**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**FORM 10-Q**
| **(Mark One)**                                         | ** **                                                                                               |
|--------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
| **x**                                                  | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**  |
| ** **                                             | ** **                                                                                               |
| **For the  quarterly period ended September 30, 2006** |
| **OR**                                                 |
| ** **                                             | ** **                                                                                               |
| **o**                                                  | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |

 

** **

**For the transition periodfrom                     to**

** **

**Commissionfile number 001-12929**

** **

**CommScope, Inc.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                                     |   | **36-4135495**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |

 

**1100 CommScope Place, SE**

**P.O. Box 339**

**Hickory, North Carolina**

(Address of principalexecutive offices)

**28602**

(Zip Code)

**(828)324-2200**

(Registrant’s telephonenumber, including area code)

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x    No o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer or anon-accelerated filer (as defined in Exchange Act Rule 12b-2).  Large accelerated filer x   Acceleratedfiler o  Non-acceleratedfiler o

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  Yes o    No x

Asof October 26, 2006 there were 59,608,269 shares of Common Stockoutstanding.

 

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**CommScope, Inc.Form 10-QSeptember 30, 2006Table of Contents**
| Part I—Financial Information (Unaudited):                                                  |   |
|------------------------------------------------------------------------------------------------------|--------|
|                                                                                                 |   |
| Item 1.  Condensed Consolidated Financial Statements:                                                |   |
|                                                                                                 |   |
| Condensed  Consolidated Statements of Operations                                                     |   |
|                                                                                                 |   |
| Condensed  Consolidated Balance Sheets                                                               |   |
|                                                                                                 |   |
| Condensed  Consolidated Statements of Cash Flows                                                     |   |
|                                                                                                 |   |
| Condensed  Consolidated Statements of Stockholders’ Equity and Comprehensive Income             |   |
|                                                                                                 |   |
| Notes to  Condensed Consolidated Financial Statements                                                |   |
|                                                                                                 |   |
| Item 2.  Management’s Discussion and Analysis of Financial  Condition and Results of Operations |   |
|                                                                                                 |   |
| Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                  |   |
|                                                                                                 |   |
| Item 4. Controls  and Procedures                                                                     |   |
|                                                                                                 |   |
| Part II—Other  Information:                                                                |   |
|                                                                                                 |   |
| Item 1A. Risk Factors                                                                                |   |
|                                                                                                 |   |
| Item 6. Exhibits                                                                                     |   |
|                                                                                                 |   |
| Signatures                                                                                           |   |

 

2

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**CommScope, Inc.**

**CondensedConsolidated Statements of Operations(Unaudited—In thousands, except per share amounts)**
| ** **                                                                                | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                                                | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                                | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                                                                 |       | $                                | 466,100    |                            | $          | 345,613 |   | $ | 1,230,235 |   | $ | 991,378 |   |
|                                                                                      |       |                             |       |                            |       |   |   |   |   |
| Operating costs and  expenses:                                                            |       |                             |       |                            |       |   |   |   |   |
| Cost of sales                                                                             |       | 326,287                          |       | 251,077                         |       | 897,135 |   | 736,071 |   |
| Selling, general  and administrative                                                      |       | 62,799                           |       | 51,260                          |       | 175,229 |   | 159,158 |   |
| Research and  development                                                                 |       | 9,151                            |       | 6,789                           |       | 24,821 |   | 22,996 |   |
| Restructuring  costs                                                                      |       | 3,011                            |       | 16,553                          |       | 10,764 |   | 20,128 |   |
| Total operating  costs and expenses                                                       |       | 401,248                          |       | 325,679                         |       | 1,107,949 |   | 938,353 |   |
|                                                                                      |       |                             |       |                            |       |   |   |   |   |
| Operating income                                                                          |       | 64,852                           |       | 19,934                          |       | 122,286 |   | 53,025 |   |
| Other income (expense),  net                                                              |       | 207                              |       | 179                             |       | 872 |   | (490 | ) |
| Interest expense                                                                          |       | (2,110                           | )          | (1,975                          | )          | (6,082 | ) | (6,342 | ) |
| Interest income                                                                           |       | 3,145                            |       | 1,286                           |       | 7,541 |   | 3,434 |   |
|                                                                                      |       |                             |       |                            |       |   |   |   |   |
| Income before income  taxes and gain on OFS BrightWave note receivable                    |       | 66,094                           |       | 19,424                          |       | 124,617 |   | 49,627 |   |
| Income tax expense  before income tax provision on gain on OFS BrightWave note receivable |       | (22,504                          | )          | (7,902                          | )          | (40,279 | ) | (16,267 | ) |
|                                                                                      |       |                             |       |                            |       |   |   |   |   |
| Income before gain on  OFS BrightWave note receivable                                     |       | 43,590                           |       | 11,522                          |       | 84,338 |   | 33,360 |   |
| Gain on OFS BrightWave  note receivable, net of tax of $11,175                            |       | —                           |       | —                          |       | 18,625 |   | — |   |
|                                                                                      |       |                             |       |                            |       |   |   |   |   |
| Net income                                                                                |       | $                                | 43,590     |                            | $          | 11,522 |   | $ | 102,963 |   | $ | 33,360 |   |
|                                                                                      |       |                             |       |                            |       |   |   |   |   |
| Net income per share:                                                                     |       |                             |       |                            |       |   |   |   |   |
| Basic                                                                                     |       | $                                | 0.74       |                            | $          | 0.21 |   | $ | 1.77 |   | $ | 0.61 |   |
| Assuming  dilution                                                                        |       | $                                | 0.61       |                            | $          | 0.18 |   | $ | 1.46 |   | $ | 0.52 |   |
|                                                                                      |       |                             |       |                            |       |   |   |   |   |
| Weighted average shares  outstanding:                                                     |       |                             |       |                            |       |   |   |   |   |
| Basic                                                                                     |       | 59,166                           |       | 54,821                          |       | 58,146 |   | 54,632 |   |
| Assuming dilution                                                                         |       | 72,662                           |       | 67,746                          |       | 71,917 |   | 67,496 |   |

 

Seenotes to condensed consolidated financial statements.

3

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**CommScope, Inc.**

**Condensed ConsolidatedBalance Sheets(Unaudited—In thousands, except share amounts)**
| ** **                                                                                                                                                                                                                                                                           | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                                           | ** ** | **2006**               | ** ** | **2005**              | ** ** |
| **Assets**                                                                                                                                                                                                                                                                           |       |                   |       |                  |       |
|                                                                                                                                                                                                                                                                                 |       |                   |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                                                                                                                           |       | $                      | 221,610    |                  | $          | 146,549 |   |
| Short-term  investments                                                                                                                                                                                                                                                              |       | 112,123                |       | 102,101               |       |
| Total cash, cash equivalents and short-term  investments                                                                                                                                                                                                                             |       | 333,733                |       | 248,650               |       |
|                                                                                                                                                                                                                                                                                 |       |                   |       |                  |       |
| Accounts  receivable, less allowance for doubtful accounts of $15,241 and $13,644,  respectively                                                                                                                                                                                     |       | 254,760                |       | 165,608               |       |
| Inventories                                                                                                                                                                                                                                                                          |       | 159,325                |       | 123,603               |       |
| Prepaid expenses  and other current assets                                                                                                                                                                                                                                           |       | 31,906                 |       | 26,156                |       |
| Deferred income  taxes                                                                                                                                                                                                                                                               |       | 27,593                 |       | 25,245                |       |
| Total current assets                                                                                                                                                                                                                                                                 |       | 807,317                |       | 589,262               |       |
|                                                                                                                                                                                                                                                                                 |       |                   |       |                  |       |
| Property, plant  and equipment, net                                                                                                                                                                                                                                                  |       | 234,105                |       | 252,877               |       |
| Goodwill                                                                                                                                                                                                                                                                             |       | 151,369                |       | 151,356               |       |
| Other  intangibles, net                                                                                                                                                                                                                                                              |       | 66,831                 |       | 69,297                |       |
| Deferred income  taxes                                                                                                                                                                                                                                                               |       | 12,653                 |       | 24,623                |       |
| Other assets                                                                                                                                                                                                                                                                         |       | 22,418                 |       | 14,766                |       |
|                                                                                                                                                                                                                                                                                 |       |                   |       |                  |       |
| Total Assets                                                                                                                                                                                                                                                                         |       | $                      | 1,294,693  |                  | $          | 1,102,181 |   |
|                                                                                                                                                                                                                                                                                 |       |                   |       |                  |       |
| **Liabilities and Stockholders' Equity**                                                                                                                                                                                                                                             |       |                   |       |                  |       |
|                                                                                                                                                                                                                                                                                 |       |                   |       |                  |       |
| Accounts payable                                                                                                                                                                                                                                                                     |       | $                      | 93,284     |                  | $          | 63,444 |   |
| Other accrued  liabilities                                                                                                                                                                                                                                                           |       | 103,053                |       | 100,498               |       |
| Current portion  of long-term debt                                                                                                                                                                                                                                                   |       | 13,000                 |       | 13,000                |       |
| Total current liabilities                                                                                                                                                                                                                                                            |       | 209,337                |       | 176,942               |       |
|                                                                                                                                                                                                                                                                                 |       |                   |       |                  |       |
| Long-term debt                                                                                                                                                                                                                                                                       |       | 274,350                |       | 284,300               |       |
| Pension and  postretirement benefit liabilities                                                                                                                                                                                                                                      |       | 95,358                 |       | 101,989               |       |
| Other noncurrent  liabilities                                                                                                                                                                                                                                                        |       | 18,347                 |       | 16,925                |       |
| Total Liabilities                                                                                                                                                                                                                                                                    |       | 597,392                |       | 580,156               |       |
|                                                                                                                                                                                                                                                                                 |       |                   |       |                  |       |
| Commitments and  contingencies                                                                                                                                                                                                                                                       |       |                   |       |                  |       |
|                                                                                                                                                                                                                                                                                 |       |                   |       |                  |       |
| Stockholders’  Equity:                                                                                                                                                                                                                                                          |       |                   |       |                  |       |
| Preferred stock, $.01 par value; Authorized shares:  20,000,000;  Issued and outstanding shares: None at September 30, 2006 and December 31,  2005                                                                                                                                   |       | —                 |       | —                |       |
| Common stock, $.01 par value; Authorized shares:  300,000,000;  Issued shares, including treasury stock: 69,545,064 at September 30, 2006 and  66,073,347 at December 31, 2005; Issued and outstanding shares: 59,345,064 at  September 30, 2006 and 55,873,347 at December 31, 2005 |       | 696                    |       | 661                   |       |
| Additional paid-in capital                                                                                                                                                                                                                                                           |       | 522,537                |       | 462,842               |       |
| Deferred equity compensation                                                                                                                                                                                                                                                         |       | —                 |       | (8,980                | )          |
| Retained earnings                                                                                                                                                                                                                                                                    |       | 319,651                |       | 216,688               |       |
| Accumulated other comprehensive loss                                                                                                                                                                                                                                                 |       | (48                    | )          | (3,651                | )          |
| Treasury stock, at cost: 10,200,000 shares at  September 30, 2006 and December 31, 2005                                                                                                                                                                                              |       | (145,535               | )          | (145,535              | )          |
| Total Stockholders' Equity                                                                                                                                                                                                                                                           |       | 697,301                |       | 522,025               |       |
|                                                                                                                                                                                                                                                                                 |       |                   |       |                  |       |
| Total Liabilities and Stockholders' Equity                                                                                                                                                                                                                                           |       | $                      | 1,294,693  |                  | $          | 1,102,181 |   |

 

See notes tocondensed consolidated financial statements.

4

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**CommScope, Inc.Condensed Consolidated Statements of Cash Flows(Unaudited—In thousands)**
| ** **                                                                         | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                         | ** ** | **September 30,**          | ** ** |
| ** **                                                                         | ** ** | **2006**                        | ** ** | **2005** | ** ** |
|                                                                               |       |                            |       |   |   |
| **Operating  Activities:**                                                         |       |                            |       |   |   |
| Net income                                                                         |       | $                               | 102,963    |   | $ | 33,360 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                            |       |   |   |
| Depreciation and amortization                                                      |       | 41,858                          |       | 45,469 |   |
| Equity-based compensation                                                          |       | 3,384                           |       | 226 |   |
| Deferred income taxes                                                              |       | 9,967                           |       | 1,638 |   |
| Gain on OFS BrightWave note receivable                                             |       | (29,800                         | )          | — |   |
| Restructuring costs related to fixed asset  impairment                             |       | —                          |       | 17,034 |   |
| Tax benefit from stock option exercises                                            |       | —                          |       | 1,049 |   |
| Changes in assets and liabilities:                                                 |       |                            |       |   |   |
| Accounts receivable                                                                |       | (88,289                         | )          | (46,406 | ) |
| Inventories                                                                        |       | (30,061                         | )          | (11,984 | ) |
| Prepaid expenses and other current assets                                          |       | (1,208                          | )          | (2,204 | ) |
| Accounts payable and other accrued liabilities                                     |       | 32,260                          |       | 18,979 |   |
| Other noncurrent liabilities                                                       |       | (6,031                          | )          | (1,909 | ) |
| Other                                                                              |       | (3,575                          | )          | 529 |   |
| Net cash  provided by operating activities                                         |       | 31,468                          |       | 55,781 |   |
|                                                                               |       |                            |       |   |   |
| **Investing  Activities:**                                                         |       |                            |       |   |   |
| Additions to property, plant and equipment                                         |       | (22,625                         | )          | (16,350 | ) |
| Proceeds from OFS BrightWave note receivable                                       |       | 29,800                          |       | — |   |
| Acquisition of MC2 product line                                               |       | (13,810                         | )          | — |   |
| Acquisition of Connectivity Solutions                                              |       | —                          |       | 653 |   |
| Net purchases of short-term investments                                            |       | (10,022                         | )          | (958 | ) |
| Proceeds from disposal of fixed assets                                             |       | 4,599                           |       | 1,706 |   |
| Net cash used in  investing activities                                             |       | (12,058                         | )          | (14,949 | ) |
|                                                                               |       |                            |       |   |   |
| **Financing  Activities:**                                                         |       |                            |       |   |   |
| Principal payments on long-term debt                                               |       | (9,950                          | )          | (9,750 | ) |
| Long-term financing costs                                                          |       | —                          |       | (306 | ) |
| Proceeds from exercise of stock options                                            |       | 48,969                          |       | 6,402 |   |
| Tax benefit from stock option exercises                                            |       | 15,857                          |       | — |   |
| Net cash  provided by (used in) financing activities                               |       | 54,876                          |       | (3,654 | ) |
|                                                                               |       |                            |       |   |   |
| Effect of  exchange rate changes on cash                                           |       | 775                             |       | (1,093 | ) |
|                                                                               |       |                            |       |   |   |
| Change in cash  and cash equivalents                                               |       | 75,061                          |       | 36,085 |   |
| Cash and cash  equivalents, beginning of period                                    |       | 146,549                         |       | 99,631 |   |
| Cash and cash  equivalents, end of period                                          |       | $                               | 221,610    |   | $ | 135,716 |   |

 

See notes to condensed consolidatedfinancial statements.

5

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** **

**CommScope, Inc.**

**CondensedConsolidated Statements of Stockholders’ Equity**

**andComprehensive Income**

**(Unaudited—In thousands, except share amounts)**
| ** **                                    | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------|------------|---------------------------------|------------|
| ** **                                    | ** ** | **September 30,**          | ** ** |
| ** **                                    | ** ** | **2006**                        | ** ** | **2005** | ** ** |
|                                          |       |                            |       |   |   |
| Number of common  shares outstanding:         |       |                            |       |   |   |
| Balance at beginning of period                |       | 55,873,347                      |       | 54,487,745 |   |
| Issuance of shares for stock option exercises |       | 3,471,717                       |       | 514,458 |   |
| Issuance of shares to nonemployee directors   |       | —                          |       | 2,000 |   |
| Balance at end of period                      |       | 59,345,064                      |       | 55,004,203 |   |
|                                          |       |                            |       |   |   |
| Common stock:                                 |       |                            |       |   |   |
| Balance at beginning of period                |       | $                               | 661        |   | $ | 647 |   |
| Issuance of shares for stock option exercises |       | 35                              |       | 5 |   |
| Balance at end of period                      |       | $                               | 696        |   | $ | 652 |   |
|                                          |       |                            |       |   |   |
| Additional  paid-in capital:                  |       |                            |       |   |   |
| Balance at beginning of period                |       | $                               | 462,842    |   | $ | 432,839 |   |
| Issuance of shares for stock option exercises |       | 48,934                          |       | 6,397 |   |
| Tax benefit from stock option exercises       |       | 15,857                          |       | 1,050 |   |
| Expiration of registration rights             |       | 500                             |       | — |   |
| Impact of adoption of SFAS No. 123(R)         |       | (8,980                          | )          | — |   |
| Equity-based compensation expense recognized  |       | 3,384                           |       | 226 |   |
| Issuance of shares to nonemployee directors   |       | —                          |       | 30 |   |
| Balance at end of period                      |       | $                               | 522,537    |   | $ | 440,542 |   |
|                                          |       |                            |       |   |   |
| Deferred equity  compensation:                |       |                            |       |   |   |
| Balance at beginning of period                |       | $                               | (8,980     | ) | $ | — |   |
| Impact of adoption of SFAS No. 123(R)         |       | 8,980                           |       | — |   |
| Balance at end of period                      |       | $                               | —     |   | $ | — |   |
|                                          |       |                            |       |   |   |
| Retained  earnings:                           |       |                            |       |   |   |
| Balance at beginning of period                |       | $                               | 216,688    |   | $ | 166,710 |   |
| Net income                                    |       | 102,963                         |       | 33,360 |   |
| Balance at end of period                      |       | $                               | 319,651    |   | $ | 200,070 |   |
|                                          |       |                            |       |   |   |
| Accumulated other  comprehensive loss:        |       |                            |       |   |   |
| Balance at beginning of period                |       | $                               | (3,651     | ) | $ | (5,198 | ) |
| Other comprehensive income, net of tax        |       | 3,603                           |       | 3,474 |   |
| Balance at end of period                      |       | $                               | (48        | ) | $ | (1,724 | ) |
|                                          |       |                            |       |   |   |
| Treasury stock,  at cost:                     |       |                            |       |   |   |
| Balance at beginning and end of period        |       | $                               | (145,535   | ) | $ | (145,535 | ) |
|                                          |       |                            |       |   |   |
| Total stockholders'  equity                   |       | $                               | 697,301    |   | $ | 494,005 |   |

 
| ** **                                                                                       | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                       | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                                                       | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                                                             |       |                             |       |                            |       |   |   |   |   |
| Comprehensive  income:                                                                           |       |                             |       |                            |       |   |   |   |   |
| Net income                                                                                       |       | $                                | 43,590     |                            | $          | 11,522 |   | $ | 102,963 |   | $ | 33,360 |   |
| Other comprehensive income (loss), net of tax:                                                   |       |                             |       |                            |       |   |   |   |   |
| Foreign currency translation gain (loss) - foreign  subsidiaries                                 |       | (18                              | )          | (1,176                          | )          | (397 | ) | (5,176 | ) |
| Foreign currency transaction gain (loss) on long-term  intercompany loans - foreign subsidiaries |       | (184                             | )          | 2,791                           |       | 4,586 |   | 7,473 |   |
| Gain (loss) on derivative financial instrument  designated as a net investment hedge             |       | 166                              |       | 36                              |       | (586 | ) | 1,177 |   |
| Total other comprehensive income (loss), net of tax                                              |       | (36                              | )          | 1,651                           |       | 3,603 |   | 3,474 |   |
|                                                                                             |       |                             |       |                            |       |   |   |   |   |
| Total comprehensive  income                                                                      |       | $                                | 43,554     |                            | $          | 13,173 |   | $ | 106,566 |   | $ | 36,834 |   |

 

See notes to condensed consolidated financial statements.

6

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**CommScope, Inc.Notes to Condensed Consolidated Financial Statements(Unaudited—In Thousands, Unless Otherwise Noted)**

**1.**   BACKGROUND AND BASIS OFPRESENTATION

**Background**

CommScope, Inc., through its wholly ownedsubsidiaries (CommScope or the Company), is a world leader in the design andmanufacture of cable and connectivity solutions for communicationsnetworks.  The Company focuses on the “lastmile” in communications networks, which is the distribution access, or finallink to the customer.  The Company is aglobal leader in both structured cabling for business enterprise applicationsand broadband coaxial and fiber optic cables for the cable televisionindustry.  The Company also designs,manufactures and markets a broad line of high-performance electronic,coaxial and fiber optic cable products for data networking, Internet access,wireless communication, telephony and other broadband applications.  In addition, the Company is a leadingprovider of environmentally secure enclosures for telecommunication serviceproviders in the United States.

**Basisof Presentation**

The condensed consolidated balance sheet as ofSeptember 30, 2006, the condensed consolidated statements of operationsand comprehensive income for the three and nine months ended September 30,2006 and 2005, and the condensed consolidated statements of cash flows andstockholders’ equity for the nine months ended September 30, 2006 and 2005are unaudited and reflect all adjustments of a normal recurring nature thatare, in the opinion of management, necessary for a fair presentation of theinterim period financial statements. The results of operations for the interimperiod are not necessarily indicative of the results of operations to beexpected for the full year.

The unaudited interim condensed consolidated financialstatements of CommScope have been prepared pursuant to the rules andregulations of the Securities and Exchange Commission (SEC). Accordingly,certain information and footnote disclosures normally included infinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States of America have been condensed oromitted. The significant accounting policies followed by the Company are setforth in Note 2 to the consolidated financial statements in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2005 (the2005 Form 10-K). There were no changes in the Company’s significantaccounting policies during the three or nine months ended September 30,2006 other than the adoption of Statement of Financial Accounting Standards(SFAS) No. 123(R), “Share-Based Payments” (SFAS No. 123(R)) as ofJanuary 1, 2006, which is discussed below. In addition, the Companyreaffirms the use of estimates in the preparation of the financial statementsas set forth in the 2005 Form 10-K. These interim condensed consolidatedfinancial statements should be read in conjunction with the Company’sDecember 31, 2005 audited consolidated financial statements and notesthereto included in the 2005 Form 10-K.

**Concentrationsof Risk**

Net sales to Anixter International Inc. and itsaffiliates (Anixter) accounted for approximately 32% and 29% of the Company’stotal net sales during the three and nine months ended September 30, 2006,respectively, and approximately 30% and 33% of the Company’s total net salesduring the three and nine months ended September 30, 2005,respectively.  Sales to Anixter primarilyoriginate within the Enterprise segment. 

Net sales to an original equipment manufacturer (OEM)accounted for approximately 10% of the Company’s total net sales during thethree months ended September 30, 2006. Sales to this OEM primarily originate within the Carrier segment.  Other than Anixter and the OEM, no customer accountedfor 10% or more of the Company’s total net sales for the three or nine monthsended September 30, 2006 and 2005.

Accounts receivable from Anixter representedapproximately 17% and accounts receivable from the OEM representedapproximately 11% of net accounts receivable as of September 30, 2006. Noother customer accounted for 10% or more of the Company’s net accountsreceivable as of September 30, 2006.

7

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**Product Warranties**

TheCompany recognizes a liability for the estimated claims that may be paid underits customer warranty agreements to remedy potential deficiencies of quality orperformance of the Company’s products. These product warranties extend overperiods ranging from one to twenty-five years from the date of sale, dependingupon the product subject to the warranty. The Company records a provision forestimated future warranty claims as cost of sales based upon the historicalrelationship of warranty claims to sales and specifically-identified warrantyissues. The Company bases its estimates on assumptions that are believed to bereasonable under the circumstances and revises its estimates, as appropriate,when events or changes in circumstances indicate that revisions may benecessary.

Activityin the product warranty accrual, included in other accrued liabilities, for thethree and nine months ended September 30, 2006 and 2005 consisted of thefollowing:
|                                               | ** ** | **Three Months EndedSeptember 30,** | ** ** | **Nine Months EndedSeptember 30,** | ** ** |
|-----------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                    | ** ** | **2006**                                           | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| Product warranty accrual, beginning of period |       | $                                                  | 2,578      |                                              | $          | 1,329 |   | $ | 2,035 |   | $ | 1,531 |   |
| Provision for warranty claims                 |       | 344                                                |       | 86                                                |       | 1,023 |   | 131 |   |
| Warranty claims paid                          |       | —                                             |       | (46                                               | )          | (136 | ) | (293 | ) |
| Product warranty accrual, end of period       |       | $                                                  | 2,922      |                                              | $          | 1,369 |   | $ | 2,922 |   | $ | 1,369 |   |

 

**Commitments andContingencies**

CommScope is either a plaintiff or a defendant inpending legal matters in the normal course of business; however, managementbelieves none of these legal matters will have a materially adverse effect onthe Company’s financial statements upon final disposition. In addition,CommScope is subject to various federal, state, local and foreign laws andregulations governing the use, discharge, disposal and remediation of hazardousmaterials. Compliance with current laws and regulations has not had, and is notexpected to have, a materially adverse effect on the Company’s financialcondition or results of operations.

**Net Income PerShare**

Basic net income per share is computed by dividing netincome by the weighted average number of common shares outstanding during theapplicable period. Diluted net income per share is based on net income adjustedfor after-tax interest and amortization of debt issuance costs related toconvertible debt, if dilutive, divided by the weighted average number of commonshares outstanding adjusted for the dilutive effect of stock options,restricted stock, phantom stock, performance units and convertible securities(see Note 9).

8

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Below is a reconciliation of net income and weightedaverage common shares and potential common shares outstanding for calculatingdiluted net income per share:
|                                                                                                                        | ** ** | **Three Months EndedSeptember 30,** | ** ** | **Nine Months EndedSeptember 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                                             | ** ** | **2006**                                           | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| Numerator:                                                                                                             |       |                                               |       |                                              |       |   |   |   |   |
| Net income for basic net income per share                                                                              |       | $                                                  | 43,590     |                                              | $          | 11,522 |   | $ | 102,963 |   | $ | 33,360 |   |
| Effect of assumed conversion of 1% convertible  senior subordinated debentures due 2024                                |       | 629                                                |       | 629                                               |       | 1,887 |   | 1,887 |   |
| Income available to common shareholders for  diluted net income per share                                         |       | $                                                  | 44,219     |                                              | $          | 12,151 |   | $ | 104,850 |   | $ | 35,247 |   |
| Denominator:                                                                                                           |       |                                               |       |                                              |       |   |   |   |   |
| Weighted average number of common shares outstanding  for basic net income per share                                   |       | 59,166                                             |       | 54,821                                            |       | 58,146 |   | 54,632 |   |
| Effect of dilutive securities:                                                                                         |       |                                               |       |                                              |       |   |   |   |   |
| Employee stock options (a)                                                                                             |       | 1,823                                              |       | 1,431                                             |       | 2,136 |   | 1,370 |   |
| Restricted stock, phantom stock and performance  units                                                                 |       | 179                                                |       | —                                            |       | 141 |   | — |   |
| 1% convertible senior subordinated debentures due  2024                                                                |       | 11,494                                             |       | 11,494                                            |       | 11,494 |   | 11,494 |   |
| Weighted average  number of common and potential common shares outstanding for  diluted net income per share |       | 72,662                                             |       | 67,746                                            |       | 71,917 |   | 67,496 |   |

 

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(a)             Options to purchaseapproximately 0.6 million and 1.9 million common shares were excluded fromthe computation of net income per share, assuming dilution, for the threemonths ended September 30, 2006 and 2005, respectively, and options topurchase approximately 0.6 million and 3.0 million common shares wereexcluded from the computation of net income per share, assuming dilution, forthe nine months ended September 30, 2006 and 2005, respectively, becausethey would have been antidilutive.

### **Equity-BasedCompensation**

OnJanuary 1, 2006, the Company adopted SFAS No. 123(R) using themodified prospective transition method to account for its equity-basedcompensation arrangements. The Company previously applied Accounting PrinciplesBoard (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,”and related Interpretations and provided the required pro forma disclosures ofSFAS No. 123, “Accounting for Stock-Based Compensation.”  See Note 9 for the pro forma disclosuresrequired for the three and nine months ended September 30, 2005.  The adoption of SFAS No. 123(R) did notmaterially affect the accounting for the equity-based compensation associatedwith the Company’s previously awarded phantom stock or performance units, whichwas already based on the market price of the stock at date of grant. Under themodified prospective transition method, new and previously granted but unvestedequity awards are recognized as compensation expense in the income statementbased on the estimated fair value of the award (net of estimated forfeitures)at the grant date, and prior period results are not restated. The Companyestimates the fair value of stock options using the Black-Scholes valuationmodel. The balance previously reflected as deferred equity compensation (acontra-equity account) was eliminated against additional paid-in capital (APIC)upon adoption of SFAS No. 123(R).

Withthe adoption of SFAS No. 123(R), the Company changed its method of expenseattribution for equity-based compensation for future awards from recognitionover the nominal vesting period to recognition over the requisite serviceperiod. Compensation expense for equity-based awards granted prior toJanuary 1, 2006 will continue to be recognized over the nominal vestingperiod. For the three and nine months ended September 30, 2006, additionalpretax compensation expense of $0.3 million and $0.8 million,respectively, was recognized due to the continued use of the nominal vestingperiod for awards that were granted prior to January 1, 2006 toretirement-eligible employees.

The Company recordsdeferred tax assets related to compensation expense for awards that areexpected to result in future tax deductions for the Company, based on theamount of compensation cost recognized and the Company’s statutory tax rate inthe jurisdiction in which it expects to receive a deduction. Differencesbetween the deferred tax assets recognized for financial reporting purposes andactual tax deductions reported on the Company’s income tax return are recordedin APIC (if the tax deduction exceeds the deferred tax asset) or in theCondensed

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Consolidated Statementof Operations as additional income tax expense (if the deferred tax assetexceeds the tax deduction and no excess APIC exists from previous awards). Indetermining the amount of excess APIC at the adoption of SFAS No. 123(R),the Company utilized the simplified alternative provided in FASB Staff PositionFAS 123(R)-3, “Transition Election Related to Accounting for the Tax Effects ofShare-Based Payment Awards” (FSP FAS 123(R)-3).

Prior to the adoption ofSFAS No. 123(R), the Company presented all tax benefits resulting from theexercise of stock options as operating cash inflows in the CondensedConsolidated Statements of Cash Flows. SFAS No. 123(R) requires thebenefit of tax deductions in excess of the compensation costs recognized forthose options to be classified as financing cash inflows rather than operatingcash inflows, on a prospective basis. As a result of utilizing the simplifiedalternative provided under FSP FAS 123(R)-3, all tax benefits resulting fromthe exercise of stock options that were vested as of the adoption of SFASNo. 123(R) will be classified as financing cash inflows.

**Impactof Newly Issued Accounting Standards**

InNovember 2004, the Financial Accounting Standards Board (FASB) issued SFASNo. 151, “Inventory Costs, an Amendment of ARB No. 43,Chapter 4.”  This statement is theresult of efforts to converge U.S. accounting standards for inventories withInternational Accounting Standards. SFAS No. 151 requires that items suchas idle facility expense, excessive spoilage and rehandling costs be recognizedas expenses in the current period. It also requires that allocation of fixedproduction overhead to the costs of conversion be based on normal capacity ofthe production facilities. The Company adopted this standard January 1,2006 and its adoption did not have a material impact on the Company’s financialcondition, results of operations or cash flows.

InJune 2006, the FASB issued Interpretation No. 48, “Accounting forUncertainty in Tax Positions” (FIN 48) to provide guidance on therecognition and measurement in financial statements of uncertain tax positionstaken or expected to be taken on tax returns. FIN 48 also provides for new disclosures with respect tounrecognized tax benefits.  FIN 48is effective for 2007 and a cumulative effect adjustment will be recognized inopening retained earnings for the impact of applying the guidance as ofJanuary 1, 2007.  The Company is notpresently able to determine the impact of applying FIN 48.

InSeptember 2006, the FASB issued SFAS No. 158, “Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans – an amendment of FASBStatements No. 87, 88, 106, and 132(R).” SFAS No. 158 requires that the underfunded or overfunded position ofdefined benefit plans be fully recognized as a liability or asset on thebalance sheet of the sponsor.  SFAS No.158 does not change how the expense related to such plans is determined.  The initial recognition of the underfundedand/or overfunded position of the plans will be as of December 31, 2006 andwill be offset on an after-tax basis with a charge or credit to accumulated othercomprehensive income/(loss).  The Companydoes not presently expect that there will be a material impact on stockholders’equity from applying SFAS No. 158.

**2.**    ACQUISITIONS

OnMarch 6, 2006, CommScope acquired the assets supporting the trunk anddistribution cable television products business of TrilogyCommunications, Inc., along with certain other assets. The purchase priceof $13.8 million was paid in cash. The products acquired were integratedinto the Broadband segment and resulted in net sales of $4.4 million and $8.7million for the three and nine months ended September 30, 2006, respectively.

10

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Theallocation of the purchase price, based on estimated fair values of the assetsacquired, is as follows:
|                                      | ** ** | **Amortization  Period** | ** ** | **Estimated Fair  Value** | ** ** |
|--------------------------------------|------------|--------------------------|------------|--------------------------------|------------|
| ** **                           | ** ** | **(in years)**      | ** ** | **(in millions)**         | ** ** |
| Inventory                            |       |                     |       | $                              | 4.9        |   |
| Other current  assets                |       |                     |       | 0.3                            |       |
| Machinery and  equipment             |       |                     |       | 1.1                            |       |
| Intangible  assets                   |       |                     |       |                           |       |
| Customer relationships               |       | 10                       |       | 4.0                            |       |
| Non-compete agreement                |       | 7                        |       | 1.7                            |       |
| Other identifiable intangible assets |       | 10                       |       | 1.8                            |       |
| Total purchase price                 |       |                     |       | $                              | 13.8       |   |

 

Theweighted average useful life of the intangible assets acquired is 9.3 years.

Inconjunction with the Company’s acquisition of substantially all of the assetsand assumption of certain liabilities of the Connectivity Solutions business ofAvaya Inc. in January 2004, the Company issued approximately1.8 million shares of CommScope common stock. These unregistered sharesincluded registration rights and the Company established a liability at thetime the shares were issued for such registration costs. During the nine monthsended September 30, 2006, the registration rights expired and the Companyreversed the liability that had been established, resulting in an increase toadditional paid-in capital of $0.5 million.

**3.**    BALANCE SHEETDATA

**Short-term Investments**

At September 30,2006 and December 31, 2005, the Company’s short-term investments werecomposed of the following:
|                     | ** ** | **September 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|---------------------|------------|------------------------------|------------|-----------------------------|------------|
| Available for  sale |       | $                            | 92,123     |                        | $          | 67,643 |   |
| Held-to-maturity    |       | 20,000                       |       | 34,458                      |       |
|                |       | $                            | 112,123    |                        | $          | 102,101 |   |

 

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AtSeptember 30, 2006, the held-to-maturity short-term investments werecomposed of the following:
|                             | ** ** | **Amortized Cost** | ** ** | **Gross   Unrealized   Gains** | ** ** | **Gross   Unrealized   Losses** | ** ** | **Fair Value** | ** ** |
|-----------------------------|------------|-------------------------|------------|------------------------------------------|------------|-------------------------------------------|------------|---------------------|------------|
| Corporate debt  obligations |       | $                       | 15,000     |                                     | $          | —                                    |       | $                   | (147       | ) | $ | 14,853 |   |
| Federal agency  notes       |       | 5,000                   |       | 2                                        |       | —                                    |       | 5,002               |       |
|                        |       | $                       | 20,000     |                                     | $          | 2                                         |       | $                   | (147       | ) | $ | 19,855 |   |

 

AtDecember 31, 2005, the held-to-maturity short-term investments werecomposed of the following:
|                                  | ** ** | **Amortized Cost** | ** ** | **Gross   Unrealized   Gains** | ** ** | **Gross   Unrealized   Losses** | ** ** | **Fair Value** | ** ** |
|----------------------------------|------------|-------------------------|------------|------------------------------------------|------------|-------------------------------------------|------------|---------------------|------------|
| Corporate debt  obligations      |       | $                       | 25,000     |                                     | $          | —                                    |       | $                   | (88        | ) | $ | 24,912 |   |
| State and  municipal obligations |       | 6,467                   |       | —                                   |       | (5                                        | )          | 6,462               |       |
| Federal agency  notes            |       | 2,991                   |       | —                                   |       | (13                                       | )          | 2,978               |       |
|                             |       | $                       | 34,458     |                                     | $          | —                                    |       | $                   | (106       | ) | $ | 34,352 |   |

 

**Inventories**
|                 | ** ** | **September 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|-----------------|------------|------------------------------|------------|-----------------------------|------------|
| Raw materials   |       | $                            | 53,674     |                        | $          | 49,936 |   |
| Work in process |       | 30,388                       |       | 26,002                      |       |
| Finished goods  |       | 75,263                       |       | 47,665                      |       |
|            |       | $                            | 159,325    |                        | $          | 123,603 |   |

 

**4.   LONG-TERM DEBT**
|                                                | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                     | ** ** | **2006**               | ** ** | **2005**              | ** ** |
| Senior secured  term loan                      |       | $                      | 26,550     |                  | $          | 36,500 |   |
| 1% convertible  senior subordinated debentures |       | 250,000                |       | 250,000               |       |
| IDA notes                                      |       | 10,800                 |       | 10,800                |       |
|                                           |       | 287,350                |       | 297,300               |       |
| Less: current  portion                         |       | (13,000                | )          | (13,000               | )          |
|                                           |       | $                      | 274,350    |                  | $          | 284,300 |   |

 

See Note 10 in theNotes to the Consolidated Financial Statements in the 2005 Form 10-K forinformation on the terms and conditions of the senior secured credit facility.As of September 30, 2006, the Company had availability of approximately$85 million and no outstanding borrowings under the senior securedrevolving credit facility. The interest rate on the senior secured term loanwas 6.90% and 6.17% at September 30, 2006 and December 31, 2005,respectively. Management believes the Company was in compliance with all of itscovenants under this facility as of September 30, 2006.

SeeNote 10 in the Notes to the Consolidated Financial Statements in the 2005Form 10-K for information on the terms and conditions of the 1%convertible senior subordinated debentures. The estimated fair value of theCompany’s convertible debentures as of September 30, 2006 andDecember 31, 2005 was $395.3 million and $258.2 million,respectively.

**5.**   RESTRUCTURING CHARGES

**2005 Restructuring Initiatives**

InAugust 2005, the Board of Directors of CommScope adopted globalmanufacturing initiatives to reduce

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costsby improving manufacturing efficiency and to enhance the Company’s long-termcompetitive position. Implementation of these initiatives includes shiftingsignificant Enterprise and Broadband segment cable production capacity amongCommScope’s global facilities and the expected closing of a Broadband segmentmanufacturing facility in Scottsboro, Alabama in late 2006. As a result ofthese initiatives, the Company recognized pretax charges during the three andnine months ended September 30, 2006 and 2005 as follows:  
|                                                 | ** ** | **Enterprise  Segment** | ** ** | **Broadband  Segment** | ** ** | **Carrier  Segment** | ** ** | **Total** | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|------------------------|------------|----------------------|------------|-----------|------------|
| Three and nine  months ended September 30, 2005 |       | $                       | 14,061     |                   | $          | 199                  |       | $         | 2,184      |   | $ | 16,444 |   |
| Three months  ended September 30, 2006          |       | $                       | 1,821      |                   | $          | 838                  |       | $         | 352        |   | $ | 3,011 |   |
| Nine months ended  September 30, 2006           |       | $                       | 7,664      |                   | $          | 2,396                |       | $         | 704        |   | $ | 10,764 |   |

 

Theactivity within the liability (included in other accrued liabilities) for theserestructuring initiatives for the three and nine months endedSeptember 30, 2006 was as follows:
|                                        | ** ** | **Employee-  Related  Costs** | ** ** | **Equipment  Relocation  Costs** | ** ** | **Asset  Impairment  Charges** | ** ** | **Total** | ** ** |
|----------------------------------------|------------|-------------------------------|------------|----------------------------------|------------|--------------------------------|------------|-----------|------------|
| Balance as of  June 30, 2006           |       | $                             | 1,932      |                             | $          | —                         |       | $         | —     |   | $ | 1,932 |   |
| Additional  charge recorded            |       | 673                           |       | 3,777                            |       | (1,439                         | )          | 3,011     |       |
| Cash paid                              |       | (1,023                        | )          | (3,777                           | )          | 1,439                          |       | (3,361    | )          |
| Balance as of  September 30, 2006 |       | $                             | 1,582      |                             | $          | —                         |       | $         | —     |   | $ | 1,582 |   |
|                                   |       |                          |       |                             |       |                           |       |      |       |
| Balance as of  December 31, 2005       |       | $                             | 8,087      |                             | $          | —                         |       | $         | —     |   | $ | 8,087 |   |
| Additional  charge recorded            |       | 4,705                         |       | 7,595                            |       | (1,536                         | )          | 10,764    |       |
| Cash paid                              |       | (11,210                       | )          | (7,595                           | )          | 1,536                          |       | (17,269   | )          |
| Balance as of  September 30, 2006 |       | $                             | 1,582      |                             | $          | —                         |       | $         | —     |   | $ | 1,582 |   |

 

Employee-related costs include the expected severancecosts and related fringe benefits, accrued over the remaining period employeesare required to work in order to receive severance benefits.  Pretax employee-related costs of $1.0 millionwere incurred during the three and nine months ended September 30, 2005 andadditional costs of up to $0.5 million are expected to be recognizedduring the balance of 2006.

Equipment relocation costs relate directly to shiftingmanufacturing capacity among our global manufacturing facilities and includecosts to uninstall, pack, ship and re-install equipment as well as the costs toprepare the receiving facility to accommodate the equipment. These costs arerecognized as the expenses are incurred. Pretax equipment relocation costs of $0.6 million were recognized duringthe three and nine months ended September 30, 2005 and additional pretax costsof up to $1.0 million are expected to be recognized, substantially duringthe balance of 2006.

Asset impairment charges of $14.8 million,pretax, were incurred during the three and nine months ended September 30, 2005related to production equipment that was identified as excess, pendingconsolidation of certain production operations in other facilities. As ofSeptember 30, 2006, land and buildings with a carrying value of$19.8 million have been classified as held for sale.  These assets, included in prepaid and othercurrent assets, are carried at the lower of their estimated selling prices,less cost to sell, or their net book value. Additional net impairment charges or gains may be incurred orrealized upon the disposition of these or other excess assets.

**2004 RestructuringInitiatives**

In October 2004, theBoard of Directors of Connectivity Solutions Manufacturing, Inc., a whollyowned subsidiary of the Company, adopted organizational and cost reductioninitiatives at its Omaha, Nebraska facility in order to improve its competitiveposition.

During the three and ninemonths ended September 30, 2005, pretax charges of $0.1 million and$3.7 million, respectively, were recognized in conjunction with theseinitiatives, primarily within the Enterprise segment.  The activity within the liability for theserestructuring initiatives during the three and nine months ended

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September 30,2006 was as follows:
|                                        | ** ** | **Employee-  Related  Costs** | ** ** | **Process  Improvement  Costs** | ** ** | **Asset  Impairment  Charges** | ** ** | **Total** | ** ** |
|----------------------------------------|------------|-------------------------------|------------|---------------------------------|------------|--------------------------------|------------|-----------|------------|
| Balance as of  June 30, 2006           |       | $                             | 51         |                            | $          | —                         |       | $         | —     |   | $ | 51 |   |
| Cash paid                              |       | (16                           | )          | —                          |       | —                         |       | (16       | )          |
| Balance as of  September 30, 2006 |       | $                             | 35         |                            | $          | —                         |       | $         | —     |   | $ | 35 |   |
|                                   |       |                          |       |                            |       |                           |       |      |       |
| Balance as of  December 31, 2005       |       | $                             | 173        |                            | $          | —                         |       | $         | —     |   | $ | 173 |   |
| Cash paid                              |       | (138                          | )          | —                          |       | —                         |       | (138      | )          |
| Balance as of  September 30, 2006 |       | $                             | 35         |                            | $          | —                         |       | $         | —     |   | $ | 35 |   |

 

No future charges are anticipated in connection withthese initiatives and the remainder of the liability is expected to besubstantially paid during the balance of 2006.

**6.**   OFS BRIGHTWAVE, LLC

OnJune 30, 2006, CommScope received a payment of $29.8 million plusaccrued interest in full satisfaction of the amount owed by OFS BrightWave, LLC(OFS BrightWave) under a $30 million Revolving Credit Agreement (theAgreement) dated November 16, 2001 and the Agreement was terminated.  The carrying value of the notereceivable had previously been reduced to zero as a result of recordingCommScope’s equity in losses of OFS BrightWave prior to the sale of CommScope’sequity interest in OFS BrightWave in June 2004 and an impairment charge of$11.1 million at the time of the sale.

Therecovery of the OFS BrightWave note receivable resulted in a pretax gainof $29.8 million ($18.6 million after-tax, or $0.26 per diluted sharefor the nine months ended September 30, 2006).

**7.**   DERIVATIVES AND HEDGING ACTIVITIES

As of September 30,2006 and 2005, the only derivative financial instrument outstanding was a crosscurrency swap of U.S. dollars for euros with a notional amount of$14 million. During the three and nine months ended September 30,2005, the swap was designated and documented as a hedge of the Company’s netinvestment in its Belgian subsidiary to reduce the volatility in stockholders’equity caused by changes in euro exchange rates. Effective October 1,2005, a portion of the hedging instrument was designated as a hedge againstfluctuations in the fair value of certain of the Company’s euro-denominatedassets. Pretax gains (losses) of $47 and $(164) on the portion designated as afair value hedge are reflected in the Company’s Condensed ConsolidatedStatements of Operations for the three and nine months ended September 30,2006, respectively. The designations of the hedging instrument were effectiveas of September 30, 2006 and 2005, and are expected to continue to beeffective for the duration of the agreement, resulting in no anticipated hedgeineffectiveness.

Thefair value of the derivative instrument, reflected in other noncurrentliabilities, was approximately $6.6 million and $5.8 million as ofSeptember 30, 2006 and December 31, 2005, respectively.

Therewere no material reclassifications from accumulated other comprehensive loss toearnings during the three and nine months ended September 30, 2006 and2005.

14

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Activityin the accumulated net loss on derivative instruments included in accumulatedother comprehensive loss consisted of the following:
|                                                                                               | ** ** | **Three Months  Ended September 30,** | ** ** | **Nine Months  Ended September 30,** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                    | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
| Accumulated net  loss on derivative instruments, beginning of period                     |       | $                                                    | (5,026     | )                                                   | $          | (4,575 | ) | $ | (4,274 | ) | $ | (5,716 | ) |
| Net gain (loss)  on derivative financial instrument designated as a net investment hedge |       | 166                                                  |       | 36                                                  |       | (586 | ) | 1,177 |   |
| Accumulated net loss on  derivative instruments, end of period                           |       | $                                                    | (4,860     | )                                                   | $          | (4,539 | ) | $ | (4,860 | ) | $ | (4,539 | ) |

 

During the three monthsended September 30, 2006 and 2005, the income tax expense related to thegain on the derivative financial instrument designated as a net investmenthedge and reported within other comprehensive income was $98 and $21,respectively. During the nine months ended September 30, 2006 and 2005,the income tax expense (benefit) related to the gain (loss) on the derivativefinancial instrument designated as a net investment hedge and reported withinother comprehensive income was $(344) and $691, respectively.

**8.    EMPLOYEEBENEFIT PLANS**
|                                        | ** ** | **Pension Benefits**                                | ** ** | **Other Postretirement  Benefits** | ** ** |
|----------------------------------------|------------|----------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                             | ** ** | **Three Months Ended September 30,** | ** ** |
| ** **                             | ** ** | **2006**                                                 | ** ** | **2005**                                | ** ** | **2006** | ** ** | **2005** | ** ** |
| Service cost                           |       | $                                                        | 828        |                                    | $          | 977 |   | $ | 1,128 |   | $ | 1,043 |   |
| Interest cost                          |       | 1,732                                                    |       | 1,560                                   |       | 1,229 |   | 1,077 |   |
| Recognized  actuarial loss             |       | 14                                                       |       | —                                  |       | 140 |   | (92 | ) |
| Amortization of  prior service costs   |       | (96                                                      | )          | —                                  |       | (131 | ) | — |   |
| Amortization of  transition obligation |       | 10                                                       |       | 10                                      |       | — |   | — |   |
| Return on plan  assets                 |       | (1,974                                                   | )          | (1,578                                  | )          | (139 | ) | (130 | ) |
| Net periodic benefit  cost             |       | $                                                        | 514        |                                    | $          | 969 |   | $ | 2,227 |   | $ | 1,898 |   |

 
|                                        | ** ** | **Nine Months Ended September 30,** | ** ** |
|----------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                             | ** ** | **2006**                                                | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Service cost                           |       | $                                                       | 2,467      |   | $ | 2,951 |   | $ | 3,384 |   | $ | 3,139 |   |
| Interest cost                          |       | 5,188                                                   |       | 4,695 |   | 3,687 |   | 3,306 |   |
| Recognized  actuarial loss             |       | 41                                                      |       | — |   | 420 |   | (95 | ) |
| Amortization of  prior service costs   |       | (290                                                    | )          | — |   | (394 | ) | — |   |
| Amortization of  transition obligation |       | 30                                                      |       | 31 |   | — |   | — |   |
| Return on plan  assets                 |       | (5,913                                                  | )          | (4,743 | ) | (417 | ) | (392 | ) |
| Net periodic benefit  cost             |       | $                                                       | 1,523      |   | $ | 2,934 |   | $ | 6,680 |   | $ | 5,958 |   |

 

TheCompany contributed approximately $0.2 million and $14.8 million to its pensionplans during the three and nine months ended September 30, 2006,respectively, and anticipates making additional contributions of approximately$0.2 million to these plans during 2006. The Company contributed approximately$1.0 million and $3.0 million to the postretirement benefit plans duringthe three and nine months ended September 30, 2006, respectively, and anticipatesmaking additional contributions of approximately $1.0 million to these plansduring 2006.

**9.    EQUITY-BASED COMPENSATIONPLANS**

On May 5, 2006, thestockholders of the Company approved the 2006 Long Term Incentive Plan (the2006 Plan), authorizing 2.3 million shares for issuance, of which no more than1.5 million shares may be full value

15

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awards(stock, restricted stock, restricted stock units or performance awards, asdefined).  Awards under the 2006 Planmay include stock, stock options, restricted stock, restricted stockunits, performance units, performance share units, performance-based restrictedstock, stock appreciation rights and dividend equivalent rights for employeesand non-employee directors of the Company. Approval of the 2006 Plan canceledall shares authorized but not issued under theAmended and Restated CommScope, Inc. 1997 Long-Term Incentive Plan (the1997 Plan).  Awards granted priorto May 5, 2006 remain subject to the provisions of the 1997 Plan.

Performance Share Unitsissued under the 2006 Plan or Performance Units issued under the 1997 Plan(collectively PSUs) are stock awards in which the number of shares ultimatelyreceived by the employee depends on Company performance against specifiedtargets.  Such awards vest after threeyears if the performance targets are met. The fair value of each PSU isdetermined on the date of grant, based on the Company’s stock price and thelikelihood that performance targets will be achieved. Over the performanceperiod, the number of shares of stock that will be issued is adjusted upward ordownward based upon the probable achievement of performance targets. Theultimate number of shares issued and the related compensation cost recognizedwill be based on a comparison of the final performance metrics to the targetsspecified in the grants.

Restricted Stock UnitAwards issued under the 2006 Plan or Phantom Stock Awards issued under the 1997Plan (collectively RSUs) entitle the holder to shares of common stock after athree-year vesting period. The fair value of the awards is determined on thegrant date based on the Company’s stock price.

Stock options are awardsthat allow the employee to purchase shares of the Company’s common stock at afixed price. Stock options are granted at an exercise price equal to or greaterthan the Company’s stock price at the date of grant. These awards generallyvest one-third per year over the three years following the grant date and havea contractual term of ten years.

The following table setsforth the total pretax equity-based compensation expense resulting from PSUs,RSUs and stock options included in the Condensed Consolidated Statements ofOperations for the three and nine months ended September 30, 2006 (inthousands):
|                                              | ** ** | **Three Months  Ended  September 30, 2006** | ** ** | **Nine Months  Ended  September 30, 2006** | ** ** |
|----------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| Cost of sales                                |       | $                                                          | 369        |                                                      | $          | 995 |   |
| Selling, general  and administrative expense |       | 752                                                        |       | 2,027                                                     |       |
| Research and  development expense            |       | 134                                                        |       | 362                                                       |       |
| Total  equity-based compensation expense     |       | $                                                          | 1,255      |                                                      | $          | 3,384 |   |

 

As of September 30,2006, $8.4 million of total unrecognized compensation costs related tonon-vested awards are expected to be recognized over a remaining weightedaverage period of 1.9 years. There were no significant capitalized equity-basedcompensation costs at September 30, 2006.

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The following tablesummarizes the stock option activity for the three and nine months endedSeptember 30, 2006 (in thousands, except per share data):
|                                      | ** ** | **Shares** | ** ** | **Weighted  Average   Exercise  Price Per  Share** | ** ** | **Weighted   Average Grant  Date Fair   Value Per   Share** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|--------------------------------------|------------|------------|------------|--------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| Outstanding,  June 30, 2006     |       | 5,452      |       | $                                                            | 17.58      |                                                                                      |       |                            | $          | 78,715 |   |
| Granted                              |       | 21         |       | $                                                            | 30.28      |                                                                                      | $          | 13.94                           |       |   |   |
| Exercised                            |       | (480       | )          | $                                                            | 14.46      |                                                                                      |       |                            | $          | 7,210 |   |
| Expired or forfeited                 |       | (3         | )          | $                                                            | 22.27      |                                                                                      |       |                            |       |   |
| Outstanding,  September 30, 2006     |       | 4,990      |       | $                                                            | 17.90      |                                                                                      |       |                            | $          | 77,440 |   |
|                                 |       |       |       |                                                         |       |                                                                                      |       |                            |       |
| Outstanding,  December 31, 2005 |       | 8,440      |       | $                                                            | 16.31      |                                                                                      |       |                            | $          | 42,705 |   |
| Granted                              |       | 31         |       | $                                                            | 27.84      |                                                                                      | $          | 12.78                           |       |   |   |
| Exercised                            |       | (3,472     | )          | $                                                            | 14.10      |                                                                                      |       |                            | $          | 45,341 |   |
| Expired or forfeited                 |       | (9         | )          | $                                                            | 29.23      |                                                                                      |       |                            |       |   |
| Outstanding, September  30, 2006     |       | 4,990      |       | $                                                            | 17.90      |                                                                                      |       |                            | $          | 77,440 |   |

 

The exercise prices ofoutstanding options at September 30, 2006 were in the following ranges:
|                                             | ** ** | **Options Outstanding** | ** ** | **Options Exercisable**                            | ** ** |
|---------------------------------------------|------------|------------------------------|------------|---------------------------------------------------------|------------|
| **Range of Exercise Prices** | ** ** | **Shares**                   | ** ** | **Weighted  Average  Remaining  Contractual Life** | ** ** | **Weighted  Average  Exercise Price  Per Share** | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise Price  Per Share** | ** ** |
| ** **                                  | ** ** | **(in thousands)**      | ** ** | **(in years)**                                     | ** ** | ** ** | ** ** | **(in thousands)** | ** ** | ** ** | ** ** |
| $7.43 to $10.00                             |       | 824                          |       | 6.2                                                     |       | $ | 7.92 |   | 824 |   | $ | 7.92 |   |
| $10.01 to $15.50                            |       | 463                          |       | 3.7                                                     |       | $ | 13.74 |   | 423 |   | $ | 13.65 |   |
| $15.51 to $16.50                            |       | 1,322                        |       | 5.9                                                     |       | $ | 15.92 |   | 1,322 |   | $ | 15.92 |   |
| $16.51 to $18.00                            |       | 726                          |       | 4.6                                                     |       | $ | 17.16 |   | 726 |   | $ | 17.16 |   |
| $18.01 to $24.00                            |       | 1,035                        |       | 8.1                                                     |       | $ | 19.14 |   | 840 |   | $ | 18.95 |   |
| $24.01 to $47.06                            |       | 620                          |       | 3.5                                                     |       | $ | 37.23 |   | 596 |   | $ | 37.51 |   |
| $7.43 to $47.06                             |       | 4,990                        |       | 5.7                                                     |       | $ | 17.90 |   | 4,731 |   | $ | 17.78 |   |

 

As of September 30,2006, the aggregate intrinsic value of exercisable stock options was $74.1million, with a weighted average remaining contractual life of 5.5 years.

The following tablesummarizes the PSU and RSU activity for the three and nine months endedSeptember 30, 2006 (in thousands, except per share data):
|                                      | ** ** | **Units** | ** ** | **Weighted   Average Grant  Date Fair   Value Per   Share** | ** ** |
|--------------------------------------|------------|-----------|------------|-------------------------------------------------------------------------------------------|------------|
| Outstanding,  June 30, 2006     |       | 489       |       | $                                                                                         | 20.04      |   |
| Granted                              |       | 1         |       | $                                                                                         | 31.23      |   |
| Forfeited                            |       | (4        | )          | $                                                                                         | 19.91      |   |
| Outstanding,  September 30, 2006     |       | 486       |       | $                                                                                         | 20.06      |   |
|                                 |       |      |       |                                                                                      |       |
| Outstanding,  December 31, 2005 |       | 484       |       | $                                                                                         | 19.91      |   |
| Granted                              |       | 15        |       | $                                                                                         | 25.18      |   |
| Forfeited                            |       | (13       | )          | $                                                                                         | 20.13      |   |
| Outstanding, September  30, 2006     |       | 486       |       | $                                                                                         | 20.06      |   |

 

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The following tablesummarizes the non-vested stock option, PSU and RSU activity for the three andnine months ended September 30, 2006 (in thousands):
|                                            | ** ** | **Stock  Options** | ** ** | **PSUs and RSUs** | ** ** |
|--------------------------------------------|------------|--------------------|------------|-----------------------------|------------|
| Non-vested  awards, June 30, 2006          |       | 258                |       | 487                         |       |
| Granted                                    |       | 21                 |       | 1                           |       |
| Vested                                     |       | (20                | )          | —                      |       |
| Forfeited                                  |       | —             |       | (4                          | )          |
| Non-vested  awards, September 30, 2006     |       | 259                |       | 484                         |       |
|                                       |       |               |       |                        |       |
| Non-vested  awards, December 31, 2005 |       | 293                |       | 484                         |       |
| Granted                                    |       | 31                 |       | 15                          |       |
| Vested                                     |       | (61                | )          | (2                          | )          |
| Forfeited                                  |       | (4                 | )          | (13                         | )          |
| Non-vested awards,  September 30, 2006     |       | 259                |       | 484                         |       |

 

The Company’s pro formadisclosures of net earnings for periods prior to the adoption of SFASNo. 123(R) were determined under a fair value method as prescribed by SFASNo. 123. Key input assumptions used to estimate the fair value of stockoptions include the grant price of the award, the expected option term,volatility of the Company’s stock, the risk-free rate and the Company’sprojected dividend yield. The Company believes that the valuation technique andthe approach utilized to develop the underlying assumptions are appropriate inestimating the fair values of CommScope stock options. Estimates of fair valueare not intended to predict actual future events or the value ultimatelyrealized by employees who receive equity awards, and subsequent events are notindicative of the reasonableness of the original estimates of fair value madeby the Company under SFAS No. 123 or SFAS No. 123(R).

The fair value of stockoption awards was estimated using the Black-Scholes model with the followingweighted average assumptions for the three and nine months ended September 30,2006 and 2005:
|                                            | ** ** | **Three Months  Ended September 30,** | ** ** | **Nine Months  Ended September 30,** | ** ** |
|--------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                 | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
| Expected option  term (in years)           |       | 5.0                                                  |       | —                                              |       | 5.0 |   | 4.0 |   |
| Risk-free  interest rate                   |       | 4.9                                                  | %          | —                                              |       | 4.8 | % | 4.0 | % |
| Expected  volatility                       |       | 45                                                   | %          | —                                              |       | 45 | % | 41 | % |
| Expected  dividend yield                   |       | 0                                                    | %          | —                                              |       | 0 | % | 0 | % |
| Weighted average fair  value at grant date |       | $                                                    | 13.94      |                                                | —     |   | $ | 12.78 |   | $ | 5.68 |   |
|                                            |            |                                                      |            |                                                     |            |  |  |  |  |  |  |  |

 

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Hadthe Company accounted for equity-based compensation plans using the fair valuebased accounting method described by SFAS No. 123 for periods prior to2006, the Company’s basic and diluted net income per share for the three andnine months ended September 30, 2005, would have been as follows (in thousands,except per share data):
|                                                                                                                                                           | ** ** | **Three Months Ended  September 30, 2005** | ** ** | **Nine Months Ended  September 30, 2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| Net income, as  reported                                                                                                                                  |       | $                                                              | 11,522     |                                                          | $          | 33,360 |   |
| Deduct: Total  stock-based employee compensation expense determined under fair value based  method for all awards, net of related income tax effects |       | 8,613                                                          |       | 12,212                                                        |       |
| Pro forma net  income for basic net income per share                                                                                                      |       | 2,909                                                          |       | 21,148                                                        |       |
| Add: Effect of  assumed conversion of 1% convertible senior subordinated debentures due 2024                                                              |       | 629                                                            |       | 1,887                                                         |       |
| Pro forma net  income for diluted net income per share                                                                                                    |       | $                                                              | 3,538      |                                                          | $          | 23,035 |   |
| Net income per  share:                                                                                                                                    |       |                                                           |       |                                                          |       |
| Basic—as reported                                                                                                                                    |       | $                                                              | 0.21       |                                                          | $          | 0.61 |   |
| Basic—pro forma                                                                                                                                      |       | $                                                              | 0.05       |                                                          | $          | 0.39 |   |
| Diluted—as reported                                                                                                                                  |       | $                                                              | 0.18       |                                                          | $          | 0.52 |   |
| Diluted—pro forma                                                                                                                                    |       | $                                                              | 0.05       |                                                          | $          | 0.34 |   |

 

On August 10, 2005,the Compensation Committee of the Company’s Board of Directors amended certainstock option agreements with employees to accelerate the vesting of certainoutstanding unvested stock options. Unvested options to purchase 2.1 millionshares with an average exercise price of $17.54 per share became exercisable asa result of the vesting acceleration. The intrinsic value of the stock optionson the acceleration date was $2.6 million. Pro forma net income presented inthe table above for the three and nine months ended September 31, 2005 includes$7.0 million, net of tax, of additional compensation expense determined underthe fair value-based method as a result of the accelerated vesting of stockoptions.  The Company recognized nocompensation expense associated with these options during the three and ninemonths ended September 30, 2006 as a result of the accelerated vesting in 2005.Had these options not been accelerated, the Company would have recognizedadditional pretax compensation expense for the three and nine months endedSeptember 30, 2006 of $1.7 million and $5.0 million, respectively.

**10.**          SEGMENTS

The Company’s reportablesegments are defined by major product category as follows: Enterprise,Broadband and Carrier.

The Enterprise segmentconsists mainly of structured cabling systems for business enterpriseapplications and connectivity solutions for wired and wireless networks withinorganizations. The segment also includes coaxial cable for various video anddata applications that are not related to cable television.

The Broadband segmentconsists mainly of coaxial cable, fiber optic cable and conduit for cabletelevision system operators. These products support multi-channel video, voiceand high-speed data services for residential and commercial customers usingHybrid Fiber Coaxial architecture.

The Carrier segment consists of secure environmentalenclosures for electronic devices and equipment, cables and components used bywireless providers to connect antennae to transmitters and structured cablingsolutions for telephone central offices. These products are primarily used bytelecommunications service providers or “carriers.”

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The following tablesprovide summary financial information for these reportable segments as ofSeptember 30, 2006 and December 31, 2005 and for the three and ninemonths ended September 30, 2006 and 2005 (in millions):
|                                                   | ** ** | **As of**         | ** ** | **As of**        | ** ** |
|---------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                        | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
| ** **                                        | ** ** | **2006**               | ** ** | **2005**              | ** ** |
| Identifiable  segment-related assets:             |       |                   |       |                  |       |
| Enterprise                                        |       | $                      | 436.4      |                  | $          | 352.4 |   |
| Broadband                                         |       | 373.9                  |       | 343.2                 |       |
| Carrier                                           |       | 110.5                  |       | 108.0                 |       |
| Total  identifiable segment-related assets        |       | 920.8                  |       | 803.6                 |       |
|                                              |       |                   |       |                  |       |
| Reconciliation  to total assets:                  |       |                   |       |                  |       |
| Cash, cash equivalents and short-term investments |       | 333.7                  |       | 248.7                 |       |
| Deferred income taxes                             |       | 40.2                   |       | 49.9                  |       |
| Total assets                                      |       | $                      | 1,294.7    |                  | $          | 1,102.2 |   |

 
|                                | ** ** | **Three Months  Ended September 30,** | ** ** | **Nine Months  Ended September 30,** | ** ** |
|--------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                     | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net sales:                     |       |                                                 |       |                                                |       |   |   |   |   |
| Enterprise                     |       | $                                                    | 237.7      |                                                | $          | 167.9 |   | $ | 614.9 |   | $ | 499.4 |   |
| Broadband                      |       | 143.8                                                |       | 122.3                                               |       | 406.2 |   | 340.3 |   |
| Carrier                        |       | 85.0                                                 |       | 55.6                                                |       | 210.7 |   | 153.4 |   |
| Inter-segment eliminations     |       | (0.4                                                 | )          | (0.2                                                | )          | (1.6 | ) | (1.7 | ) |
| Consolidated net  sales        |       | $                                                    | 466.1      |                                                | $          | 345.6 |   | $ | 1,230.2 |   | $ | 991.4 |   |
|                           |       |                                                 |       |                                                |       |   |   |   |   |
| Operating income  (loss):      |       |                                                 |       |                                                |       |   |   |   |   |
| Enterprise                     |       | $                                                    | 40.9       |                                                | $          | 5.7 |   | $ | 76.1 |   | $ | 36.8 |   |
| Broadband                      |       | 12.8                                                 |       | 13.9                                                |       | 25.3 |   | 26.2 |   |
| Carrier                        |       | 11.2                                                 |       | 0.3                                                 |       | 20.9 |   | (10.0 | ) |
| Consolidated operating  income |       | $                                                    | 64.9       |                                                | $          | 19.9 |   | $ | 122.3 |   | $ | 53.0 |   |

** **

**11.**          SUPPLEMENTAL CASH FLOW INFORMATION
|                                                                                                                                       | ** ** | **Nine Months  Ended September 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                                                            | ** ** | **2006**                                            | ** ** | **2005** | ** ** |
| Cash paid during  the period for:                                                                                                     |       |                                                |       |   |   |
| Income taxes                                                                                                                          |       | $                                                   | 22,599     |   | $ | 20,666 |   |
| Interest                                                                                                                              |       | 5,198                                               |       | 5,366 |   |
| Noncash  investing and financing activities:                                                                                          |       |                                                |       |   |   |
| Fair value, less costs to sell, of held for sale  assets transferred from property, plant and equipment to other current  assets |       | $                                                   | 10,128     |   | $ | 10,190 |   |

 

20

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**ITEM 2.**                MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

Thefollowing discussion and analysis of our financial condition and results ofoperations for the three and nine months ended September 30, 2006 and 2005is provided to increase the understanding of, and should be read in conjunctionwith, the unaudited condensed consolidated financial statements and accompanyingnotes included in this document as well as the audited consolidated financialstatements, related notes thereto and management’s discussion and analysis offinancial condition and results of operations, including management’sdiscussion and analysis about the application of critical accounting policies,included in our 2005 Annual Report on Form 10-K.

**Overview**

CommScope,Inc. is a world leader in the design and manufacture of cable and connectivitysolutions for communications networks. We focus on the “last mile” incommunications networks, which is the distribution access, or final link to thecustomer. We are a global leader in both structured cabling for businessenterprise applications and broadband coaxial and fiber optic cables for thecable television industry. We also design, manufacture and market a broad lineof high-performance electronic, coaxial and fiber optic cable products for datanetworking, Internet access, wireless communication, telephony and otherbroadband applications. In addition, we are a leading provider ofenvironmentally secure enclosures for telecommunication service providers inthe United States.

**CRITICAL ACCOUNTINGPOLICIES**

Therehave been no changes in our critical accounting policies or significantaccounting estimates as disclosed in our 2005 Annual Report on Form 10-Kother than the implementation of SFAS No. 123(R) as of January 1, 2006 on themodified prospective basis (see Notes 1 and 9 in the Notes to the ConsolidatedFinancial Statements included elsewhere in this Form 10-Q).

**COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE ANDNINE MONTHS ENDED SEPTEMBER 30, 2006 WITH THE THREE AND NINE MONTHS ENDEDSEPTEMBER 30, 2005**
|                               | ** ** | **Three Months Ended September 30,** | ** ** | ** **    | ** ** | ** **     | ** ** |
|-------------------------------|------------|----------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                    | ** ** | **2006**                                                 | ** ** | **2005**      | ** ** | ** **     | ** ** | ** ** | ** ** |
| ** **                    | ** ** | ** **                                               | ** ** | **% of** | ** ** | ** **     | ** ** | **% of** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | **$**                                                    | ** ** | **Net**       | ** ** | **$**          | ** ** | **Net** | ** ** | **Dollar** | ** ** | **%** | ** ** |
| ** **                    | ** ** | **(millions)**                                           | ** ** | **Sales**     | ** ** | **(millions)** | ** ** | **Sales** | ** ** | **Change** | ** ** | **Change** | ** ** |
| Net sales                     |       | $                                                        | 466.1      |          | 100.0      | %              | $          | 345.6 |   | 100.0 | % | $ | 120.5 |   | 34.9 | % |
| Gross profit                  |       | 139.8                                                    |       | 30.0          |       | 94.5           |       | 27.4 |   | 45.3 |   | 47.9 |   |
| SG&A expense              |       | 62.8                                                     |       | 13.5          |       | 51.3           |       | 14.8 |   | 11.5 |   | 22.5 |   |
| R&D expense               |       | 9.2                                                      |       | 2.0           |       | 6.8            |       | 2.0 |   | 2.4 |   | 35.8 |   |
| Restructuring  costs          |       | 3.0                                                      |       | 0.6           |       | 16.6           |       | 4.8 |   | (13.5 | ) | (81.8 | ) |
| Net income                    |       | 43.6                                                     |       | 9.4           |       | 11.5           |       | 3.3 |   | 32.1 |   | 278.3 |   |
| Net income per diluted  share |       | 0.61                                                     |       |          |       | 0.18           |       |   |   |   |   |   |   |
|                               |            |                                                          |            |               |            |                |            |  |  |  |  |  |  |  |  |  |

 
|                                         | ** ** | **Nine Months Ended September 30,** | ** ** | ** **    | ** ** | ** **     | ** ** |
|-----------------------------------------|------------|---------------------------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                              | ** ** | **2006**                                                | ** ** | **2005**      | ** ** | ** **     | ** ** | ** ** | ** ** |
| ** **                              | ** ** | ** **                                              | ** ** | **% of** | ** ** | ** **     | ** ** | **% of** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                              | ** ** | **$**                                                   | ** ** | **Net**       | ** ** | **$**          | ** ** | **Net** | ** ** | **Dollar** | ** ** | **%** | ** ** |
| ** **                              | ** ** | **(millions)**                                          | ** ** | **Sales**     | ** ** | **(millions)** | ** ** | **Sales** | ** ** | **Change** | ** ** | **Change** | ** ** |
| Net sales                               |       | $                                                       | 1,230.2    |          | 100.0      | %              | $          | 991.4 |   | 100.0 | % | $ | 238.9 |   | 24.1 | % |
| Gross profit                            |       | 333.1                                                   |       | 27.1          |       | 255.3          |       | 25.8 |   | 77.8 |   | 30.5 |   |
| SG&A expense                        |       | 175.2                                                   |       | 14.2          |       | 159.2          |       | 16.1 |   | 16.0 |   | 10.1 |   |
| R&D expense                         |       | 24.8                                                    |       | 2.0           |       | 23.0           |       | 2.3 |   | 1.8 |   | 7.9 |   |
| Restructuring  costs                    |       | 10.8                                                    |       | 0.9           |       | 20.1           |       | 2.0 |   | (9.4 | ) | (46.5 | ) |
| Gain on OFS  BrightWave note receivable |       | 18.6                                                    |       | 1.5           |       | —         |       | — |   | 18.6 |   | 100.0 |   |
| Net income                              |       | 103.0                                                   |       | 8.4           |       | 33.4           |       | 3.4 |   | 69.6 |   | 208.6 |   |
| Net income per diluted  share           |       | 1.46                                                    |       |          |       | 0.52           |       |   |   |   |   |   |   |
|                                         |            |                                                         |            |               |            |                |            |  |  |  |  |  |  |  |  |  |

 

21

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**Net sales**

**The increase in net sales for the three and nine monthsended September 30, 2006 over the comparable prior year periods isprimarily attributed to domestic sales growth in each of our segments andinternational sales growth in our Enterprise and Broadband segments. Theseincreases are largely the result of higher sales volume levels and priceincreases implemented in response to higher raw material costs.  For further details by segment, see thesection titled “Segment Results” below.**

**Gross profit (net salesless cost of sales)**

Theimprovements in profit margin for the three and nine months endedSeptember 30, 2006 as compared to the comparable prior year periods areprimarily attributable to higher sales volumes, driven by strong customerdemand, price increases implemented in response to substantially higher rawmaterial costs, favorable product mix and cost savings achieved as a result ofrestructuring activities.  

Weexpect continued volatility in the costs of certain raw materials, such ascopper, aluminum, steel, and plastics and other polymers derived from oil andnatural gas.  The inability to achievehigher sales volume and continued cost efficiencies while adjusting sellingprices in response the changes in the cost of raw materials could result inlower gross profit and gross profit margin.

**Selling, general andadministrative expense**

Theincrease in selling, general and administrative (SG&A) expense for thethree and nine months ended September 30, 2006 as compared to the sameperiods in 2005 was primarily due to higher marketing costs associated with thehigher level of sales.  Also contributingto the increase in SG&A expense for the three and nine months endedSeptember 30, 2006 is $1.3 million of costs incurred in connection with theproposed acquisition of Andrew Corporation; $0.8 million and $2.0 million ofequity based compensation costs incurred during the three and nine months endedSeptember 30, 2006, respectively, as a result of implementing SFAS No. 123(R)as of January 1, 2006; and a $0.9 million benefit that was recognized duringthe three and nine months ended September 30, 2005 related to replacing anemployee profit sharing plan with an enhanced 401(k) plan.  

**Research and development**

Researchand development (R&D) expense increased by $2.4 million and $1.8 millionfor the three and nine months ended September 30, 2006, respectively, ascompared to the same periods in 2005. R&D expense as a percentage of netsales remained constant at 2.0% for the three months ended September 30, 2006,as compared to the comparable 2005 three month period, and decreased modestlyto 2.0% for the first nine months of 2006, as compared to 2.3% for the comparable2005 nine month period. The increased R&D activities generally relate tobringing new products to market and to modifying existing products to betterserve our customers.

**Restructuring Costs**

Werecognized pretax restructuring costs of $3.0 million and $10.8 million duringthe three and nine months ended September 30, 2006, respectively, compared with$16.6 million and $20.1 million during the comparable periods endedSeptember 30, 2005, respectively. The 2006 costs resulted from thecontinued implementation of the global manufacturing initiatives which beganduring the third quarter of 2005. Included in the costs incurred during the three and nine months endedSeptember 30, 2006 were employee-related costs of $0.7 million and $4.7million, respectively, which consisted of expected severance costs and relatedfringe benefits, accrued over the remaining period employees are required towork in order to receive benefits, and equipment relocation costs of $3.8million and $7.6 million, respectively, which consisted of costs directlyrelated to shifting manufacturing capacity among our global manufacturingfacilities, including costs to uninstall, pack, ship and re-install equipmentas well as costs to prepare the receiving facility to accommodate the equipment.  During the three and nine months endedSeptember 30, 2005, restructuring costs recognized include $0.1 million and$3.7 million, respectively, related to the continued implementation of theorganizational and cost reduction initiatives at the Omaha facility ofConnectivity Solutions Manufacturing, Inc., our wholly owned manufacturingsubsidiary, which began during the fourth quarter of 2004 and was substantiallycomplete by December 31, 2005.

During the three and ninemonths ended September 30, 2006, we recognized gains of $1.4 million and $1.5million, respectively, on the sale of equipment that had been impaired inconjunction with the global manufacturing

22

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initiatives.  As of September 30, 2006, $19.8 million ofreal estate is considered held for sale as a result of the global manufacturinginitiatives.  The sale of one of theparcels was completed during October 2006 for a selling price of $11 million,resulting in an immaterial gain. The other parcel is being actively marketedfor sale and additional restructuring gains or losses may be realized.

We anticipate that wewill recognize additional pretax employee-related and equipment relocationcharges of up to $1.5 million to complete the implementation of the globalmanufacturing initiatives.  The majorityof these costs are expected to be incurred during the balance of 2006.

**Net interest income/expense**

Werecognized net interest income of $1.0 million and $1.5 million for the threeand nine months ended September 30, 2006, respectively, compared to netinterest expense of $0.7 million and $2.9 million for the comparable prior yearperiods.  The changes were due to theimpact of significantly higher balances of invested funds (cash, cashequivalents and short-term investments) as well as improved rates of return oninvested balances as a result of increases in LIBOR and other short-terminterest rates.  Interest expense for thethree and nine month periods declined slightly from the comparable prior yearperiods as a result of lower levels of outstanding debt due to scheduledprincipal repayments and a reduction in the interest rate spreads on our seniorsecured credit facility due to improvements in our fixed charge coverage ratio,offset by the impact of increases in LIBOR and other short-term interestrates.  Our weighted average effectiveinterest rate on outstanding borrowings, including amortization of associatedlong-term financing costs, was essentially unchanged at 2.73% as of September30, 2006 compared to 2.74% as of December 31, 2005.

**Income taxes**

Oureffective income tax rate, excluding the impact of the gain on the OFS notereceivable (see discussion below), was 34% and 32% for the three and ninemonths ended September 30, 2006, respectively, compared to 41% and 33% forthe three and nine months ended September 30, 2005, respectively. Thereduction in our effective income tax rate for the three months ended September30, 2006 compared to the prior year was primarily due to a $2.2 million chargetaken during the three months ended September 30, 2005 to establish a valuationallowance for deferred tax assets related to net operating loss carryforwardsat one of our international subsidiaries. The effective tax rate for the three months ended September 30, 2006reflects the benefits derived from our international activities in lower taxrate jurisdictions, partially offset by the impact of net additional taxreserves established for matters raised during various state and federal taxaudits.  

Theeffective rate for the nine months ended September 30, 2006 reflects benefitsfrom international activities that are taxed at lower rates and benefitsrealized as a result of favorable outcomes on various matters raised duringfederal and state income tax audits, partially offset by the impact of lossesincurred in certain foreign jurisdictions for which no tax benefits have beenrecognized.  The effective rate for thenine months ended September 30, 2005 reflects benefits from internationalactivities that are taxed at lower rates offset primarily by the impact of thevaluation allowances established during the three months ended September 30,2005 at one of our international subsidiaries.

**Gain on OFS BrightWave note receivable**

OnJune 30, 2006, we received a payment of $29.8 million plus accrued interest infull satisfaction of the amount owed by OFS BrightWave, LLC (OFS BrightWave)under a $30 million Revolving Credit Agreement that was, by its terms,scheduled to be repaid no later than November 16, 2006.  The carrying value of the note had previouslybeen reduced to zero as a result of recording our equity in losses of OFSBrightWave prior to the sale of our interest in OFS BrightWave in June 2004 andan impairment charge of $11.1 million at the time of the sale.  The Revolving Credit Agreement was terminatedon June 30, 2006.

The reported gain on theOFS BrightWave note receivable is net of a tax provision of $11.2 million.

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**Segment Results**
| ** **                    | ** ** | **Three Months Ended September 30,** | ** ** | ** **    | ** ** | ** ** | ** ** |
|-------------------------------|------------|----------------------------------------------------------|------------|---------------|------------|------------|------------|
| ** **                    | ** ** | **2006**                                                 | ** ** | **2005**      | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | ** **                                               | ** ** | **%** of | ** ** | ** ** | ** ** | **% of** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                    | ** ** | ** **                                               | ** ** | **Net**       | ** ** | ** ** | ** ** | **Net** | ** ** | **Dollar** | ** ** | **%** | ** ** |
| ** **                    | ** ** | **Amount**                                               | ** ** | **Sales**     | ** ** | **Amount** | ** ** | **Sales** | ** ** | **Change** | ** ** | **Change** | ** ** |
| ** **                    | ** ** | **(dollars in millions)**                      | ** ** |
| Net sales by segment:         |       |                                                     |       |          |       |       |       |   |   |   |   |   |   |
| Enterprise                    |       | $                                                        | 237.7      |          | 51.0       | %          | $          | 167.9 |   | 48.6 | % | $ | 69.8 |   | 41.6 | % |
| Broadband                     |       | 143.8                                                    |       | 30.9          |       | 122.3      |       | 35.4 |   | 21.5 |   | 17.6 |   |
| Carrier                       |       | 85.0                                                     |       | 18.2          |       | 55.6       |       | 16.1 |   | 29.4 |   | 52.9 |   |
| Inter-segment  eliminations   |       | (0.4                                                     | )          | (0.1          | )          | (0.2       | )          | (0.1 | ) | (0.2 | ) |   |   |
| Consolidated net sales        |       | $                                                        | 466.1      |          | 100.0      | %          | $          | 345.6 |   | 100.0 | % | $ | 120.5 |   | 34.9 | % |
|                          |       |                                                     |       |          |       |       |       |   |   |   |   |   |   |
| Total domestic sales          |       | $                                                        | 329.0      |          | 70.6       | %          | $          | 233.2 |   | 67.5 | % | $ | 95.8 |   | 41.1 | % |
| Total international  sales    |       | 137.1                                                    |       | 29.4          |       | 112.4      |       | 32.5 |   | 24.7 |   | 22.0 |   |
| Total worldwide sales         |       | $                                                        | 466.1      |          | 100.0      | %          | $          | 345.6 |   | 100.0 | % | $ | 120.5 |   | 34.9 | % |
|                          |       |                                                     |       |          |       |       |       |   |   |   |   |   |   |
| Operating income by  segment: |       |                                                     |       |          |       |       |       |   |   |   |   |   |   |
| Enterprise                    |       | $                                                        | 40.9       |          | 17.2       | %          | $          | 5.7 |   | 3.4 | % | $ | 35.2 |   | 617.5 | % |
| Broadband                     |       | 12.8                                                     |       | 8.9           |       | 13.9       |       | 11.4 |   | (1.1 | ) | (7.9 | ) |
| Carrier                       |       | 11.2                                                     |       | 13.2          |       | 0.3        |       | 0.5 |   | 10.9 |   | 3,633.3 |   |
| Consolidated operating income |       | $                                                        | 64.9       |          | 13.9       | %          | $          | 19.9 |   | 5.8 | % | $ | 45.0 |   | 226.1 | % |

 
| ** **                           | ** ** | **Nine Months Ended September 30,** | ** ** | ** **    | ** ** | ** ** | ** ** |
|--------------------------------------|------------|---------------------------------------------------------|------------|---------------|------------|------------|------------|
| ** **                           | ** ** | **2006**                                                | ** ** | **2005**      | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                           | ** ** | ** **                                              | ** ** | **%** of | ** ** | ** ** | ** ** | **% of** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                           | ** ** | ** **                                              | ** ** | **Net**       | ** ** | ** ** | ** ** | **Net** | ** ** | **Dollar** | ** ** | **%** | ** ** |
| ** **                           | ** ** | **Amount**                                              | ** ** | **Sales**     | ** ** | **Amount** | ** ** | **Sales** | ** ** | **Change** | ** ** | **Change** | ** ** |
| ** **                           | ** ** | **(dollars in millions)**                     | ** ** |
| Net sales by segment:                |       |                                                    |       |          |       |       |       |   |   |   |   |   |   |
| Enterprise                           |       | $                                                       | 614.9      |          | 50.0       | %          | $          | 499.4 |   | 50.4 | % | $ | 115.5 |   | 23.1 | % |
| Broadband                            |       | 406.2                                                   |       | 33.0          |       | 340.3      |       | 34.3 |   | 65.9 |   | 19.4 |   |
| Carrier                              |       | 210.7                                                   |       | 17.1          |       | 153.4      |       | 15.5 |   | 57.3 |   | 37.4 |   |
| Inter-segment  eliminations          |       | (1.6                                                    | )          | (0.1          | )          | (1.7       | )          | (0.1 | ) | 0.1 |   |   |   |
| Consolidated net sales               |       | $                                                       | 1,230.2    |          | 100.0      | %          | $          | 991.4 |   | 100.0 | % | $ | 238.8 |   | 24.1 | % |
|                                 |       |                                                    |       |          |       |       |       |   |   |   |   |   |   |
| Total domestic sales                 |       | $                                                       | 853.0      |          | 69.3       | %          | $          | 662.2 |   | 66.8 | % | $ | 190.8 |   | 28.8 | % |
| Total international  sales           |       | 377.2                                                   |       | 30.7          |       | 329.2      |       | 33.2 |   | 48.0 |   | 14.6 |   |
| Total worldwide sales                |       | $                                                       | 1,230.2    |          | 100.0      | %          | $          | 991.4 |   | 100.0 | % | $ | 238.8 |   | 24.1 | % |
|                                 |       |                                                    |       |          |       |       |       |   |   |   |   |   |   |
| Operating income (loss)  by segment: |       |                                                    |       |          |       |       |       |   |   |   |   |   |   |
| Enterprise                           |       | $                                                       | 76.1       |          | 12.4       | %          | $          | 36.8 |   | 7.4 | % | $ | 39.3 |   | 106.8 | % |
| Broadband                            |       | 25.3                                                    |       | 6.2           |       | 26.2       |       | 7.7 |   | (0.9 | ) | (3.4 | ) |
| Carrier                              |       | 20.9                                                    |       | 9.9           |       | (10.0      | )          | (6.5 | ) | 30.9 |   |   |   |
| Consolidated operating income        |       | $                                                       | 122.3      |          | 9.9        | %          | $          | 53.0 |   | 5.3 | % | $ | 69.3 |   | 130.8 | % |

*Enterprise Segment*

The Enterprise segmentconsists mainly of structured cabling systems for business enterpriseapplications. The segment also includes coaxial cable for various video anddata applications that are not related to cable television.

The increase inEnterprise segment net sales for the three and nine months endedSeptember 30, 2006 over the comparable prior year periods was primarilydriven by the effect of higher sales volumes of certain products, priceincreases and the introduction of new products. We implemented price increases for certain Enterprise productsthroughout 2005 and 2006 as a result of significant increases in the cost ofcertain raw materials.  Sales increaseswere realized domestically and in all international regions, particularly theEurope/Middle East/Africa region.

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The improvement inEnterprise segment operating income for the three and nine months endedSeptember 30, 2006 over the comparable prior year periods was primarily due toincreased sales volumes and the impact of cost control efforts, including thoserealized from the global manufacturing initiatives.  The price increases that were realized weresubstantially offset by the impact of increased raw material costs.  Operating results were favorably impacted bylower restructuring costs ($1.8 million and $7.7 million for the three and ninemonths ended September 30, 2006, respectively, compared to $14.1 million and$16.3 million for the three and nine months ended September 30, 2005,respectively).

Weexpect long-term demand for Enterprise products to continue to be driven by theongoing need for bandwidth and high-performance structured cabling in theenterprise market and global information technology spending, among otherthings.  Our ability to benefit from thisexpected continued demand will depend on whether we encounter any significantmanufacturing (through our internal facilities or contract manufacturers) orsupply constraints, among other factors.

*Broadband Segment*

TheBroadband segment consists mainly of coaxial cable, fiber optic cable andconduit for cable television system operators. These products supportmulti-channel video, voice and high-speed data services for residential andcommercial customers using Hybrid Fiber Coaxial architecture.

Theincrease in Broadband segment net sales for the three and nine months endedSeptember 30, 2006 compared to the comparable prior year periods was dueto strong domestic and international sales for most of our product lines.  This increase reflects the impact of priceincreases that had been implemented in response to higher raw material costs aswell as higher sales volumes.  Domesticsales volume increases can be attributed to continued infrastructure needs ofour large cable television system operator customers.  Sales volumes increased in most internationalregions as a result of new projects and ongoing system maintenance.  Net sales for the three and nine months endedSeptember 30, 2006 include $4.4 million and $8.7 million, respectively, relatedto the MC2 ® product line that was acquired from TrilogyCommunications on March 6, 2006.

Theyear over year reduction in operating income for the three months endedSeptember 30, 2006 is primarily attributed to a benefit of $1.6 million thatwas recognized during the three months ended September 30, 2005 related toreplacing an employee profit sharing plan with an enhanced 401(k) plan andhigher restructuring costs related to the implementation of our globalmanufacturing initiatives ($0.8 million during the three months ended September30, 2006 compared to $0.2 million during the months ended September 30,2005).  These operating income reductionswere somewhat offset by the benefit of higher sales volumes and savings thathave resulted from cost reduction efforts. 

Thereduction in operating income for the nine months ended September 30, 2006 isprimarily attributed to a provision of $4.8 million included in cost of goodssold related to the portion of value added taxes receivable at our  Brazilian subsidiary that are not believed tobe recoverable.  The remaining balance ofBrazilian value added taxes receivable of $11.3 million is believed to berecoverable and has been classified as long term in other assets on theCondensed Consolidated Balance Sheet as of September 30, 2006.  Operating income for the nine months endedSeptember 30, 2006 also reflects $2.4 million of restructuring costs related tothe implementation of our global manufacturing initiatives compared to $0.2million during the nine months ended September 30, 2005.  The $1.6 million benefit recognized duringthe nine months ended September 30, 2005 related to the change in employeebenefit plans also contributed to the year over year reduction in operatingincome.  

Ourability to increase sales and operating income in the Broadband segment dependson whether we are able to pass raw material price increases along to ourcustomers, among other factors.

*Carrier Segment*

TheCarrier segment consists of secure environmental enclosures for electronicdevices and equipment, cables and components used by wireless providers toconnect antennae to transmitters and structured cabling solutions for telephonecentral offices. These products are primarily used by telecommunicationsservice providers or “carriers.”

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The Carrier segmentexperienced net sales growth for the three and nine months endedSeptember 30, 2006 over the comparable prior year periods primarily due tothe performance of the Integrated Cabinet Solutions (ICS) product group. TheICS business has rapidly expanded and reflects an increase in shipments relatedto Digital Subscriber Line (DSL) and other video and high-speed data servicesdeployments by telephone companies.

Sales of wireless andExchangeMAX products were lower for the three and nine months ended September30, 2006 compared to the comparable prior year periods.  The lower wireless product sales reflectweaker market conditions in the North American market and the lower ExchangeMAXsales result from our decision to exit the twisted pair central office cable productsbusiness.

The improvement in Carriersegment operating income for the three and nine months ended September 30, 2006over the comparable 2005 periods is primarily due to the higher sales volume ofICS products and the impact of cost reduction initiatives.  Operating income for the three and ninemonths ended September 30, 2006 included $0.4 million and $0.7 million ofrestructuring costs compared to $2.2 million and $3.6 million during the threeand nine months ended September 30, 2005, respectively.

While we expect sales ofCarrier products to be somewhat volatile since customer spending is mainlyproject-driven, we remain optimistic about our opportunities for the ICS andwireless product groups. Over the long term, we anticipate sales growth for ourICS product group, primarily due to video and high-speed data servicesdeployments and fiber-to-the-node construction activity.  Our ability to meet increased customer demandfor ICS products will depend on whether we have sufficient production capacitythrough our internal operations and contract manufacturing arrangements, amongother factors.  We also expect continuingexpansion in cellular telephone base stations, which provides growthopportunities for our wireless product group, though the rate of growth andproduct profitability may be adversely impacted by consolidation among wirelesscarriers, among other factors.

**LIQUIDITY AND CAPITAL RESOURCES**

**Cash Flow Overview**

Our principal sources ofliquidity, both on a short-term and long-term basis, are cash and cashequivalents, short-term investments, cash flows provided by operations andavailability under credit facilities. A reduction in sales and profitabilitycould reduce cash provided by operations and limit availability under creditfacilities. In addition, increases in working capital, excluding cash, cashequivalents and short-term investments, related to increasing sales couldreduce our operating cash flows in the short term until cash collections ofaccounts receivable catch up to the higher level of billings.
|                                                                                                                                | ** ** | **As of**         | ** ** | ** **            | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|------------|------------|
| ** **                                                                                                                     | ** ** | **September 30,** | ** ** | **December 31,** | ** ** | **Dollar** | ** ** | **%** | ** ** |
| ** **                                                                                                                     | ** ** | **2006**               | ** ** | **2005**              | ** ** | **Change** | ** ** | **Change** | ** ** |
| Cash, cash  equivalents and short-term investments                                                                             |       | $                      | 333.9      |                  | $          | 248.7      |       | $ | 85.2 |   | 34.3 | % |
| Working capital,  excluding cash, cash equivalents and short-term investments and current  portion of long-term debt |       | 277.2                  |       | 176.7                 |       | 100.5      |       | 56.9 |   |
| Long-term debt,  including current portion                                                                                     |       | 287.4                  |       | 297.3                 |       | (9.9       | )          | (3.3 | ) |
| Book capital  structure                                                                                                        |       | 984.7                  |       | 819.3                 |       | 165.4      |       | 20.2 |   |
| Long-term debt as a  percentage of book capital structure                                                                      |       | 29.2                   | %          | 36.3                  | %          |       |       |   |   |
|                                                                                                                                |            |                        |            |                       |            |            |            |  |  |  |  |  |

 

26

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The increase in cash,cash equivalents and short-term investments during the nine months endedSeptember 30, 2006 was primarily driven by $31.5 million of net cash flowsfrom operations, $49.0 million of proceeds from the exercise of stock optionsand the $29.8 million repayment of a note receivable from OFS BrightWave.  These inflows of cash were somewhat offset bycapital expenditures of $22.6 million and a $13.8 million investment to acquirethe MC2 75-ohm trunk and distribution cable televisionproducts business and certain other assets from Trilogy Communications, Inc.
|                                                                                                                                            | ** ** | **Nine Months Ended** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|------------|------------|------------|------------|
| ** **                                                                                                                                 | ** ** | **September 30,**          | ** ** | **Dollar** | ** ** | **%**      | ** ** |
| ** **                                                                                                                                 | ** ** | **2006**                        | ** ** | **2005**   | ** ** | **Change** | ** ** | **Change** | ** ** |
| Net cash  provided by operating activities                                                                                                 |       | $                               | 31.5       |       | $          | 55.8       |       | $ | (24.3 | ) | (43.5 | )% |
| Depreciation and  amortization                                                                                                             |       | 41.9                            |       | 45.5       |       | (3.6       | )          | (7.9 | ) |
| Increase in  working capital, excluding cash, cash equivalents and short-term  investments and current portion of long-term debt |       | 100.5                           |       | 54.2       |       | 46.3       |       | 85.4 |   |
| Capital expenditures                                                                                                                       |       | 22.6                            |       | 16.4       |       | 6.2        |       | 37.8 |   |
|                                                                                                                                            |            |                                 |            |            |            |            |            |  |  |  |  |  |

** **

**Operating Activities**

During the nine monthsended September 30, 2006, operating activities provided $31.5 million incash compared to $55.8 million during the comparable nine month period in2005.  During the nine months ended September 30,2006, net income of $103.0 million, less the $29.8 million pretax gain on OFSBrightWave note receivable, which is included in investing activities,depreciation and amortization of $41.9 million, and an increase in accountspayable and other accrued liabilities of $32.3 million were somewhat offset byan $88.3 million increase in accounts receivable and a $30.1 million increasein inventories. The increase in accounts receivable is primarily attributableto an increase in sales during the third quarter of 2006 over the fourthquarter of 2005.  Increases in rawmaterials costs and the higher inventory levels required to support greatervertical manufacturing integration are the primary drivers of the increase ininventory.

We expect to generate netcash from operations during 2006, primarily due to increased margins from salesof certain product groups and the impact of cost reduction efforts.

**Investing Activities**

On June 30, 2006, we received $29.8 million as arepayment of principal under our note receivable from OFS BrightWave.  This note was originally funded in 2001 inconjunction with our investment in OFS BrightWave.  

On March 6, 2006, we acquired certain assetssupporting the MC2 75-ohm trunk and distribution cable televisionproducts business and certain other assets from TrilogyCommunications, Inc. for a cash payment of $13.8 million.

We purchased $10.0 million of short-term investmentsecurities during the nine months ended September 30, 2006 compared with$1.0 million of purchases during the nine months ended September 30, 2005.

Investments in property, plant and equipment duringthe nine months ended September 30, 2006 increased by $6.3 millionyear-over-year to $22.6 million. The primary capital expenditures made duringthe first nine months of 2006 related to continuing investments to support costreduction initiatives and the expansion of our new manufacturing facility inAsia that will provide additional production capability.

We currently expect totalcapital expenditures to be $28 million to $31 million in 2006 compared to $19.9million in 2005. The expected increase in capital spending during 2006 isprimarily for cost reduction efforts and additional production capability,largely in Asia.

27

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**Financing Activities**

***The exercise of 3.47 million stockoptions during the nine months ended September 30, 2006 generated $49.0 millionof proceeds and $15.9 million from the tax benefits generated by such stockoption exercises.***

During the nine monthsended September 30, 2006, we reduced the principal balance of ouroutstanding long-term debt by $9.75 million in accordance with the scheduledmaturities outlined in our respective debt agreements and an additionalprincipal payment of $0.2 million as a result of the sale of certain equipment.

On June 7, 2006, wefiled a shelf registration statement for the issuance of common or preferredstock, senior or subordinated debt, convertible debt securities, warrantsexercisable for any of the foregoing, or any combination thereof. Thisregistration statement was automatically effective upon filing, pursuant to SECrules, and no securities have been issued under this registration statement.

**Future Cash Needs**

We expect that ourprimary future cash needs will be to fund working capital, capitalexpenditures, debt service and employee benefit obligations. We contributed$17.8 million to defined benefit pension and other postretirement benefit plansduring the nine months ended September 30, 2006 and expect to makeadditional contributions of approximately $1.2 million to such plans during2006. We expect that our noncurrent employee benefit liabilities will be fundedthrough cash flow from future operations. 

We believe that ourexisting cash, cash equivalents and short-term investments and cash flows fromoperations, combined with availability under our senior secured revolvingcredit facility, will be sufficient to meet our presently anticipated futurecash needs. We may, from time to time, borrow under our existing or a newcredit facility or issue securities, if market conditions are favorable, tomeet our future cash needs, to finance acquisitions or to reduce our borrowingcosts.

There were no materialchanges in our contractual obligations during the quarter endedSeptember 30, 2006.

**FORWARD-LOOKING STATEMENTS**

Certain statementsin this Form 10-Q that are other than historical facts are intended to be“forward-looking statements” within the meaning of the Securities Exchange Actof 1934, the Private Securities Litigation Reform Act of 1995 and other relatedlaws and include but are not limited to those statements relating to ourbusiness position, plans, outlook, revenues, earnings, margins, synergies andother financial items, restructuring plans, sales and earnings expectations,expected demand, cost and availability of key raw materials, internal andexternal production capacity and expansion, competitive pricing, relativemarket position and outlook. While we believe such statements are reasonable,the actual results and effects could differ materially from those currentlyanticipated. These forward-looking statements are identified by the use ofcertain terms and phrases including but not limited to “intend,” “goal,”“estimate,”  “expect,” “project,”“projections,” “plan,” “anticipate,” “should,” “designed to,” “foreseeablefuture,” “believe,” “think,” “scheduled,” “outlook,” “guidance” and similarexpressions.

These statements are subject to various risks anduncertainties, many of which are outside our control, including, withoutlimitation, changes in costand availability of key raw materials and our ability to recover these costsfrom our customers through pricing; the challenges of executing our previouslyannounced global manufacturing initiatives; customer demand for our productsand the ability to maintain existing business alliances with key customers ordistributors; the risk that our internal production capacity and that of ourcontract manufacturers may be insufficient to meet customer demand for ourproducts; the risk that customers might cancel orders placed or that orderscurrently placed may effect orders in the future; continuing consolidationamong our customers; competitive pricing and acceptance of our products;industry competition and the ability to retain customers through product innovation;possible production disruption due to supplier or contract manufacturerbankruptcy, reorganization or restructuring; successful ongoing operation ofour vertical integration activities; the possibility of further restructuringactions; possible future impairment charges for fixed or intangible assets;increased obligations under employee benefit plans; ability to achieve expectedsales, growth and earnings goals; ability to achieve expected benefits fromfuture acquisitions; costs of protecting or defending our intellectualproperty; ability to obtain capital on commercially reasonable terms; adequacyand availability of insurance; costs and challenges of compliance with domesticand foreign environmental laws; variability in effective tax rate and abilityto recover amounts recorded as value added tax receivables; product performanceissues and associated warranty claims; ability to successfully implement majorsystems initiatives; regulatory changes affecting us or the industries weserve; authoritative changes in generally accepted accounting principles bystandard-setting bodies;

28

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political instability; and any statements of beliefand any statements of assumptions underlying any of the foregoing. These andother factors are discussed in greater detail in Exhibit 99.1 to this Form10-Q. The information contained in this Form 10-Q represents our best judgmentat the date of this report based on information currently available. However,we do not intend, and are not undertaking any duty or obligation, to updatethis information to reflect developments or information obtained after the dateof this report.

**ITEM 3.**                    QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As disclosed inour Annual Report on Form 10-K for the year ended December 31, 2005,our major market risk exposure relates to adverse fluctuations in commodityprices, interest rates and foreign currency exchange rates. We have establisheda risk management strategy that includes the reasonable use of derivative andnonderivative financial instruments primarily to manage our exposure to thesemarket risks. We believe our exposure associated with these market risks hasnot materially changed since December 31, 2005. We have not acquired anynew derivative financial instruments since December 31, 2005 or terminatedany derivative financial instruments that existed at that date.

**ITEM 4.**                    CONTROLS ANDPROCEDURES

Ourdisclosure controls and procedures are designed to ensure that information****required to be disclosed in reports thatwe file or submit under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported within the time periods specified in therules and forms of the Securities and Exchange Commission. Our ChiefExecutive Officer and our Chief Financial Officer have reviewed theeffectiveness of our disclosure controls and procedures as of the end of theperiod covered by this report and have concluded that the disclosure controlsand procedures are effective.

There were no changes inour internal control over financial reporting during the three months endedSeptember 30, 2006 that have materially affected, or are reasonably likelyto materially affect, our internal control over financial reporting.

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**PART II—OTHER  INFORMATION**

**ITEM 1A.**           RISK FACTORS

See Exhibit 99.1 to this Form 10-Q.

**ITEM 6.**                    EXHIBITS
| 31.1 |   | Certification of Chief Executive Officer pursuant to  Rule 13a-14(a).                                                                                                                                                                                    |
|------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2 |   | Certification of Chief Financial Officer pursuant to  Rule 13a-14(a).                                                                                                                                                                                    |
| 32   |   | Certification of Chief Executive Officer and Chief  Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished pursuant to  Item 601(b)(32)(ii) of Regulation S-K). |
| 99.1 |   | Forward-Looking Information                                                                                                                                                                                                                                   |

 

**SIGNATURES**

Pursuant to the requirements of the Securities Exchange Actof 1934, the Registrant has duly caused this report to be signed on its behalfby the undersigned thereunto duly authorized.
|                   | COMMSCOPE,  INC.                                         |
|-------------------|----------------------------------------------------------|
|              |                                                     |
|              |                                                     |
| November 2,  2006 |                                                     | /s/  JEARLD L. LEONHARDT |
| Date              | Jearld L.  Leonhardt                                     |
|              | *Executive  Vice President and Chief Financial  Officer* |
|              | *signing both  in his capacity as Executive Vice*        |
|              | *President on  behalf of the Registrant and as*          |
|              | *Chief  Financial Officer of the Registrant*             |
|                   |                                                          |  |

 

30

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