnings in reflecting that in our tax rates for 2009, so that also has resulted in a slightly higher rate than what we had been reporting previously.

That was actually what I was suspecting, so that's very helpful. And then if you could just go back to the pro forma earnings for this quarter. I assume the diluted share count you would be using is about 80.7 million. I just want to check on the interest add- back for that calculation?

We'll look for it - It's about, - - we'll let Phil look that up here quickly.

It's about -- just a little under half a million dollars after tax, you'd add back the net income.

Okay.

Existing convert.

Okay. Okay. Easy enough. Now, more big picture. Looking at the forecast for operating income, a couple of moving parts there, but probably the most obvious one is the gross margin. And you've talked about a number of reasons why it could improve, but rough math suggests you need about 400 basis points sequential improvement to get to the kind of operating income. I just want to first find out, is that right? And if you then could kind of breakdown, what are the elements that get you that kind of improvement?

I'll let Phil do the math here while I speak, Simon. The part that really impacted the performance, obviously, volume and absorption of fixed overhead is a big part. But you got to remember from a manufacturing perspective, the impact is a lot bigger than just the reported sales. Now to the extent that we moved finished good and WIP down, that's at inventory value, in a sense you think about $50 million of inventory rough guesses. That would be the equivalent of $70 million, $75 million worth of revenue that we didn't get to produce. So a big, big part of the margin is going to come through overhead absorption. The other big whammy in the first quarter and the tail end of the 4th quarter is this raw materials subject. So materials that came into the new year that were at substantially higher costs than our standards that we had, and subsequently, we generated large, large manufacturing variances in COGS. So you put all those pieces together, and it generates big, big numbers.

The 400 basis points makes sense though?

The bulk of the improvement comes in gross margins is the way I think about it.

And a 400 basis points sequential move is in the realm of what we're talking about then? Correct?

Well, just a simple operating leverage, thats just saying what Brian said slightly different, Simon, is that the operating leverage is even greater than the revenue would indicate, as we move production levels back up. Production levels were very low in the first quarter, as we reduced inventories in the period. And those production levels at steady inventory states and rising revenue rates will be much, much higher, and that will have a very positive impact on factory utilization. And second point was, is a lot of the higher price cost of materials have now (inaudible) and worked their way through the P&L. And plus on going cost reduction, we've been cutting costs regularly ever since the acquisition a year ago. We're seeing benefits of that every month, every quarter. We have a new cost reduction benefits coming online, and those are getting more material to our benefit as we move ahead. So, it is the bringing together of all those things which we think should provide substantially improved results, both in gross margin and operating margin in the second quarter.

And looking at the ratios for the debt covenants, could you update us on where stood for the March quarter on the leverage ratio and interest coverage ratio?

We haven't fully reported the results yet with our lenders, but we were on a preliminary basis, I think, we were at 3.27 on the leverage, and 4.44 on the interest coverage at the end of the second quarter.

Great. And I think two more quick ones, 10% customers , any

I don't believe anyone made it - - [ talking over one another ] We had a 11% accounts receivable, I think, but no 10% customers.

Great. And then also, you highlighted Asia, we talked about India and China again. How big are these markets for you this quarter? In terms of percent of sales?

Oh, - -

Growing. (laughter).

They are substantial. I'll tell you, the China business, I'll give you a benchmark, to lead you nowhere, but to give you a sense of what's happening, in China, the China business is up 80% year-over-year, Simon. And up 60% sequentially, so it's having a -- a measurable impact on the performance of the business.

And India still kind of a high single digit percent?

India has been running, has been running consistently. Yes, it has.

Thank you.

Simon, I'll say one more thing about your, go back to your gross margin, your margin question. We don't talk about gross margins, but we do want everyone to feel, comfortable is not the right word -- understand all the parts that are moving, that come from where we were in the first quarter to where wer're guiding in the second quarter. One thing I can tell you is that, if you look at the standards line, took all -- just disregard all the variances that happened in the first quarter as the result of this upheaval, the standard gross margins in the second quarter are not substantially different than they were in the first quarter. And so to get to where we want to be, and where we're guiding, it isn't requiring a huge change in pricing or mix. It really is as Jearld said, it's about gross margin, and the reduction of all of the variances that came into the first quarter. And in my comments section there, wrapup, where we were in March is where we need to be for the second quarter. So if, if we stay at the current pace, we feel comfortable with the guidance that we provided.

Great, thank you very much.

Okay.

Our next question comes from George Notter with Jefferies.

Hi, thanks very much. I had a few questions on cost structure. As you guys exited last year, you had to get $60 million in merger synergies if memory serves me, and had a $115 million at the end of this year. Where are you? I know the manufacturing synergies are what's driving that. But -- give us an update there if you can.

We finished the year, your numbers are good. I think we delivered 63, our run rate at the year-end was something like 90. And our guideline to you for '09 ending was 126. I got it here in my notes. I told you we did about 20, 28 in the quarter, right where we want to be.

Got it. And then talking about raw materials, last quarter you mentioned that you gave us the price point, or I guess aggregate cost for the Q4 copper costs. I'm wondering if you could give us that same number for Q1, and then give us a sense for where that's going in the future.

We are --- going to have to do some homework. I don't know if we got that in front of us here. Sure, copper has been somewhat volatile, having get started around as low as a $1.50, moved up to as high at $2.20. So it's still a fair degree of volatility. I think current levels are $2.00, less than two dollars now, and the $1.90 range now. So a $2.00 sort of number is sort of where I think a good part of the first quarter would have been. Our procurements however, of copper in the first quarter were low, because of again the low volumes that we were producing here in the first quarter. And so looking ahead procurements will be more like current prices.

Sorry, I guess I'm confused. I believe it was $2.50 back in Q4. I guess I wondered what that number was in Q1, did you just say it was in the $2.00 range?

To the extent that we bought, we bought very -- we didn't buy a lot of copper, again, in the end of quarter.

Maybe that's something we can close the loop on.

Got it. That's fine. I guess related to that, I'm wondering if you guys are seeing any associated price decreases in your businesses that are aligned with copper and aluminum, RF cable, enterprise structure cabling? Obviously there's been a fair amount of discussion about whether you'd see those pricing decreases. What's the status there? Thanks.

Largely, George, across all businesses, there has been very, very little price movement over the course of the first quarter. The one exception is largely in 50 owned cables, and in the quarter, pricing in aggregate, moved mid-single digits or less. And I would say we're basically back to pricing levels where we were same period last year.

Thank you.

Our next question comes from Amir Rozwadowski with Barclays Capital.

Thank you for taking the question, good afternoon, gentlemen.

Hi Amir.

Just continuing along that gross margin line of questioning. Brian, in speaking about sort of the pricing actions or lack there of, should we expect ongoing improvement in sort of your gross margin line through the course of the year?

Gross margin, absolutely. For lots of reasons. And we have been public that pricing always lags costs, and the commodity costs. The team has done an exceptional job in resisting or slowing pricing pressures. I think it's fair to assume that in the second quarter, we are going to incur additional price decreases in the wireless base, in the cable spaces I'm talking about primarily, and will come under added pressure in the enterprise space as well.

Okay. But do you think there's a probability or possibility I would say, as we get some sequential improvement through the course of the year, that you folks could come close to sort of historical levels of gross margin, I should say return to historic levels?

I think the answer is clearly yes.

I think just two things, I don't know - - looking back in history, but, Amir, but look at the first quarter here, and look at the improvement in operating margin that the WNS business had in the first quarter. And the broadband business, both businesses were above 10% adjusted operating margin in the quarter. And we think that was, that was a good indication of the benefits of the cost reduction and restructuring activities that have been going on in the businesses, and their discipline in operating those businesses. And its being reflected in operating income. So that is -- those are already higher than periods of, in the past.

Great. And then if we look at your sales guidance of a sequential uptick in sales, around your constructive commentary on the wireless purchasing environment, and certainly some -- seems like there's snap back in the spending in the enterprising segment. How should we think about sort of whats leading sort of that, which of the businesses are really leading that sequential pickup in sales in the second and third quarter?

Well, we're going to, we're going to see growth in the ACCG space. The first quarter, I think we were held back by a very slow start in North America.

A nonseasonal slow start, expect to start in the second quarter and carry through to the third quarter.

And then the other piece, of course, is enterprise and these two are the two largest pieces of the business. So small changes there, will make a big dollar impact. Not as a dollar magnitude, but in terms of percentage growth, the sequential improvement in wireline is large as well.

Okay. That's very helpful. Thank you very much, gentlemen.

Our next question comes from Amitabh Passi with UBS

Hi, can you hear me?

Hey Amitabh.

First, please convey our condolences to Frank.

Yes we will. Thank you.

I just had a couple of housekeeping questions. The first was backlog at the end of the quarter, around 434? Somewhere in that range?

Well, we don't report that continuously, other than at the end of the year.

Oh, okay. And then - -

But the build is 1.05 for the quarter.

Yes.

So there was, would have been a slight improvement in backlog mathematically.

Okay. And then was, I don't know if you can tell, was book-to-bill greater than 1 across your segments?

It was essentially one or better. All the segments.

And on the guidance, there's a lot of discussion on the gross margin side. I wanted to clarify on OpEx as we look at the second quarter. How should we think about OpEx on a percentage of sales basis or absolute dollars? I mean would it be down sequentially again in absolute dollars? Or do you think you kind of level off at these levels?

No, it would definitely be up. My -- repeat the question for me.

Just OpEx for the second quarter.

OpEx.

Oh, OpEx.

I thought you said operating income. Yes.

We had a lot of strange looks around the table. Yes, OpEx was performance in first quarter was down $33 million from year ago. And it's likely to be higher, because there are things tied to revenue production that will left that although we have ongoing cost reduction efforts, and have very tight spending controls in the company currently, so we will be working very hard to maintain an efficient period overhead structure as we move through the year.

Okay. And then I just wanted clarification around the profitability for ACCG in the first quarter. I mean, it looks like on an adjusted basis, operating income was less than 2%. Was all of that just driven by really, sort of a large decrease in volumes, or was there something else going on there?

I think both your math and, is correct and observation is correct about volume. I think volume is the most critical factor there. There were lesser things that had impact, but it was largely a function of volume and these residual cost issues that we've talked about earlier.

The cabinet business weighed very heavily on the business segment, Amitabh.

Were operating profits still positive for the cabinet business?

Yes. I don't think we, we don't want to go to that granularity on a product line basis.

Okay, I just have a couple more quick ones. Cash flow from operations, Jearld, looking into the second quarter. Do you think you could do any better than the first quarter? Would it be sort of down again sequentially?

Well, at this point, I doubt we can match our inventory performance in the second quarter, although that remains to be seen. Inventory performance was there, I think payables will, and receivables will both rise with volume. So I think we have an opportunity to minimize the working capital impact on increasing operating results in the quarter, if we can hold the line on inventories.

Okay, and just again my final question. Guys, as we think about your China business sequentially from 1Q to 2Q, it looks like, and this is in the context of wireless, I mean you certainly saw good growth of 60% sequentially from 4Q to 1Q. How much do we go from the first to second quarter? I mean, I obviously suspect growth rates will moderate. But do you still think you can do sort of double digit growth sequentially again in your China wireless business?

I think - - I think China's going to be lumpy from here out. And as it has been, I mean, for the vast majority of '08.

In many cases, we are addressing specific projects and each of the carriers of different time events, and as we respond, that's going to change, throughout the year, quarter by quarter. You have to look at it over a longer time frame. as we build a broader base of activities in China.

It's fair to say that in Unicom, Q1 was probably a peak build period for them. And it's just a question of how their follow up projects, come relative to other people's projects that Ted's referring to. So we're going to see lumpiness on the top.

Okay. Thank you. Appreciate it.

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

Yes, sir. Our next question comes from Blair King with Avondale Partners.

Hi, guys, thanks for taking my question.

Certainly, Blair.

Just one, I'll just ask one quick one and pass it on, and just follow up to a previous question, maybe I'll ask two quick ones. On the copper pricing, if my notes are right, I believe you guys had locked in $2.50 per pound copper pricing in the fall of '08, and subsequently $1.50 per pound pricing. Is it right for us to assume you're in into that $1.50 per pound copper pricing?

Blair, I don't know any of those numbers.

What we're saying, we did have some commitments in the price ranges you were talking about, the $2.50 area that do go into 2009, and carried over into 2008. I don't think we have made any substantial forward commitments in copper in any of our business segments so far this year. Okay.

You -- the copper (indiscernible). That wasn't a representation that our forward basis was $2.50. That was the average of our forward - -

That's right. It was not our intent to do that.

I wanted to make sure we were clear on that.

Yes,that's helpful. Got it. So there's no, there's no locked in copper pricing today for CommScope?

No. We still do have commitments that we're carrying forward, that were carried forward from 2008. And we filed our Q so some of this disclosure of what our metal commitment position is - -

I think it's around $50 million.

Around 50 million.

We think it was - - I think the point is, this it Phil, if we are working through that, we'll get the benefits as we move forward into 2Q and beyond.

We're working through that with customers where we have annual requirements and annual needs.

What I'm saying, we made no new commitments for forward copper pricing.

Okay. Just - - that's helpful. Thanks, I appreciate it.

Thank you.

Just one last quick question. Give given the lumpiness in the Asia-Pacific region and the strong sequential increase in sales to China, this quarter. Can you just put some color around how much you guys think about the sequential increase in 3Q, in the third quarter for the top line?

Q3?

We haven't, and obviously intentionally haven't provided any guidance for Q3. Yet, we'll say historically in our third quarter, and second quarter in revenue are often very close to the same number. Thats a historical seasonal trend. I think this year, there will be cyclical improvement in revenues, as the world recovers from the recession, or at least the United States does. And some of our major customers uptick their spending. So there is, might be opportunity for higher revenue in the third quarter than over the second quarter.

Okay. Great, thank you very much. Appreciate it.

The next question comes from Steve Ferranti with Stephens Incorporated.

Hi, guys. Good afternoon. Thanks for taking the question.

Sure, Steve.

Can you just give us some sense on the Andrew Corps synergies, remaining synergies you have left, sort of how they play out between cost of goods sold and OpEx?

The big things that have to happen to get to the goal towards the end of the year, are really the operational consolidation activities. And those are the ones that we announced in the September time frame of last year. So this will be factory consolidation. It will effect both fixed costs and COGs as well.

Okay. Great.

Substantially. Versus OpEx, let me put it -- will be -- OpEx will be a small part of it.

Got it. And then I guess as you look forward, it seems like you got a little bit of a tail wind now, in terms of at least the order trends and demand firming up a little bit. We're heading into two seasonally strong quarters. Can you give us some sense, for as you look beyond that, you have to step up in the covenants coming up, as you look beyond that into December, which is normally a little bit of a seasonally down quarter for you guys. How do you plan ahead for that? And how do you keep some powder dry, in terms of some potential buffer in order to sort of stay in compliance past September?

Sure. Our expectations would be that our 4th quarter would be an improvement. At this point, our expectations are to be the 4th quarter should be an improvement year-over-year. That's an early indication. Large because of cost structures. Again, significant cost reduction as hasn't place that was not reflected in the 4th quarter 2008, that will be a part of 2009. And again, we would expect to be operating at higher operating margins in the 4th quarter of '09, than we were in 4th quarter of '08. Obviously, it's out there several quarters yet, but that would be our expectation at this point.

Understand, and just one last one for me. WNS, very nice uptick in operating profits there, operating margins. Can you give us some feel for kind of the puts and takes in terms of what drove that? Was it mix or was it just some of synergy work you had done?

WNS?

I'll take WNS.

Well, it was -- I think the good part about WNS, it was broad. I mean there are a lot of pieces to WNS. There is many, many companies and product lines in there, Steve. And it was a broad recovery, and for the sub systems guys, it was really about volume increasing, largely into the OEMs, and profitability improvements in the businesses as well. The other part is, Jearld mentioned it in his script, the geometrics, the MLC business is stronger. Our location management business largely, is expanding, so full spectrum. WNS looked much better than historical perspective. It was very encouraging for us.

So it sounds like that's somewhat, that sounds like that's a sustainable uptick in margins that you saw, that we shouldn't, there's nothing that could potentially drive you back to third or fourth quarter levels.

As a broad statement for WNS, I would say yes.

Great. I know I said last question, but I have one more for you. Alcatel-Lucent had a nice frame agreement award announced this morning. Is that a potential positive for you guys?

That's good news for the CommScope team and shareholders.

Very good. Thanks, guys. Congratulations.

Thanks, Steve.

Thank you. Operator, I believe that's all the time we have questions for.

Well, I would just like to wrap up, say thanks to all of you again for coming into the call. Our thanks to the team for what was really part of a tremendous turn around over the last four months. Their efforts have been extraordinary, and they are going to be well rewarded for it. And we look forward to having Frank back here next quarter. We wish him the best, and I'm sure you will all be seeing him here shortly. So again, thank you very much for joining us.

This concludes today's CommScope first quarter 2009 earnings release conference call. You may now disconnect.